2018 (7) TMI 395 - Tri - Companies Law

Approval of the Scheme of Arrangement - Held that - Upon considering the approval accorded by the members and creditors of the Petitioner Companies to the proposed Scheme and the affidavits filed by the Regional Director and Official Liquidator whereby no objections have been raised to the proposed Scheme, there appears to be no impediment to grant sanction to the Scheme. However the Companies shall remain bound by the undertaking filed by each one of them. Consequently, sanction is hereby granted to the Scheme under sections 230 to 232 of the Companies Act, 1956. The Petitioners shall however remain bound to comply with the statutory requirements in accordance with law. Notwithstanding the above, if there is any deficiency found or, violation committed qua any enactment, statutory rule or regulation, the sanction granted by this court to the scheme will not come in the way of action being taken, albeit, in accordance with law, against the concerned persons, directors and officials of the petitioners. While approving the scheme as above, we further clarify that this order should not be construed as an order in any way granting exemption from payment of stamp duty, taxes including VAT/GST or other charges, if any, and payment in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law.

Issues Involved:
1. Approval of the Scheme of Arrangement.
2. Observations and objections raised by the Regional Director (RD) and Official Liquidator (OL).
3. Compliance with the Companies Act, 2013 and other statutory requirements.
4. Contingent liabilities and their impact on the financial position of the Transferee Company.
5. Valuation of assets, specifically works of art/paintings.
6. Change of name of the Transferee Company.

Issue-wise Detailed Analysis:

1. Approval of the Scheme of Arrangement:
The joint petition filed by a group of four companies sought approval for a Scheme of Arrangement, which included the demerger of the Real Estate Undertaking and the IT Support Services Undertaking of the Transferor Company into Resulting Subsidiary No. 1 and Resulting Subsidiary No. 2, respectively, and the subsequent amalgamation of the residual Transferor Company into the Transferee Company. The scheme aimed to create separate entities for distinct business operations, improve operational efficiencies, and attract focused investors. The scheme also proposed the issuance and cancellation of shares to reflect the new structure.

2. Observations and Objections Raised by the Regional Director (RD) and Official Liquidator (OL):
The RD and OL raised several observations regarding the combination of Authorized Share Capital (ASC), compliance with the Companies Act, 2013, and the impact of contingent liabilities. The RD objected to the combination of ASC of the Transferor Company into the Resulting Subsidiaries and the Transferee Company. The Tribunal found that the legal position under the Companies Act, 2013 allowed for the set-off of fees paid by the transferor company against the fees payable by the transferee company on its enhanced ASC. The Tribunal cited various judgments to support this view and dismissed the RD's objections.

3. Compliance with the Companies Act, 2013 and Other Statutory Requirements:
The RD raised concerns about the payment of necessary fees for the change of name of the Transferee Company. The Tribunal noted that the Transferee Company had passed board resolutions approving the name change and that the Companies Act, 2013 provided for a single window clearance system for such changes. The Tribunal directed the authorities to permit and record the name change subject to compliance with procedural requirements.

4. Contingent Liabilities and Their Impact on the Financial Position of the Transferee Company:
The RD highlighted the contingent liabilities of the Transferor Company and their potential impact on the Transferee Company's financial position. The Tribunal noted that the total contingent liabilities were relatively small compared to the Transferee Company's net worth and that the Transferee Company had significant financial capability to meet these liabilities. An undertaking was filed by the Transferee Company to address these concerns, and the Tribunal found that the observation was duly addressed.

5. Valuation of Assets, Specifically Works of Art/Paintings:
The OL raised concerns about the valuation of works of art/paintings at book value. The Tribunal noted that there was no legal prohibition on such valuation and that courts generally did not interfere with valuations approved by the board of directors and shareholders unless there was evidence of fraud or mala fide intent. The Tribunal accepted the valuation provided by the Petitioner Companies and found that the difference in valuations was insignificant and unlikely to impact the share exchange ratio.

6. Change of Name of the Transferee Company:
The RD raised concerns about the payment of fees and compliance with Section 13 of the Companies Act, 2013 for the change of name of the Transferee Company. The Tribunal noted that the Transferee Company had passed the necessary board resolutions and that the Companies Act, 2013 allowed for a single window clearance system for such changes. The Tribunal directed the authorities to permit and record the name change subject to compliance with procedural requirements.

Conclusion:
The Tribunal granted sanction to the Scheme under sections 230 to 232 of the Companies Act, 2013, subject to compliance with statutory requirements and undertakings filed by the Petitioner Companies. The Tribunal also clarified that the order did not grant exemption from payment of stamp duty, taxes, or other charges. The petition was disposed of accordingly.

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