2021 (1) TMI 146 - Tri - Companies Law

Approval of Scheme of Amalgamation - Sections 230, 232 other applicable Provisions of the Companies Act, 2013, R/w Companies (Compromises, Arrangements Amalgamation) Rules, 2016 - prayer for dispensation with various meetings - HELD THAT - The reports of the Regional Director, MCA, the ROC as well as the comments offered by the Official Liquidator, the reply filed by the Petitioners and the relevant provisions contained in the Companies Act, 2013 and other related Acts and Rules. In his report, the Regional Director, MCA, Government of India has concluded that the Scheme appears to be fair, reasonable and not detrimental against the Members or Creditors or contrary to public policy and the same can be approved. The Scheme will enable the management of both entities to consolidate their business and the same can be carried on more conveniently and advantageously with greater focus and attention, by simplifying the corporate structure. On a consideration of the facts of the case, it can be concluded that the procedure specified in sub-sections (1) and (2) of section 232 of the Companies Act, 2013 has been complied with, and hence the Scheme of Amalgamation, as approved by the Boards of both the Transferor Company and the Transferee Company, is hereby sanctioned - The Scheme of Amalgamation, as contained in the present Petition, is hereby sanctioned and the Appointed Date shall be 01st April, 2019. Application allowed.

Issues Involved:
1. Scheme of Amalgamation
2. Compliance with Sections 230 and 232 of the Companies Act, 2013
3. Related Party Transactions
4. Negative Net-worth and Going Concern Status
5. Issuance of Preference Shares
6. Government Research & Development Fund
7. Stamp Duty and Tax Implications
8. Pending Proceedings and Liabilities
9. Compliance with Statutory Requirements

Issue-wise Detailed Analysis:

1. Scheme of Amalgamation:
The Company Petition was jointly filed by the Transferor Companies and the Transferee Company under Sections 230, 232 & other applicable Provisions of the Companies Act, 2013, seeking the Scheme of Amalgamation to be sanctioned by the Tribunal. The Board of Directors of both companies approved the Scheme on 04.12.2019.

2. Compliance with Sections 230 and 232 of the Companies Act, 2013:
The Tribunal noted that the procedure specified in sub-sections (1) and (2) of section 232 of the Companies Act, 2013, had been complied with. The Scheme was sanctioned, with the Appointed Date being 01st April, 2019.

3. Related Party Transactions:
The Registrar of Companies (ROC) and the Regional Director (RD) observed related party transactions between the Transferor and Transferee Companies. The Petitioners confirmed that these transactions were conducted at arm's length and complied with the applicable provisions of the Companies Act, 2013.

4. Negative Net-worth and Going Concern Status:
Both the Transferor and Transferee Companies had negative net-worth due to excessive losses and were largely funded through debts. The Petitioners argued that the companies had invested significantly in infrastructure and had confirmed orders from reputable clients, demonstrating their status as going concerns.

5. Issuance of Preference Shares:
The Scheme was silent about issuing shares to the Preference Shareholders of the Transferor Company. The Petitioners clarified that the Transferee Company had sufficient Preference Share Capital to allot Preference Shares post-merger.

6. Government Research & Development Fund:
The Transferor Company had received a government fund for a specific project. The Petitioners confirmed that the project was implemented and would continue under the Transferee Company. The Karnataka State Council for Science and Technology (KSCST) was satisfied with the implementation.

7. Stamp Duty and Tax Implications:
Sanctioning the Scheme should not be construed as an exemption from payment of Stamp Duty, taxes, or other charges. The tax implications under the Income Tax Act, 1961, are subject to the final decision of the concerned tax authorities.

8. Pending Proceedings and Liabilities:
All liabilities, including taxes and duties of the Transferor Company, will be transferred to the Transferee Company. Any pending proceedings by or against the Transferor Company will continue against the Transferee Company.

9. Compliance with Statutory Requirements:
The Petitioner Companies are required to ensure compliance with all provisions of the Companies Act, 2013. They must file all due statutory returns immediately and submit quarterly/annual status reports of such compliances.

Conclusion:
The Tribunal concluded that the Scheme of Amalgamation was fair, reasonable, and not detrimental to the members or creditors. The Scheme was sanctioned with specific directions and conditions, including compliance with statutory requirements, payment of stamp duty and taxes, and the transfer of liabilities and pending proceedings to the Transferee Company. The CP (CAA) No.20/BB/2020 and all pending IAs were disposed of.

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