2016 (2) TMI 1255 - HC - Companies Law

Court approves Amalgamation Scheme under Companies Act. Compliance required within 30 days. No stamp duty exemption. Companies dissolve on effective date.

The court granted sanction to the amended Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956. The petitioner companies were ... Sanction of Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956 - Scheme of Amalgamation - undertaking as binding on transferee for tax liabilities - employees continuity on amalgamation - dissolution without winding up upon sanction - compliance with Accounting Standards - report of the Official Liquidator and Regional Director - costs payable to Official Liquidator's Common Pool FundSanction of Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956 - Scheme of Amalgamation - report of the Official Liquidator and Regional Director - Sanction of the amended Scheme of Amalgamation between transferor companies (nos.1-15) and the transferee company. - HELD THAT: - The court considered the amended Scheme filed on record, the board approvals, the affidavit and audited financials placed before the court, the report of the Official Liquidator stating no objections and that affairs of the transferor companies did not appear prejudicial to members/creditors/public interest, and the report of the Regional Director which raised matters addressed by the parties. The transferee gave an express undertaking on tax liabilities which the court accepted and thereby removed the Regional Director's objection. There being no other surviving objection and statutory requirements complied with (including dispensation of shareholders/creditor meetings earlier ordered), the court found no impediment to sanctioning the amended Scheme and granted sanction under Sections 391 and 394 of the Companies Act, 1956. [Paras 42, 43, 45, 47]Sanction granted to the amended Scheme of Amalgamation; the petition allowed.Employees continuity on amalgamation - Scheme of Amalgamation - Effect of the Scheme on employment of transferor companies' employees. - HELD THAT: - The court noted Clause 7 of Part-IV of the Scheme, as highlighted by the Regional Director, which provides that upon sanction all employees of the transferor companies shall become employees of the transferee company without break or interruption in their services. The court recorded this provision and, having sanctioned the Scheme, treated the continuity of employment as part of the operative effect of the sanctioned Scheme. [Paras 43, 47]All employees of the transferor companies shall become employees of the transferee company without any break or interruption upon sanction of the Scheme.Compliance with Accounting Standards - Scheme of Amalgamation - Obligation regarding accounting practices post-amalgamation. - HELD THAT: - The court noted Clause 4.10 of Part IV of the Scheme, as brought to its attention by the Regional Director, stating the transferee company shall follow the Accounting Standards and principles issued by the Institute of Chartered Accountants of India. By sanctioning the Scheme, the court upheld the statement in the Scheme and the transferee's obligation in that regard. [Paras 43, 47]The transferee company shall follow the Accounting Standards and principles as stated in the Scheme.Dissolution without winding up upon sanction - Scheme of Amalgamation - Consequences of the Scheme on the corporate existence of the transferor companies. - HELD THAT: - The court recorded Clause 17.1 of Part IV of the Scheme providing that upon the Scheme becoming effective, the transferor companies shall stand dissolved without the process of winding up. Having sanctioned the Scheme and specified the appointed date, the court held that the transferor companies shall be dissolved in accordance with that clause. [Paras 43, 47]Upon the Scheme becoming effective from the appointed date (1st April, 2013), transferor companies nos.1-15 shall stand dissolved without undergoing winding up.Undertaking as binding on transferee for tax liabilities - report of the Official Liquidator and Regional Director - Resolution of the Regional Director's objection arising from communications of the Income Tax Department. - HELD THAT: - The Regional Director placed on record letters from the Income Tax Department seeking explicit protection for recovery of existing or future tax liabilities and that sanction should not affect tax treatment. The transferee furnished an affidavit undertaking that any legally assessed tax liabilities of the transferor companies would be paid by the transferee and that provisions of the Scheme shall not prejudice tax dues, and that the Income Tax Department would remain free to recover such taxes. The court accepted this undertaking and treated the Regional Director's objection as satisfied. [Paras 44, 45, 47]The undertaking filed by the transferee regarding tax