2017 (5) TMI 924 - HC - Companies Law

Scheme of Amalgamation - Held that - Considering all the relevant facts, the procedural requirements contemplated under Sections 391 to 394 of the Act, the relevant Rules and on due consideration of the reports of the Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi and the Official Liquidator and the separate reply(s) thereto by way of affidavits of the Authorised Signatory of the Petitioner-Companies, the Scheme of Amalgamation is hereby sanctioned and as a result thereof, the assets and liabilities relating to the Transferor Company/Petitioner Company-I shall stand vested in the Transferee Company/Petitioner Company-II and the Transferor Company/Petitioner Company-I shall be dissolved without being wound up. The Petitioner-Companies shall comply with all the applicable Accounting Standards upon sanctioning of the Scheme or any other undertaking made by the Petitioner-Companies. The Scheme shall be binding on the Petitioner-Transferor and Transferee Companies, their respective shareholders, creditors and all concerned. Let formal order of sanction of the Scheme be drawn in accordance with law and its certified copy be filed with the Registrar of Companies within 30 days from the date of receipt of the same. A notice of the order be published in the newspapers, namely, Indian Express (English), Jansatta (Hindi) both Delhi/NCR Edition and in the Official Gazette of Government of Haryana.

Summary

Issues Involved:

1. Sanctioning of the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956.
2. Observations and objections raised by the Regional Director, Ministry of Corporate Affairs.
3. Observations and objections raised by the Official Liquidator.
4. Compliance with Accounting Standards and statutory requirements.
5. Continuation of employees and legal proceedings post-amalgamation.

Issue-wise Detailed Analysis:

1. Sanctioning of the Scheme of Amalgamation:
The petition was filed under Sections 391 to 394 of the Companies Act, 1956, seeking the sanctioning of the Scheme of Amalgamation between Keihin Automotive Systems India Private Limited (Transferor Company) and Keihin India Manufacturing Private Limited (Transferee Company). The Scheme was approved by the Board of Directors of both companies and was supported by affidavits. The court had previously dispensed with the meetings of Equity Shareholders and Unsecured Creditors as there were no Secured Creditors.

2. Observations and objections raised by the Regional Director, Ministry of Corporate Affairs:
The Regional Director made several observations, including:
- The recoverability of Cenvat Credit due to business plan uncertainties.
- Non-payment of provident fund on the foreign component of salaries to expatriate employees.
- No pending investigations against the petitioner companies.
- Continuation of employees on existing terms post-amalgamation.
- Compliance with Accounting Standard 14 related to the "pooling of interests method."

In response, the petitioner companies provided detailed explanations and undertakings, addressing each observation. They assured that the balance of Cenvat Credit was recoverable, pending court decisions on provident fund payments would be honored, and all employees would be continued on existing terms. The companies also committed to complying with Accounting Standard 14.

3. Observations and objections raised by the Official Liquidator:
The Official Liquidator, based on the report of M/s K.D. & Associates, Chartered Accountant, highlighted several issues:
- Accumulated losses in the Transferor Company for the past four years.
- Provisions for doubtful debts and advances.
- Qualifications in the audit reports without explanations from the company.
- Misapplication of working capital loans for long-term investments.
- Non-compliance with certain Accounting Standards.

The petitioner companies responded by clarifying that the losses were not a ground for denying amalgamation, all doubtful debts had been recovered, and the working capital loan had not been misapplied. They also provided explanations for audit qualifications and compliance with Accounting Standards.

4. Compliance with Accounting Standards and statutory requirements:
The petitioner companies assured compliance with all applicable Accounting Standards upon sanctioning of the Scheme. They addressed specific observations related to Accounting Standards 15, 26, and 17, and provided explanations for deviations based on technical evaluations.

5. Continuation of employees and legal proceedings post-amalgamation:
The Scheme provided for the continuation of all employees of the Transferor Company on existing or similar terms and conditions. It also ensured that all legal proceedings by or against the Transferor Company would continue against the Transferee Company post-amalgamation.

Conclusion:
The court, after considering all relevant facts, procedural requirements, and the reports of the Regional Director and Official Liquidator, sanctioned the Scheme of Amalgamation. The assets and liabilities of the Transferor Company would vest in the Transferee Company, and the Transferor Company would be dissolved without being wound up. The Scheme would be binding on all stakeholders, and compliance with Accounting Standards and other undertakings was mandated. A formal order of sanction was to be drawn, published, and filed with the Registrar of Companies. The petitioner companies were also directed to deposit a sum of ?1,00,000 in the Common Pool Fund Account of the Official Liquidator. The petition was disposed of accordingly.