2021 (4) TMI 292 - Tri - Companies Law

Tribunal approves Amalgamation Scheme between companies, subject to regulatory compliance and obligations

The Tribunal sanctioned the Scheme of Amalgamation between two companies, deeming it fair and beneficial, effective from 1st April 2018. The approval was ... Scheme sanction under Sections 230-232 of the Companies Act, 2013 - Appointed Date - transfer and vesting of the undertaking - transfer of liabilities and continuation of pending proceedings - tax implications subject to final decision of Income Tax Authorities - compliance with FEMA and RBI regulations - RBI compliance regarding overdues towards ESOP, RSU and ESPP - compliance with Section 135 concerning CSR obligations - payment of difference fee on increase of authorised capital under Section 232(3)(i) - sanction not to be construed as exemption from stamp duty, taxes or other charges - order not to preclude action by Registrar of Companies or other authoritiesScheme sanction under Sections 230-232 of the Companies Act, 2013 - Appointed Date - Sanction of the Scheme of Amalgamation between Soha Systems India Pvt. Ltd. and Akamai Technologies Solutions (India) Pvt. Ltd. and fixation of the Appointed Date. - HELD THAT: - The Tribunal considered the petitions, the board approvals, auditors' and valuers' certificates, statutory notices and responses from ROC, RD, Official Liquidator and other authorities. On the material placed on record the Tribunal found that the procedure under sub-sections (1) and (2) of section 232 has been complied with, that the Scheme is fair and reasonable and not detrimental to members or creditors, and that the Scheme would yield operational synergies and other commercial benefits. Accordingly the Scheme is sanctioned and the Appointed Date is fixed as 1st April, 2018.Scheme sanctioned; Appointed Date 01st April, 2018.Transfer and vesting of the undertaking - transfer of liabilities and continuation of pending proceedings - Effect of the sanction on transfer/vesting of assets and liabilities and on pending proceedings. - HELD THAT: - Pursuant to the sanction under section 232, the Transferor Company's undertaking, assets and liabilities stand transferred to and vested in the Transferee Company without further act or deed, subject to existing charges. All liabilities including taxes, levies and duties and any proceedings pending by or against the Transferor shall continue by or against the Transferee. The Tribunal recorded these consequences as part of the sanction order.Undertaking, assets and liabilities transferred to and vested in the Transferee Company; pending proceedings to continue against the Transferee.Tax implications subject to final decision of Income Tax Authorities - sanction not to be construed as exemption from stamp duty, taxes or other charges - Treatment of tax consequences and stamp duty following sanction of the Scheme. - HELD THAT: - The Tribunal clarified that sanctioning the Scheme does not amount to exemption from payment of stamp duty, taxes or other charges and that such matters shall be governed by the relevant authorities and laws. Any tax implications arising from the Scheme are left to the final decision of the concerned Income Tax Authorities, whose decision will be binding on the Transferee Company. The Transferee is directed to pay any applicable difference in fees on increase of authorised capital pursuant to the Scheme.Tax and stamp duty matters not determined by this sanction; subject to respective authorities; Transferee to comply with fee and duty obligations.Compliance with FEMA and RBI regulations - RBI compliance regarding overdues towards ESOP, RSU and ESPP - payment of difference fee on increase of authorised capital under Section 232(3)(i) - Compliance obligations imposed on the parties as conditions of sanction. - HELD THAT: - In view of observations by ROC/RD and RBI, the Tribunal directed the Transferor and Transferee Companies to strictly comply with FEMA and RBI regulations. Specific directions include compliance with RBI regulations concerning outstanding dues related to ESOP/RSU/ESPP and an undertaking to pay any differential fees on authorised capital in accordance with section 232(3)(i). These compliance obligations are made conditions of the sanctioned Scheme.Petitioner Companies directed to comply strictly with FEMA/RBI rules, to address ESOP/RSU/ESPP overdues and to pay due fees on increased authorised capital.Compliance with Section 135 concerning CSR obligations - Responsibility for unspent CSR amounts and compliance with Section 135. - HELD THAT: - The Tribunal noted ROC/RD observations regarding unspent CSR amounts and directed that any liability arising from non-compliance with section 135 shall stand transferred to and be the liability of the Transferee Company. The Transferee Company is directed to submit details of compliance with Section 135 to the ROC within 30 days from the date of the order.Liability for non-compliance with Section 135 transfers to the Transferee; Transferee to submit compliance details to ROC within 30 days.Order not to preclude action by Registrar of Companies or other authorities - Scope of the Tribunal's sanction vis-a -vis other regulatory action. - HELD THAT: - The Tribunal expressly limited its order to sanctioning the Scheme and noted that the sanction does not preclude the Registrar of Companies