Demerger between Deep Industries Ltd. and Deep CH4 Ltd. Sanctioned under Companies Act, 2013

The Tribunal sanctioned the scheme of arrangements in the nature of demerger between two companies, Deep Industries Ltd. and Deep CH4 Ltd., under sections 230-232 of the Companies Act, 2013. The scheme aimed to segregate businesses to enhance management focus and shareholder value. Compliance with procedural requirements, service of notices to regulatory authorities, and handling of tax liabilities were confirmed. The scheme was found non-prejudicial and binding on the parties, with amendments to the Memorandum of Association approved. Legal costs were directed to be paid, and compliance with filing requirements was mandated.

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Issues Involved:
1. Sanction of the scheme of arrangements in the nature of demerger between two companies.
2. Compliance with procedural requirements for convening meetings and obtaining approvals.
3. Service of notice to regulatory authorities and their responses.
4. Compliance with legal provisions related to share capital, accounting standards, and regulatory guidelines.
5. Approval of amendments to the Memorandum of Association and changes in the authorized capital and objects clause.
6. Handling of tax liabilities and compliance with Income Tax Act provisions.
7. Confirmation of compliance with FEMA and RBI guidelines.
8. Payment of legal costs and expenses to the Regional Director.

Detailed Analysis:

1. Sanction of the Scheme of Arrangements:
The petitioner companies filed a joint application under sections 230-232 read with section 66 of the Companies Act, 2013, seeking the sanction of a scheme of arrangements in the nature of demerger between two companies, Deep Industries Ltd. and Deep CH4 Ltd., and the restructuring of the equity share capital of Deep CH4 Ltd. The scheme aimed to segregate the Oil and Gas Services Business from the Oil and Gas Exploration and Production business to enhance management focus and unlock value for shareholders.

2. Compliance with Procedural Requirements:
The Board of Directors of both companies approved the scheme on 26th May 2018, and the scheme was subsequently presented to the stock exchanges, obtaining observation letters from BSE Limited and National Stock Exchange of India Limited on 29th August 2018. Separate meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors of Deep Industries Limited were convened, and the requisite notices were published in newspapers. The meetings were held, and the scheme was approved by the requisite majority of shareholders and creditors.

3. Service of Notice to Regulatory Authorities:
The petitioner companies served notices of the scheme to various regulatory authorities, including the Central Government, Regional Director, Registrar of Companies, Income Tax Authorities, Reserve Bank of India, BSE Limited, National Stock Exchange Limited, Securities and Exchange Board of India, and Directorate General of Hydrocarbons. The Regional Director filed an affidavit confirming the service of notice and compliance with procedural requirements. No representations were received from the Income Tax Authorities or other regulatory authorities.

4. Compliance with Legal Provisions:
The scheme involved the transfer and consolidation of authorized share capital, which the Regional Director noted is permissible under law for schemes of amalgamation and mergers but not explicitly for demergers. However, the petitioner companies cited precedents where such transfers were allowed in demergers. The Regional Director also highlighted the need for compliance with FEMA and RBI guidelines, which the petitioner companies confirmed they had adhered to.

5. Approval of Amendments to Memorandum of Association:
The scheme included amendments to the Memorandum of Association of the petitioner companies concerning changes in authorized capital and the objects clause. The Regional Director noted the need for requisite procedures and payment of fees for these amendments. The petitioner companies clarified that approval of the scheme would be considered as approval for these amendments under the principle of Single Window Clearance.

6. Handling of Tax Liabilities:
The Regional Director observed the need for compliance with Section 2(19AA) of the Income Tax Act, which the petitioner companies confirmed was provided for in the scheme. The petitioner companies also confirmed there were no undisputed outstanding income tax demands, although there were pending appellate proceedings for disputed demands. The resulting company undertook to be liable for any future tax demands related to the demerged undertaking.

7. Confirmation of Compliance with FEMA and RBI Guidelines:
The Regional Director sought confirmation of compliance with FEMA and RBI guidelines, given that part of the share capital was held by Non-Resident Indians/Foreign Nationals/Foreign Body Corporates. The petitioner companies confirmed compliance and undertook to continue adhering to applicable provisions.

8. Payment of Legal Costs and Expenses:
The amount to be paid to the Office of the Regional Director towards legal costs and expenses was quantified at Rs. 25,000, to be paid by Deep Industries Limited.

Conclusion:
The Tribunal found that all requirements of sections 230 and 232 of the Companies Act, 2013, were satisfied and that the scheme was not prejudicial to the interests of shareholders, creditors, or the public. The petition was allowed, and the scheme was sanctioned, binding on the petitioner companies, their shareholders, secured creditors, and unsecured creditors. The proposed amendments to the Memorandum of Association and changes in authorized capital and objects clause were granted, subject to confirmation by the Registrar of Companies. The reduction of share capital of the resulting company was also allowed. The petitioner companies were directed to comply with procedural requirements, including filing copies of the order and scheme with the Registrar of Companies and the Superintendent of Stamps. The approval of the scheme did not preclude any statutory or competent authority from taking action for any violations of law.

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