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TMI Blog2017 (5) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... n 232 within a period of two weeks from the date of this order failing which the petition shall stand rejected. List the matter on 22.5.2017 if compliance is reported. - Company Petition No. 1139 of 2016 and Company Application (Main) No. 107 of 2016 - - - Dated:- 9-5-2017 - M.M. Kumar, C.J. (President) and R. Varadharajan, Member (J) For the Appellant: Mohit D. Ram and Monisha Handa, Advocates ORDER 1. This joint petition filed by the companies above named is coming up finally before us on 15.03.2017 for the purpose of approval of the composite Scheme of Arrangement (hereinafter for sake of brevity referred to as the Scheme ), as contemplated between the companies and its shareholders by way of demerger of the transferred undertakings', initially, of the Petitioner/Amalgamated/Transferor Company and be vested with the Transferee Company and further the Scheme also proposes that the 'Transferred undertakings' of the Petitioner/Amalgamating Company be merged with and be vested in the Petitioner/Amalgamated/Transferor Company and the Amalgamating Company be dissolved without winding up upon sanction of the Scheme. 2. A perusal of the petition disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Affairs has transferred/transmitted the records of the above petition to this Tribunal vide order dated 21.02.2017, for our consideration. 6. In view of the above, the petition of Second Motion as above filed by the petitioners before the Hon'ble High Court and subsequently transferred to this Tribunal is taken up for final consideration by us. The petitioners, it is seen from the records have filed an affidavit dated 07.09.2016 in relation to compliance of the orders passed by the Hon'ble High Court of Delhi dated 15.11.2016 and a perusal of the same discloses that the petitioners have effected the paper publication as directed by the Hon'ble High Court of Delhi in one issue of the 'Times of India' in English edition and 'Veer Arjun' in the Hindi Edition, both dated 30.08.2016. Further, the affidavit also discloses that notices have been issued to the Regional Director, Northern Region as well as to the Official Liquidator attached to the High Court, Delhi in compliance with the order dated 15.11.2016 and in proof of the same acknowledgements of the respective offices have also been annexed. 7. Further, it is also seen that pursuant to the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, in the reply it is also stated that the delay in repayments of dues to Financial Institution as referred above pertains to Small Industrial Development Bank of India { SIDBI } and SIDBI had attended the Meeting of Secured Creditors as held in pursuance to the order of Hon'ble High Court of Delhi dated 12th August, 2016 and has approved the proposed Scheme of Arrangement and they did not have any objection to the same. 11. Further the Petitioner/Amalgamated/Transferor Company also avers that it is not dissolving and shall continue as a legal entity post the Scheme of Arrangement becoming effective. And accordingly, the above said observation of the Regional Director (Northern Region) has got no impact on the proposed Scheme of Arrangement and is not an impediment in the sanction of the proposed Scheme of Arrangement. The submissions as above of the petitioners in relation to the observations of RD seem to have force and hence the explanation of the petitioners is taken into consideration and accordingly the said observation is disposed off. 12. Going to the next observation of the RD at Para 9 of its report the Regional Director (Northern Region) has sought directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. 232(3) xxxxxxxxxxxxxxx Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. 15. Taking into consideration the above provisions which has placed an onus on this Tribunal to sanction a scheme or arrangement only if the certificate by the company's auditor has been filed with the Tribunal for the stated purpose, namely that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under Section 133 of the Companies Act, 2013 and upon perusal of the Joint Application filed by the petitioners at the first motion stage as well at the second motion stage, both before the Hon'ble High Court of Delhi copies of which has been made available to us, we do not find any certificate from the respective Company's auditor having been filed. A copy of the Joint application made available to us contains Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 133 of the Companies Act, 2013; c) the certificate to this effect should be issued by the company's auditor; and d) the certificate should have been filed with the Tribunal 19. All the above conditions are cumulatively required to be satisfied failing which this Tribunal it is evident from the plain reading of the statute cannot sanction the Scheme of Compromise or Arrangement and thus the provisions seems to be mandatory. In this connection reference to Section 133 of Companies Act, 2013 discloses that the Central Government is empowered to prescribe the standards of accounting as recommended by the Institute of Chartered Accountants (ICAI) in consultation with National Financial Reporting Authority (NFRA). Further till NFRA is constituted, National Advisory Committee on Accounting Standards constituted under Section 210A of the Companies Act, 1956 is enjoined with such powers. 