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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 ..... ny as per the terms of Scheme. Application disposed off. - CP (CAA) No.2/Chd/Hry/2019 - - - Dated:- 18-12-2019 - MR. AJAY KUMAR VATSAVAYI AND MR. PRADEEP R. SETHI, JJ. For the petitioner-companies : Mr. Atul V. Sood, Advocate For Income Tax Department : 1. Mr. Yogesh Putney, Advocate 2. Mr. H.S. Sehgal, Advocate For Official Liquidator : Mr. Vibhor Sharma, Advocate JUDGMENT Mr. Pradeep R. Sethi, J. This is a joint Second Motion Petition under Sections 230 to 232 of the Companies Act, 2013 (for short, the Act ) filed by the Petitioner-Companies in terms of Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (for brevity, Rules ) for the sanction of Scheme of Amalgamation (for brevity Scheme ) of Salter India Limited (Transferor Company) with Avery India Limited (Transferee Company). The joint petition is maintainable in terms of Rule 3(2) of the Rules. 2. The applicant-companies filed First Motion Application bearing CA (CAA) No.35/Chd/Hry/2018 before this Tribunal for seeking dispensation with the meetings of equity shareholders and unsecured creditors of Transferor Company and secured creditors of both the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders and 100% of the unsecured creditors of the Transferee Company. Thereupon the instant petition was filed for approval of the Scheme in terms of Rule 15 of the Rules. 7. The main objects, date of incorporation, authorized and paid-up share capital, interest of employees and rationale of the Scheme were already discussed in detail in the First Motion order dated 13.11.2018 passed by this Tribunal. 8. Annexure P-13 is the certificate dated 05.09.2018 of Deloitte Haskins SeNS, Chartered Accountants, stating therein that the accounting treatment in the books of the applicant companies proposed in the Scheme is in compliance with the applicable Accounting Standards notified by the Central Government under Section 133 of the Companies Act, 2013 read with Companies (Accounting Standards) Rules, 2006 as amended and other generally accepted accounting principles in India as applicable. 9. The audited financials for the period ended 31.03.2018 and supplementary financial statements for the period ended 30.09.2018 of the applicant companies are attached 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 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders as on the Record Date. 17.3 Upon the Scheme becoming effective and pursuant to clause 17.1 and clause 17.2 above, the Relevant Shareholders of the Transferee Company as on the Record Date, shall be paid, for the equity shares held by them and which are cancelled and extinguished, a sum of ₹ 276 per equity share of face value ₹ 10 each, so cancelled and extinguished, as per valuation carried out by independent valuers, SSPA CO. (Chartered Accountants). Further, as per the provisions of section 115-O of the Income Tax Act, 1961, the Transferee Company shall additionally bear the dividend distribution tax @ 20.555% amounting to approximately ₹ 56.73 per equity share so cancelled and extinguished or as may be applicable as per the tax laws then in force. 12. It is also stated that the Transferor Company is wholly owned subsidiary of the Transferee Company, therefore, there would be no issue and allotment of shares by the Transferee Company. It is further submitted that upon sanctioning of the Scheme, the entire present issued, subscribed and paid-up capital of the Transferor Company shall stand automatically cancelled and extinguished and this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders i.e. three individual shareholders and one company viz., Mr. Dilip Kumar Surana, Address: Arihant Plaza, 1st floor 84-85 Wall Tax road Chennai-60003; Mr. PP Zibi Jose, PCS, Address: 61/2939, Tenrose SRM Road, Kochi 682018 and Hanuman Share Stock Brokers Ltd., Address: 57 H.H. Trust Building Opp. Dhanlaxmi Market, Revdi Bazar, Kalupur, Ahmedabad-380002. It is, therefore, directed that individual notices be sent to the above mentioned shareholders. The petitioner-companies have attached specific affidavits of Mr. Pawan Kumar Arora and Mr. Rohit Gupta, the authorized representatives of the Transferor Transferee Company to the effect that there is no sectoral regulator(s) governing the business of the petitioner-companies and it is also stated that since the Company is a downstream investment of foreign owned and controlled company, Reserve Bank of India may be treated as Sectoral Regulator for that purpose. In addition to the above public notice, each of the petitionercompanies shall serve the notice of the petition on the following Authorities namely, (a) Central Government through Regional Director (Northern Region), Ministry of Corporate Affairs (b) Registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the petitioner companies, the learned counsel for the Official Liquidator and learned counsel for the Income Tax Department and have perused the records carefully. 