Court approves demerger scheme under Companies Act, overcoming objections.

The court granted sanction to the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956, allowing the demerger of passive infrastructure assets from transferor companies to a transferee company. Despite objections from the Regional Director and the Income-tax Department regarding employee transfers, tax liabilities, and public interest, the court approved the scheme, emphasizing compliance with statutory requirements and the alignment with government policies. The Income-tax Department retained the right to assess tax liabilities independently post-approval, and the petitioners were reminded of their obligation to pay stamp duty.

---

---

Issues Involved:
1. Sanction of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Objections by the Regional Director regarding the transfer of employees and details of assets and liabilities.
3. Objections by the Income-tax Department concerning tax liabilities, accounting treatment, and public interest.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement:
The petitioners sought court approval for a Scheme of Arrangement involving the demerger of passive infrastructure assets from several transferor companies to a transferee company. The Scheme aimed to segregate the passive infrastructure assets to enable further growth, maximize value, improve service quality, and align with global trends and government policy promoting infrastructure sharing.

2. Objections by the Regional Director:
The Regional Director raised concerns about the continuity of employment for employees engaged in passive infrastructure assets and the absence of detailed individual assets and liabilities in the Scheme. The petitioners responded by undertaking to file a final list of assets post-approval, which the court accepted, rendering the objection moot.

3. Objections by the Income-tax Department:

a. Tax Liabilities and Accounting Treatment:
The Income-tax Department argued that transferring assets without liabilities would reduce taxable profits for the transferor companies, adversely affecting revenue. They also contended that the Scheme's accounting treatment might lead to tax evasion. The petitioners countered that the Scheme involved intra-group transfers without consideration, supported by past court rulings. The court noted that the tax authorities could still examine the transactions for tax compliance post-approval.

b. Public Interest:
The Department claimed the Scheme was against public interest as it might reduce tax liabilities. The court, however, emphasized that the Scheme aligned with government policy promoting infrastructure sharing and cost reduction. The court also noted that similar schemes had been approved for other companies without objections from the Income-tax Department.

c. Solvency of Transferor Companies:
Concerns were raised about the solvency of transferor companies post-demerger. The petitioners demonstrated that the companies would continue to generate sufficient revenue to meet tax liabilities, even if their net worth decreased.

d. Precedent and Consistency:
The petitioners highlighted that similar schemes had been sanctioned for competitors without objections from the Income-tax Department. The court acknowledged this, noting the absence of objections in other jurisdictions.

Conclusion:
The court granted sanction to the Scheme of Arrangement, noting compliance with statutory requirements and the absence of objections from shareholders and creditors. The court reserved the right of the Income-tax Department to assess tax liabilities independently of the Scheme's sanction. The petition was allowed, with the order clarifying that it did not exempt the petitioners from stamp duty payments.

---