2013 (7) TMI 189 - HC - Companies Law

Scheme of Demerger - application for recalling - Transferor company s application in the DoT for permission to transfer the NLD/ILD licences held by it to the Transferee company declined - Held that - Entire Scheme was made conditional upon the approvals being granted by the DoT for the transfer of the NLD and ILD licences from the Transferor company to the Transferee company. If that was not possible for reason of change in the eligibility criteria brought about after the sanction of the Scheme by the Court, then obviously the Scheme cannot be given effect to. The request by the Applicants that they should be permitted to revert to the position in which that were prior to the sanctioning of the Scheme cannot, therefore, be refused. As decided in Topworth Steels & Powers Pvt. Ltd. 2013 (7) TMI 48 - BOMBAY HIGH COURT if the Scheme approved by the Company Court, has for valid reasons, not been able to be given effect to, then the Company Court can again be approached under Section 392 (1) read with Section 392 (2) for passing appropriate orders to recall the order sanctioning Scheme. The plea of the RD that the right of the Applicant companies to file applications in the Court for approval of a Scheme of amalgamation or arrangement be restricted for a period of two years, cannot be countenanced for the simple reason that a statutory right of the parties to seek judicial remedies cannot be sought to be curtailed. The order passed by this Court on 28th March 2011 is recalled and the Company Petition No. 276 of 2010 is dismissed as withdrawn. - The present application is allowed with costs of Rs. 20,000 which will be paid to the Central Government by the Applicant companies within three weeks.

Summary

Issues:
Application for withdrawal of Company Petition under Section 392 of the Companies Act, 1956 due to failure in obtaining necessary approvals for a Scheme of Demerger.

Analysis:
1. The joint application by the Transferor and Transferee companies under Section 392 of the Companies Act, 1956 sought the withdrawal of the main Company Petition approved by the Court for a Scheme of Demerger. The Scheme was conditional upon obtaining approvals from regulatory authorities, including the Department of Telecommunications (DoT) and Reserve Bank of India.

2. The DoT rejected the request for transfer of licenses from the Transferor to Transferee company, leading to the decision by the companies to withdraw the application. The Regional Director advised that the Income Tax Department's views should be ascertained, and the companies' right to file similar applications should be restricted for two years.

3. The Senior Counsel for the Applicant companies argued that since the Scheme had not been implemented, there was no tax implication in withdrawing the petition. Reference was made to a Bombay High Court case allowing the recall of a sanctioned Scheme if it could not be given effect due to valid reasons.

4. The Court, citing the Bombay High Court case, acknowledged its inherent power to recall the order sanctioning the Scheme if the conditions for its effectiveness were not met. The Central Government had no objection to the withdrawal, subject to certain conditions, including ascertaining ITD's views and awarding costs.

5. The Court clarified that as the demerger had not taken effect, there was no tax angle involved. It emphasized that the ITD could take action in accordance with the law in the future. The plea to restrict the companies' right to file applications for two years was rejected as it infringed on their statutory remedies.

6. The Court allowed the application for withdrawal with costs to be paid to the Central Government. The previous order approving the Scheme was recalled, and the Company Petition was dismissed as withdrawn. The companies were directed to inform the ROC and withdraw the earlier communication related to the Court's order.

This detailed analysis covers the issues involved in the legal judgment regarding the withdrawal of a Company Petition under the Companies Act, 1956 due to the failure to obtain necessary approvals for a Scheme of Demerger.