18. Mr. O.P. Sharma, the Official Liquidator has filed his report dated 08.05.2019 (Diary No.2400 dated 13.05.2019) wherein no specific objections to the Scheme have been raised and it is submitted that the matter may be decided on merits. 19. The Regional Director, Northern Region, Ministry of Corporate Affairs (RD) has filed its report by way of affidavit dated 02.05.2019 (Diary No.2427 dated 14.05.2019). The Regional Director on the basis of the Registrar of Companies report dated 23.04.2019 has made few observations in Para 9 of his report which are as follows:- (a) With reference to clause 14 of the scheme, the RD in para 9(a) observed that the Transferee company may kindly be directed to comply with the provision of section 232 (3) (i) of the Companies Act, 2013 in regard to fee payable on its revised authorized share capital. (b) In para 9(b) of the report, the RD observed that the Transferor Company has mentioned that they have no secured creditors and the meeting of secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Registrar of Companies on 31.12.2004 but the same still appears inadvertently on the MCA-21 records due to some technical lapse and needs to be rectified as satisfied. The relevant document pertaining to the charge satisfied is attached as Annexure A (Diary No. 2770). (iii) In response to the objections filed by Mr. P.P. Zibi Jose, PCS, it has been submitted by the Transferee Company that in terms of provision 230(4) of the Act, the shareholders holding a minimum of 10% of the total shareholding has the right to raise objections against the compromise and arrangements filed under Section 230 of the Companies Act, 2013. Mr. P.P. Zibi Jose holds 8,172 equity shares in the Transferee Company which constitute only 0.0831% of the total shareholding of the Transferee Company. Therefore, such percentage held by the Mr. P.P. Zibi Jose does not meet the minimum threshold prescribed under proviso to Section 230(4) of the Act and on this ground the letter dated 31.01.2019 filed by the Mr. P.P. Zibi Jose lacks the validity under the statutory provision. 21. Mr. Yashpal Chawla, Jt. Commissioner of Income Tax Circle-22(1), New Delhi, filed its report dated 15.01.2019 (Diary No.435 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions vide Diary No. 96 dated 28.04.2019 stating therein that one of the arrangements proposed in the Scheme is to compulsorily cancel the shares held by non-promoter shareholders which is highly prejudicial to the interest of the non-promoter shareholders by-passing Section 66 and/or Section 236 of the Companies Act. It is stated by the objector that he holds 0.0831% of the paid up share capital. The Scheme is outside the purview of Section 230-232 since the said provisions are primarily intended to restructure either a sick company or a potential sick company or companies which are not in a good financial position or are getting into possible business difficulties including winding up but possible to reorganize the same. Lastly, it is stated that the Scheme is only intended to remove all the non-promoter shareholders of the company at a throw away price with only zero cost to the promoters. There is no compromise or arrangement envisaged in the Scheme and the only compromise is compulsory cancellation of non-promoter shareholders at a throw away price. 28. The learned counsel for the petitioner companies has filed reply to the above mentioned objections vide Diary Nos. 2768 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) specifically provides that only shareholders holding 10% share or more can file an objection. In the present case, admittedly, the shareholding of all the 3 shareholders put together is 0.15%. Such percentage held by the Objectors does not meet the minimum threshold prescribed under Section 230 (4) and on this ground, the alleged objections are ineligible to be heard by this Hon ble Tribunal. Further, on the recommendations of the Report of Expert Committee on Company Law, the Companies Act, 2013 introduced the threshold for objections. Hence, the objections cannot be considered, being ineligible u/s 230(4) of the Act. b. Petitioners are bypassing Section 66 and 236 of the Act. Explanation to Section 230(12) of the Act clearly states that section 66 is not applicable and in a Scheme of