2019 (5) TMI 1822 - Tri - Companies Law

Approval of the Scheme of Arrangement by way of Demerger - Sections 230 to 232 of the Companies Act, 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 and the National Company Law Tribunal Rules, 2016 - HELD THAT - Certificates of respective Statutory auditors of both the petitioner companies have been placed on record to the effect that Accounting Treatment proposed in the Scheme of Amalgamation is in conformity with the Accounting Standard notified by the Central Government as specified under the provisions of Section 133 of the Companies Act, 2013 - The shareholders of the applicant companies are the best Judges of their interest, fully conversant with market trends, and therefore, their decision should not be interfered with by Tribunal for the reason that it is not a part of judicial function to examine entrepreneurial activities and their commercial decisions. It is well settled that the Tribunal evaluating the Scheme of which sanction is sought under Section 230-232 of the Companies Act of 2013 will not ordinarily interfere with the corporate decisions of companies as approved by shareholders and creditors. Right to apply for the sanction of the Scheme has been statutorily provided under Section 230-234 of the Companies Act, 2013 and therefore, it is open to the applicant companies to avail the benefits extended by statutory provisions and the Rules - It has also been affirmed in the petition that the Scheme is in the interest of both the demerged company and the resulting company including their shareholders, creditors, employees and all concerned. Upon considering the approval accorded by the members and creditors of both the Petitioner companies to the proposed Scheme, and the no objection affidavits filed by the Regional Director, Northern Region, Ministry of Corporate Affairs, Official Liquidator and Income Tax Department and also as no objection from any quarter against the Scheme has been received; there appears to be no impediment in sanctioning the present Scheme. Scheme sanctioned - application allowed.

Summary

Issues:
Approval of Scheme of Arrangement under Sections 230-232 of the Companies Act, 2013 for Demerger of Companies.

Analysis:
The joint application filed by the Petitioner Companies sought approval for the Scheme of Arrangement involving the Demerger of the demerged undertaking into the Resulting Company under Sections 230 to 232 of the Companies Act, 2013. The Demerged Company, incorporated under the Companies Act, 1956, was to transfer its assets to the Resulting Company, incorporated under the Companies Act, 2013. The Tribunal had earlier dispensed with the meetings of Shareholders and Creditors of the petitioner companies. The Scheme was approved by the members present in the meeting. Subsequent compliance included publication in newspapers, serving notices to relevant authorities, and filing affidavits affirming compliance. Reports from the Regional Director, Official Liquidator, and Income Tax Department did not raise objections against the Scheme.

The Regional Director, Official Liquidator, and Income Tax Department submitted reports without objections to the Scheme. The Petitioners affirmed that no proceedings were pending against them, and the appointed date for the Scheme was specified. Statutory auditors confirmed the Accounting Treatment's conformity with relevant standards. The Tribunal emphasized that the shareholders' decisions should not be interfered with, as they are best judges of their interests. Citing legal precedent, the Tribunal's role was limited to ensuring fairness and legality of the Scheme, not to review commercial decisions approved by shareholders and creditors.

The Tribunal granted sanction to the Scheme under Sections 230 to 232 of the Companies Act, 2013, noting approval from members and creditors, along with no objections received. The Petitioners were directed to comply with statutory requirements. Any deficiencies or violations would not impede legal action against responsible individuals. The order did not exempt the Scheme from stamp duty, taxes, or other charges. The Tribunal ordered the transfer of assets, liabilities, duties, and employees from the Demerged Company to the Resulting Company, with provisions for employee continuity and compliance with registration requirements.

In conclusion, the Tribunal approved the Scheme, directing the transfer of assets and liabilities while emphasizing compliance with legal obligations. The order clarified that it did not grant exemptions from legal requirements and allowed interested parties to seek necessary directions from the Tribunal. The petition was disposed of, with the order to be served to the parties involved.