2016 (7) TMI 411 - HC - Companies Law

Scheme of Amalgamation - Held that - Since the affidavit of the RD and the report of the OL indicate that the affairs of the transferor company No.1 and 2 are not carried out in a manner prejudicial to its member or the public, the scheme can be sanctioned, with a caveat, that the transferor companies will move applications for their dissolution, albeit, without winding up within 30 days of the effective date . In this behalf, intend to append an additional condition, which is, that an advance notice of the applications will be served on both, the RD and the OL. The OL, in particular, upon receipt of the application will file a fresh report with this Court indicating therein as to whether the affairs of the transferor companies continue to be conducted in a manner which is neither prejudicial to the interest of its members or, the public. Having regard to the aforesaid discussion and given the fact, as indicated above, the equity share holders and the secured creditors of the petitioners have approved the scheme, scheme sanctioned.

Summary

Issues Involved:
1. Sanction of the Scheme of Amalgamation.
2. Concerns raised by the Regional Director (RD).
3. Compliance with statutory requirements under the Companies Act, 1956.
4. Determination of the appointed date and effective date.
5. Share-exchange ratio.
6. Dissolution of transferor companies without winding up.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petitions were filed to seek the sanction of a Scheme of Amalgamation involving Equitas Micro Finance Limited (transferor no. 1), Equitas Housing Finance Ltd. (transferor no. 2), and Equitas Finance Ltd. (transferee company). The scheme envisages the merger of transferor companies with the transferee company. The court noted that the scheme was placed and approved by the respective Board of Directors on 26.11.2015 and that the equity shareholders and secured creditors had given their consent to the scheme.

2. Concerns Raised by the Regional Director (RD):
The RD raised concerns about the scheme, particularly regarding the appointed date, effective date, share-exchange ratio, and the dissolution of transferor companies. The RD's affidavit noted that the petitioner companies were regular in filing statutory returns and had no pending prosecutions or investigations. The RD's primary concerns were:
- The appointed date and effective date being tied together without a clear date.
- The share-exchange ratio being determined based on the book value of shares on the effective date.
- The provision for the dissolution of transferor companies on the 30th day from the effective date.

3. Compliance with Statutory Requirements under the Companies Act, 1956:
The court examined Section 394 of the Companies Act, 1956, which provides the necessary leeway for sanctioning schemes of amalgamation. The court noted that the exercise of power is subject to two provisos: receiving a report from the Registrar of Companies that the affairs of the company are not prejudicial to members or public interest, and a report from the Official Liquidator (OL) confirming that the affairs of the company are not prejudicial.

4. Determination of the Appointed Date and Effective Date:
The scheme defined the appointed date as the effective date, which was the working day preceding the commencement of business by the proposed Small Finance Bank (SFB). The court acknowledged that the commencement of business was dependent on the issuance of a banking license by the RBI, which in turn depended on the sanctioning of the scheme. The court agreed with the petitioners' submission that the scheme could be sanctioned with reliance on the provisions of the 1956 Act regarding the appointed date and effective date.

5. Share-exchange Ratio:
The determination of the share-exchange ratio was to be based on the book value method as of the effective date. The court found that since the effective date was linked to the commencement of business by the SFB, determining the share-exchange ratio on that date should not present any difficulty.

6. Dissolution of Transferor Companies without Winding Up:
The court considered whether the dissolution of transferor companies could be deferred to the 30th day from the effective date or if separate applications for dissolution could be filed within 30 days of the effective date. The court noted that with amalgamation, the transferor companies cease to exist, but the actual date of amalgamation could be delayed until necessary prerequisites were fulfilled. The court sanctioned the scheme with the condition that transferor companies move applications for dissolution within 30 days of the effective date, with advance notice to the RD and OL. The OL would file a fresh report indicating whether the affairs of the transferor companies continued to be conducted in a manner not prejudicial to members or the public.

Conclusion:
The court granted the prayers set out in the petitions, subject to compliance with the conditions stipulated, including the filing of applications for dissolution of transferor companies within 30 days of the effective date and adherence to the terms of the scheme. The order did not exempt the petitioners from any tax, charge, duty, or cess that may be payable.