2018 (11) TMI 1797 - Tri - Companies Law

Sanction of Amalgamation Scheme - Sections 230-232 of the Companies Act 2013 - HELD THAT - Presently in the instant case in relation to valuation, the shares of the Transferee Company being the only asset held by the transferor companies apart from cash and bank balance in the Transferor Companies the adoption of value of the said shares held in the transferee company for the valuation of shares of the Transferor Companies is only reasonable and proper. In this connection the Valuation Report of M/s.SSPA Co. Chartered Accountant a Fairness Opinion of M/S. Fortress Capital Management Services Pvt. Ltd being a Merchant Banker has also been obtained and produced in terms of the relevant clause in the Listing Agreement before this Tribunal and prior to it before SEBI as well which had approved in principle subject to compliance as already seen of the Scheme coming up for sanction and which was also asserted by the Counsel for SEBI present before the Tribunal during the proceedings. The equity shares of the listed public company i.e. Transferee Company are not proposed to be transferred and shall be held by the existing promoters held by them previously through the Transferor Companies 1 and 2 by virtue of the Scheme through the Irrevocable Family Trust - It is seen that based on the queries raised by SEBI as well as subsequent amendments respective Trust Deeds clearly shows that the shares are sought to be retained within the family as it was done previously as well prior to such transfers and not otherwise as sought to be portrayed by the Income Tax. If the Tribunal is inclined to sanction the Scheme then protection be afforded at the very least to the Income Tax in relation to the transactions preceding and subsequent to the sanction and their being no serious objections to it on the part of petitioner companies which is also reflected in the rejoinder filed by them to the reply filed of the Income Tax Department and also taking into consideration the clauses contained in the Scheme in relation to liability to tax and also as insisted upon by the Income Tax - the petition stands allowed and the scheme of amalgamation is sanctioned.

Issues Involved:
1. Scheme of Amalgamation
2. Transfer and Vesting of Assets
3. Transfer of Employees
4. Issuance of Equity Shares
5. Statutory and Regulatory Compliance
6. Objections by Income Tax Department
7. Jurisdiction and Parameters for Sanctioning the Scheme

Issue-wise Detailed Analysis:

1. Scheme of Amalgamation:
The Scheme of Amalgamation involves the transfer and vesting of two Amalgamating Companies into an Amalgamated Company on a going concern basis. The rationale behind the scheme includes simplification of the shareholding structure, reduction of shareholding tiers, and streamlining the Promoters' shareholding in the Amalgamated Company.

2. Transfer and Vesting of Assets:
Upon the Scheme becoming effective, all assets and properties of the Amalgamating Companies will stand transferred to and be vested in the Amalgamated Company. This includes immovable and movable assets, registrations, goodwill, licenses, contracts, deeds, bonds, agreements, and pending suits or proceedings.

3. Transfer of Employees:
All employees of the Amalgamating Companies as of the Effective Date will become employees of the Amalgamated Company on terms and conditions no less favorable than their current engagement, without any interruption of service.

4. Issuance of Equity Shares:
The Scheme provides for the issuance of Equity Shares by the Amalgamated Company to the shareholders of the Amalgamating Companies in specified proportions. Additionally, all Equity Shares held by the Amalgamating Companies in the Amalgamated Company will stand canceled upon the Scheme becoming effective.

5. Statutory and Regulatory Compliance:
Meetings of equity shareholders and unsecured creditors were held as directed, and the Scheme received approval from the shareholders and creditors. The Scheme was also subject to compliance with statutory and regulatory requirements, including those from SEBI, NSE, and BSE, which granted 'no adverse observations.'

6. Objections by Income Tax Department:
The Income Tax Department raised objections, alleging that the Scheme was a device to evade tax liabilities. They contended that the transactions preceding the Scheme were structured to avoid capital gains tax and other tax liabilities. The petitioner companies countered these objections, asserting that the Scheme aimed at simplifying the shareholding structure for succession planning and that the transactions were disclosed and approved by SEBI.

7. Jurisdiction and Parameters for Sanctioning the Scheme:
The Tribunal considered the jurisdiction and parameters for sanctioning the Scheme, particularly when objections are raised by the Income Tax Department. The Tribunal referenced the decision in Vodafone Essar Limited, emphasizing that the onus is on the Income Tax Department to establish that the Scheme is solely a vehicle for tax evasion. The Tribunal concluded that the objections raised by the Income Tax Department were hypothetical and not convincingly demonstrated.

Conclusion:
The Tribunal sanctioned the Scheme of Amalgamation, noting that all procedural compliances were met, and the Scheme received requisite approvals from shareholders, creditors, and regulatory authorities. The Tribunal also provided protection to the Income Tax Department concerning any tax liabilities arising from the transactions preceding and subsequent to the sanction of the Scheme. The order clarified that it does not grant exemption from payment of stamp duty, taxes, or other charges.

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