2021 (8) TMI 1059 - Tri - Companies Law

Sanction of Scheme of Amalgamation - Sections 230 to 232 of the Companies Act, 2013, and other applicable provisions of the Companies Act, 2013 R/w. Companies (CAA) Rules, 2016 - HELD THAT - The instant Petition has been filed u/s 230 and 232 of Companies Act, 2013 R/w. extant provisions of Rules, after duly following pre-requisite as prescribed under the extant provisions of Companies Act, 2013 and the Rules made thereunder. In terms of sub-section (3) of Section 232 of Companies, the Tribunal is empowered to sanction the scheme of amalgamation, if it is satisfied that sub-section (1) and (2) of the above section, however, subject to filing a Certificate by the Company's Auditor with Tribunal to the effect that the accounting treatment, if any, proposed in the Scheme of Amalgamation is in conformity with the Accounting Standards prescribed under Section 133, etc. The Scheme in question is framed in the larger interest of all stake holders of the Company, by keeping in mind, the principle of ease of doing business. And the Scheme was put to notice to all stake holders and broadly consented by all Shareholders and Creditors of the Company. There are no investigations stated to be pending against the Companies. The Scheme in question is a 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. It covers all the issues relating to legal proceedings, continuation of contracts, deeds, therefore, the Scheme in question is prima facie eligible to be sanctioned, however, subject to compliance of various undertakings as mentioned in the Scheme and to follow/comply with various observations made by the Statutory Authorities as detailed supra. It also appears to be fair, reasonable and it is not detrimental against the Members or Creditors or contrary to public policy. The scheme is allowed to be sanctioned - application allowed.

Issues Involved:
1. Sanctioning the Scheme of Amalgamation.
2. Compliance with accounting standards.
3. Benefits of the Amalgamation.
4. Related party transactions.
5. Regulatory compliances.
6. Observations by Registrar of Companies (ROC) and Regional Director (RD).
7. Official Liquidator's observations.
8. Income Tax Department's observations.
9. Tribunal's authority and scope.

Detailed Analysis:

1. Sanctioning the Scheme of Amalgamation:
The petition was filed under Sections 230 to 232 of the Companies Act, 2013, seeking to sanction the Scheme of Amalgamation of Edreams Edusoft Private Limited (Transferor Company) with Indiavidual Learning Limited (Transferee Company). The Tribunal directed the petitioner companies to issue notices to various statutory authorities and cause paper notifications, which were duly complied with. The Tribunal provisionally sanctioned the Scheme with an effective date of April 1, 2020, subject to compliance with all conditions and undertakings mentioned in the Scheme and observations made by statutory authorities.

2. Compliance with Accounting Standards:
The statutory auditors of the petitioner companies confirmed that the accounting treatment in the books of the companies, as contained in Clause 11 of the Scheme, is in compliance with the applicable Accounting Standards notified by the Central Government under the Companies Act, 2013. The Tribunal emphasized that the Scheme must comply with accounting standards as prescribed under Section 133.

3. Benefits of the Amalgamation:
The amalgamation aims to consolidate business operations into a single entity, streamline the corporate structure, achieve greater synergies, consolidate all assets including intellectual property rights, save costs through legal entity rationalization, and reduce administrative costs and regulatory compliances. The Transferor Company is a wholly-owned subsidiary of the Transferee Company, and the Scheme will result in the cancellation of the entire investment of the Transferee Company in the Transferor Company.

4. Related Party Transactions:
The petitioner companies disclosed related party transactions in their audited financial statements for the financial year ended March 31, 2020. The Tribunal noted that the petitioner companies are not required to spend CSR amounts as they do not fall under the ambit of Section 135 of the Companies Act, 2013. The statutory auditors reported that the related party transactions were approved in board meetings and reported in AOC-2/AOC-4 for the respective years, and were conducted on an arm's length basis.

5. Regulatory Compliances:
The petitioner companies are unlisted private companies and are not required to issue notice of combination to the Competition Commission of India as they do not meet the thresholds prescribed under the Competition Act, 2002. The Transferee Company undertook to pay any outstanding tax demands, if any. There are no pending investigation proceedings against the petitioner companies under the Companies Act, 1956 or 2013.

6. Observations by Registrar of Companies (ROC) and Regional Director (RD):
The ROC and RD filed a report with several observations, including the need for the Transferee Company to comply with Section 232(3)(i) regarding clubbing of authorized capital and paying the difference fee. The report also noted discrepancies in the number of cumulative compulsorily convertible preference shares (CCPS) issued and related party transactions. The petitioner companies responded with explanations and compliance measures, including obtaining necessary approvals and filing required forms with the ROC.

7. Official Liquidator's Observations:
The Official Liquidator engaged M/s. N. Tatia & Associates to scrutinize the books of accounts and records of the Transferor Company. The audit revealed no serious allegations or qualifications in the auditor's reports. The related party transactions were approved and reported, and the company did not accept any deposits within the meaning of Sections 73 to 76 of the Companies Act, 2013. The audit concluded that the affairs of the company were not conducted prejudicially to the interests of the members or public interest.

8. Income Tax Department's Observations:
The Principal Commissioner of Income Tax, Bengaluru, confirmed that the Transferor Company had no outstanding demand and no pending scrutiny as per the AO work list.

9. Tribunal's Authority and Scope:
The Tribunal emphasized that its role is to sanction the Scheme subject to compliance with the extant provisions of the Companies Act, 2013, and not to examine every alleged violation committed by the petitioner companies. The Transferee Company will inherit all liabilities and responsibilities of the Transferor Company, and statutory authorities are entitled to initiate appropriate actions for any violations. The Scheme was found to be comprehensive, fair, reasonable, and not detrimental to the members, creditors, or public policy.

Conclusion:
The Tribunal provisionally sanctioned the Scheme of Amalgamation, subject to compliance with all conditions, undertakings, and statutory requirements. The companies were directed to deliver a certified copy of the order and the Scheme to the Registrar of Companies within thirty days. Any aggrieved person may apply to the Tribunal for necessary directions.

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