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TMI Blog2019 (12) TMI 1526X X X X Extracts X X X X X X X X Extracts X X X X ..... eking dispensation with the meetings of equity shareholders and unsecured creditors of Transferor Company and secured creditors of both the Applicant-Companies and for convening the meetings of equity shareholders and unsecured creditors of Transferee Company and to pass any such orders or directions as may be deemed fit in the facts and circumstances of the case. 3. The First Motion Application was disposed of vide order dated 13.11.2018 with a direction to hold meetings of equity shareholders and unsecured creditors of the Transferee Company. Meeting of equity shareholders and unsecured creditors of the Transferor Company was dispensed with. There was no secured creditor in any of the applicant company, therefore, there was nothing to convene their meeting. Certain necessary directions as mentioned in the order dated 13.11.2018 at Annexure P-10, were also issued. 4. The affidavit dated 22.12.2018 of Mr. Rohit Gupta, authorized representative of the Petitioner Companies with regard to compliance of all the directions given in the order dated 13.11.2018 was filed vide Diary No. 5123 dated 24.12.2018 along with newspaper publications in Indian Express (English), Delhi/NCR Edi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttached as Annexure P-3, P-4, P-6 and P-7 respectively. 10. As per the Scheme, the Appointed Date is 01.04.2018 or such other date as may be approved by the Tribunal or another appropriate authority. The Share Exchange Ratio under the Scheme has been determined in accordance with the report dated 31.07.2018 issued by SSPA & Co., Chartered Accountants, attached as Annexure A-12. According to the Valuation Report, the fair value per equity share of Transferee Company works out to Rs.276 as on the Valuation Date. 11. It is also submitted that the present 'Scheme' involves reduction of share capital of Transferee Company and the relevant paragraph is reproduced as under:- 17. REDUCTION OF SHARE CAPITAL OF THE TRANSFEREE COMPANY 17.1 As on 24th August 2018, the issued, subscribed and paid up share capital of the Transferee Company is Rs. 9,83,23,020 consisting of 98,32,302 equity shares of face value Rs. 10 each, fully paid up, of which, 8,63,857 equity shares are held by the Relevant Shareholders The issued, subscribed and paid up share capital of the Transferee Company shall stand reduced with regard to the shares held by the Relevant Shareholders as on the Record Date, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferor Company shall stand automatically cancelled and extinguished and this company shall stand dissolved without undergoing the process of winding up. The present Scheme of Amalgamation provides for the following with respect to issue of shares:- "12. ISSUE OF SHARES Since the Transferor Company is a wholly owned subsidiary of the Transferee Company, and the Transferee Company holds 100% shares in the Transferor Company, no shares would be issued and allotted by the Transferee Company on the amalgamation of the Transferor Company with the Transferee Company. Upon the Scheme becoming effective, the entire share capital of the Transferor Company shall be cancelled and extinguished. The investments in the shares of the Transferor Company, appearing in the books of the Transferee Company, shall, without any further act or deed, stand cancelled." 13. The Registry reported on 25.01.2019, 25.02.2019 and 29.04.2019 that objections were received from Sh. Dilip Kumar Surana (Diary No.136 dated 29.01.2019), Sh. PP Zibi Jose (Diary No.164 dated 30.01.2019 and Diary No.207 dated 05.02.2019) and Hanuman Share & Stock Brokers Ltd. (Diary No.217 dated 05.02.2019) 14. When the petition wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector (Northern Region), Ministry of Corporate Affairs (b) Registrar of Companies at Delhi and Haryana, Ministry of Corporate Affairs (c) Income Tax Department through the Nodal Officer - Principal Chief Commissioner of Income Tax, NWR, Aaykar Bhawan, Sector 17-E, Chandigarh by mentioning the PAN of the companies (d) Official Liquidator, Punjab, Haryana and Chandigarh (e) Reserve Bank of India (f) Mr. Dilip Kumar Surana, Shareholder (g) Mr. PP Zibi Jose, PCS, Shareholder and (h) Hanuman Share & Stock Brokers Ltd., Shareholder along with copy of this petition by speed post immediately and to such other Sectoral Regulator(s) who may govern the working of the respective companies involved in the Scheme. The petitioner companies shall also file the affidavit at least two days before the date fixed to the effect that no objections to the Scheme have been received by the petitioner-companies." 