2019 (3) TMI 1829 - Tri - Companies Law

Scheme of Arrangement (Demerger) Approved by NCLT

Marshall Sons & Company (India) Limited Versus Auromaa Manufacturing Industries Limited

The National Company Law Tribunal, Chennai Bench, sanctioned a Scheme of Arrangement (Demerger) between two companies under Sections 230 to 232 of the ... Sanction of Scheme of Arrangement (Demerger) - Sections 230 to 232 of the Companies Act, 2013 r/w the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- The funds generated by the Company from its operations is also more than sufficient to meet the above Contingent Liability - The Scheme will not cast any additional burden on the stakeholders and also will not prejudicially affect the interests of any class of the creditors in any manner. There is no requirement to modify the proposed Scheme. The Scheme of Arrangement (Demerger) appears to be fair and reasonable and is not contrary to public policy and not violative of any provisions of law. All the statutory compliances have been made under section 230 to 232 of the Companies Act, 2013. Therefore, the Scheme annexed with Petition(s) stands sanctioned. The Scheme sanctioned shall be binding on all the Equity Shareholders, the Creditors of the Demerged Company, the Resulting Company and on all their respective employees. The Scheme shall become effective from the Appointed Date viz., 01.04.2016. The Order of sanction to this Scheme shall be prepared by the Registry as per the relevant format provided under the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 notified on 14th December, 2016 - the scheme is sanctioned. Issues:1. Company Petition filed under Sections 230 to 232 of the Companies Act, 2013 for a proposed Scheme of Arrangement (Demerger).Analysis:The judgment by the National Company Law Tribunal, Chennai Bench, involved Company Petition Nos. 13 & 14/CAA/2019 under Sections 230 to 232 of the Companies Act, 2013, regarding a proposed Scheme of Arrangement (Demerger) between two companies. The Demerged Company, engaged in various manufacturing activities, was to merge with the Resulting Company, focused on machinery and equipment manufacturing. The Board of Directors of both companies had approved the Scheme, fulfilling necessary requirements as per previous orders. The Counsel for the Petitioner Companies highlighted the benefits of the proposed Demerger, emphasizing the strategic advantages for each company, their shareholders, and creditors, enabling focused growth and development. The Scheme aimed to facilitate better financial resource utilization and operational efficiency for the Resulting Company post-Demerger.The Scheme detailed the transfer of assets, liabilities, duties, and obligations from the Demerged Company to the Resulting Company, ensuring a smooth transition and continuity of operations. The Securities and Exchange Board of India and the Calcutta Stock Exchange had issued directives and observations regarding the Scheme's compliance and listing requirements. The Chartered Accountants provided certifications on the financial statements and compliance with accounting standards. The Regional Director's Affidavit highlighted provisions safeguarding the interests of employees and ongoing regulatory compliances of both companies.An important aspect of the judgment involved a contingent liability of the Demerged Company concerning a pending case with Mumbai Port Trust. The Regional Director suggested arrangements to secure payment if the liability materialized post-Demerger. In response, the Demerged Company presented financial details demonstrating the ability to meet the contingent liability through available assets and steady revenues. The Tribunal considered these submissions and found the Scheme to be fair, reasonable, compliant with legal provisions, and not against public policy.The Tribunal sanctioned the Scheme of Arrangement, making it binding on all stakeholders, effective from the Appointed Date. However, the judgment clarified that it did not grant exemptions from stamp duty, taxes, or other charges, emphasizing compliance with relevant laws. The Petitioner Companies were directed to file a certified copy of the Order with the Registrar of Companies, and any necessary directions regarding the Scheme's implementation could be sought from the Tribunal. The Order of sanction was to be prepared as per the specified format under the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, marking the conclusion of the case.