2020 (2) TMI 1333 - Tri - Companies Law

Approval of Scheme of Arrangement for Demerger: Key Details and Benefits

The court approved a Scheme of Arrangement between two companies, Clover Technologies Private Limited (Demerged Company) and Clover Infotech Private ... Scheme of Arrangement - Demerger of business undertaking - Dispensing with convening of shareholders' meeting where all shareholders consent - Notice to secured and unsecured creditors under Section 230(3) of the Companies Act, 2013 - Service of scheme on regulatory authorities and tax authority with time-bound opportunity to represent - Filing of affidavit of service to establish compliance with directionsDispensing with convening of shareholders' meeting where all shareholders consent - Scheme of Arrangement - Meetings of the equity shareholders of both applicant companies were dispensed with on account of affidavits of consent furnished by all equity shareholders. - HELD THAT: - The Tribunal recorded that each applicant company had only two equity shareholders and that both shareholders of each company had executed and filed consent affidavits. Having received the unanimous consent affidavits for the First Applicant and the Second Applicant respectively, the Tribunal dispensed with calling meetings of the equity shareholders of both companies, thereby permitting the scheme process to proceed without convening such meetings. [Paras 6, 8]Meetings of the equity shareholders of the First and Second Applicant Companies are dispensed with in view of the consent affidavits filed by all equity shareholders.Notice to secured and unsecured creditors under Section 230(3) of the Companies Act, 2013 - Service of scheme on regulatory authorities and tax authority with time-bound opportunity to represent - Filing of affidavit of service to establish compliance with directions - Direction issued to serve notices of the scheme on secured and unsecured creditors and specified regulatory and tax authorities, and to file affidavit(s) proving such service within the prescribed timeframe for representations. - HELD THAT: - The Tribunal directed that notice be given to all secured and unsecured creditors under the provision governing notices to creditors, with an invitation to submit representations to the Tribunal and to serve a copy on the applicant companies. The Tribunal further directed service of the scheme upon the concerned Income Tax authority, the Central Government through the Regional Director (Western Region), and the Registrar of Companies, with a 30-day period to submit any representations to the Tribunal and simultaneously to the applicant companies, failing which it would be presumed they had no representations. Finally, the applicants were directed to file affidavits of service in the Registry proving dispatch of the notices and to report compliance with these directions. [Paras 9, 10, 11]Applicants must serve notices of the scheme on creditors and the named authorities, allow 30 days for representations, and file affidavits of service evidencing compliance.Final Conclusion: The Tribunal dispensed with shareholders' meetings for both applicant companies on the basis of unanimous shareholder consent, directed service of the scheme on creditors and specified authorities with a 30-day period for representations, and required the applicants to file affidavits of service to demonstrate compliance. Issues:1. Scheme of Arrangement between two companies for demerger.2. Business activities of the Applicant Companies.3. Rationale for the demerger.4. Approval and Appointed Date of the Scheme.5. Consent affidavits of Equity Shareholders.6. Dispensing with Equity Shareholders' meeting.7. Compliance with Companies Act, 2013 regarding Creditors' notice.8. Directions for serving notices to authorities.9. Filing affidavit of service for notices.Analysis:1. The judgment pertains to a Scheme of Arrangement between two companies, Clover Technologies Private Limited (Demerged Company) and Clover Infotech Private Limited (Resulting Company), for the demerger of the Business Undertaking of Clover Technologies into Clover Infotech. The scheme aims to benefit shareholders and allow independent growth strategies for each business.2. The Applicant Companies are engaged in distinct business activities. Clover Technologies is involved in software-related services, trading in shares, and securities, while Clover Infotech focuses on software publishing, consultancy, and supply, encompassing various software-related services and custom software development.3. The rationale for the demerger, as submitted by the Applicant Companies, includes unlocking value for shareholders, enabling independent growth strategies, and enhancing flexibility in accessing capital based on respective risk-return profiles and cash flows.4. The Scheme has been duly approved by the board of directors of the Applicant Companies, with the Appointed Date set as 1st April, 2019, as per board resolutions dated 12th November, 2019.5. Consent affidavits from all Equity Shareholders of both Applicant Companies have been provided, leading to the dispensation of Equity Shareholders' meetings for both companies.6. The Scheme is characterized as an arrangement under section 230(1)(b) of the Companies Act, 2013, involving shareholders without any compromise or arrangement with secured or unsecured Creditors. Notice is directed to be given to all Creditors for representations to be submitted to the Tribunal.7. Specific directions are issued for serving notices to relevant authorities, including Income Tax Authority, Central Government, and Registrar of Companies, with a 30-day period for submissions. Non-compliance implies no objections from the authorities.8. The Applicant Companies are instructed to file an affidavit of service in the Registry to prove the dispatch of notices to creditors and regulatory authorities, ensuring compliance with the directions regarding the issuance of notices.