15. The learned counsel for the petitioner-companies filed compliance affidavits of the authorized signatory of the petitioner-companies dated 22.04.2019 (Diary No. 2120 & 2121 dated 25.04.2019) along with copies of newspaper publications in Business Standard (Hindi) Delhi NCR Edition and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no secured creditors and the meeting of secured creditor was also dispensed by Hon'ble Tribunal on the basis of above submission of Transferor Company. However, it has been observed from MCA-21 records that the Transferor company has an active charge of Rs. 15,00,000/-. The same may be clarified from the Transferor Company. (c) In para 9(c) of the report, the RD has observed that a letter dated 31.01.2019 has been received from Sh. P.P.ZIBI Jose, Practicing Company Secretary, Shareholder of the Transferee Company objecting the proposed reduction of share capital of Transferee Company. (d) In para 12 of the report, the RD has extracted the reply of the petitioner companies (para 26 of letter dated 11.04.2019 addressed to the RD) stating that capital reduction under the proposed Scheme of Arrangement is in no manner a buy- back of shares under Section 68 of the Act. The buy-back provisions does not supplant any part of the pre-existing jurisdiction of the Court/NCLT to sanction a scheme for share reduction under Sections 230-232, 66 of the Act. Therefore, the conditions for buy-back under Section 77A cannot be applied to a scheme under Sections 100 to 104 and Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi, filed its report dated 15.01.2019 (Diary No.4359 dated 27.08.2019). It is stated in the report that a demand of Rs.15,914/- for the Assessment Year 2006- 07 is outstanding against the Transferor Company and there is no objection to the proposed amalgamation. 22. Mr. Debasish Biswas, Asst. Commissioner of Income Tax Circle1(1), Kolkata, filed its report dated 19.06.2019 (Diary No.371 dated 24.06.2019) in the case of the Transferee Company giving its NOC to the proposed Scheme of Amalgamation. 23. In response to the objection raised by the Income Tax Department in its report dated 08.02.2019, the authorized signatory of Transferor Company filed reply by way of affidavit dated 24.04.2019 (Diary No.2158 dated 29.04.2019) stating therein that upon the Scheme coming into effect on the Effective Date and with effect from the Appointed Date, any tax liability of the Transferor Company shall stand transferred to the Transferee Company and shall become tax liabilities of the Transferee Company. 24. As discussed above, notice was sent to RBI, Mumbai (Head Office) which was returned on 11.03.2019. However, it is stated by the applicantcompanies that notice sent to RBI, Regional offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned objections vide Diary Nos. 2768 and 2769 dated 31.05.2019 by way of affidavits of the respective authorized representatives of the petitioner companies stating therein that since the objector holds 8,172 equity shares in the Transferee Company which constitute only 0.0831% of the total shareholding of the Transferee Company, he does not meet the minimum threshold of 10% prescribed under proviso to Section 230(4) of the Act and therefore, on this ground the letter filed by the objector lacks validity under the statutory provision. It is also contended that the contents of "written submissions" are contrary to settled law. Lastly, it is submitted that there is no verification provided under the affidavit filed by the objector as required under Rule 34 of the NCLT Rules. 29. When the matter was listed on 01.10.2019, the learned counsel for the petitioner was directed to collect copies of the objections/letters from the Registry, sent by Mr. Dilip Kumar Surana, Shareholder; Mr. P.P. Zibi Jose, Practising Company Secretary and M/s Hanuman Share & Stock Brokers Ltd. and file in tabular form, the objections raised and the reply of the petitioners thereto. 30. The authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is permissible under Section 230. On the other hand, the proposed Scheme is at an entirely different footing, wherein the Transferee Company itself is reducing the capital of the non-promoter shareholders and discharging consideration and there is no acquisition of shares. Hence, section 236 has no application. c. Variation of Class rights is being done in violation of Section 48 of the Act As per Article of Association, the company has only one class of shares, i.e., equity shares and the voting and other rights are the same for the entire class of equity shareholders. Hence, there is no occasion of variation of any rights of shareholders as per Section 48 of the Companies Act, 2013. Further, this aspect has already been upheld by this Hon'ble Tribunal in the matter of Bharti Telecom Ltd. C.P. No. 167/Chd/Hry/2018 vide judgment dated 27.9.2019 in par nos. 35-36 relying on Reckitt Benckiser (India) Ltd. 2005 SCC OnLine Del 674 (para 31) d. Scheme is outside the view of Sections 230-232 as said provisions are meant for sick company or potentially sick company There is no such bar that only a sick or potentially sick company can exercise its right u/s 230-232 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the Transferee Company and has considered the industry trends and all other relevant financial and economic factors to determine the value per share of the Transferee Company. Further, Dividend Distribution Tax of INR 56.73 per equity share upon payment to shareholders will also be borne by the Transferee Company. Clause 17.3 of the Scheme (page 80 of paperbook). h. the independent directors are guilty of collusion with promoters in approving the scheme of arrangement Bald allegations. The Scheme was duly approved by shareholders and creditors with requisite majority. The meetings of shareholders and unsecured creditors of the Transferee Company was also conducted by a Chairman/ Alternate Chairman appointed by this Hon'ble Tribunal who happens to be a retired judge of Hon'ble