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TMI Blog2013 (5) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the said Schemes sanctioned by this Court and by the Madhya Pradesh High Court, the spinning business of the respondent was demerged as a going concern and transferred to IRTL, with the respondent retaining the polymer business. IRTL subsequently in or about December, 2006 was amalgamated with the appellant. 3. Company Application No.762/2009 (supra) was filed by the appellant under Section 392(1)(b) for modification of the Scheme qua IRTL sanctioned by this Court on 27th February, 2003 and for a direction to the respondent to transfer certain assets including a part of the housing colony occupied for use by the workers/employees of the erstwhile IRTL to the appellant or in the alternative to pay to the appellant the value of the said assets amounting to Rs.61,30,56,983/-. 4. It was the contention of the appellant before the learned Company Judge that under the Scheme sanctioned by this Court the Undertaking of the spinning business, as a going concern within the meaning of Section 2(19AA) of the Income Tax Act, 1961, was to be transferred to IRTL and for this reason only the respondent had not paid any capital gains tax on the said transfer; that under the said transfer, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he housing colony and utilities were being used in common for both businesses; that for the Scheme to be Section 2(19AA) compliant did not require transfer of the said common assets also or a share therein; (vii) that it was on the basis of assets/liability transfer basis that the share swap ratio was assessed, determined and allotted and if the housing and common utilities also to be transferred, the share swap ratio may have been different; (viii) that moreover whether or not Section 2(19AA) has been complied with was for the Tax Authorities to determine and if the transfer was not in accordance therewith, it was for the Tax Authorities to levy capital gains if any on the respondent; (ix) that Section 2(19AA) is relevant only for the purpose of determining whether the Scheme is tax neutral and has the consequences for the respondent only; (x) that compliance with Section 2(19AA) cannot be read as a mandatory requirement for all Schemes of amalgamation/arrangement/demerger under Sections 392, 393 and 394 of the Companies Act; (xi) that what the appellant is wanting is re-writing of the Scheme of arrangement which is impermissible under Section 392(1)(b) of the Companies Act; (xii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which did not find mention in the Scheme and which common infrastructure included not only the housing colony but also the club etc.; (k) argued that common utilities cannot include housing colony and the learned Company Judge has wrongly presumed so in para 38 of the judgment as the housing colony is nowhere mentioned in the Scheme; (l) contended that the housing colony was clearly divisible and even if were held to be indivisible, undivided title in the same is deemed to have been transferred to IRTL, on transfer as going concern of the spinning business earlier of respondent, to IRTL; (m) contended that no business activity of spinning can be carried without the workers and which workers necessarily require the housing colony; (n) informed that though the learned Company Judge has held that the Scheme cannot be re-written but has by modifying the arbitration clause re-written the Scheme; (o) argued that the learned Company Judge ought to have amended the arbitration clause in the MoU also, and without the same, the amendment of the arbitration clause in the Scheme does not serve any purpose; reference is made to Rustom Cavasjee Cooper Vs. Union of India (1970) 3 SCR 530 holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to tax neutral and comes into play after demerger; (ix) contended that the transfer is pursuant to the Scheme of Arrangement and Section 2(19AA) does not control the Scheme and the Companies Act does not require the Scheme to be compliant of Section 2(19AA); (x) argued that the objective of Section 2(19AA) is to ensure that there is no sale in disguise of demerger and Section 2(19AA) is concerned with violation of the Income Tax Act and the jurisdiction to determine the said violation is of the Income Tax Officer; (xi) argued that providing accommodation to the staff was not business activity of the spinning undertaking which was hived off; (xii) contended that the expression „going concern‟ used in Section 2(19AA) has not been defined but the meaning thereof can be gauged from Section 2(13) of the Income Tax Act defining business and Section 211 (3A) of the Companies Act and the Accounting Standards formulated by the Institute of Chartered Accountants which define the expression „going concern‟; (xiii) stated that foreseeable future has been defined as one year; more than ten years have gone by since the demerger aforesaid and the undertaking of the deme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 24th December, 2010 of this Court in ITA No.417/2007 titled Commissioner of Income Tax Vs. ECE Industries Ltd; (xxvi) argued that there can be no order for recovery of money under Section 392. 8. The senior counsel for the appellant in rejoinder has argued, (A) that once the respondent as well as IRTL proclaimed the Scheme to be Section 2(19AA) complaint, they cannot be heard to argue that the only consequence thereof is towards the Income Tax Authorities; (B) that the learned Company Judge has left the arbitration clause in the MoU untouched-if the arbitration clause in the Scheme in view of the changed circumstances was found to be unfair, the learned Company Judge ought to have amended the arbitration clause in the MoU also; it is shown that a prayer in this regard was made. 9. We may notice that the senior counsel for the appellant has also handed over a compilation of judgments but since no specific reference thereto was made during the course of hearing except to Meghal Homes (P) Ltd. Vs. Shree Niwas Girni K.K. Samiti (2007) 7 SCC 753 and S.K. Gupta Vs. K.P. Jain (1979) 3 SCC 54, we do not deem it expedient to burden this judgment with the same. 10. We have besto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter due diligence which would have disclosed that the spinning business being run by IRTL did not have the aforesaid assets of its own but merely had a right to use the same and which right could be taken away at any time, it can safely be presumed that the appellant also did not consider ownership of the aforesaid assets essential to the continued running of the spinning business by IRTL. 13. We are here exercising company jurisdiction dealing with corporate / commercial affairs. Our reasoning/logic cannot be far removed from that of commercial men. When commercial men behind the veil of the appellant felt that the spinning business of IRTL could continue to run even without ownership of aforesaid assets and paid for acquiring the same, we have wondered, whether they can now be heard to urge that the aforesaid assets are so essential to the running of the spinning business so as to make the absence of the same fatal to the running of the said business. 14. Our opinion is clearly no. 15. The filing of the application under Section 392(1)(b) by the appellant after nearly three years of acquiring the said spinning business by purchase of shareholding of IRTL is found by us to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant having claimed, in alternative to the relief of vesting the aforesaid assets in the appellant by modifying the Scheme, the relief of recovery of monetary value thereof, also it is apparent that the assets qua which application was filed, cannot be said to be essential for the undertaking of the spinning business being a running concern. 19. We are thus of the view that the housing and plant and equipment listed out hereinabove qua which the grievance is made cannot be said to be so essential for the spinning business so as to make the non availability of the same fatal to the running of the spinning business. Such assets, even if needed can also be procured from diverse sources. 20. We may notice that the argument in Reliance supra, that gas supply was integral to the Scheme, was held to be unsustainable and it was held that as long as the possibility to run the business remains from alternative sources, it cannot be said that the demerged business has become unviable. 21. Even otherwise, the modifications which the Court can carry out are only to be for the proper working of the Scheme and not for any other purpose and the Court cannot change the basic fabric of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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