2012 (6) TMI 312 - HC - Companies Law

Sanction to a Scheme of Arrangement in the nature of Amalgamation - certain disclosures not in consonance with AS-14 and directions to change the Appointed Date- the petitioner Transferor Company is a wholly owned subsidiary of the Transferee Company - Held that - The compliance of the AS-14, if not made while passing the accounting entries, the petitioner hereby undertakes to abide by the directions that the Court may issue with regard to the said disclosures to be made in the first financial statements of the Transferee Company after the Scheme being sanctioned - in order to meet the working capital requirements and other financial requirements, both the companies have provided the consolidated financial results since 1st January 2008 to various banks for availing their facilities, it has been specifically asserted by the petitioner Company that since both the companies have been profit making companies, the scheme sanctioned with Appointed Date of 1st April 2008 shall not result in any special tax benefit to the company or any loss of revenue to the Government, thus it is not necessary to issue the directions to change the Appointed Date - Present scheme of arrangement is in the interest of its stakeholders viz. Shareholders, Creditors as well as in the public interest as amalgamation is proposed to achieve synergic benefits, administrative convenience and economies of scale and the same deserves to be sanctioned.

Summary

Issues:
Petition for sanction of a Scheme of Arrangement for Amalgamation under Sections 391 and 394 of the Companies Act, 1956.

Analysis:
1. The petitioner, Transferor Company, sought sanction for the amalgamation with the Transferee Company, highlighting that the Share Capital Structure of the Transferee Company would not change post-amalgamation, ensuring no impact on shareholders' rights. Separate proceedings for the Transferee Company were dispensed with based on this contention.

2. The petition detailed the commercial activities of both companies, where the Transferor Company primarily engaged in stockbroking and consultancy, while the Transferee Company was also involved in stockbroking, both being profitable entities. The proposed amalgamation aimed at achieving synergic benefits, administrative ease, and economies of scale, benefiting shareholders, creditors, and investors.

3. Meetings of shareholders and creditors were held, with the scheme receiving unanimous approval. The petition was admitted, and due notices were published in newspapers, with no objections received. The Official Liquidator confirmed that the Transferor Company's affairs were not prejudicial, directing the preservation of records for 8 years post-amalgamation.

4. The Central Government raised concerns regarding accounting treatment and the Appointed Date. The petitioner addressed these issues, undertaking to comply with necessary disclosures and justifying the chosen Appointed Date of 1st April 2008. The Court found the scheme to be in stakeholders' interest and public interest, sanctioning the arrangement.

5. The Court granted the prayers of the Transferor Company, disposing of the petition and quantifying costs to be paid to the Central Government Standing Counsel and the office of the Official Liquidator for the Transferor Company at Rs.7,500 each.