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2018 (12) TMI 739 - Tri - Companies LawScheme of Amalgamation and Arrangement - Transferor Company is the group holding company and primarily holds shares in the Transferee Company. The Transferee Company is a specialty pharmaceutical company engaged in development, production and marketing of branded and generic formulations - Held that - The scheme is devised mainly to benefit the four share holders of Gabs who are also the promoters of APL (common promoters). In addition to the above, by this scheme, huge tax liability is being avoided, the scheme does not provide for complying with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011. In view of the above infirmities, no benefit is accruing to the thousands of shareholders of APL especially the retail shares holders of the transferee company, (the shareholders of APL as on 31.03.2017 was 38075) therefore, the scheme appears to be unfair, unreasonable and is not in the public interest and as such the Bench is of the considered view not to sanction the scheme as proposed.
Issues Involved:
1. Approval of the Scheme of Amalgamation and Arrangement. 2. Compliance with the Companies Act, 2013. 3. Compliance with Income Tax regulations. 4. Compliance with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. 5. Public interest and fairness of the scheme. Issue-wise Detailed Analysis: 1. Approval of the Scheme of Amalgamation and Arrangement: The Tribunal was asked to sanction the Scheme of Amalgamation and Arrangement under Sections 230 to 232 read with Section 52 and Section 66 of the Companies Act, 2013, between the Transferor Company and the Transferee Company. The rationale provided for the scheme included simplification of the shareholding structure, direct holding of shares by the promoter group, and no change in the financial position of the Transferee Company. The scheme was approved by 99.99% of the Transferee Company's shareholders and unanimously by the Transferor Company's shareholders. 2. Compliance with the Companies Act, 2013: The Petitioner Companies complied with all the directions in orders passed in Company Scheme Application Nos. 791 and 792 of 2017 and filed necessary affidavits of compliance. The Regional Director's report noted that the scheme was not prejudicial to the interest of shareholders and public, subject to certain conditions, such as compliance with Section 232(6) regarding the appointed date and tax implications. The Petitioner Companies undertook to comply with all statutory requirements under the Companies Act, 2013, and the rules made thereunder. 3. Compliance with Income Tax regulations: The Income Tax Department raised objections, arguing that the scheme would result in a tax loss of approximately ?421.66 Crores due to the avoidance of Dividend Distribution Tax (DDT) and Income Tax on business profits. The department highlighted that the scheme was a deliberate measure to avoid tax burden and was an Impermissible Avoidance Agreement (IAA). The Tribunal found merit in the objections raised by the Income Tax Department and noted that the scheme did not provide details regarding compliance with the tax liability. 4. Compliance with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: The Tribunal observed that the scheme did not comply with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The Agrawal Family, acting in concert, held 61.17% shares in the Transferee Company and 100% shares in the Transferor Company. The scheme did not provide for an open offer as required under Regulation 3(1) or 3(2) of the SEBI Regulations, which would have required acquiring at least 26% of the total shares of the target company. 5. Public interest and fairness of the scheme: The Tribunal concluded that the scheme was devised mainly to benefit the four shareholders of the Transferor Company, who were also the promoters of the Transferee Company. The scheme would result in a huge tax liability being avoided and did not serve any public interest. The Tribunal emphasized that any scheme of amalgamation must comply with applicable laws and should be in the interest of the public and shareholders. The Tribunal held that the scheme was unfair, unreasonable, and not in the public interest, and therefore, decided not to sanction the scheme as proposed.
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