2017 (5) TMI 440 - Tri - Companies Law

Scheme of Demerger - Held that - The accounting treatment seems to be in conformity with the established accounting standards. In short, there is no apprehension that any creditors of the demerged company or resulting company would lose or be prejudiced as a result of the proposed Scheme being sanctioned. The arrangement of demerger will, in no way, cost any additional burden on the shareholders of any of the companies involved in the Scheme and also it will not prejudicially affect the interest of any classes of the creditors. We do not feel that there is any requirement of any modification in the Scheme. Hence, the Company Petition is allowed and the said Scheme under reference is hereby sanctioned. This Scheme shall be binding on the Transferor Company, Transferee Company and secured & unsecured creditors both. The Petitioner Companies to the Scheme or other persons interested, shall be at liberty to apply to this Bench for any direction that may be necessary in regard to the working of the said Scheme. Accordingly, the Order of sanction of this Scheme shall be prepared by the Registry as per the format provided under the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Petitioner Companies shall file with the Registrar of Companies a certified copy of this Order within 30 days from the date of receipt of copy of the order.

Summary

Issues Involved:
1. Sanction of the Scheme of Arrangement for Demerger.
2. Approval of the Scheme by creditors and shareholders.
3. Objection by the Regional Director, Ministry of Corporate Affairs.
4. Compliance with legal requirements and accounting standards.
5. Binding nature of the Scheme on all parties involved.

Detailed Analysis:

1. Sanction of the Scheme of Arrangement for Demerger:
The Petitioner Company filed C.P. No. 17 of 2017 under Sections 230 to 240 of the Companies Act, 2013, seeking relief to sanction the Scheme of Arrangement for demerging its Ports Business to "Marine Infrastructure Developer Private Ltd." The primary grounds for seeking sanction include synergies of operation, increased operational efficiency, internal economies of scale, organizational efficiencies, reduction in overheads, optimum utilization of resources, and maximization of profitability. The demerger is also in the public interest and beneficial to stakeholders, ensuring that the financial strength enables leverage and resource raising at competitive rates.

2. Approval of the Scheme by creditors and shareholders:
The Board of Directors of both the transferor and transferee companies approved the Scheme on 22.07.2016. The transferor company filed an auditor's certificate listing the outstanding values of secured and unsecured creditors. The secured creditors, IDBI Trusteeship Service Ltd. and State Bank of India, holding 81.09% and 18.91% of the credit respectively, approved the Scheme via consent affidavits. Unsecured creditors holding 96.4% of the equity value also approved the Scheme. The shareholders of the transferor company, including M/s. Larson & Toubro Ltd. and TN Industrial Development Corporation Ltd., along with six nominee shareholders, provided unconditional consent and approval.

3. Objection by the Regional Director, Ministry of Corporate Affairs:
The Regional Director objected to dispensing with the meeting of shareholders, emphasizing the importance of corporate democracy and participation in decision-making. However, referencing the Delhi High Court's decision in Mazda Theatres (P.) Ltd. v. New Bank of India Ltd., the Tribunal concluded that substantial compliance with the requirement of a meeting, through unanimous consent of shareholders, was sufficient. The Deputy Commissioner of Income Tax, Corporate Circle-4(1), Chennai, raised no objections, and no other stakeholders presented objections.

4. Compliance with legal requirements and accounting standards:
The Scheme's salient features include the mechanics of the demerger, re-organization of share capital, accounting treatment, and continuation of legal proceedings. The accounting treatment for both the Demerged and Resulting Companies complies with established accounting standards. The Demerged Company will record the deletion of assets and liabilities transferred to the Resulting Company, adjusting any differences to the profit and loss account. The Resulting Company will record the assets and liabilities at fair values, crediting any surplus to the reserve account or debiting any deficit to goodwill.

5. Binding nature of the Scheme on all parties involved:
The Tribunal concluded that the Scheme would not adversely affect the rights and interests of any creditors or stakeholders. The demerger would not impose any additional burden on shareholders or prejudicially affect any class of creditors. Consequently, the Scheme was sanctioned and declared binding on the Transferor Company, Transferee Company, and all secured and unsecured creditors. The Petitioner Companies were directed to file a certified copy of the order with the Registrar of Companies within 30 days.

Conclusion:
The Tribunal sanctioned the Scheme of Arrangement for Demerger, ensuring compliance with legal requirements and safeguarding the interests of all stakeholders. The Scheme's approval was based on unanimous consent from shareholders and substantial compliance with statutory provisions. The Tribunal's order binds all parties involved, facilitating the smooth execution of the demerger.