2021 (10) TMI 1040 - Tri - Companies Law

Sanction of scheme of Amalgamation - Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 and in terms of Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT - The objections/observations to the Scheme received from RD, RoC, OL, BSE, and IT Department have been adequately replied by the Applicant Companies and hence, there is no impediment in approval of the Scheme. The scheme is approved - application allowed.

Issues Involved:
1. Maintainability of the joint second motion application.
2. Compliance with procedural requirements for convening meetings and issuing notices.
3. Consideration of objections and observations from statutory authorities.
4. Determination of the Share Exchange Ratio.
5. Protection of the interests of the Income Tax Department.
6. Impact on employees and compliance with statutory requirements.
7. Final approval and binding nature of the Scheme of Amalgamation.

Issue-wise Detailed Analysis:

1. Maintainability of the Joint Second Motion Application:
The joint second motion application was filed by the Transferor Company and the Transferee Company under Sections 230 to 232 of the Companies Act, 2013, and Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Tribunal confirmed the maintainability of the joint petition in terms of Rule 3(2) of the Rules.

2. Compliance with Procedural Requirements for Convening Meetings and Issuing Notices:
The petitioner companies initially filed a First Motion Application for directions to convene meetings of equity shareholders and to dispense with meetings of secured and unsecured creditors, which was approved on 12.06.2020. Subsequent directions were issued on 22.12.2020 for advertising the hearing notice in specified newspapers and serving notices to statutory authorities. Affidavits of compliance were filed, confirming the publication and service of notices, and no objections were received from any authority or person.

3. Consideration of Objections and Observations from Statutory Authorities:
The Regional Director (RD) and the Registrar of Companies (RoC) filed their reports, confirming that the petitioner companies had filed their financial statements up to 31.03.2020, and no prosecutions or investigations were pending. The RD's observation regarding the set-off of fees paid by the Transferor Company against the Transferee Company's authorized capital was addressed in the Scheme. The Official Liquidator (OL) reiterated the Scheme's contents without raising any objections. The Income Tax Department raised concerns about the potential setting off of brought forward losses and unabsorbed depreciation by the Transferee Company, which was addressed by the petitioner companies' joint affidavit, ensuring no undue benefit would be claimed.

4. Determination of the Share Exchange Ratio:
The Share Exchange Ratio was determined based on the report of a Chartered Accountant and Registered Valuer, which specified that one equity share of the Transferee Company would be exchanged for every 350 equity shares of the Transferor Company.

5. Protection of the Interests of the Income Tax Department:
The Income Tax Department highlighted potential tax implications due to the setting off of brought forward losses and unabsorbed depreciation by the Transferee Company. The petitioner companies assured that no such adjustments would be made, protecting the interests of the revenue department.

6. Impact on Employees and Compliance with Statutory Requirements:
Clause 8(xvi) of the Scheme ensured that all employees of the Transferor Company would become employees of the Transferee Company without any break in service and on terms no less favorable than their current terms. The Scheme complied with applicable Accounting Standards and Generally Accepted Accounting Principles, as confirmed by the statutory auditors' certificates.

7. Final Approval and Binding Nature of the Scheme of Amalgamation:
The Tribunal approved the Scheme of Amalgamation, declaring it binding on all shareholders and creditors of the petitioner companies. The approval did not exempt the companies from any statutory payments or compliance requirements. The Transferor Company would be dissolved without winding up, and all properties, rights, liabilities, and duties would be transferred to the Transferee Company. The authorized share capital of the Transferee Company would be increased, and the Transferor Company's share capital would be canceled. The companies were directed to deliver a certified copy of the order to the Registrar of Companies within 30 days, and the Transferee Company was required to make specified deposits with the Regional Director and the Company Law Bar Association.

The Tribunal concluded that all objections and observations had been adequately addressed, and there were no impediments to approving the Scheme. The Scheme was sanctioned, subject to compliance with all statutory requirements and the protection of the interests of the revenue department.

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