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TMI Blog2015 (4) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the buyback of shares under the Scheme is in accordance with the RBI Guidelines and that being so, there is no question of there being any draining away of foreign exchange. In view of the above and particularly the fact that in law the Petitioner is entitled to buy back its own shares by means of a scheme under Section 391 read with Sections 100 – 104 of the 1956 Act, the scheme cannot be said to be a colourable device to evade income tax. It is a legally permissible procedure which the Petitioner is entitled to follow to buy back its shares. In any event the Petitioner has stated that the issues relating to income tax that may arise out of the Scheme may be left open to be dealt with and decided by the Income Tax Authorities in accordance with the law. The statement is accepted. Consequently nothing survives in the objections of the Regional Director. (a) The Scheme of Arrangement as proposed is sanctioned with a clarification that the issues relating to Incometax that may arise out of the Scheme are left open to be dealt with and decided by the Incometax Authorities in accordance with law. (b) The Petitioner to pay costs of ₹ 10,000/to the Regional Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner Company served notices of final hearing upon (I) the Regional Director, Western Region, Ministry of Corporate Affairs (hereinafter referred to as the Regional Director ), (ii) Registrar of Companies, Mumbai, Maharashtra, (iii) concerned Income Tax Authority within whose jurisdiction the Petitioner Company's assessment are made (hereinafter referred to as the IT Authority ),(iv) all the unsecured creditors and has also issued a public notice in two local newspapers viz. Free Press Journal in English language and translation thereof in Navashakti in Marathi language. No objection has been raised by the IT Authority. 3. In response to the notice of final hearing, the Regional Director has filed an affidavit on 1st October, 2014 (hereinafter referred to as the said Affidavit ) raising various objections and opposing sanction of the Scheme. The Petitioner Company has filed an Affidavit dated 8th October, 2014, in reply to the said Affidavit. 4. The entire case of the Regional Director revolves around his contention that the buyback of shares must be effected only under Section 77A of the Companies Act, 1956/Section 68 of the Companies Act, 2013. According to the Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rilite Industries (India) Limited2. 7. The Division Bench of this Court in the case of Sterilite Industries (supra) has held that a Company may either follow the procedure under Section 391 read with Sections 100 to 104 of the 1956 Act or the procedure under Section 77A (now Section 68). It is not mandatory for a company to buy back its shares only by following the procedure prescribed by Section 77A. In this regard paragraphs 22 and 23 of the Sterilite decision are relevant and the same are reproduced below for convenience : 22. The opening words of section 77A, viz. notwithstanding anything contained in this Act, but subject to the provisions of subsection( 2) of this section and section 77B, a company may purchase its own shares or other specified securities shows that section 77A is a facilitating provision which enables companies to buyback their shares without having to approach the court under section 391 and sections 100 to 104 subject to compliance with the provisions of subsections( 2), (3) and (4). Prior to the introduction of section 77A, the only manner in which a company could buyback its shares was by following the procedure set out under sections 100 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10 of Section 230 provides as follows : 10. No compromise or arrangement in respect of any buyback of securities under this section shall be sanctioned by the Tribunal unless such buyback is in accordance with the provisions of section 68. This provision may have an impact on the law as laid down by this Court in the Sterilite case. However, at present Section 230 has not come into force and hence this question does not arise for consideration in this case and hence the same need not to be considered. At present the law as laid down in Sterilite Industries prevails and will be applicable to the present case. 5. In the circumstances it is open to a company to buy back its own shares by following the procedure prescribed under Section 77A/Section 68 or by following the procedure prescribed under Section 391 read with Sections 100 to 104 of the 1956 Act. The contentions of the Regional Director are therefore clearly contrary to the prevailing legal position. 6. According to the Regional Director if the Scheme is sanctioned it will amount to evasion of income tax and outflow of foreign exchange to the tune of ₹ 248 crores and therefore on this ground the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gional Director relies heavily upon the decision of the Hon ble Gujarat High Court in the case of Wood Polymer Limited v/s. Bengal Hotels Pvt. Ltd.3 This decision has been considered by this Court along with the later decision of the Hon ble Supreme Court, in the case of AVM Capital Services Pvt. Ltd. and others where it has been held that the said decision is no longer good law. As such the decision in the case of Wood Polymer can be of no assistance to the Regional Director. 10. In any event the Petitioner has stated that the issues relating to income tax that may arise out of the Scheme may be left open to be dealt with and decided by the Income Tax Authorities in accordance with the law. The statement is accepted. Consequently nothing survives in the objections of the Regional Director. 11. As already held hereinabove, there is nothing illegal in the Scheme and the same is legitimate and permissible in law. 12. In the circumstances I pass the following order: (a) The Scheme of Arrangement as proposed is sanctioned with a clarification that the issues relating to Incometax that may arise out of the Scheme are left open to be dealt with and decided by the Incometax Au ..... X X X X Extracts X X X X X X X X Extracts X X X X
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