2012 (11) TMI 967 - HC - Companies Law

Court approves Scheme of Arrangement for asset transfer and dissolution

The court sanctioned the Scheme of Arrangement between two companies, allowing for the transfer of assets and liabilities, dissolution of the Transferor ... Scheme of Arrangement sanction under Sections 391 to 394 and Sections 100 to 103 of the Companies Act, 1956 - transfer and vesting of undertaking, property, rights and liabilities by operation of sanctioned scheme - cancellation of share capital where transferor is wholly owned subsidiary of transferee - sanction effective from appointed date and dissolution without winding up - statutory compliance and filing of certified copy with Registrar of Companies - prima facie contravention of provisions regarding private company status and requirement to compound offences under Sections 12 and 252Scheme of Arrangement sanction under Sections 391 to 394 and Sections 100 to 103 of the Companies Act, 1956 - statutory compliance and filing of certified copy with Registrar of Companies - Sanction of the Scheme of Arrangement between the Transferor Company and the Transferee Company. - HELD THAT: - Having considered the petition, the reports and affidavits filed by the Official Liquidator and the Regional Director (Northern Region), and noting that no objections were received following publication of citations, the Court found no impediment to granting sanction. The Court recorded that the Shareholders and Creditors had approved the Scheme, the Official Liquidator reported no complaints, and the Regional Director's observations were addressed by the petitioners. The Court accordingly sanctioned the Scheme subject to statutory requirements and directed compliance including filing a certified copy of the order with the Registrar of Companies within 30 days. [Paras 10, 11, 14, 15, 18]The Scheme of Arrangement is sanctioned; petition allowed and certified copy of the order to be filed with the Registrar of Companies within 30 days.Transfer and vesting of undertaking, property, rights and liabilities by operation of sanctioned scheme - Effect of the sanctioned Scheme on assets, rights, powers, liabilities and duties of the Transferor Company. - HELD THAT: - In terms of the sanctioned Scheme and sections 391 and 394, the whole or part of the undertaking, property, rights and powers of the Transferor Company were to be transferred to and vest in the Transferee Company without any further act or deed. Similarly, all liabilities and duties of the Transferor Company were to be transferred to the Transferee Company without any further act or deed. The Court clarified that the order does not operate as an exemption from payment of stamp duty, taxes or other charges or from any other statutory requirement. [Paras 15]All assets, rights, powers, liabilities and duties of the Transferor Company stand transferred and vested in the Transferee Company by operation of the Scheme; no exemption from statutory duties or taxes implied.Cancellation of share capital where transferor is wholly owned subsidiary of transferee - Treatment of the issued, subscribed and paid up share capital of the Transferor Company and issue of shares by the Transferee Company upon amalgamation. - HELD THAT: - The Scheme provided that because the entire issued, subscribed and paid up share capital of the Transferor Company was held by the Transferee Company either directly or through nominees, the share capital of the Transferor Company would stand cancelled on sanction of the Scheme and there would be no issue and allotment of shares by the Transferee Company in consideration of the amalgamation. The Court recorded this position in approving the Scheme. [Paras 7]The Transferor Company's issued share capital is cancelled upon sanction and no shares are to be issued or allotted by the Transferee Company in consideration of the amalgamation.Sanction effective from appointed date and dissolution without winding up - Appointed date and consequent dissolution of the Transferor Company. - HELD THAT: - The Court accepted the Scheme's appointed date of amalgamation as 1st April, 2012. It directed that upon the sanction becoming effective from that appointed date, the Transferor Company shall stand dissolved without undergoing the process of winding up. [Paras 16]On the Scheme taking effect from 1st April, 2012, the Transferor Company is to be dissolved without winding up.Prima facie contravention of provisions regarding private company status and requirement to compound offences under Sections 12 and 252 - statutory compliance and filing of certified copy with Registrar of Companies - Regional Director's observations about change in shareholding rendering