2016 (8) TMI 1584 - HC - Companies Law

Court Approves Amalgamation Scheme Benefiting Company. Consolidation for Synergies & Cost Savings.

The court sanctioned the Scheme of Amalgamation under sections 391 to 394 of the Companies Act, 1956, involving three companies. The consolidation aimed ... Sanction of scheme of amalgamation under Sections 391-394 of the Companies Act, 1956 - dispensing with meetings of shareholders and creditors where written consents are placed on record - preservation of books of accounts and records pursuant to Section 396(A) of the Companies Act, 1956 - compliance by an NBFC with Reserve Bank of India rules on change of shareholding - accounting treatment of amalgamation and compliance with Accounting Standard AS-14 - obligations to comply with Income Tax provisions affecting amalgamation - quantification of costs to Central Government Standing Counsel and Official Liquidator - filing and stamping obligations following sanction of schemeSanction of scheme of amalgamation under Sections 391-394 of the Companies Act, 1956 - public interest and interest of shareholders and creditors - Sanction of the Scheme of Amalgamation of Kaizen Stocktrade Pvt. Ltd. and Kaizen Finstock Pvt. Ltd. with Kunvarji Fincorp Pvt. Ltd. - HELD THAT: - Having considered the affidavits, undertakings, absence of objections after public advertisement, the report of the Official Liquidator and the submissions of the parties including the Regional Director of the Ministry of Corporate Affairs, the Court concluded that the scheme is not prejudicial to the interests of shareholders, creditors or the public and that the scheme merits sanction. Observations and requirements raised by the Regional Director were addressed by the petitioners by producing working sheets for valuation, undertaking to comply with RBI directions and to follow applicable Income Tax provisions; accordingly the Court was satisfied that those observations do not survive and proceeded to sanction the scheme. [Paras 4, 5, 6, 8, 9]The Scheme of Amalgamation is sanctioned.Dispensing with meetings of shareholders and creditors where written consents are placed on record - Validity of dispensing with convening meetings of shareholders and creditors of the transferor companies and of equity shareholders of the transferee company. - HELD THAT: - The Court recorded that meetings of shareholders and concerned creditors of the Transferor Companies and the equity shareholders of the Transferee Company were dispensed with because written consents from all concerned were placed on record. For the Transferee Company, meetings of secured and unsecured creditors were dispensed with on the basis of the Transferee Company's positive post scheme net worth supported by a Chartered Accountant's certificate. No objections were received following statutory publication. [Paras 3, 4, 5]Dispensing with the convening of the specified meetings on the basis of recorded written consents and net worth certification is accepted.Preservation of books of accounts and records pursuant to Section 396(A) of the Companies Act, 1956 - Directions regarding preservation of records and non disposal without Central Government permission. - HELD THAT: - The Official Liquidator reported that the transferor companies conducted affairs within their objects and not prejudicially; however, he sought directions to preserve books, papers and records and restrain disposal without Central Government permission under Section 396(A). The Court directed the Transferee Company to preserve the books of accounts, papers and records of the Transferor Companies and not to dispose of them without prior permission of the Central Government, and further directed that Transferor Companies shall remain liable to comply with applicable statutory obligations even after sanction. [Paras 6]Records to be preserved and Transferor Companies not absolved of statutory liabilities; disposal only with prior Central Government permission.Compliance by an NBFC with Reserve Bank of India rules on change of shareholding - accounting treatment of amalgamation and compliance with Accounting Standard AS-14 - obligations to comply with Income Tax provisions affecting amalgamation - Requirement for petitioners to comply with regulatory and accounting obligations (RBI, AS 14, and Income Tax compliance) raised by the Regional Director. - HELD THAT: - The Court considered the Regional Director's observations: (i) absence of valuation working papers - cured by filing working sheets; (ii) requirement for the Transferee NBFC to comply with RBI rules on change of shareholding - accepted and the Transferee gave an undertaking to comply with RBI rules and procedures; (iii) accounting treatment - Clause 