or any other authority from taking appropriate action under law for any violations or offences by the companies or their personnel prior to or during approval of the Scheme. Further, the Tribunal granted liberty to any person to apply for directions as may be necessary.Sanction limited; ROC or other authorities remain free to take lawful action; liberty to apply for further directions preserved.Final Conclusion: The Tribunal sanctioned the Scheme of Amalgamation between the two petitioner companies with Appointed Date 1 April 2018, directed transfer and vesting of assets and liabilities to the Transferee, imposed specified compliance conditions (including FEMA/RBI, ESOP/RSU/ESPP, CSR and payment of differential fees), left tax and stamp duty questions to the respective authorities, and clarified that the sanction does not bar regulatory action by ROC or other authorities. Issues Involved:1. Approval of the Scheme of Amalgamation under Sections 230 to 232 of the Companies Act, 2013.2. Compliance with FEMA/RBI regulations and FDI guidelines.3. Payment of stamp duty and compliance with Section 232(3)(i) of the Companies Act, 2013.4. Treatment of overdue liabilities and compliance with RBI regulations.5. Compliance with CSR obligations under Section 135 of the Companies Act, 2013.6. Compliance with related party transaction regulations under Section 188 of the Companies Act, 2013.7. Outstanding tax demands and scrutiny assessments.8. Compliance with procedural requirements and filing of statutory returns.Detailed Analysis:1. Approval of the Scheme of Amalgamation:The Tribunal sanctioned the Scheme of Amalgamation between M/s. Soha Systems India Private Limited (Transferor Company) and M/s. Akamai Technologies Solutions (India) Private Limited (Transferee Company) with effect from 1st April 2018. The Scheme was deemed fair, reasonable, and not detrimental to the Members or Creditors or contrary to public policy. The Scheme aimed to bring operational synergies, efficient management, and increased financial resource mobilization.2. Compliance with FEMA/RBI Regulations and FDI Guidelines:The ROC and RD observed that both companies are foreign-owned and must comply with FEMA/RBI regulations. The Petitioner Companies affirmed compliance with all relevant regulations and undertook to comply with post-approval filings. The Tribunal directed strict compliance with FEMA and RBI regulations.3. Payment of Stamp Duty and Compliance with Section 232(3)(i):The ROC and RD noted that the Scheme did not mention additional payment of stamp duty and filing fees. The Petitioner Companies undertook to comply with Section 232(3)(i) and pay the difference fee after setting off the fee already paid by the Transferor Company. The Tribunal clarified that sanctioning the Scheme should not be construed as an exemption from payment of stamp duty, taxes, or other charges.4. Treatment of Overdue Liabilities and Compliance with RBI Regulations:The ROC and RD highlighted overdue payables aggregating to Rs. 40,90,940/- towards ESOP, RSU, and ESPP. The Petitioner Companies stated that the amount was insignificant relative to their operations and undertook to comply with any RBI directions. The Tribunal directed strict compliance with RBI regulations regarding these overdue liabilities.5. Compliance with CSR Obligations under Section 135:The ROC and RD pointed out unspent CSR amounts for FY 2017-18 and 2018-19. The Petitioner Companies explained the reasons for the unspent amounts and stated compliance with Section 135. The Tribunal directed the Transferee Company to submit supporting documents showing compliance within 30 days of the Scheme's approval.6. Compliance with Related Party Transaction Regulations under Section 188:The ROC and RD noted related party transactions and sought compliance under Section 188. The Petitioner Companies argued that as a Private Limited Company, Section 188 was not applicable, and transactions were at arm's length. The Tribunal directed the Companies to show compliance to the satisfaction of the ROC within 30 days if the Scheme is allowed.7. Outstanding Tax Demands and Scrutiny Assessments:The RBI stated that the Transferee Company had outstanding tax demands for various assessment years. The Tribunal noted that the tax implications arising from the Scheme are subject to the final decision of the concerned Income Tax Authorities and directed the Companies to ensure compliance with tax obligations.8. Compliance with Procedural Requirements and Filing of Statutory Returns:The Tribunal directed the Petitioner Companies to file all due statutory returns immediately and ensure compliance with all provisions of the Companies Act, 2013. The Companies were also directed to submit quarterly/annual status reports of such compliances through an affidavit by the Managing Director/Director along with CA/ICWA/CS certificates.Conclusion:The Tribunal sanctioned the Scheme of Amalgamation with specific directions to ensure compliance with regulatory requirements, payment of dues, and submission of necessary documents. The Companies were directed to comply with FEMA, RBI, and CSR regulations, address overdue liabilities, and fulfill all procedural requirements under the Companies Act, 2013. The Scheme's approval was subject to the condition that it would not exempt the Companies from any legal obligations or penalties for prior violations.