2015 (6) TMI 72 - HC - Companies Law

Court approves amalgamation of Ludhiana Holdings Limited and Oswal Woollen Mills Limited

The court sanctioned the scheme of amalgamation between Ludhiana Holdings Limited and Oswal Woollen Mills Limited under Sections 391 to 394 of the ... Application for Scheme of Amalgamation - Regional Director's observations regarding compliance required by RBI for NBFC and Further time required for examination of records by Income tax department, duly addressed - Commissioner-IT observations regarding non competitiveness of transferor / transferee companies , Non transfer of certain assets and share exchange ratio duly addressed - Held that:- It is submitted that all documents as had been asked for by the RBI have already been submitted, and the remaining documents will be submitted post the approval of the Scheme by this Hon’ble Court. Moreover, the Transferor Company is a non deposit taking NBFC. Hence there has been compliance by the Transferor Company. Copies of the entire correspondence between the Transferor Company and the RBI are annexed herewith as Annexure A. f. That the deponent further undertakes that all compliances as may be required by the RBI, referred to here in above, shall be duly complied with by the Transferor Company. In view of the clause 4.2 of the Scheme it is incumbent upon the Transferee Company to take over and be responsible for any liability of the Transferor Company, whether reflected in its books or not. Thus in the event of any demand raised by the Income Tax Department, the deponent undertakes that the Transferee Company shall duly discharge the same, in accordance with law. The learned counsel, Mrs. Munisha Gandhi, contended that even though the Transferor company may be having a small capital base but it also has other assets which would definitely be used in a more fruitful manner once they merged with the Transferee company which is having a greater capital base and greater resources. She further submits that the companies are part of the same group of companies and economies of scale would be achieved by merging the two entities. She submits that the current balance sheet and assets submitted to this Hon’ble Court and the Scheme clearly prescribes the entire assets of the Transferor Company which stands transferred to the Transferee Company. Moreover, the phrase “whether reflected in the books of accounts or not” in normal business parlance refers to the swapping of new assets with the existing assets or the future income during the course of ongoing business transactions of a running company.It is also submitted that in view of the undertaking given by the authorized signatory of the Transferee Company that in the event of any demand raised by the Income Tax Department, the Transferee Company shall duly discharge the same, in accordance with law; the observation of the Income Tax Department is irrelevant and meaningless. The shareholders are the sole authority to decide regarding the exchange ratio of merger and once the shareholders have approved and accepted the same it would not lie with the Income Tax Department to sit in judgment on the wisdom and decision of the shareholders. She further submits that the Official Liquidator has in Para 5 of his report submitted that the amalgamation is not prejudicial to the interest of its Members or to public interest. Thus the objection / observation made by the Income Tax Department is unsustainable and irrelevant. - Application for Scheme of Amalgamation approved. Issues Involved:1. Sanctioning of the scheme of amalgamation under Sections 391 to 394 of the Companies Act, 1956.2. Dispensation of meetings for equity shareholders, secured and unsecured creditors.3. Compliance with regulatory authorities, including the Reserve Bank of India (RBI) and the Income Tax Department.4. Objections raised by the Regional Director and the Income Tax Department.5. Exchange ratio and valuation of shares.6. Public interest and fairness of the amalgamation scheme.Issue-wise Detailed Analysis:1. Sanctioning of the Scheme of Amalgamation:The petitioner companies, Ludhiana Holdings Limited (Transferor Company) and Oswal Woollen Mills Limited (Transferee Company), sought the court's sanction for their scheme of amalgamation under Sections 391 to 394 of the Companies Act, 1956. The court reviewed the scheme and found no reason to decline the prayer for approval/sanction of the amalgamation.2. Dispensation of Meetings:The court had previously dispensed with the requirement to hold meetings of the equity shareholders and creditors of the Transferor Company due to the consents received from all equity shareholders and the absence of creditors. Meetings for the Transferee Company were convened, and the scheme was unanimously approved by 100% of the shareholders and creditors present and voting.3. Compliance with Regulatory Authorities:The Regional Director, Ministry of Corporate Affairs, and the Official Liquidator were notified. The Transferor Company, being a Non-Banking Finance Company (NBFC), was required to comply with RBI regulations. The Transferor Company had informed the RBI about the proposed amalgamation and complied with the information requests. The court directed the petitioner companies to file necessary documents with the RBI post-sanction.4. Objections Raised by the Regional Director and Income Tax Department:The Regional Director raised concerns about employee continuity and compliance with RBI regulations. The court noted that the Transferor Company had undertaken to comply with all RBI requirements. The Income Tax Department requested more time to examine the records and raised concerns about potential undisclosed assets and the fairness of the share exchange ratio. The court found the objections vague and based on conjectures, noting that the scheme had been approved by the shareholders and creditors.5. Exchange Ratio and Valuation of Shares:The Income Tax Department questioned the share exchange ratio. The court referred to precedents, emphasizing that the valuation by independent experts and the approval by the shareholders should be respected. The court reiterated that it is not within its purview to question the commercial wisdom of the shareholders once the scheme is approved by the requisite majority.6. Public Interest and Fairness of the Amalgamation Scheme:The Official Liquidator reported that the amalgamation was not prejudicial to the interests of the members or public interest. The court emphasized that the scheme was beneficial for achieving economies of scale and would be advantageous for the shareholders of the Transferor Company. The court concluded that the scheme was just, fair, and reasonable from a commercial perspective.Conclusion:The court sanctioned the scheme of amalgamation, directing the petitioner companies to comply with the undertakings given regarding regulatory compliances. The scheme was binding on the petitioner companies, their shareholders, creditors, and all concerned. The court also ordered the publication of the sanction in newspapers and the Official Gazette, allowing any interested person to approach the court for necessary directions. The petition was disposed of accordingly.