2013 (5) TMI 95 - HC - Companies Law

Sanction of the Scheme of Arrangement - petition under Sections 391 to 394 of the Companies Act, 1956 - objection of RD that there is no mention whether the Transferor companies have complied with the AS-14 issued by ICAI - Held that - As regards AS-14 the Petitioner companies have undertaken that to the extent that the Scheme deviates from AS-14, the Transferee company will make proper disclosures of such deviation in its profit and loss account and balance sheet in terms of Section 211 (3B) of the Act read with AS-14. Further it would be placed before the shareholders of Indus for adoption. In Hindalco Industries Limited (2009 (6) TMI 581 - HIGH COURT OF BOMBAY) as held that while approving a scheme, deviation from the AS per se could not be a ground to reject the scheme. This Court is satisfied with the undertaking given by the Petitioners to the above extent. Consequently, this objection of the RD does not survive. Objection concerns the shareholding of the Transferor companies in Indus - Held that - It seems that there is no change in the overall position of the assets in any of the shares in the Transferee company being issued to the Transferor companies in the same ratio as their contribution of the PIA. Further the PIA proposed to be contributed has been verified by an independent technical agency appointed by it. The explanation offered by the Petitioner companies that no valuation report is required is accepted and this objection of the RD is negatived. Objection concerning the transfer of licences from the Transferor companies to the Transferee company, i.e., Indus - Held that - Indus itself has registration as IP-I. Therefore, the question of transfer of registration of certificates from the Transferor companies to Indus does not arise. Further a perusal of the registration certificates shows that this is a complete compliance under the requirements of the Indian Telegraph Act, 1885. The change of name of the companies has also been duly recorded by the authority issuing the certificates. Thus there was no third party interest involved in the scheme of merger. The shareholders, secured and unsecured creditors had also given their written consents to the scheme and the share exchange ratio proposed therein, thus this objection of the RD also does not survive. Objection of the RD concerning the stand of PSIPL - Held that - , it requires to be noted that majority of the unsecured creditors approved the Scheme at a meeting convened for that purpose on 24th December 2011. The report of the Chairperson of the said meeting was perused by this Court and has been enclosed with the affidavit filed by the Petitioners. Indeed, when the requisite majority had approved the Scheme, the fact that one unsecured creditor had objected to it will not make a difference. It has been clarified by the Petitioners in the affidavit dated 11th April 2012 that Indus has no creditor by the name of KEPL however, it has a creditor by the name of Karamtara Engineering Private Limited ( Karamtara Engineering ) which served notice under the Act. The reply sent by Indus to Karamtara Engineering denying its claim has been enclosed with the affidavit and no further correspondence resulted from the said exchange. It is further submitted that Indus has a sound financial position and the Scheme has been approved by 99.892% in value of the unsecured creditors. In the circumstances, the above objection of the RD is negative. Objections of the ITD - no separate notice was issued in the petition to the Central Government as contemplated under Section 394A of the Act - Held that - for many years now the practice of the RD accepting notices in petitions under Sections 394A of the Act on behalf of both the MCA and the Central Government has had the statutory backing by way of the notifications issued under the Act. The very purport of the notification under Section 637 (1) of the Act is to obviate multiple notices having to be issued to different departments and Ministries of the Central Government. It is expected that the RD would seek instructions from the concerned departments and Ministries as regards the Scheme submitted for approval. Consequently, this Court rejects the contention of the ITD that the present petition cannot proceed for want of separate notice to the Central Government. Petitioner companies have suppressed the fact that the Petitioners 1 to 3 had entered into an Indefeasible Right to Use Agreement ( IRU Agreement ) with Indus in 2008 with an effective date of 1st January 2009 - Held that - The grant of sanction of the Scheme by way of the present judgment will not defeat the right of the ITD to take appropriate recourse for recovery of the previous liabilities of any of the Transferor companies or Transferee company. The proceedings arising out of the AOs passed against the Transferor companies or Transferee company will not be affected by the present judgment. In view of the above conclusions, this Court does not consider it necessary to deal with the objection of the Petitioner companies regarding the locus standi of the ITD to oppose the Scheme. Thus there appears to be no impediment to the grant of sanction to the Scheme as whole of the undertaking, the property, rights and powers with all the liabilities and duties of the Transferor companies shall be transferred to and vest in the Transferee company without any further act or deed. Upon the Scheme coming into effect, the Transferor companies shall stand dissolved without winding up & will not be construed as granting exemption from payment of stamp duty or taxes or any other charges, if payable in accordance with any law. The Petitioner companies will comply with the statutory requirements in accordance with law.