10(i) of the Scheme envisages compliance with AS 14 and the proposed treatment in Clause 10(iii) is not contrary to AS 14; reliance on a Division Bench decision established that the suggested restriction on distribution from reserves was unnecessary; and (iv) Income Tax Department's response requiring compliance with specified provisions - petitioners undertook compliance and no further directions were deemed necessary. On these bases the Court found the observations addressed and not to impede sanction. [Paras 8]Petitioners to comply with RBI directions, accounting standards and applicable Income Tax provisions; the Regional Director's observations stand satisfied.Quantification of costs to Central Government Standing Counsel and Official Liquidator - Assessment and payment of costs to Central Government Standing Counsel and the Office of the Official Liquidator. - HELD THAT: - The Court quantified costs in respect of each petition to be paid to the Central Government Standing Counsel and to the Office of the Official Liquidator and directed payment by the petitioning companies as specified in the order. [Paras 11]Costs quantified and directed to be paid as ordered.Filing and stamping obligations following sanction of scheme - Directions to lodge authenticated copies for stamp adjudication and to file the order and scheme with the Registrar of Companies. - HELD THAT: - The Court directed the petitioner companies to lodge a copy of the order, the detailed schedule of immovable assets of the Transferor Companies as on the date of the order, and the Scheme authenticated by the Registrar, High Court of Gujarat, with the Superintendent of Stamps within sixty days for stamp duty adjudication. The petitioners were also directed to file copies of the order and scheme with the Registrar of Companies electronically (and physically as required) in compliance with the Act. Drawing up and issuance of the drawn up order was dispensed with, and authorities were directed to act on the authenticated copy. [Paras 12, 13, 14, 15]Petitioners to comply with stamping and filing directions within the stipulated time and authorities to act on authenticated copy.Final Conclusion: The High Court, having considered affidavits, reports including that of the Official Liquidator, and the submissions and undertakings of the petitioners and the Regional Director, sanctioned the Scheme of Amalgamation, directed preservation of records, required compliance with RBI, accounting and Income Tax obligations, quantified costs to be paid, and ordered necessary stamping and filing formalities. Issues:Petitions for sanction of a Scheme of Amalgamation under sections 391 to 394 of the Companies Act, 1956 involving three companies - Kaizen Stocktrade Private Limited, Kaizen Finstock Private Limited, and Kunvarji Fincorp Private Limited.Analysis:The petitions were filed seeking approval for the amalgamation of two Transferor Companies with the Transferee Company to streamline the organization structure and achieve commercial synergies. The Transferor Companies were engaged in similar commercial activities, while the Transferee Company was a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India. The consolidation was aimed at reducing operational and administrative costs for the benefit of the Transferee Company.The meetings of shareholders and creditors of the Transferor Companies were dispensed with as written consent letters from all parties had been obtained. Similar dispensation was granted for the Equity Shareholders and Creditors of the Transferee Company based on positive net worth post-scheme. The petitions for sanction were admitted, and notices were published in newspapers and the Government gazette, with no objections received.The Official Liquidator recommended dissolution of the Transferor Companies without winding up, subject to preserving books and records. The Central Government raised observations through the Regional Director, Ministry of Corporate Affairs, regarding various aspects of the scheme, including valuation, compliance with RBI rules, accounting treatment, and Income Tax compliance. The court considered all contentions, undertakings, and judgments, concluding that the scheme was in the interest of shareholders, creditors, and the public, and sanctioned the amalgamation.Costs were quantified for the Central Government Standing Counsel and the Office of the Official Liquidator, payable by the Transferor Companies. Directions were given for stamp duty adjudication, filing with concerned authorities, and issuance of authenticated copies of the order and scheme. Filing and issuance of drawn-up order were dispensed with, and all authorities were directed to act promptly on the sanctioned scheme.