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TMI Blog2016 (5) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly. So far as the costs to be paid to the Central Government Standing Counsel are concerned, they are quantified at ₹ 7,500/per petition. The same may be paid to Mr.Devang Vyas, learned Assistant Solicitor General of India. The Petitioner Companies are further directed to lodge a copy of this Order, the Schedule of immovable assets of the demerged undertakings being transferred to the Resulting Company, as on date of this order and the Scheme duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamps, for the purpose of adjudication of Stamp Duty, if any, on the same within 60 days from the date of the order. The Petitioner Companies are directed to file a copy of this Order along with a copy of the Scheme with the concerned Registrar of Companies, electronically, along with INC–28 in addition to physical copy as per relevant provisions of the Act. - COMPANY PETITION NO. 340, 341 of 2015, COMPANY APPLICATION NO. 287, 288 of 2015 - - - Dated:- 3-5-2016 - SMT. ABHILASHA KUMARI, J. FOR THE PETITIONER : MR TUSHAR P HEMANI, ADVOCATE, MS VAIBHAVI K PARIKH, ADVOCATE FOR THE RESPONDENT : MR KSHITIJ AMIN FOR MR DEVANG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Private Limited and the Company will focus on the core business of knitting of cloth from yarn and investment activities. Different strategies are required to achieve such growth for all the businesses due to differing cash flow and investment profiles together with the nature of risk and competition inherent in the different parts of the industry. Different management skills are required for each of the businesses in order to run them efficiently and successfully. The demerger will facilitate the Company with adequate liquidity, which will help in repayment of its liabilities and provide additional working capital for its core business activities. The demerger will facilitate more transparent benchmarking of the Companies with their peers in their respective industries. The demerger is a commercial requirement and would result in the simplification of group structure and cost efficiency. Thus, it is perceived that the proposed demerger shall be advantageous and beneficial in more than one way to the Demerged Company, the Resulting Company and their shareholders and creditors. 4. It has been pointed that vide the order dated 28th September, 2015 passed in Company Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 2015. The publication in the Government gazette was dispensed with, as directed in the said orders. Pursuant to the said publication in the newspapers, no objections were received by the petitioners or its advocates. The said fact has been confirmed vide an additional affidavit dated 21st April, 2016 filed in the respective company petitions. 8. Notice of the petitions having been served upon the Central Government, Shri Kshitij Amin, learned Central Government Standing Counsel has appeared for Shri Devang Vyas, learned Assistant Solicitor General of India on behalf of the Central Government. An affidavit dated 16th March, 2016 has been filed by Shri Shambhu Kumar Agarwal, the Regional Director, Ministry of Corporate Affairs, NorthWestern Region, whereby several observations are made. 9. The attention of this Court is drawn to the Additional Affidavit dated 21st April, 2016, filed by Shri Nirav Pareshbhai Jariwala, Director of the Demerged Company and the affidavit filed by Shri Rajesh Vasantlal Jariwala, Director of the Resulting Company, whereby all the above issues have been dealt with. This Court has heard submissions advanced by learned counsel appearing for the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I to the additional affidavit of the Demerged Company dated 21st April, 2016. The Scheme also clearly reflects that there is transfer of two divisions of the Demerged Company to the Resulting Company. It was never the intention of the Demerged Company to transfer the entire Authorized Share Capital to the Resulting Company. As a matter of fact, as two divisions of the Demerged Company are getting transferred to the Resulting Company, which is mentioned in Clause 7 of the Scheme, there is consequential reduction in the Authorized Share Capital of the Demerged Company which has been specifically stated in Clause 14 of the Scheme. There is a consequential reduction of the Share Capital due to the transfer of two divisions of the Demerged Company. As the Demerged Company does not intend to increase its Authorized Share Capital, it is not necessary for the Demerged Company to comply with the provisions of Section 61 of the Companies Act, 2013. With respect to the compliance of the provisions of Section 66 read with 117 of the Companies Act, 2013, the same have already been complied with. It is submitted that in Clause 17.1(a) of the Scheme, it is clearly stated that the share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all the existing permits and licenses with the demerged undertakings of the Demerged Company to be transferred to the Resulting Company. Clause 8.3 of the Scheme specifically provides for the transfer of the permissions, approvals, licenses, etc. executed by the regulatory authorities in favour of the Undertakings to be transferred to the Resulting Company with effect from the Effective Date. Further, Clause 22.1(iii) provides that the Scheme is conditional upon obtaining all the requisite permissions from the concerned authorities for implementation of the Scheme. It is further clarified that the Resulting Company shall undertake all the requisite procedures to obtain such licenses and permissions from the concerned regulatory authorities, therefore no directions are required in this regard. (vii) The next observation made by the Regional Director vide paragraph no.2(f) of the affidavit pertains to the address of the Registered Office of the Resulting Company. It has been observed by the Regional Director that as the address stated on the letterhead of the letter addressed by the Resulting Company on 16th February 2016 to the Regional Director does not match with the addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that