2011 (4) TMI 1021 - HC - Companies Law

Petitions to sanction the scheme of amalgamation - objection raised by the Revenue Department is that as per the assessment for the year 2008-09 completed on December 31, 2010, a demand of 487.46 crores is raised against M/s. Essar Telecommunication Holding Ltd. (ETHL) - also stated that the transferor company is wholly owned subsidiary company of M/s. Essar Teleholdings Ltd., and therefore because of the demand on M/s. Essar Teleholdings Ltd., for the assessment year 2008-09, the scheme be not approved. The objection is also raised that the scheme is being objected to by M/s. Vodafone International BV - no claim against the transferor or transferee company and the demand against the holding company, has also been stayed by the appellate authority, objections of the Income-tax Department to the scheme of amalgamation are therefore rejected. Locus Standi of other person raising objection - Only objection which may be raised by any person in response to notice can be with respect to the legality of the scheme or it being in violation of any law - in the absence of violation of substantial law, merely because certain rights of third party are going to be affected, cannot be a ground to permit third party to file objection to the scheme, once the scheme is as per statutory provisions of sections 391 to 394 of the Companies Act and approved by majority - objection of the petitioner with regard to the locus standi of M/s. Vodafone International, to file objection is therefore upheld, and it is held that M/s. Vodafone International B. V., has no locus standi to file objection, against the scheme of amalgamation - scheme of amalgamation being beneficial to both the transferor and transferee companies, its shareholders and its creditors, these company petitions are ordered

Summary

Issues Involved:
1. Sanctioning the scheme of amalgamation between M/s. Essar Telecommunication Holdings P. Ltd. and M/s. India Securities Ltd.
2. Objections raised by the Income-tax Department.
3. Objections raised by M/s. Vodafone International BV.
4. Locus standi of M/s. Vodafone International BV to file objections.

Detailed Analysis:

1. Sanctioning the Scheme of Amalgamation:
The petitions were filed by M/s. Essar Telecommunication Holdings P. Ltd. (transferor company) and M/s. India Securities Ltd. (transferee company) to sanction a scheme of amalgamation effective from April 1, 2010. The scheme aimed at better management, unlocking value, and creating liquidity for shareholders. It involved the transfer of the entire undertaking of the transferor company to the transferee company. The board of directors of both companies approved the scheme on June 4, 2010. The scheme included specific provisions for the allotment of shares to the equity shareholders and debenture holders of the transferor company. The scheme was claimed to be beneficial for both companies, their shareholders, creditors, and the public interest.

2. Objections Raised by the Income-tax Department:
The Assistant Commissioner of Income-tax Circle 5(1), Mumbai, raised objections citing a demand of Rs. 487.46 crores against M/s. Essar Teleholdings Ltd. for the assessment year 2008-09. The court noted that there was no claim against the transferor or transferee company and that the demand against the holding company had been stayed by the appellate authority. Therefore, the objections of the Income-tax Department were rejected.

3. Objections Raised by M/s. Vodafone International BV:
M/s. Vodafone International BV raised several objections, including the valuation report's accuracy, the suppression of material facts, and the scheme's potential adverse impact on Vodafone Essar Ltd. They argued that the scheme was void under SEBI regulations and influenced the fair market value determination under the "FMV put option" agreement. The court noted that the objections regarding valuation had been addressed in the official liquidator's report. The court also observed that the scheme had been approved by the shareholders of the transferee company in a meeting held under the chairman appointed by the court.

4. Locus Standi of M/s. Vodafone International BV to File Objections:
The court upheld the preliminary objection raised by the petitioner-companies regarding the locus standi of M/s. Vodafone International BV. The court referred to the judgment of the Bombay High Court in the case of Sequent Scientific Ltd., In re, which held that only creditors and shareholders could object to a scheme of amalgamation. The court also referred to the Supreme Court's judgment in S. K. Gupta v. K. P. Jain, which distinguished between sections 391 and 392 of the Companies Act, 1956. The court concluded that M/s. Vodafone International BV, being neither a shareholder nor a creditor, had no locus standi to file objections against the scheme of amalgamation.

Conclusion:
The scheme of amalgamation was found to be beneficial to both the transferor and transferee companies, their shareholders, and creditors. The court sanctioned the scheme of amalgamation, rejected the objections raised by the Income-tax Department and M/s. Vodafone International BV, and upheld the preliminary objection regarding the locus standi of M/s. Vodafone International BV. The remuneration for the Additional Central Government Standing Counsel was fixed at Rs. 5,000 for each petition, to be paid by the petitioner-companies.