the companies deemed public and the petitioners' undertaking to remedy and seek compounding. - HELD THAT: - The Regional Director observed that transfers of shares had rendered the Transferee (and therefore the Transferor) a subsidiary of a public company and thus 'deemed' public, raising prima facie contraventions of Sections 12 and 252. The petitioners explained the post-AGM transfers and stated that in October 2012 they had altered shareholding and board composition to comply with statutory requirements. Counsel undertook to file requisite application for compounding of the offence within two weeks. On this basis the Regional Director did not press objections further and the Court recorded that the petitioners agreed to abide by the observations and requirements. [Paras 11, 12, 13]Regional Director's objections stood answered on petitioners' explanation and undertaking; petitioners to apply for compounding of the contraventions and to comply with statutory requirements.Voluntary deposit in Common Pool Fund of Official Liquidator - Petitioners' voluntary deposit into the Official Liquidator's Common Pool Fund. - HELD THAT: - Counsel for the petitioners stated that the petitioners would voluntarily deposit a specified sum in the Common Pool Fund of the Official Liquidator within three weeks. The Court accepted the statement. [Paras 17]The petitioners' undertaking to deposit the stated sum in the Official Liquidator's Common Pool Fund within three weeks is accepted.Final Conclusion: The High Court sanctioned the Scheme of Arrangement between the Transferor and Transferee companies under the Companies Act, 1956; the Scheme operates from the appointed date (1 April 2012) transferring assets and liabilities to the Transferee and dissolving the Transferor without winding up, subject to statutory compliances, the petitioners' undertaking to seek compounding of identified contraventions and to file the certified order with the Registrar of Companies. Issues:Petition under Sections 391 to 394 and Sections 100 to 103 of the Companies Act, 1956 seeking sanction of the Scheme of Arrangement between two companies.Analysis:The joint petition filed under Sections 391 to 394 and Sections 100 to 103 of the Companies Act, 1956 sought sanction for a Scheme of Arrangement between two companies, Transferor Company and Transferee Company, both having their registered offices in New Delhi. The petition included details of the incorporation dates, authorized, issued, and paid-up capital of both companies, along with copies of their Memorandum and Articles of Association and latest audited accounts. Resolutions approving the Scheme of Arrangement were passed by the Board of Directors of both companies. No pending proceedings under Sections 235 to 251 of the Companies Act, 1956 were reported against the Petitioner Companies.The share exchange ratio in the Scheme indicated that the entire share capital of the Transferor Company would be cancelled upon sanction, as it was held by the Transferee Company. Previous directions were obtained for dispensation of meetings of shareholders, secured creditors, and unsecured creditors. Notices were issued to the Regional Director (Northern Region), Ministry of Corporate Affairs, and the Official Liquidator, with citations published in newspapers. Affidavits of service and publication were filed, demonstrating compliance.The Official Liquidator's report stated no complaints against the Scheme, and that the Transferor Company's affairs did not seem prejudicial. The Regional Director raised concerns about the companies' compliance with shareholding and directorship requirements under the Companies Act, 1956. The Petitioners clarified the share transfer timeline and took steps to rectify the composition to meet legal standards. The Regional Director withdrew objections upon receiving satisfactory responses.No objections were received from any party regarding the Scheme of Arrangement. The counsel confirmed the absence of objections and compliance with statutory requirements. Approval was granted based on shareholder and creditor agreement, reports from the Regional Director, and compliance with legal provisions. The Scheme allowed for the transfer of assets, liabilities, and dissolution of the Transferor Company without winding up. A voluntary deposit into the Common Pool Fund of the Official Liquidator was agreed upon by the Petitioner Companies. The petition was allowed in the specified terms.In conclusion, the judgment sanctioned the Scheme of Arrangement between the two companies, outlining the transfer of assets and liabilities, dissolution of the Transferor Company, and compliance with statutory requirements under the Companies Act, 1956.