Summary

Issues Involved:
1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Compliance with Accounting Standards (AS-14).
3. Valuation report submission.
4. Transfer of licenses from Transferor companies to the Transferee company.
5. Objections from unsecured creditors.
6. Objections from the Income Tax Department (ITD).
7. Locus standi of the ITD to oppose the Scheme.

Detailed Analysis:

1. Sanction of the Scheme of Arrangement:
The petitioners, including Vodafone Infrastructure Limited (VIL), Bharti Infratel Ventures Limited (BIVL), Idea Cellular Towers Infrastructure Limited (ICTIL), and Indus Towers Limited (Indus), sought the court's sanction for a Scheme of Arrangement. The Scheme aimed to promote infrastructure sharing among telecommunications service providers, reflecting global trends and benefiting stakeholders by lowering operational costs and improving service quality.

2. Compliance with Accounting Standards (AS-14):
The Regional Director (RD) raised concerns about whether the petitioners complied with AS-14 issued by the Institute of Chartered Accountants of India (ICAI). The petitioners undertook to disclose any deviations from AS-14 in their financial statements as per Section 211 (3B) of the Companies Act, which was deemed satisfactory by the court.

3. Valuation Report Submission:
The RD objected to the absence of a valuation report. The petitioners clarified that the shareholding ratio was based on the proportion of Passive Infrastructure Assets (PIA) contributed by each Transferor company, verified by an independent technical agency. The court accepted this explanation, negating the need for a valuation report.

4. Transfer of Licenses:
The RD suggested that Indus should obtain approvals from the Department of Telecommunications (DoT) for transferring licenses. However, the court noted that none of the petitioner companies held telecom licenses, and all were registered as Infrastructure Provider Category-I (IP-I) with the DoT. Thus, the objection was deemed irrelevant.

5. Objections from Unsecured Creditors:
Prointeractive Services (India) Pvt. Ltd. (PSIPL) opposed the Scheme, but the court noted that the majority of unsecured creditors approved it. The objection from Karnataka Engineering Pvt. Ltd. (KEPL) was also addressed, with the petitioners clarifying that Indus had no creditor by that name. The court found the Scheme had overwhelming support from unsecured creditors, negating these objections.

6. Objections from the Income Tax Department (ITD):
The ITD argued that the Scheme and previous demerger schemes were interconnected and should be treated as a single transaction. The court acknowledged this but noted that any non-approval of parts of the Demerger Schemes would lead to corresponding modifications in the present Scheme. The ITD also sought to ensure its right to recover any tax liabilities from the petitioner companies. The court upheld the ITD's right to pursue tax liabilities, stating that the sanction of the Scheme would not impede the ITD's recovery actions.

7. Locus Standi of the ITD:
The issue of the ITD's locus standi to oppose the Scheme was raised but not deemed necessary to address in detail, given the court's conclusions on the substantive objections.

Conclusion:
The court granted sanction to the Scheme under Sections 391 to 394 of the Companies Act, subject to the final order in Company Appeal No. 63 of 2012. The Scheme's approval would not exempt the petitioner companies from compliance with statutory requirements, including stamp duty and taxes. The petition was allowed, with the Transferor companies' undertakings, properties, rights, and liabilities vesting in the Transferee company, leading to the dissolution of the Transferor companies without winding up.