2015 (3) TMI 654 - HC - Companies Law

Court Sanctions Companies' Amalgamation Scheme under Companies Act with Emphasis on Compliance

The Court sanctioned the Scheme of Arrangement under sections 391 and 394 of the Companies Act, 1956 for the amalgamation and re-arrangement of multiple ... Scheme of Arrangement under sections 391 to 394 - Sanction of amalgamation - Transfer of undertaking, assets and liabilities - Employees to be absorbed without break or interruption - Compliance with FEMA and RBI regulations for foreign shareholding - Core Investment Company status and non-requirement of RBI registration as NBFC - Directors' continuing liability for breach of Reserve Bank of India Act - Income-tax consequences and protection of revenue including carry forward and set off of losses - Right of revenue authorities to proceed post-sanction - Order not constituting exemption from stamp duty, taxes or other statutory chargesScheme of Arrangement under sections 391 to 394 - Sanction of amalgamation - Sanction was granted to the Scheme of Amalgamation and re arrangement/reduction of post merger capital of the Transferee Company. - HELD THAT: - Having considered the petition, the Scheme annexed thereto, compliance with statutory requisites including service and publication of notices, approvals by shareholders and creditors, the reports of the Official Liquidator and the Regional Director and the clarifications and undertakings furnished by the Petitioners, the Court found no impediment to sanctioning the Scheme. The Court directed compliance with statutory requirements and ordered that on the Scheme taking effect the undertakings, properties, rights and powers of the Transferor Companies shall transfer to and vest in the Transferee Company and the Transferor Companies shall stand dissolved without winding up. [Paras 23, 24, 25, 26, 29]Scheme sanctioned under Sections 391 and 394 of the Companies Act, 1956; transfer and vesting of undertakings and dissolution of Transferor Companies directed.Employees to be absorbed without break or interruption - Employees of the Transferor Companies shall become employees of the Transferee Company without any break or interruption in their services. - HELD THAT: - Relying on the terms of the Scheme, and the Regional Director's report, the Court recorded that upon sanction all employees of the Transferor Companies shall become employees of the Transferee Company without break or interruption, as represented in the affidavit filed by the Regional Director. [Paras 10]Employees to be absorbed by Transferee Company without any break or interruption.Compliance with FEMA and RBI regulations for foreign shareholding - Core Investment Company status and non-requirement of RBI registration as NBFC - Directors' continuing liability for breach of Reserve Bank of India Act - Court accepted Petitioners' undertaking on FEMA/RBI compliance, held that the companies are CICs (not requiring RBI registration as NBFCs) and recorded that directors remain liable if any Reserve Bank provisions are violated despite sanction. - HELD THAT: - The Regional Director pointed out foreign shareholding and possible RBI/NBFC issues. The Transferee Company responded that all entities are Core Investment Companies under RBI Directions, which do not require NBFC registration or RBI NOC for amalgamation, and undertook to comply with applicable FEMA and RBI regulations. The Court accepted these clarifications and undertakings, but explicitly directed that if any violation of the Reserve Bank of India Act is found, the directors guilty of breach shall continue to be liable irrespective of the sanction. [Paras 11, 12, 13, 14, 15]Undertakings on FEMA/RBI compliance accepted; CIC status recorded as obviating NBFC registration requirement; directors remain liable for any RBI Act violations.Income-tax consequences and protection of revenue including carry forward and set off of losses - Right of revenue authorities to proceed post-sanction - The Court recorded Income Tax Department's observations, accepted Petitioners' assurances that the Scheme does not write off liabilities, and permitted Income Tax Authorities to proceed against the Transferee Company in respect of any liability arising on sanction. - HELD THAT: - The Regional Director noted potential tax consequences, including applicability of provisions governing carry forward and set off of losses. Petitioners stated the Scheme does not extinguish liabilities and that most companies had no accumulated losses; disclosures were made regarding a small loss that was subsequently set off. The Court accepted that the interests of the Income Tax Department are protected by the Scheme's provisions preserving continuance of proceedings and directed that Income Tax Authorities shall be permitted to proceed against the Transferee Company in respect of any liability arising due to the sanction. [Paras 19, 20, 21, 22, 23]Assurances regarding tax liabilities accepted; Income Tax Authorities permitted to proceed against Transferee Company; no relief from tax consequences granted