Arrangement, capital reduction is permissible. This position has been upheld by Hon ble NCLAT in R Systems International Ltd, MANU/NL/0151/2018 and in the matter of Ratnagiri Gas and Power Limited Anr. in Company Appeal (AT) No. 294 of 2017. This has also been held by this Hon ble Tribunal in the matter of Brooks Instruments Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionalities and management. Accordingly, the Scheme would result in consolidation of complementary businesses and related assets of the Transferor Company with the Transferee Company, leading to synergistic linkages and benefits. f. Scheme is intended to avoid payment of stamp duty on transfer of immovable properties and payment of income tax. Clause 9 of the Scheme states that all tax dues will be paid by the Transferee Company. Further, the Income Tax department has given a no objection to the Scheme. Any stamp duty as applicable on transfer of immovable properties shall be paid by the Transferee Company. g. Valuation of shares in bad. Non-promoter shareholders are being removed at a throw away price. Only a bald statement has been made and no explanation has been given to support this averment. It has been held by Hon ble Supreme Court in Hindustan Lever Employees Union V. Hindustan Lever Ltd. Ors. that an objector must first show that the valuation is ex-facie unreasonable, i.e., so unreasonable that it can t be accepted. It was also held that valuation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter was heard on 14.10.2019, the order was reserved. Subsequently, during the course of examination, certain issues came to notice and the matter was listed on 23.10.2019, when the following order was passed:- During the course of examination, it is noticed that for the purpose of determining whether the proposed reduction of capital is fair and equitable and it is also just and reasonable, the details of the shareholding position of the Transferee Company before and after reduction are not available and the voting position of the relevant Shareholders is also not available. Similarly, for the purpose of determining whether the valuation of the shares is ex facie unreasonable i.e. so unreasonable that it cannot be accepted, the working for computation of the DCF by the Valuer is not available. For the purpose of obtaining the above details, the case is fixed for re-hearing on 29.10.2019. 32. In compliance, the Transferee Company filed affidavit (Diary No.6224 dated 08.11.2019) of Mr. Rohit Gupta, authorized signatory of Transferee Company stating the Pre and Post Capital Reduction Shareholding Pattern of the Transferee Company is as under:- S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 extracted above the response of the petitioner companies in tabular form to the representation/objections of the shareholders of the Transferee Company. We consider it reasonable in this case to decide on the objections raised on merits vide Sr. No.2b onwards. We find that the objections from 2b to 2i have been adequately replied too by the Petitioner Companies. We may add that in Reckitt Benckiser (India) Ltd. 2005 SCC OnLine Del 674, the Hon ble Delhi High Court in para No.21 held as under:- 21. The principles, which can be distilled from the aforesaid judicial dicta, are summarised as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, just and reasonable keeping in mind that the shareholders are in the best position to ascertain the necessities and interests of the company. 38. The voting status of the relevant shareholders has been discussed above. Out of 112 relevant shareholders, 96 shareholders (85.71%) have voted in favour of the Scheme and even though as per value of shares, their percentage is only 10.9%, the views of the relevant shareholders voting is in favour of the Scheme. Therefore, the proposed reduction of share capital by payment to the relevant shareholders has been found to be fair and equitable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Scheme. Therefore, the Scheme (Annexure P-1) is approved. While approving the Scheme, it is clarified that this order should not be construed as an order in any way granting exemption from payment of any stamp duty, taxes or any other charges, if any, and payment in accordance with law or granting permission. In respect of any permission/compliance with any other requirement which may be specifically required under any law. It is directed that the Petitioner Companies shall comply with the provisions of FEMA/RBI Act. With the sanction of the Scheme, the Transferor Company shall stand d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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