liabilities is accepted; the Regional Director's objection stands satisfied.Costs payable to Official Liquidator's Common Pool Fund - Imposition of costs in favour of the Official Liquidator. - HELD THAT: - The Official Liquidator's counsel sought costs in view of examination of extensive records and priority hearings. Learned counsel for the petitioners accepted the prayer. The court directed deposit of the specified sum with the Common Pool Fund of the Official Liquidator as already ordered. [Paras 48]Petitioner to deposit the directed costs with the Common Pool Fund of the Official Liquidator.Final Conclusion: The amended Scheme of Amalgamation is sanctioned under Sections 391 and 394 of the Companies Act, 1956; the Scheme will operate from the appointed date (1st April, 2013) with consequences recorded (employee continuity, accounting standards compliance, and dissolution of transferor companies without winding up); the transferee's undertaking on tax liabilities is accepted and Regional Director's objection is satisfied; directed compliance with statutory formalities, filing of certified copy with the Registrar of Companies, and deposit of costs with the Official Liquidator's Common Pool Fund. Issues Involved:1. Sanction of the amended Scheme of Amalgamation under Sections 391 & 394 of the Companies Act, 1956.2. Compliance with statutory requirements and approvals from shareholders and creditors.3. Objections raised by the Regional Director and the Official Liquidator.4. Tax liabilities and objections from the Income Tax Department.5. Costs associated with the examination of extensive records.Issue-wise Detailed Analysis:1. Sanction of the amended Scheme of Amalgamation under Sections 391 & 394 of the Companies Act, 1956:The petitioners sought the court's sanction for the amalgamation of multiple transferor companies with a transferee company. The court noted that the registered offices of all companies involved are situated in New Delhi, within its jurisdiction. The proposed amalgamation aimed to achieve size, scale, integration, greater financial strength, flexibility, and maximization of shareholders' value. The pooling of financial, managerial, and technical resources was expected to increase competitive strength, reduce costs, and improve efficiencies.2. Compliance with statutory requirements and approvals from shareholders and creditors:The Board of Directors of the transferor and transferee companies unanimously approved the Scheme in their meetings held on 11th and 12th March 2014, respectively. The court had previously dispensed with the requirement of convening meetings of equity shareholders and unsecured creditors, as there were no secured creditors. The amended Scheme was taken on record following the withdrawal of one transferor company from the Scheme. Notices were issued to the Regional Director and the Official Liquidator, and citations were published in newspapers.3. Objections raised by the Regional Director and the Official Liquidator:The Official Liquidator reported no complaints against the Scheme and stated that the affairs of the transferor companies were not conducted prejudicially to the interests of their members, creditors, or public interest. The Regional Director highlighted that employees of the transferor companies would become employees of the transferee company without any break in service and that the transferee company would follow the Accounting Standards and Principles issued by the Institute of Chartered Accountants of India. The Scheme also provided for the dissolution of transferor companies without winding up.4. Tax liabilities and objections from the Income Tax Department:The Income Tax Department requested that its recourse for recovery of existing or future tax liabilities be retained and explicitly protected in the court's final order. The transferee company undertook to pay any legally assessed tax liabilities of the transferor companies and assured that the Scheme would not prejudice income tax dues. This undertaking satisfied the Regional Director's objections.5. Costs associated with the examination of extensive records:The Official Liquidator requested costs of Rs. 1,00,000, which the petitioner's counsel accepted. The court directed the petitioner to deposit this amount with the Common Pool Fund of the Official Liquidator.Conclusion:The court granted sanction to the amended Scheme of Amalgamation under Sections 391 and 394 of the Companies Act, 1956. The petitioner companies were directed to comply with statutory requirements and file a certified copy of the order with the Registrar of Companies within 30 days. The order clarified that it did not grant exemption from stamp duty. The transferor companies would stand dissolved without winding up upon the Scheme's effective date, 1st April 2013. The petition was allowed, and costs were ordered to be deposited as directed.