2015 (5) TMI 324 - HC - Companies Law

Application for the Scheme of Arrangement under Sections 391 to 394 read with Section 100 of the Companies Act, 1956 - Observations of Regional directors duly addressed - Held that - Pursuant to the notices issued, the Official Liquidator sought information from the petitioner companies. Based on the information received, the Official Liquidator has filed a report dated 30th August, 2014 wherein he has stated that he has not received any complaint against the proposed Scheme of Arrangement from any person/party interested in the Scheme in any manner and that the affairs of the transferor company do not appear to have been conducted in a manner prejudicial to the interest of its members, creditors or public interest, as per second proviso of Section 394(1) of the Companies Act, 1956. The Regional Director in Para 5 of his report has, however, submitted that para 3.2 of Part-3 of the Scheme provides that demerger shall be in accordance with Section 2(19AA) of the Income Tax Act, 1961, which stipulates several conditions to comply. He, therefore, prays that petitioner/demerged company may be directed to submit an undertaking to comply with those conditions. In para 6 of his report, he submitted that a perusal of the shareholding pattern of the transferor company shows that its 69.50% shares are held by the Non Resident Indian. He, therefore, prays that the transferor company may be directed to give an undertaking for all compliances from Reserve Bank of India as required under FEMA for above transactions involving foreign banks/entities. In reply to the first observation, the petitioner companies in their reply have submitted that the compliance of Section 2(19AA) of the Income Tax Act, 1961 is necessary to enable the petitioners to avail the benefit of Income Tax Act. So far as the second observation of the Regional Director is concerned, the petitioners have submitted that as per RBI s circular for allotting shares to the NRI shareholders, in case of amalgamation, RBI s permission is not required. However, the petitioners have undertaken to comply with the requirements of Section 2(19AA) of the Income Tax Act, 1961 and also to comply with the provisions of FEMA in allotting shares to the Non Resident Indian, if required. In view of the undertakings given by the petitioners, the observations raised by the Regional Director do not subsist. No objection has been received to the Scheme of Arrangement from any other party. Considering the approval accorded by the equity shareholders and unsecured creditors of the petitioner companies to the proposed Scheme of Arrangement; the affidavit filed by the Official Liquidator not raising any objection to the proposed Scheme of Arrangement, and there being no surviving objection to the same by the Regional Director, Northern Region, there appears to be no impediment to the grant of sanction to the Amended Scheme of Arrangement. Consequently, sanction is hereby granted to the Amended Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956. - Application for schemer of arrangement approved.

Summary

Issues:
1. Sanction of Scheme of Arrangement under Sections 391 to 394 read with Section 100 of the Companies Act, 1956.

Analysis:
The joint petition filed sought approval for the Scheme of Arrangement between three companies - transferor, transferee, and resulting company, all based in New Delhi. The transferor company was incorporated in 2007, the transferee in 2007, and the resulting company in 2014. The Scheme aimed at amalgamation, demerger of a plot, and reduction of share capital post-merger. The companies claimed benefits like cost reduction, better resource utilization, and improved productivity from the Scheme.

The share exchange ratio specified in the Scheme allotted equity shares to shareholders of the transferor and transferee companies based on a defined ratio. The Board of Directors of all companies approved the Scheme. The court earlier dispensed with the requirement of convening meetings of equity shareholders and creditors. Post notices and reports, including from the Official Liquidator and Regional Director, no objections were raised. Compliance with Income Tax Act and FEMA requirements was assured by the petitioners. No objections were received from any party to the Scheme.

Considering the approvals received, lack of objections, and compliance assurances, the court granted sanction to the Amended Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956. The companies were directed to comply with statutory requirements within 30 days. The order clarified that it did not exempt from stamp duty payment. Upon sanction becoming effective from April 1, 2014, the transferor company would dissolve without winding up, and the demerged undertaking would merge with the resulting company. The petition was allowed accordingly.