by sanction.Transfer of undertaking, assets and liabilities - Order not constituting exemption from stamp duty, taxes or other statutory charges - The Court directed the transfer and vesting of all undertakings, properties, rights and liabilities of the Transferor Companies in the Transferee Company and clarified that the order does not exempt payment of stamp duty, taxes or other statutory permissions/compliances. - HELD THAT: - In terms of Sections 391 and 394 and the Scheme, the Court ordered that the whole of the undertakings, properties, rights and powers stand transferred to and vest in the Transferee Company and that all liabilities and duties shall transfer without further act. The Court expressly clarified that the sanction does not amount to exemption from stamp duty, taxes or other charges or compliance or permissions required under other laws. [Paras 26, 27]Assets and liabilities shall stand transferred and vested in Transferee Company; sanction does not exempt stamp duty, taxes or other statutory compliances.Compliance with statutory formalities post-sanction - Petitioners directed to file certified copy of the order with Registrar of Companies and to comply with other statutory requirements; Petitioners undertook to deposit an amount in the Official Liquidator's common pool. - HELD THAT: - The Court directed that a certified copy of the order be filed with the Registrar of Companies within thirty days and that the Petitioner Companies will comply with statutory requirements in accordance with law. The voluntary undertaking by the Petitioners to deposit a sum in the Official Liquidator's common pool was accepted and ordered to be acted upon within three weeks. [Paras 25, 26, 28]Certified copy to be filed with ROC within 30 days; statutory compliances to be observed; stated deposit into Official Liquidator's common pool accepted.Final Conclusion: The Scheme of Arrangement for amalgamation and post merger capital re arrangement was sanctioned under Sections 391 and 394; employees to be absorbed; FEMA/RBI and tax concerns addressed by undertakings with liberty to regulatory and revenue authorities to proceed; transfer of assets and liabilities to the Transferee Company directed and Transferor Companies ordered dissolved without winding up; statutory compliances and filing with Registrar of Companies mandated. Issues:1. Sanction of Scheme of Arrangement under sections 391 to 394 of the Companies Act, 1956 for amalgamation and re-arrangement of multiple companies.2. Compliance with FEMA and RBI Regulations for foreign shareholding.3. Impact on income tax assessment, carry forward of losses, and set off in the Transferee Company.4. Transfer of liabilities, duties, and dissolution of Transferor Companies.5. Compliance with statutory requirements and deposit in the Common Pool fund of the Official Liquidator.Analysis:1. The judgment pertains to a second motion joint petition filed seeking sanction of a Scheme of Arrangement for amalgamation and re-arrangement of multiple companies under sections 391 to 394 of the Companies Act, 1956. The petition includes details of the companies involved, their capital structure, resolutions passed, and confirmation of no pending proceedings against the companies. The Court dispensed with the requirement of convening separate meetings for shareholders and creditors based on previous orders.2. The Official Liquidator and Regional Director of the Ministry of Corporate Affairs provided reports and observations regarding the scheme. Concerns were raised about compliance with FEMA and RBI Regulations for foreign shareholding, to which the companies responded by confirming compliance and undertaking to adhere to regulations. The Court directed that any violation of RBI provisions would hold the directors liable.3. The Income Tax Department's observations focused on the impact of amalgamation on tax positions, particularly regarding carry forward of losses and set off. The companies clarified that they were profit-making entities with minimal losses, and they were not eligible for certain tax benefits due to their classification as Core Investment Companies. The scheme ensured that no reduction in income tax liability occurred, and liabilities were transferred to the Transferee Company.4. The judgment sanctioned the scheme under sections 391 and 394 of the Companies Act, 1956, based on approvals from shareholders and creditors, reports from regulatory authorities, and absence of objections. It directed the transfer of assets, liabilities, and dissolution of Transferor Companies without winding up procedures. Compliance with statutory requirements and filing of the order with the Registrar of Companies within a specified timeline were mandated.5. Additionally, the judgment clarified that it did not grant exemption from stamp duty, taxes, or other charges. The Petitioner Companies agreed to deposit a sum in the Common Pool fund of the Official Liquidator voluntarily. The petition was allowed in the specified terms, emphasizing adherence to legal provisions and procedures.