2019 (1) TMI 869 - Tri - Companies Law

Approval of the scheme of arrangement - Held that - The arrangement is only for transfer of money from general reserve to the credit of profit and loss account. Since the amount is accumulated in the general reserve over the years, it is thought fit to transfer this amount to the profit and loss account by means of an arrangement after re-classification and amount lying debit side in the profit and loss account will be written off. Now, the transfer of certain amount to the general reserve whenever dividend is declared is not made compulsory under the provisions of the Companies Act, 2013. It is only optional. The transfer of funds from general reserve to the profit and loss account can be by way of arrangement between the company and its members. The arrangement is a broad term and the proposed transfer is well within four corners of arrangement. So the same can be approved. The petitioner-company filed a memo dated November 14, 2018 along with no objection issued by the BSE and NSE. However, as per letter issued by the BSE, the petitioner-company after approval by the Tribunal has to comply with the directions issued by the BSE in the letter dated August 1, 2016. In the light of my above discussions, the arrangement can be approved subject to compliance with directions issued by the BSE in the letter dated August 1, 2016. Further the scheme is not opposed to public policy and no objection received from shareholders or creditors. Therefore, the scheme of arrangement can be approved.

Summary

Issues Involved:
1. Approval of the scheme of arrangement under sections 391-394 of the Companies Act, 1956.
2. Transfer of ?288.76 crores from general reserves to the profit and loss account.
3. Compliance with statutory requirements and objections from regulatory bodies.

Issue-wise Detailed Analysis:

1. Approval of the scheme of arrangement under sections 391-394 of the Companies Act, 1956:
The petitioner-company initially filed the petition before the High Court under sections 391 and 394 of the Companies Act, 1956, seeking approval for a scheme of arrangement. The scheme involved transferring ?288.76 crores from the general reserves to the profit and loss account to enable payouts to members. The petition was transferred to the National Company Law Tribunal (NCLT) following jurisdiction changes. The rationale for the scheme was to utilize excess amounts in the general reserves for current and future needs and to provide liquidity to shareholders.

2. Transfer of ?288.76 crores from general reserves to the profit and loss account:
The scheme proposed transferring ?288.76 crores from the general reserves to the profit and loss account. The amount in the general reserves had accumulated over the years through profit transfers. The scheme aimed to reclassify and utilize these funds to pay out to members. The board of directors approved the scheme, and a shareholders' meeting was convened, where 75.34% of the equity shareholders voted in favor. The scheme was supported by a valuation report from Deloitte Haskins and Sells, confirming compliance with accounting principles and SEBI regulations.

3. Compliance with statutory requirements and objections from regulatory bodies:
The Regional Director and the Income-tax Department raised concerns about the scheme. The Income-tax Department required proof that the reserves had been taxed previously. The Regional Director's additional affidavits stated that the scheme was at the discretion of shareholders and not subject to judicial intervention. The Regional Director also noted that the Companies Act, 2013, did not mandate transferring profits to reserves before declaring dividends, unlike the Companies Act, 1956. The scheme was contested under sections 230-232 of the Companies Act, 2013, but the Tribunal found that the arrangement fell within the definition of "arrangement" under section 390(1)(b) of the Companies Act, 1956.

Judgment:
The Tribunal approved the scheme of arrangement, subject to compliance with the directions issued by the BSE. The order clarified that it did not grant exemptions from stamp duty, taxes, or other charges. The scheme was binding on all members, creditors, employees, regulatory authorities, and stakeholders. The appointed date for the scheme was March 31, 2016. The petitioner-company was required to deliver a certified copy of the order to the Registrar of Companies within 30 days, and the tax implications were subject to the final decision of the concerned tax authorities. The petitioner-company also had to comply with the BSE's directions post-approval. Any person could apply to the Tribunal for necessary directions in the matter.