20. In exercise of the powers contained in Section 133 read with other relevant provisions of the Companies Act, 2013, the Central Government has prescribed several Accounting Standards including the one prescribed specifically relating to Amalgamations titled as Accounting Standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflect impairment and so on which have the effect of reducing incomes and were, therefore, not readily accepted by some enterprises and tax authorities. 6. The core of accountancy is book-keeping. The rules of book-keeping are clear. For example, the value of a fixed asset mentioned in a balance sheet is based on cost which may involve subjective estimation of the amount to be apportioned. Similarly, the quantum of depreciation is again an estimate, which can vary depending on the persons preparing the accounts as to when and at what stage he wants to record the depreciation. AS are an attempt to overcome some of these deficiencies of accountancy. AS involve codification of fundamental accounting rules, rules which explain and standardize the application of the fundamental rules to a variety of uncertain situation like retirement, contingencies, intangibles, consolation, merger, etc. AS basically attempt to reduce the subjectivity and lay down rules so as to arrive at the best possible estimates. For example, net assets refer to the difference between total assets less liabilities but the value attributable to each asset and each liability is often subjective. It depends on est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their useful life, it is unnecessary for tax laws to apply an artificial rule to decide the extent of allowance for depreciation emphasis added). 8. Finally, the adoption of AS and of accounting income as 'taxable income' would avoid distortion of accounting income which is the real income. In paragraph 17 of the above judgment referred to the Hon'ble Supreme Court elucidates also on the point of application of Accounting Standards vis- -vis. the auditor who certifies its compliance and the effect or otherwise of such certification: 17. xxxxxxxxxxxxxxxxxxxxxxx Accordingly, it is necessary for the auditor to qualify in his report, and such qualification should bring out in what manner the accounts do not disclose a true and fair view of the state of affairs of the company as well as the profit/loss of the company. Several AS prescribed by the Institute have been made mandatory. The Institute has, however, clarified that the expression 'mandatory in nature' implies that while discharging their functions, it will be the duty of the chartered accountants who are member of the Institute to examine whether the said Accounting standard has been complie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generally accepted accounting principles. Further the standard format for auditor's certificate to be issued is also specified as per Annexure II of the above noted circular and for ready reference the same is extracted below, as presently neither the Companies Act, 2013 or the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 contains the format under which the Auditor's Certificate is required to be given as contemplated under proviso to sub-section (7) of Section 230 as well as proviso to sub-section (3) of Section 232 which leads to lack of uniformity as well as to subjectivity. Format for Auditor's Certificate To, The Board of Directors, ............ (Name Address of the Company) We, the statutory auditors of ...........................................(name of the listed entity), (hereinafter referred to as the Company ) have examined the proposed accounting treatment specified in clause................(specify clause number) of the Draft Scheme of ...............................(specify the type of Scheme) between..................................................................(names of the companies/entities involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................................................(name of the Stock Exchange(s). This Certificate should not be used for any other purpose without our prior written consent. For .................. (name of the Firm) Chartered Accountants Firm Registration No. :........... Signature 23. Till a format is prescribed the above format can be adopted with minimal modifications as may be required to be submitted to NCLTs for compliance with the proviso to sub-section (7) of Section 230 as well as proviso to sub-section (3) of Section 232. Certificate from the Company's Auditor in relation to compliance of the accounting standards prescribed under Section 133 becomes more accentuated due to the recent notification issued by the Ministry of Corporate Affairs notifying the provisions to Section 234 as well as amalgamation rules in relation to the Companies (Compromise, Arrangement and Amalgamation) Amendment Rules, 2017 wherein the merger or amalgamation of a foreign company with a company and vice versa is sought to be allowed subject to the rules framed there under. In effect, by virtue of notification of Section 234 as well as amending ru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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