2018 (8) TMI 2052 - Tri - Companies Law

Seeking sanction to the Scheme of Arrangement - Sections 230 and other relevant provisions of the Companies Act, 2013 - HELD THAT - From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public interest or public policy - Since all the requisite statutory compliances have been fulfilled, Transfer Company Scheme Petition filed by the Petitioner Company is made absolute. The scheme is approved, subject to conditions imposed - application allowed.

Summary

Issues Involved:
1. Compliance with Sections 230 and 123 of the Companies Act, 2013, and related rules.
2. Validity and legality of the Scheme of Arrangement.
3. Observations and objections raised by the Regional Director (RD) and Registrar of Companies (ROC).
4. Public interest and shareholder benefits.
5. Compliance with accounting standards and statutory requirements.

Detailed Analysis:

Compliance with Sections 230 and 123 of the Companies Act, 2013:
The Petitioner Company sought sanction for a Scheme of Arrangement under Sections 230 and other relevant provisions of the Companies Act, 2013. The Scheme proposed the reclassification of ?2,187.33 crores from General Reserves to the Profit and Loss Account, to be treated as accumulated profits for previous financial years. The Advocate for the Petitioner Company clarified that this reclassification is not prohibited by any provision of the Companies Act, 2013, or any other law. The Scheme was approved by the Board of Directors and a majority of equity shareholders, as required by the Act.

Validity and Legality of the Scheme of Arrangement:
The Scheme was designed to provide greater flexibility for the utilization of excess reserves, which were deemed more than necessary for the company's operational needs. The Petitioner Company argued that the Scheme is not a method to circumvent Section 123 or the 2014 Rules, as it does not involve the payment of dividends from the General Reserves directly but rather reclassifies these reserves as accumulated profits. The Tribunal found the Scheme to be fair, reasonable, and compliant with the law.

Observations and Objections Raised by RD and ROC:
The RD and ROC raised several objections, including:
- The Scheme circumventing Section 123 and the 2014 Rules.
- The Scheme not constituting an "arrangement" under the Act.
- The Scheme being incomplete and hypothetical.
- Lack of transparency and good governance.
- Violation of specific sections of the Companies Act, 2013.

The Petitioner Company responded by explaining that the Scheme is an arrangement between the company and its members, which is permissible under Sections 230-232 of the Companies Act, 2013. The term "arrangement" is broadly defined and includes the proposed reclassification. The Petitioner Company also provided a certificate from its auditor confirming compliance with accounting standards and SEBI regulations.

Public Interest and Shareholder Benefits:
The Tribunal considered whether the Scheme was in the public interest. The Petitioner Company argued that the Scheme does not harm public interest and benefits shareholders, including public shareholders, by allowing for potential payouts from the reclassified reserves. The overwhelming approval by shareholders further supported this claim. The Tribunal directed the company to obtain shareholder approval for any outflow exceeding ?100 crores, other than as dividends, to ensure transparency and accountability.

Compliance with Accounting Standards and Statutory Requirements:
The Petitioner Company provided assurances and documentation to demonstrate compliance with all statutory requirements, including accounting standards and tax obligations. The Tribunal was satisfied with these assurances and the company's track record of compliance and financial prudence.

Conclusion:
The Tribunal found the Scheme to be fair, reasonable, and compliant with the law. It directed the Petitioner Company to comply with all applicable tax laws and obtain shareholder approval for significant outflows. The Scheme was sanctioned, and the Petitioner Company was instructed to file the necessary documents with the relevant authorities.

Orders:
1. The Scheme is sanctioned as per prayer clauses (a) and (b).
2. The Petitioner Company must lodge a copy of the order with the Collector of Stamps within 60 days.
3. The Petitioner Company must file a copy of the order with the Registrar of Companies electronically within 30 days.
4. The Petitioner Company must pay costs of ?25,000 to the RD within four weeks.
5. All concerned authorities are to act on the certified copy of the order and the sanctioned Scheme.