2020 (9) TMI 515 - Tri - Companies Law

Sanction of Amalgamation Scheme - sections 230-232 of the Companies Act, 2013 - HELD THAT - The Official Liquidator (OL) has filed his report dated 23.10.2017 in Company Petition inter alia stating that the affairs of the Transferor Company have been conducted in a proper manner. It is clear from the report of M/s. P R Agarwal and Awasthi, Chartered Accountants appointed vide order dated 28.07.2017, which is annexed to the OL Report, that the affairs of the Transferor Company have not been conducted in a manner prejudicial to the interest of the members or to the public interest - There is, therefore, no reason to doubt the correctness of the transaction and the accounting entries made in this regard by the Transferor Company. Nevertheless, in so far as tax liability in respect of the transaction itself is concerned, the Income Tax Department is free to take an independent view and determine whether there is any tax due on this score. Sanction of the Scheme by this Tribunal shall not come in the way of any such determination, and the Income Tax Department is free to proceed in accordance with law - The rest of the clarifications and undertakings provided by the Petitioner Companies are found satisfactory and are, therefore, accepted. From the material on record, the scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy - Since all the requisite statutory compliances have been fulfilled, the Company Petition filed by the Transferee Company is made absolute in terms of prayer clauses (a) to (h). Petition filed by the Transferor Company is also made absolute in terms of prayer clauses (a) to (h) thereof. The Scheme is sanctioned - The Appointed date of the Scheme is fixed as 1st April 2017.

Issues Involved:
1. Sanction of the Scheme of Amalgamation under sections 230-232 of the Companies Act, 2013.
2. Compliance with Accounting Standards.
3. Observations and objections raised by the Regional Director (RD) and Registrar of Companies (RoC).
4. Solvency Certificate requirement.
5. Main objects of the Transferor and Transferee Companies.
6. Financial position and revaluation of assets of the Transferor Company.
7. Tax implications of the Scheme.
8. Statutory compliances and objections.
9. Fairness and reasonableness of the Scheme.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Amalgamation:
The petition sought the Tribunal's sanction under sections 230-232 of the Companies Act, 2013 for the Scheme of Amalgamation between Vaid Die Casting Private Limited (Transferor Company) and Mega Fine Pharma Private Limited (Transferee Company). The Scheme aimed to combine operations to benefit from economies of scale, rationalize entities, and enhance profitability.

2. Compliance with Accounting Standards:
The RD highlighted the necessity for the Transferee Company to comply with AS-14 (IND-AS-103) and other applicable Accounting Standards such as AS-5 (IND-AS-8). The Petitioner Companies undertook to comply with these standards, noting that IND AS-103 and IND AS-8 were not applicable for the financial year 2016-2017.

3. Observations and Objections Raised by RD and RoC:
The RD's report included several observations:
- Compliance with AS-14 and other standards.
- Appointed Date to be maintained as 1st April 2017.
- Notice to Income Tax Department.
- Tax implications subject to Income Tax Authority's decision.
- Submission of a certificate for accounting treatment conformity.
- Objections based on the RoC's report.

The Petitioner Companies addressed these observations satisfactorily, and the RD accepted most replies in a supplementary report.

4. Solvency Certificate Requirement:
The RoC required a Solvency Certificate under section 233 (1)(c) read with Section 233 (12) of the Companies Act, 2013. The Petitioner Companies submitted the requisite Solvency Certificates.

5. Main Objects of the Transferor and Transferee Companies:
The RoC objected to the amalgamation due to differing main objects of the companies. The Transferee Company undertook to amend its Memorandum of Association to incorporate the Transferor Company's objects, resolving this objection.

6. Financial Position and Revaluation of Assets of the Transferor Company:
The RoC raised concerns about the Transferor Company crediting ?1.16 crore directly to the Reserve without recognizing it as income. The Petitioner Companies argued that the revaluation was in accordance with AS-10, which allows crediting revaluation reserves directly to the owner's interests. The Tribunal found merit in this argument, noting that the revaluation was not dubious.

7. Tax Implications of the Scheme:
The Tribunal clarified that the Income Tax Department could independently determine any tax liability arising from the transaction. The sanction of the Scheme would not impede such determination.

8. Statutory Compliances and Objections:
The Petitioner Companies complied with all statutory requirements and addressed objections raised by the RD and RoC. The Tribunal found the clarifications and undertakings satisfactory.

9. Fairness and Reasonableness of the Scheme:
The Tribunal concluded that the Scheme was fair, reasonable, and not violative of any law or public policy. No objections were raised by any party.

Judgment:
The Tribunal sanctioned the Scheme with the Appointed Date fixed as 1st April 2017. The Transferor Company was to be dissolved without winding up. The Petitioner Companies were directed to comply with specific procedural requirements, including lodging copies of the order with relevant authorities and paying costs to the RD and Official Liquidator. The Tribunal's order was to be acted upon by all concerned regulatory authorities, and any interested party could apply for necessary directions.

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