this observation of the Regional Director does not have any bearing on the Scheme of Demerger and its implementation. The learned Counsel for the Petitioner Demerged Company has drawn this Court s attention to Paragraph 9 of the additional affidavit filed by the Demerged Company dated 21st April, 2016 in which a Chart has been inserted. Perusal of the said Chart makes it clear that the Petitioner Demerged Company has complied with all the necessary Accounting Standards and have also made necessary disclosures as required by the Accounting Standards and thus there is no violation of any provisions of any Sections and Schedules of the Companies Act, 2013, Rules under Companies (Accounts) Rules, 2014 and also provisions under MSMED Act, 2006 in its Audit Report/Annual Report as on 31.03.2014 and 31.03.2015. It is further clarified that the Demerged Company undertakes to comply with the necessary Accounting Standards, therefore, no directions are required to be issued. (ix) As per the next observation made by the Regional Director vide paragraph no. 2(g)(B) of the affidavit, the Petitioner Resulting Company has not stated rights, preferences and restrictions attached to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013. In regard to the said observation, the learned counsel has submitted that this observation of the Regional Director does not have any bearing on the Scheme of Demerger and its implementation. It has been further clarified that Demerged Company is having only one Geographical Segment viz. in India and hence it was and is of the bonafide belief that it is not subject to segment reporting. It has been further submitted that the Demerged Company has already shown various kind of source of income separately in its profit and loss account. Whereas the present petition is specifically for demerging the business of Processing of cloth on job work basis and Generation of Power using Windmill and hence the same is specifically mentioned in the Scheme at Paragraph Nos. 2 and 3. It has been further submitted that no false and misleading statements have been made in any of the Financial Statements or the Scheme and thus do not tantamount to fraud and does not attract penal provisions under Sections 447/448 of the Companies Act, 2013. It has been clarified that the Demerged Company shall undertake to comply with all the provisions of the Companies Act, 2013 and thus no directions are requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Report has been placed before the Regional Director. Had the said Valuation Report been perused properly, the objection would not have been raised. The Regional Director has, for the reasons best known to him, presumed that per share value of Demerged Company is ₹ 10/. Thereafter he further divided the Net Asset Value of the Resulting Company with the numbers of shares of the Demerged Company and derived the value of the Resulting Company at ₹ 25.38. Without going into the controversy as to whether the said comparison has been done erroneously or intentionally, it has been submitted that such an exercise is absolutely illegal and against the basic principles of accountancy and valuation. In order to demonstrate that the objection is complete absurd, the relevant extract of the Valuation Report is reproduced herein below for the ready reference: 7.0 COMPUTATION OF ENTITLEMENT RATIO: On the basis of the Divisionwise certified balance sheet of ZSM as of 31.03.2013 submitted to us and on the basis of such other information/explanation and documents submitted to us, we have computed the divisionwise net asset values of ZSM as on 31.03.2013 as per the details gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hted figures from the table which are absolutely incomparable. Net Assets Value of the Resulting Company cannot be divided by Shares of the Demerged Company to arrive at per share value. Moreover, the presumption that the per share value of Demerged Company is ₹ 10/is also not supported from the figures as the Net Assets Value of Demerged Company runs into negative. It has been submitted that both the companies in the proposed Scheme of Arrangement belong to the same group of management and all the Equity Shareholders of the Resulting Company have given their consent to the present Scheme and no objections have been received by the Company. Thus the Share Exchange Ratio calculated by the Chartered Accountant reflects the true and fair value along with the explanation with respect to the same. It has been further submitted that once the Directors and majority Shareholders have consented to the Share Exchange Ratio which has been worked out by a firm of Chartered Accountants who are experts in in the field of valuation then the observation by the Regional Director with respect to reasonableness of the Share Exchange Ratio deserves to be rejected. In any case, nothing has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerCompany, therefore, there is no question of compounding them. 11. Considering all the above facts and circumstances and taking into account all the contentions raised in the affidavits and reply affidavits, the judgments of this Court and the submissions advanced during the course of hearing, this Court is satisfied that the observations made by the Regional Director, Ministry of Corporate Affairs do not survive. In fact, most of the observations are frivolous and unwarranted. This Court, therefore, arrives at the conclusion that the present Scheme of Arrangement is in the interest of its Shareholders and Creditors as well as in the public interest and the same deserves to be sanctioned. The Scheme is, accordingly, sanctioned. 12. The Reduction of Issued, Subscribed and Paid up share capital of the Demerged Company viz. Zenith Silk Mills Private Limited as envisaged under clause 14 of the Scheme is specifically granted. The prayers in terms of Paragraph Nos. 17(a) and 17(b) as well as the Minutes under Section 103(1) of the Companies Act, 1956, in terms of Paragraph 14 of the Company Petition No. 340 of 2015 for the Demerged Company viz. Zenith Silk Mills Private Limited a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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