2015 (4) TMI 1069 - HC - Companies Law

Court approves Scheme of Arrangement for Equity Shareholders, clarifies buyback legality

In Re : Capgemini India Private Limited

In Re : Capgemini India Private Limited - TMI Issues involved:1. Sanction of Scheme of Arrangement with Equity Shareholders under Sections 391 and 100-103 of the Companies Act, 1956.2. Objections raised by the Regional Director regarding the buyback of shares under different sections of the Companies Act.3. Legal permissibility of following either Section 77A/68 or Section 391 for buyback of shares.4. Impact of Section 230 of the 2013 Act on the legal position established in previous judgments.5. Allegations of tax evasion and foreign exchange outflow in the sanctioned Scheme.6. Consideration of RBI guidelines for transfer of shares and compliance with fair market value determination.Detailed Analysis:1. The Petitioner sought sanction for a Scheme of Arrangement with Equity Shareholders under Sections 391 and 100-103 of the Companies Act, 1956, proposing to purchase 30% of the issued share capital. The procedure for exercising the option by shareholders was outlined in the Scheme.2. The Regional Director raised objections, contending that buyback under Section 77A/68 would avoid tax liabilities. The Petitioner argued that the Regional Director had the authority to raise such objections, even if Income Tax Authorities did not object.3. The Petitioner asserted the option to follow either Section 77A/68 or Section 391 for buyback, citing the Sterilite Industries case supporting this flexibility beyond mandatory provisions.4. The judgment highlighted the impact of Section 230 of the 2013 Act on the legal position established in previous judgments, clarifying that the prevailing law under Sterilite Industries would apply until Section 230 came into force.5. The Regional Director alleged tax evasion and foreign exchange outflow due to the sanctioned Scheme. However, the court emphasized the legality of the chosen procedure and the Petitioner's right to manage tax implications lawfully.6. The compliance with RBI guidelines for share transfer and determination of fair market value was crucial in assessing the legitimacy of the Scheme, ensuring no drainage of foreign exchange without legal basis.In conclusion, the court sanctioned the Scheme with a provision for Income Tax Authorities to address tax-related issues separately. The judgment emphasized the legality and permissibility of the chosen procedure under Section 391, dismissing allegations of tax evasion and foreign exchange outflow without legal grounds.