High Court. Transferor Company is not required to appoint Independent Director as per Rule 4 of The Companies (Appointment and qualification of Directors) Rules, 2014 i. The Scheme is in violation of Articles 14, 19, 31, right to equality and right to property guaranteed under Constitution of India Merger of a Wholly Owned Subsidiary ('WOS') with its parent is not restricted under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders (as per Section 230 and directions of this Hon'ble Tribunal dated 13.11.2018 in First Motion Petition): Particulars Mode Yes No Total No. of Shareholders Remote e-voting + Ballot Papers 98 16 114 Percentage 85.96% 14.04% 100% Value of Shares 8,96,98,850 1,17,660 8,98,16,510 Percentage 99.87% 0.13% 100% Voting Status - Relevant Shareholders: Particulars Mode Yes No Total No. of Shareholders Remote e-voting + Ballot Papers 96 16 112 Percentage 85.71% 14.29% 100% Value of Shares 14,400 1,17,660 1,32,060 Percentage 10.90% 89.10% 100% 33. It is also stated in the aforesaid affidavit that the valuation report along with the detailed workings supporting the valuation of the Transferee Company computed in accordance with Discounted Cash Flow (DCF) method is annexed as Annexure-A. It is further submitted that as per Articles of Association, the company has only one class of shares, i.e., equity shares and the voting and other rights are the same for the entire class of equity shareholders and only one meeting of shareholders was directed and convened. The matter was accordingly reserved for orders on 14.11.2019. 34. We have already ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above discussion, the questions viz,: Whether it is permissible for a company to reduce its share capital in a disproportionate manner and whether it is permissible that consideration payable to different shareholders on account of reduction of share capital is calculated at different rates, must be answered in the affirmative. The mode, manner and incidence of reduction has been regarded as a matter of domestic concern and there is no restriction under the Act which curtails the discretion of a company in adopting the manner in which the company chooses to reduce its capital." 37. Therefore, the Hon'ble Delhi High Court has held that it is permissible for a company to reduce its share capital in a disproportionate manner. However, in both the decisions, the Hon'ble Delhi High Court has held that before the proposed reduction is confirmed by the court, the court has to be satisfied that i) there is no unfair or inequitable transaction and ii) all the creditors entitled to object to the reduction either consented or be paid or secured. It has been held in R.S. Live Media Pvt. Ltd. supra (para No.38) that the court has to view whether the reduction in capital is fair, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny which was being merged. 40. On an examination of the facts of the present case with reference to the above judgments, we find that the valuation of the shares is supported by the report dated 31.07.2018 issued by SSPA & Company, Chartered Accountants attached as Annexure A-12. According to this valuation report the fair value per equity share of the Transferee Company works out to Rs.276/- as on the valuation date. We may add here that the dividend distribution tax is to be paid by the Transferee Company as per clause 17.3 of the Scheme. No specific objections to the valuation of the shares has been raised in the representations/objections received from the three shareholders. 41. The representations/objections of the three shareholders are not accepted. 42. In view of the above discussion, we conclude that the objections/observations to the Scheme have been received only from Official Liquidator, Regional Director, Registrar of Companies and the shareholder P.P. Jibi Jose, Dlip Kumar Surana & Hanuman Share and Stock Brokers P. Ltd. and their objections/observations are adequately replied to by the Petitioner Companies and hence there is no impediment in the sanction of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital shall be set off against any fees payable by the Transferee Company on its authorized capital subsequent to the sanction of the 'Scheme'; and 7. That the Petitioner Companies do, within 30 days after the date of receipt of the order of this Tribunal, cause a certified copy of this order to be delivered to the Registrar of Companies for registration and on such certified copy being so delivered, the Transferor Company shall be dissolved without undergoing the process of winding up and the concerned Registrar of Companies shall place all documents relating to the Transferor Company and registered with him on the file kept in relation to the Transferee Company and the files relating to the said Transferor and Transferee Companies shall be consolidated accordingly, as the case may be; and 8. That the Transferee Company shall deposit an amount of Rs.1,00,000/- (Rupees One Lakh only) with the Pay & Accounts Officer in respect of the Regional Director, Northern Region, Ministry of Corporate Affairs within a period of three weeks from the receipt of the certified copy of this order; and 9. That any person interested shall be at liberty to apply to the Tribunal in the above matte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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