2021 (5) TMI 108 - Tri - Companies Law

Tribunal approves Scheme of Amalgamation, transfers assets, liabilities, and employees, with specified compliance conditions.

The Tribunal approved the Scheme of Amalgamation between two companies, directing compliance with statutory authorities and accounting standards. Meetings ... Approval of scheme of Amalgamation - section 230-232 of Companies Act - HELD THAT:- This Tribunal is of the considered view that the scheme as contemplated amongst the petitioner companies seems to be prima facie in compliance with the provisions of the Companies Act, 2013. Further there seems to be no objection on the part of the shareholders that the Scheme is in any way detrimental to the interest of the shareholders of the Company. In view of absence of any other objections having been placed on record before this Tribunal and since all the requisite statutory compliances having been fulfilled, this Tribunal sanctions the Scheme of Amalgamation appended as Annexure '4' as well as the prayer made therein. The scheme is approved - application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the proposed scheme of amalgamation complies with Sections 230-232 and other applicable provisions of the Companies Act, 2013 and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 so as to warrant sanction by the Tribunal. 2. Whether meetings of equity shareholders and unsecured creditors could be dispensed with for the purposes of considering the scheme. 3. Whether statutory requirements of notice and service to regulatory/statutory authorities (Regional Director, Registrar of Companies, Income Tax Authorities, Official Liquidator and relevant sectoral regulators) and publication requirements were complied with and whether any adverse reports from such authorities prevent sanction. 4. Whether any objection raised by the Regional Director regarding payment of additional fee/stamp duty for enhancement of authorised capital under Section 232(3)(i) invalidates or conditions sanction, and whether the undertaking to pay such fees cures the objection. 5. Whether the report of the Official Liquidator (and the Chartered Accountant appointed by him) raises any material irregularity affecting sanction and whether payment of auditor's remuneration to the Official Liquidator is warranted. 6. Whether the accounting treatment in the scheme complies with the proviso to Section 230(7)/Section 232(3) and applicable Indian Accounting Standards, having regard to certificates of statutory auditors. 7. The legal effect of sanction: vesting of assets and liabilities, continuation of pending proceedings, status of employees, appointed date, filing of amended constitutional documents and payment of fees, dissolution of transferor and consolidation of records by the Registrar of Companies. 8. Whether sanction operates as a bar to other statutory actions including tax recovery or enforcement under other enactments, and the rights of statutory authorities (notably Income Tax Department) post-sanction. ISSUE-WISE DETAILED ANALYSIS Issue 1: Compliance with Sections 230-232 and Rules (Sanctionability) Legal framework: Sections 230-232 of the Companies Act, 2013 and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 govern compromise/arrangement and amalgamation; Tribunal must be satisfied scheme is lawful, fair and compliant with statutory requirements before sanction. Precedent treatment: The Tribunal applied established practice of examining statutory compliance, auditors' certificates and absence of objections from stakeholders or regulators. Interpretation and reasoning: The Tribunal analyzed the scheme text, statutory filings, auditors' certificates, and statutory authority reports. No material non-compliance or detrimental effect to shareholders or creditors was found on the record. The scheme's rationale (integration of management, pooling of resources, cost savings, strengthened financial position) was noted as commercial justification but not determinative of legality. Ratio vs. Obiter: Ratio - sanction is appropriate where statutory requirements are complied with, no material objections exist, and accounting/auditor certifications are in place. Obiter - commercial merits were observed but not determinative. Conclusion: The scheme as presented is prima facie compliant and sanctioned by the Tribunal. Issue 2: Dispensation of Meetings of Equity Shareholders and Unsecured Creditors Legal framework: Tribunal can dispense with convening meetings under Sections 230-232 where it is satisfied meetings are unnecessary in the interests of justice and efficiency. Precedent treatment: The Tribunal exercised its discretion under the Act to dispense with meetings upon joint application. Interpretation and reasoning: Joint first motion application sought dispensation; Tribunal issued directions previously (recorded) dispensing with meetings. No secured creditors existed and no objections were recorded that would necessitate meetings. Ratio vs. Obiter: Ratio - meetings lawfully dispensed with where statutory criteria met and no prejudice shown. Conclusion: Dispensation of meetings was appropriate and accepted for the purposes of sanction. Issue 3: Compliance with Notice, Publication and Statutory Authority Responses Legal framework: Scheme proponents must serve notice on statutory/regulatory authorities and publish notices in prescribed newspapers; Tribunal may take account of responses (or absence thereof). Precedent treatment: Tribunal relied on filed affidavit of service and responses/reports of authorities. Interpretation and reasoning: Affidavit of service and publication proofs were filed showing compliance. Regional Director filed a report with one procedural objection (fee for authorised capital increase); Official Liquidator filed a report based on CA verification (no adverse findings). Income Tax Authorities and Reserve Bank did not appear or file objections, and Tribunal inferred no objection from their silence while noting their rights remain. Ratio vs. Obiter: Ratio - compliance with notice and publication requirements establishes procedural regularity; absence of