2018 (12) TMI 1544 - Tri - Companies Law

Scheme of merger by absorption - Held that - The petitioner-companies have complied with all requirements as per directions of the Tribunal and they have filed necessary affidavits of compliance in this Tribunal. Moreover, the petitioner-company undertake to comply with all the statutory requirements if any, as required under the Companies Act, 2013 and the Rules made thereunder whichever is applicable. The scheme of merger by absorption appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy.

Issues Involved:
1. Sanction of the scheme of merger by absorption under sections 230 to 232 of the Companies Act, 2013.
2. Compliance with statutory requirements and observations from the Regional Director.
3. Observations from the official liquidator regarding the scheme.
4. Appointed date of the scheme and its implications on tax liabilities.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Merger by Absorption:
The Tribunal was approached for the sanction of a scheme of merger by absorption involving three transferor companies with a transferee company. The transferor companies were wholly owned subsidiaries created for the transferee company's expansion plans. The merger aimed to achieve operational efficiency, simplify the group structure, and reduce regulatory compliance obligations. The Tribunal noted that the petitioner-companies had approved the scheme through board resolutions and had complied with the necessary procedural requirements.

2. Compliance with Statutory Requirements and Observations from the Regional Director:
The Regional Director's report highlighted several observations:
- Tax implications arising from the scheme are subject to the final decision of Income-tax authorities, and the scheme's approval does not preclude tax scrutiny.
- Compliance with section 232(3)(i) of the Companies Act, 2013, regarding the merger of authorized share capital.
- Treatment of tax under section 2(1B) of the Income-tax Act, 1961, was not mentioned in the scheme.
- Submission of necessary documents, including the petition, minutes of the order, and notices under section 230, was required.
- A certificate confirming that the accounting treatment proposed in the scheme conforms to accounting standards was needed.
- The scheme mentioned recording all assets and liabilities at book value but did not specify the accounting standard to be followed.

The petitioners undertook to comply with all applicable statutory provisions, including those under the Income-tax Act, and to submit the required documents and certificates. The Tribunal accepted these undertakings and directed compliance with the provisions/statements.

3. Observations from the Official Liquidator:
The official liquidator's report indicated that the scheme was not prejudicial to the interests of shareholders/members and the public, except for certain observations regarding booking of expenses and valuation of land transactions. The petitioners explained that the transferor companies had suspended activities due to economic factors and had not commenced production, leading to the booking of expenses as pre-operative. The Tribunal accepted these explanations and directed compliance with statutory provisions.

4. Appointed Date of the Scheme and its Implications on Tax Liabilities:
The scheme proposed April 1, 2017, as the appointed date. However, it was noted that transactions involving the transfer of leasehold land rights occurred after this date, potentially affecting the scrutiny of tax liabilities by Income-tax authorities. To avoid diluting the rights of the Income-tax authorities, the Tribunal ordered that the appointed date be changed to April 1, 2018, instead of April 1, 2017.

Conclusion:
The Tribunal sanctioned the scheme of merger by absorption with several directions:
- All liabilities, including taxes and charges, of the transferor companies shall be transferred to the transferee company.
- Compliance with the observations and undertakings given by the petitioners to the Regional Director and official liquidator.
- No consideration shall be issued as the transferee company holds the entire share capital of the transferor companies, and the shares shall be canceled.
- The transferor companies shall be dissolved without winding up.
- The petitioner-companies must lodge a copy of the order and the scheme with the concerned authorities and pay costs to the Regional Director and the official liquidator.
- The appointed date of the scheme was changed to April 1, 2018, to ensure proper tax scrutiny.

The scheme was sanctioned with the above directions, and the order was to be consigned to records.

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