2016 (2) TMI 758 - HC - Companies Law

Scheme of Arrangement in the nature of Demerger - Appointed Date - Held that - It is now settled law that it is open for a Company to propose any date as the appointed date, in its wisdom, and so long as the Scheme with a particular appointed date is approved by the members of the Company, the objections of the Regional Director may not be sustained. Accounting treatment proposed in the Scheme is not as per the accounting principles and apparently the accounting standard AS14 - With regard to the second observation the observation made by the Regional Director that the accounting treatment proposed in the Scheme is not as per the accounting principles and apparently accounting standard AS14, is based on the misconception and misreading of the said accounting standard. The plain reading of the said accounting standard makes it clear that AS14 would apply only in case of amalgamation and not in case of demerger as is envisaged in the present Scheme. Compliances of circulars of SEBI by the petitioner Demerged Company being listed with BSE and NSE - With regard to the third observation, the petitioner company has already made appropriate changes in the Scheme of Arrangement. A copy of the Scheme at AnnexureA to the petition, would show that the Scheme does contain the two observations as are quoted by the Regional Director in paragraph 2(f) of his report. The said observations are part of Clause 14 of the Scheme. As such, this observation is also not sustainable. Invitation of comments from the Income Tax Department - the report of the Regional Director, itself, shows that pursuant to the letter of the Regional Director, no adverse remarks, within the stipulated period of time, are received from the Income Tax Department. In the Circular date 15.1.2014 of the Ministry of Corporate Affairs, it is stipulated that if no response is received from the Income Tax Department within a period of fifteen days from the receipt of the notice by the Regional Director, it may be presumed that the Income Tax Department has no objection to the action proposed under Sections 391 to 394 of the Companies Act, 1956. In any case and without prejudice to the above, the petitioner companies submit that they would undertake the compliance of the Income Tax Act and Rules made thereunder. Thus this Court finds it appropriate to grant sanction to the present Scheme of Arrangement.

Summary

Issues:
1. Sanction of Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Directions for convening and holding meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors.
3. Dispensation of the meeting of Equity Shareholders for the Resulting Company.
4. Observations by the Regional Director regarding the Scheme.
5. Compliance with the observations and objections raised by the Regional Director.
6. Granting sanction to the Scheme of Arrangement.
7. Costs determination and compliance requirements post-sanction.

Analysis:
1. The petitions were filed under Sections 391 to 394 of the Companies Act, 1956, seeking the High Court's sanction for the Scheme of Arrangement, specifically the demerger of AAC BLOCK Division of Mohit Industries Limited into Bigbloc Construction Limited.
2. Orders were issued for holding meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors, which were unanimously approved as per Chairman Reports submitted by the Demerged Company.
3. The Resulting Company sought dispensation of the Equity Shareholders' meeting, which was granted by the Court based on the nature of the Resulting Company.
4. The Regional Director raised observations regarding the Scheme, including concerns about the Appointed Date, accounting treatment, SEBI circular compliance, and comments from the Income Tax Department.
5. Responses were filed addressing each observation, citing legal precedents and clarifying misconceptions, ensuring compliance with accounting standards and necessary changes in the Scheme.
6. After considering all submissions, the Court granted sanction to the Scheme of Arrangement, finding it appropriate based on the documents and representations provided.
7. The costs were determined, compliance requirements for lodging the order with the concerned authorities were specified, and directions were given for filing the order with the Registrar of Companies electronically and physically.
8. The petitions were disposed of, with dispensation of filing and issuance of drawn-up orders, allowing authorities to act on authenticated copies promptly.

This detailed analysis covers the key issues addressed in the judgment, highlighting the legal procedures followed, observations raised, responses provided, and the final outcome of sanctioning the Scheme of Arrangement.