response from authorities is not conclusive of no rights but is relevant for sanction. Conclusion: Notice and publication obligations satisfied; statutory authority responses did not bar sanction subject to other directions given. Issue 4: Regional Director's Objection on Fee/Stamp Duty for Increase in Authorised Capital and Cure by Undertaking Legal framework: Section 232(3)(i) requires payment of fees/duties related to increase in authorised capital; Tribunal must ensure compliance or suitable undertaking. Precedent treatment: The Tribunal treated the RD's objection as procedural and directed compliance. Interpretation and reasoning: RD observed clause increasing authorised capital but lack of provision for payment of additional fee/stamp duty. Transferee provided an affidavit undertaking to pay necessary fees/duties and to file amended MOA/AOA. Tribunal accepted the undertaking and directed filing and payment (after set-off of fees paid by transferor) as condition of sanction. Ratio vs. Obiter: Ratio - procedural objections regarding statutory fees can be cured by clear undertakings and directions to file amended constitutional documents and make requisite payments. Conclusion: RD's objection was addressed by the undertaking and explicit direction to file amended documents and pay differential fees; objection did not prevent sanction. Issue 5: Official Liquidator's Report, CA Verification and Payment of Auditor's Remuneration Legal framework: Official Liquidator may verify affairs of transferor company; Tribunal may act on reports and fix remuneration for investigations where appropriate. Precedent treatment: Tribunal accepted the CA report commissioned by the Official Liquidator as informative and required payment for the auditor's services. Interpretation and reasoning: CA report disclosed audited accounts without qualifications, statutory registers maintained, returns filed, no public deposits, regular tax filings and no unpaid/unclaimed dividends. No material irregularity emerged. Tribunal directed payment of Rs.25,000 to Official Liquidator for the CA's fees. Ratio vs. Obiter: Ratio - Tribunal can require petitioning companies to meet costs of statutory verifications; absence of adverse findings supports sanction. Conclusion: OL's enquiry raised no material impediment; Tribunal directed payment of auditor fee and took the report on record; sanction permitted to proceed. Issue 6: Accounting Treatment and Auditors' Certificates Legal framework: Proviso to Section 230(7)/Section 232(3) requires compliance with applicable accounting standards and auditors' certification of accounting treatment under the scheme. Precedent treatment: Tribunal relied on statutory auditors' certificates as evidence of compliance. Interpretation and reasoning: Statutory auditors certified that accounting treatment conformed with applicable Indian Accounting Standards and statutory provisos; certificates placed on record. Tribunal regarded these certifications as satisfying the statutory accounting requirements. Ratio vs. Obiter: Ratio - auditors' certification that accounting treatment complies with applicable accounting standards is a requisite and admissible basis for sanction. Conclusion: Accounting treatment certified compliant; no accounting-based impediment to sanction. Issue 7: Legal Consequences of Sanction (Vesting, Liabilities, Employees, Appointed Date, Filing and Dissolution) Legal framework: Section 232(3) provides for transfer and vesting of assets and liabilities without further act or deed; Section 232(6) permits specification of appointed date; Registrar duties include registration and consolidation of files and dissolution of transferor on filing certified order. Precedent treatment: Tribunal applied statutory provisions to give operative directions upon sanction. Interpretation and reasoning: Tribunal ordered (i) vesting of all properties/rights/interest of transferor in transferee without further act; (ii) transfer of liabilities, engagements and duties to transferee; (iii) continuation of pending proceedings by/against transferee; (iv) appointed date fixed as 1 April 2019; (v) employees to be absorbed without break; (vi) allotment of shares to dissenting/non-dissenting members per scheme (subject to notice); (vii) filing of revised MOA/AOA and payment of differential fee after set-off; (viii) delivery of certified copy to ROC within 30 days and consequent dissolution and consolidation of files; (ix) liberty to interested persons to apply for directions. Ratio vs. Obiter: Ratio - on sanction, statutory vesting and other consequences flow automatically and Tribunal may give consequential directions to give effect to the scheme. Conclusion: Tribunal's order specified clear operative directions to effect statutory consequences of amalgamation and procedural steps for ROC and parties. Issue 8: Effect of Sanction on Statutory Rights of Tax and Other Authorities Legal framework: Sanction under Companies Act does not extinguish rights of tax or other statutory authorities to proceed for recovery of dues; authorities may initiate appropriate proceedings. Precedent treatment: Tribunal relied on precedent recognizing the Income Tax Department's entitlement to initiate recovery proceedings notwithstanding sanction (reference to higher court decisions confirming tax department's rights). Interpretation and reasoning: Tribunal observed that sanction is not an immunity; if any deficiency or violation of any enactment/statute is found, appropriate action may be taken against concerned persons in accordance with law. Tribunal expressly clarified order does not grant exemption from stamp duty, taxes or other charges, nor preclude statutory recovery or other enforcement actions (specifically noting Income Tax Department's entitlement to pursue dues). Ratio vs. Obiter: Ratio - scheme sanction does not bar statutory authorities from recovering dues or taking action under other laws; this limitation is integral to the sanction. Conclusion: Sanction is without prejudice to statutory claims and enforcement; authorities retain rights to proceed for recovery or other lawful action.