2019 (1) TMI 1685 - Tri - Companies Law

Transferor Company's Financial Statements Discrepancies Upheld by Tribunal: Compliance Directive Issued

In Re: PRITHVI TEA CO. PRIVATE LIMITED And CACHAR TEA & INDUSTRIES PVT. LTD.

The Tribunal upheld the objections raised by the Central Government regarding discrepancies in financial details in a Scheme of Arrangement under the ... Approval of Scheme of Arrangement - submission of revised financial statement in compliance of Section 131 of the Companies Act, 2013 - section 230 of the Companies Act, 2013 read with Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- As per Section 128(1) the transferor shall prepare and keep at registered office books of account and other relevant books and papers and financial statement for every financial year which give true and fair view of the state of the affairs of the company, including that of is branch office or offices, if any, and explain the transaction effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting. The submission that the Chartered Account has submitted a certificate certifying that the Transferor Company has complied with the Accounting Standard 9 and therefore, the asset value shown in the Balance Sheet is the value in the Books of Account kept in the company appears to me is not correct. Accordingly, the objections raised on the side of the Central Government regarding the approval of the scheme is found sustainable. The applicant is hereby directed to comply with the above said provisions and submit a revised financial statement in compliance of Section 131 read with Section 128(1) of the Companies Act, 2013 - List it for submission of revised financial statement and for further consideration on 18/03/2019. Issues:1. Approval of Scheme of Arrangement under Companies Act, 20132. Objections raised by Central Government on the Scheme3. Compliance with Accounting Standards and Financial Statements4. Interpretation of the Memorandum of Understanding5. Requirement to show realisable value of assets in Balance Sheet6. Applicability of Sections 128(1) and 131 of the Companies Act, 2013Analysis:1. The judgment pertains to a joint petition filed by two companies for the approval of a Scheme of Arrangement under Section 230 of the Companies Act, 2013. The petition involves Prithvi Tea Co. Private Limited as the Transferor Company and Cachar Tea & Industries Private Limited as the Resulting Company.2. The objections raised by the Central Government, through the Assistant Registrar of Companies, West Bengal, focused on the discrepancies in the financial details provided in the Scheme. Specifically, concerns were raised regarding the realisable value of assets, particularly a loan amount, not being accurately reflected in the Balance Sheet of the Transferor Company.3. In response to the objections, the applicant's Senior Counsel argued that the company had followed Accounting Standard 9 and provided a certificate to support the valuation of the loan at a lower amount than contested by the Central Government. However, the Central Government maintained that the objections were valid and required compliance with Section 131 of the Companies Act, 2013.4. The judgment delves into the interpretation of a Memorandum of Understanding involving various companies, highlighting the Transferor Company's right to claim a higher amount against another entity. This understanding was crucial in determining the correct valuation of assets and liabilities for the Transferor Company.5. The Tribunal emphasized the importance of showing the realisable value of assets accurately in the Balance Sheet, citing Section 128(1) of the Companies Act, 2013. The failure to reflect the true value of assets, as per the Memorandum of Understanding, was deemed a violation of accounting standards and legal provisions.6. Based on the provisions of Sections 128(1) and 131 of the Companies Act, 2013, the Tribunal concluded that the objections raised by the Central Government were valid. The applicant was directed to revise the financial statement to comply with the prescribed accounting standards and submit the revised statement for further consideration on a specified date.This detailed analysis of the judgment provides insights into the legal intricacies surrounding the approval of a Scheme of Arrangement and the importance of accurate financial reporting in compliance with the Companies Act, 2013.