2020 (11) TMI 59 - Tri - Companies Law

Approval of Scheme of Amalgamation - Sections 230, 232 and other applicable provisions of the Companies Act, 2013 R/w Rule 3 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 and Rules 11, 23 and 34 of the National Company Law Tribunal Rules, 2016 - HELD THAT - It is a settled position of law that any Scheme of Arrangement or Amalgamation, under the extant provisions of Companies Act, would not contemplate to waive any liability or legal action for any violation of provisions of Companies Act, so as to prevent Statutory Authorities from initiating any action against violation of provisions of Companies Act, in respect of the Companies involved, in accordance with law. In the instant case, the Transferee Company would hold all such responsibilities. With reference to various observations made by the Statutory Authorities, as briefly detailed supra, they are at liberty to initiate appropriate legal action against the Companies, for any violation of any provisions of Law. The Tribunal, in the instant proceedings, cannot examine the alleged violations by Applicant Company, since the issue here is only sanction of the Scheme, subject to compliance of extant provisions of Companies Act and to make them to comply all terms and conditions as mentioned in the proposed Scheme in question, and other consequential actions, after sanction of the Scheme. By perusal of instant Scheme of Amalgamation of the Companies involved here, the Scheme in question is comprehensive one complying with the provisions of Sections 230 to 232 of the Companies Act, 2013 and the Rules made thereunder and the Petition Application is filed in accordance with law - the scheme is sanctioned.

Issues Involved:
1. Sanctioning of the Scheme of Amalgamation.
2. Compliance with statutory provisions and accounting standards.
3. Observations and objections raised by the Registrar of Companies.
4. Effective date of the Scheme.
5. Related party transactions.
6. Verification and reconciliation of fixed assets.
7. Impact on creditors and employees.
8. Legal proceedings and statutory liabilities.

Issue-wise Detailed Analysis:

1. Sanctioning of the Scheme of Amalgamation:
The Tribunal considered the petition filed by the Transferee Company under Sections 230, 232, and other applicable provisions of the Companies Act, 2013, seeking the sanction of the Scheme of Amalgamation between the Petitioner/Transferee Company and the Transferor Company. The Scheme aimed to merge the Transferor Company into the Transferee Company with an appointed date of 27th June 2016. The Board of Directors of both companies approved the Scheme, and the statutory auditors confirmed compliance with applicable accounting standards.

2. Compliance with statutory provisions and accounting standards:
The statutory auditors of the Transferee Company, M/s. Price Waterhouse & Co Chartered Accountants LLP, confirmed that the accounting treatment in the Scheme complies with all applicable accounting standards specified under Section 133 of the Companies Act, 2013. The Tribunal noted that the Scheme is framed in the larger interest of all stakeholders, keeping in mind the principle of ease of doing business.

3. Observations and objections raised by the Registrar of Companies:
The Registrar of Companies (ROC) filed affidavits pointing out several observations, including the absence of an effective date in the Scheme, related party transactions, compliance with Section 233(11) of the Companies Act, 2013, and discrepancies in the physical verification of fixed assets. The Tribunal considered these observations and directed the Petitioner to address them.

4. Effective date of the Scheme:
The ROC noted that the appointed date for the Scheme was mentioned as 27th June 2016, but no effective date was indicated. The Petitioner clarified that the effective date would be the date of approval of the Scheme by the Tribunal.

5. Related party transactions:
The ROC observed that the Transferor and Transferee Companies had related party transactions. The Petitioner clarified that these transactions were in the ordinary course of business and on an arm's length basis, thus not attracting the provisions of Section 188 of the Companies Act, 2013.

6. Verification and reconciliation of fixed assets:
The ROC highlighted discrepancies in the physical verification of fixed assets. The Petitioner explained that the Transferee Company has a policy of verifying all physical assets over two years and is in the process of reconciling the discrepancies. The management believes the unreconciled figures are not material enough to impact the financial statements.

7. Impact on creditors and employees:
The Tribunal noted that the Scheme does not involve any compromise with creditors and will not affect them in any manner. The assets of both companies are sufficient to meet their liabilities. The employees of both companies will continue to enjoy the same benefits as before the amalgamation.

8. Legal proceedings and statutory liabilities:
The Tribunal emphasized that sanctioning the Scheme does not waive any liability or legal action for any violation of the Companies Act. Statutory authorities are entitled to initiate appropriate action against the companies for any violations. The Tribunal's role is to sanction the Scheme subject to compliance with the extant provisions of the Companies Act and the undertakings mentioned in the Scheme.

Conclusion:
The Tribunal provisionally sanctioned the Scheme of Amalgamation between the Transferor Company and the Transferee Company with an effective date of 27th June 2016. The sanction does not waive any violations or liabilities, and statutory authorities can take appropriate action. The companies must deliver a certified copy of the order and the Scheme to the Registrar of Companies within thirty days. Any aggrieved person can apply to the Tribunal for necessary directions.

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