2021 (6) TMI 784 - Tri - Companies Law

Approval of scheme of amalgamation - Reduction of the share capital - reorganisation of reserves of the Transferee Company and their respective Shareholders - Sections 230 to 232 of the Companies Act, 2013 - HELD THAT - The Scheme appears to be fair, reasonable and is not violative to any provisions of law nor is contrary to public interest. Since all the requisite statutory compliances have been fulfilled, the Company Scheme Petition are made absolute in terms of prayer clauses. The said Scheme of Arrangement is hereby sanctioned and declared the same to be binding on the Transferor Company and Transferee Company - Application allowed.

Issues Involved:
1. Sanction of the Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013.
2. Compliance with statutory requirements and observations by the Regional Director.
3. Observations by the Official Liquidator.
4. Observations by the Income Tax Department.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013:
The Tribunal was approached to sanction the Scheme of Arrangement involving Primesec Investments Limited (Transferor Company 1), Prime Commodities Broking (India) Limited (Transferor Company 2), and Prime Securities Limited (Transferee Company). The scheme aimed at the reduction of share capital and reorganization of reserves. The rationale included benefits such as reduction in management overlaps, legal compliances, administrative costs, and synergy benefits. The scheme was approved by the Board of Directors of all involved companies on January 9, 2020, with the appointed date fixed as April 1, 2020.

2. Compliance with statutory requirements and observations by the Regional Director:
The Regional Director raised several observations, which were addressed by the Petitioner Companies through affidavits and clarifications. Key points included:
- Compliance with applicable Accounting Standards (AS-14, IND AS-103, AS-5, IND AS-8).
- The appointed date and effective date were clarified as per the scheme and Companies Act, 2013.
- The scheme was approved by the requisite majority of members and creditors.
- Notices were served to relevant regulatory authorities.
- Compliance with section 232(3)(i) regarding the set-off of fees paid by the transferor company on its authorized capital.
- Ensuring compliance with all provisions of the Income Tax Act, 1961.
- Clarification that the Capital Reserve created would not be available for distribution of dividends.
- Compliance with provisions of sections 13, 14, 61, and 64 of the Companies Act, 2013 for the combination of authorized share capital.
- Addressing the reclassification of General Reserves and ensuring it does not violate section 123(1) of the Companies Act, 2013.

The Regional Director found the responses satisfactory and recommended the Tribunal decide on merit.

3. Observations by the Official Liquidator:
The Official Liquidator raised concerns regarding the financial statements and compliance issues of the Transferor Companies. Key points included:
- Qualified opinions by auditors on certain financial matters, which were addressed by management explanations.
- Dispute under the Income Tax Act, 1961, with a pending rectification application.
- Negative net worth of the Transferor Companies and inter-corporate deposits from the Transferee Company.
- Non-disclosure of Directors' Identification Numbers (DINs) in the balance sheets.

The Official Liquidator found the management responses satisfactory and recommended filing a compounding application for non-disclosure of DINs.

4. Observations by the Income Tax Department:
The Income Tax Department raised concerns about pending proceedings and potential tax avoidance. Key points included:
- Pending proceedings against the demerged company to continue against the resulting company.
- The scheme should not adversely impact the rights of the Income Tax Department for any present or future proceedings.
- Outstanding tax demand against Primesec Investments Limited.

The Petitioner Companies assured that pending proceedings would not abate and any tax liabilities would be assumed by the Transferee Company upon the scheme's effectiveness.

Conclusion:
The Tribunal found the scheme to be fair, reasonable, and not violative of any law or public interest. The Company Scheme Petition was made absolute, and the scheme was sanctioned with binding effect on the involved companies and their shareholders. The Petitioner Companies were directed to comply with statutory requirements and file necessary documents with the Registrar of Companies and other regulatory authorities. The order also allowed interested parties to apply for any necessary directions from the Tribunal.

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