2015 (11) TMI 1144 - HC - Companies Law

Amalgamation - with a view to offset the losses being suffered by the transferee company, the profit making transferor companies are proposed to be amalgamated - Held that - From the background of the case pleaded by the petitioners, it is clearly evident that after the collapse of the eminent company, Satyam, which appeared to be promoter of the transferee company, a new management in which as many as nine public sector undertakings are holding shares has taken over MAYTAS company. The main purpose of the proposed amalgamation is to streamline the affairs of the companies by ensuring that all the 14 transferor companies which have stopped their activities are wound up. Therefore, ex facie this Court has no reason to doubt the bona fide nature of the scheme. If one of the reasons for the proposed amalgamation is tax planning, applying the settled legal position emanating from the above mentioned legal authorities, the scheme cannot be invalidated only on that ground. The intention of a party to reduce tax liability cannot be said to be contrary to public interest or against public policy. On the contrary, such planning by a tax payer is permissible in law. As regards the investigation stated to be pending against the transferee company, as the transferee company will continue to exist after amalgamation, the pendency of investigation would not affect public interest as it will continue to be liable for all legal actions that may be taken against it. In the light of the above, and as no objections/claims have been received in pursuance of the advertisement got published by the petitioners in the newspapers, this Court is of the opinion that the proposed scheme of amalgamation is in conformity with the provisions of the Act and that the same does not in any manner affect the interest of any of the stake holders, including the public. Therefore, the proposed scheme of amalgamation is sanctioned with effect from the appointed date, i.e., 01.4.2014. The petitioners shall cause a certified copy of this order to be delivered to the Registrar of Companies for the State of Telangana and the State of Andhra Pradesh, Hyderabad, within 30 days of its receipt and take all other consequential steps in pursuance of the approval of the scheme of amalgamation.

Issues Involved:
1. Sanction of the proposed scheme of amalgamation under Sections 391 and 394 of the Companies Act, 1956.
2. Objections raised by the Income Tax Department and the Regional Director.
3. Compliance with statutory requirements and public interest considerations.

Issue-wise Detailed Analysis:

1. Sanction of the Proposed Scheme of Amalgamation:

The petitions were filed by 14 transferor companies and one transferee company for the sanction of a proposed scheme of amalgamation under Sections 391 and 394 of the Companies Act, 1956. The transferor companies were engaged in various agricultural and land development activities, while the transferee company was involved in real estate and property development. The main objectives of the amalgamation were to enable appropriate consolidation of activities, achieve synergistic integration, financial strength, and efficiency in cash management, and reduce the multiplicity of entities. The Boards of Directors of all the companies approved the scheme, and meetings of shareholders and creditors were convened, where the scheme was approved by the requisite majority.

2. Objections Raised by the Income Tax Department and the Regional Director:

The Regional Director, based on a letter from the Income Tax Department, raised objections that the scheme was intended to offset the losses of the transferee company against the profits of the transferor companies, which could result in tax evasion. The Income Tax Department argued that the transferor companies had acquired lands at low costs and would realize huge profits from the development agreements with the transferee company. The Department suspected that the amalgamation was a strategy to set off profits against the transferee company's losses, thereby avoiding taxes.

In response, the petitioners argued that the Income Tax Department had no locus standi to object to the scheme. They contended that the scheme was intended to streamline the business and close inactive companies. They cited various judgments to support their argument that tax planning, as opposed to tax evasion, is permissible and cannot be a ground to decline the scheme.

3. Compliance with Statutory Requirements and Public Interest Considerations:

The court examined whether the scheme was fair, just, and reasonable, and whether it complied with legal provisions and public policy. The Supreme Court's principles in Miheer H. Mafatlal v. Mafatlal Industries Limited were considered, emphasizing that the court's role is supervisory and not appellate, and it should ensure that the scheme is not unconscionable, illegal, or unfair.

The court found that the proposed scheme was bona fide and not a sham. The new management, including several public sector undertakings, had taken over the transferee company after the collapse of its original promoter, Satyam. The main purpose of the amalgamation was to streamline the companies' affairs and close inactive entities. The court concluded that the scheme did not violate public interest or public policy and that tax planning was permissible.

Conclusion:

The court sanctioned the proposed scheme of amalgamation with effect from the appointed date, 01.04.2014. The petitioners were directed to deliver a certified copy of the order to the Registrar of Companies within 30 days and take all consequential steps. The company petitions were allowed, and the scheme was found to be in conformity with the provisions of the Companies Act, 1956, without affecting the interests of stakeholders or the public.

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