2015 (3) TMI 415 - HC - Companies Law

Application for the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 - Regional Director observations regarding Securities Premium Account, Temporary employees, Placing on record the details of meetings of the secured creditors and unsecured creditors,Regarding the appointment date,Change in name of company and regarding NBFC activity - Submitted that Section 211(3B) of the Companies Act, 1956 provides that if the practice adopted for such accounting entry, varies from the said standard, necessary disclosure should be made in the financial statements. The Transferee company hereby undertakes that in case of deviation from the aforesaid Accounting Standard or Practice, the Transferee company shall make necessary disclosures in its First Financial Statement after the Scheme is made effective and also that the petitioner companies shall comply with the necessary Accounting Principles. Further submitted that the employees other than permanent employees that are employed by the Transferor companies are as per the contractual obligations and therefore cannot be absorbed by the Transferee company as the validity of the contract is for a specific period. In any case, the employees other than the permanent employees are automatically covered under the Scheme as all the contracts entered into by the Transferor companies which are valid as on the effective date shall be binding on the Transferee company and therefore, this becomes an automatic absorption of all the employees other than permanent employees by the Transferee company. Further submitted that the proposed Scheme does not envisages any compromise or agreement with the Secured Creditors and/or Unsecured Creditors of the Transferee company. The Transferee company shall continue to exist and carry on its commercial activities even after the Scheme is made effective. It was submitted that Clause 19 of the Scheme relates to the Change in the Name of the Company on approval of the Scheme by this Court. The petitioner companies undertake to comply with the relevant provisions of the new Companies Act, 2013 and rules thereto for Change in the Name of the Transferee company upon Scheme coming into effect. It was submitted that as the petitioner Transferee company is still engaged in the business of manufacturing and trading of pharmaceutical products as mentioned in the Memorandum of Association, the same is not ultra vires of the Memorandum of Association and also the Company will not be covered in the category of NBFC as more than 50% of the total income has been derived our of sale of pharmaceutical products. In view of above, all the observations and comments by the Regional Director made in respect of the Scheme in question have been explained and/or met with and/or do not sustain. The necessary report is produced by the official liquidator. Furthermore, from the material on record and perusal of the Scheme, the Scheme appears to be fair and reasonable and is not in violation of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the Scheme except as mentioned above. All requisite statutory compliances are fulfilled. - Scheme of amalgamation approved.

Issues Involved:
1. Sanction of the Scheme of Arrangement in the nature of Amalgamation.
2. Accounting entries/adjustments as per the Scheme.
3. Absorption of employees of Transferor companies by the Transferee company.
4. Convening meetings of Secured and Unsecured Creditors.
5. Selection of the Appointed Date.
6. Compliance with Change in the Name.
7. Activities of the Transferee company being ultra vires of the Memorandum of Association.
8. Compliance with Income Tax provisions.
9. Preservation of books of accounts and records.

Detailed Analysis:

1. Sanction of the Scheme of Arrangement in the nature of Amalgamation:
The petitions were filed by three companies seeking sanction of the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956. The Scheme involves Sava Healthcare Limited and Sava Private Limited (Transferor Companies) merging with Anagha Pharma Private Limited (Transferee Company). The Scheme was approved unanimously by the meetings of the Secured and Unsecured Creditors, and no objections were raised post-publication.

2. Accounting entries/adjustments as per the Scheme:
The Regional Director raised concerns regarding accounting entries, specifically the creation of a Securities Premium Account and its treatment as Amalgamation Reserve Account. The petitioner companies clarified that the accounting treatment is in accordance with the "Purchase Method" of accounting as per Accounting Standard-14 and undertook to make necessary disclosures in case of deviations. This issue was settled by referencing precedents from various High Courts.

3. Absorption of employees of Transferor companies by the Transferee company:
The Regional Director's observation about absorbing permanent employees was addressed by stating that all employees, including those under contractual obligations, would be automatically absorbed by the Transferee company as per the Scheme. The Transferee company undertook to absorb all employees upon the Scheme's effect, negating the need to amend any clause.

4. Convening meetings of Secured and Unsecured Creditors:
The Scheme did not envisage any compromise with the Creditors of the Transferee company, and no objections were raised by the Creditors post-publication. The court referenced the judgment in Union of India Vs Ambalal Sarabhai Enterprise to support the non-requirement of such meetings, thus negating the Regional Director's contention.

5. Selection of the Appointed Date:
The Appointed Date of 01st April, 2012, was chosen by the Board of Directors and approved by the shareholders of the petitioner companies. The court found no legal bar on selecting the Appointed Date, and it was deemed an administrative exigency, negating the Regional Director's observation.

6. Compliance with Change in the Name:
Clause 19 of the Scheme pertains to the Change in the Name of the Transferee company upon the Scheme's approval. The petitioner companies undertook to comply with the relevant provisions of the Companies Act, 2013, and rules for the Change in the Name.

7. Activities of the Transferee company being ultra vires of the Memorandum of Association:
The Regional Director's observation about the company being categorized as an NBFC due to its income sources was addressed. The Transferee company's income was predominantly from the sale of pharmaceutical products, not investment activities. The Scheme's design would replace investment income with revenue from pharmaceutical business, thus aligning with the Memorandum of Association.

8. Compliance with Income Tax provisions:
The Regional Director noted no response from the Income Tax Department, implying no objections. The petitioner companies agreed to comply with the applicable provisions of the Income Tax Act and rules.

9. Preservation of books of accounts and records:
The Official Liquidator requested the Transferor Companies to preserve their books of accounts and records. The court ordered that the Transferor Companies shall not dispose of or destroy their books without prior consent from the Central Government.

Conclusion:
The court found the Scheme of Arrangement in the nature of Amalgamation to be fair, reasonable, and compliant with legal provisions. The Scheme was sanctioned, and the petitioner companies were directed to comply with procedural requirements, including filing and preserving relevant documents. The petitions were allowed and disposed of accordingly.

← Previous Next →