2016 (8) TMI 570 - HC - Companies Law

Dispensation granted for meetings in Scheme of Amalgamation; compliance assured; binding on parties.

The Court granted dispensation of meetings of shareholders and creditors, as well as exemption from filing the 2nd motion petition for a Scheme of ... Scheme of Amalgamation - Dispensation of convening meetings - Dispensation of filing second motion petition - Wholly owned subsidiary - Rights of shareholders and creditors unaffected - Sanction of scheme subject to concurrent approval - Compliance with Accounting Standard 14 (pooling of interests) - Notice and publication requirements - Obligation to meet tax and statutory liabilitiesDispensation of convening meetings - Wholly owned subsidiary - Rights of shareholders and creditors unaffected - Dispensation of convening meetings of the equity shareholders, secured creditors and unsecured creditors of the Transferee Company in relation to the proposed scheme of amalgamation - HELD THAT: - The Court accepted the petitioner-Transferee Company's case that both Transferor Companies are wholly owned subsidiaries and that upon sanction their entire share capital will stand cancelled with no fresh issue of shares to transferor shareholders. The petition established that no reorganisation of the Transferee Company's share capital was involved and that the proposed scheme would not affect the rights or voting strength of the Transferee Company's members; likewise, no compromise with secured or unsecured creditors was proposed. Reliance was placed on earlier decisions of this Court where, in similar circumstances, meetings of the Transferee Company's shareholders and creditors were dispensed with. On that basis the convening of the meetings of the equity shareholders, secured creditors and unsecured creditors of the Transferee Company was dispensed with.Convening of meetings of the Transferee Company's shareholders and creditors was dispensed with.Dispensation of filing second motion petition - Notice and publication requirements - Obligation to meet tax and statutory liabilities - Prayer for exemption from filing the second motion petition under the Companies Act and related procedural steps - HELD THAT: - The Court considered the representation of the Regional Director and noted observations regarding compliance with accounting treatment and pending tax matters. Rather than grant an unconditional exemption from the second motion procedure, the Court directed statutory notifications: notice to the Regional Director, publication in specified newspapers and the Official Gazette, and uploading on the Official Liquidator's website. The petitioner furnished undertakings to comply with Accounting Standard 14 (pooling of interests) as stated in the scheme and to meet any tax or other statutory liabilities determined after final adjudication by the relevant authorities. These procedural safeguards were imposed before final disposal.Exemption from the second motion filing was disposed of subject to issuance of notices, publication and the petitioner's undertakings regarding compliance with AS 14 and payment of any adjudicated tax or statutory liabilities.Scheme of Amalgamation - Sanction of scheme subject to concurrent approval - Compliance with Accounting Standard 14 (pooling of interests) - Whether the Scheme of Amalgamation should be sanctioned and the legal effect of such sanction - HELD THAT: - Having considered the petition, the approvals of the respective boards, the report of the Regional Director and the petitioner's undertakings, the Court sanctioned the Scheme of Amalgamation. The sanction was made subject to (a) the scheme also being sanctioned by the Allahabad High Court, and (b) the petitioner complying with procedural requirements including the accounting treatment under Accounting Standard 14 and meeting any tax or statutory liabilities as undertaken. Upon sanction (and concurrent sanction by the other Court) the assets and liabilities of the Transferor Companies shall vest in the Transferee Company and the scheme shall be binding on the companies, their shareholders, creditors and all concerned. Directions were given for drawing the formal order, filing a certified copy with the Registrar of Companies, publication of the order and that any interested person may apply to the Court for directions as per law. The petitioner also volunteered a deposit into the Official Liquidator's Common Pool Fund, accepted by the Court.Scheme of Amalgamation sanctioned subject to sanction by the Allahabad High Court and compliance with specified procedural and accounting/tax undertakings; assets and liabilities of the Transferor Companies to vest in the Transferee Company on such sanction.Final Conclusion: The High Court dispensed with convening meetings of the Transferee Company's shareholders and creditors and, after requiring statutory notices, publications and undertakings (including compliance with Accounting Standard 14 and payment of any adjudicated tax/statutory liabilities), sanctioned the Scheme of Amalgamation subject to its sanction by the Allahabad High Court; directions were given for formal orders, filings and publication, and the scheme shall bind the companies, their shareholders and creditors. Issues:Dispensation of convening meetings of shareholders and creditors, dispensing with filing of the IInd Motion petition for sanctioning Scheme of Amalgamation.Analysis:The petition under section 391(1) of the Companies Act, 1956 seeks dispensation of meetings of shareholders and creditors and filing of the IInd Motion petition for the Scheme of Amalgamation. The Petitioner Transferee Company aims to merge two Transferor Companies with itself. The Board of Directors of all companies approved the Scheme, and the Petitioner has detailed financial information and lists of shareholders and creditors. The prayer is for dispensation of meetings based on no impact on shareholders' rights, no reorganization of share capital, and being wholly owned subsidiaries. The Petitioner also seeks exemption from filing the 2nd motion petition under sections 391(2) and 394 of the Act due to no compromise with creditors and no new shares to be issued.The Court considered the case law precedent where dispensation was granted in similar situations. The Court found no need for meetings of Equity Shareholders and creditors, as no new shares were to be issued, and no compromise was made. The Court exempted the Petitioner from further action and filing the 2nd motion petition. The Petitioner relied on past judgments to support their case.The Petitioner emphasized the benefits of amalgamation for rationalizing resources and improving profitability. As the Transferor Companies are wholly owned subsidiaries and no new shares are issued, and no dilution of rights occurs, the Court dispensed with the need for shareholder and creditor meetings.The Regional Director raised concerns regarding compliance with Accounting Standard 14 and pending tax matters. The Petitioner assured compliance with the standards and agreed to settle any pending tax liabilities. The Court sanctioned the Scheme of Amalgamation subject to compliance with the mentioned requirements.The Scheme of Amalgamation is binding on all parties involved, and the Petitioner must comply with Accounting Standard 14 and tax liabilities as per the undertaking. The Court directed the formal order to be drawn and filed with the Registrar of Companies. A notice of the order is to be published, and interested parties can apply for directions. The Petitioner agreed to deposit a sum in the Common Pool Fund Account of the Official Liquidator.In conclusion, the Court disposed of the matter accordingly, sanctioning the Scheme of Amalgamation subject to compliance with specified requirements and binding on all parties involved.