Approval of Amalgamation Scheme under Companies Act, 2013: Key Points & Compliance

The Tribunal approved the Scheme of Amalgamation under sections 230-232 of the Companies Act, 2013, involving a two-stage merger process. Dispensation was granted for meetings of equity shareholders and unsecured creditors. Compliance with statutory requirements was ensured through publication of notices and service to relevant authorities. Share exchange ratios were based on a valuation report by a registered valuer. The Tribunal addressed concerns regarding pending tax demands, with the Transferee Company assuming liabilities. The Scheme safeguarded employee conditions and stipulated the continuation of ongoing legal proceedings against the Transferee Company.

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Issues Involved:
1. Approval of the Scheme of Amalgamation under sections 230-232 of the Companies Act, 2013.
2. Dispensation of meetings of equity shareholders and unsecured creditors.
3. Compliance with statutory and regulatory requirements.
4. Share exchange ratio and valuation.
5. Pending tax demands and liabilities.
6. Impact on employees and ongoing legal proceedings.

Detailed Analysis:

1. Approval of the Scheme of Amalgamation:
The Petitioner-Companies filed a joint Second Motion Petition under sections 230-232 and other applicable provisions of the Companies Act, 2013, for sanctioning the proposed Scheme of Amalgamation. The Scheme envisages a two-stage amalgamation, where several Transferor Companies will merge into their respective holding companies, and subsequently, these holding companies will merge into the Transferee Company 4.

2. Dispensation of Meetings:
The Petitioner-Companies previously filed a First Motion Application seeking dispensation with holding the meetings of equity shareholders and unsecured creditors, which was granted by the Tribunal on 01.06.2020. There were no secured creditors in the Petitioner Companies, eliminating the need for their meetings.

3. Compliance with Statutory and Regulatory Requirements:
The Tribunal directed the publication of notices in specified newspapers and the service of notices to relevant authorities, including the Central Government, Registrar of Companies, Official Liquidator, Reserve Bank of India, and the Income Tax Department. The Petitioner-Companies complied with these directions and filed affidavits confirming the same.

4. Share Exchange Ratio and Valuation:
The Scheme outlines the share exchange ratios for each Transferor Company merging into Transferee Company 4. The exchange ratios were based on a valuation exercise carried out by a registered valuer, Kapil Nayyar. The valuation report, dated 22.11.2019, was based on the audited financial statements as of 31.03.2019.

5. Pending Tax Demands and Liabilities:
The Income Tax Department raised concerns about the share valuation and pending tax demands. The Petitioner-Companies responded that the valuation was conducted by a registered valuer and that the Transferee Company 4 would assume all existing liabilities, including tax liabilities, of the Transferor Companies. The Petitioner-Companies also undertook not to claim any carry-forward of losses under the Income Tax Act, except in accordance with the law.

6. Impact on Employees and Ongoing Legal Proceedings:
The Scheme ensures that the service conditions of the employees of the Transferor Companies will not be adversely affected. Clause C of Part VI of the Scheme provides that any ongoing legal proceedings involving the Transferor Companies will continue against the Transferee Company 4.

Judgment:
The Tribunal approved the Scheme of Amalgamation, clarifying that the Order does not grant any exemption from payment of stamp duty, taxes, or other charges. The Transferor Companies will be dissolved without undergoing the process of winding up. The Tribunal issued several directives, including the transfer of property, rights, and liabilities to the Transferee Company 4, continuation of legal proceedings, and allotment of shares to the shareholders of the Transferor Companies. The Transferee Company 4 was also directed to deposit specified amounts with the Regional Director and the Company Law Bar Association. The Petitioner-Companies were instructed to file a Schedule of Property for formal orders to be issued.

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