2022 (1) TMI 267 - Tri - Companies Law

Approval of Amalgamation Scheme for Business Consolidation |

The Tribunal approved the Scheme of Amalgamation between the Transferor Company (TIL Nutraceuticals Private Limited) and the Transferee Company (Tablets ... Approval for the Scheme of Amalgamation - Sections 230-232 of the Companies Act, 2013 - HELD THAT:- After analysing the Scheme in detail, this Tribunal is of the considered view that the scheme as contemplated amongst the petitioner companies seems to be prima facie beneficial to the Company and will not be in any way detrimental to the interest of the shareholders of the Company. In view of the 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 Arrangement commonly appended as Annexure '5' with the Company Petitions as well as the prayers made therein. The scheme is approved - application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Scheme of Amalgamation and related reduction of share capital satisfies the statutory requirements under Sections 230-232 of the Companies Act, 2013 so as to warrant sanction by the Tribunal. 2. Whether meetings of shareholders and creditors could be dispensed with for the Transferor Company and certain creditor classes of the Transferee Company in accordance with directions under Sections 230-232. 3. Determination of the Appointed Date(s) for (a) amalgamation and (b) reduction of share capital where the Scheme specifies distinct dates. 4. Whether statutory/regulatory authorities (Regional Director, Registrar of Companies, Income Tax Department, Official Liquidator, etc.) raised any objection affecting sanction and what is the effect of their reports. 5. Whether the accounting treatment and valuation underpinning share-exchange ratio and accounting disclosures comply with applicable Indian Accounting Standards and statutory certification requirements. 6. Whether the Tribunal should direct payment of professional fees to the auditor engaged by the Official Liquidator to verify the Transferor Company's affairs. 7. Consequential legal effects on vesting of assets and liabilities, continuance of proceedings, employment, allotment of shares, payment of fees/stamp duty and rights of interested persons post-sanction. ISSUE-WISE DETAILED ANALYSIS - 1. SANCTION UNDER SECTIONS 230-232 Legal framework: Sanction of compromise/arrangement requires compliance with Sections 230-232 of the Companies Act, 2013, including statutory notices, publication, absence of objections from relevant authorities, and fulfilment of accounting and valuation certification requirements. Precedent Treatment: No prior decisions were relied upon in the text; the Tribunal applied statutory criteria and regulatory practice. Interpretation and reasoning: The Tribunal examined the Scheme's stated rationale (operational integration, pooling of resources, efficiencies), the statutory compliances (board approvals, notices, publication), responses or absence thereof from statutory authorities, valuation report, and auditors' certificates on accounting treatment. In the absence of adverse material and with compliance demonstrated, the Scheme was prima facie beneficial and not detrimental to shareholders. Ratio vs. Obiter: Ratio - sanction is appropriate where statutory compliances are met, no material objections exist, and accounting/valuation certifications are in place. Obiter - expressions on potential benefits of consolidation are illustrative. Conclusion: The Tribunal sanctioned the Scheme as meeting statutory requirements under Sections 230-232. ISSUE-WISE DETAILED ANALYSIS - 2. DISPENSATION OF MEETINGS Legal framework: Sections 230-232 permit the Tribunal to direct dispensation of meetings of classes of members/creditors when the Tribunal is satisfied that meetings are unnecessary or impracticable. Precedent Treatment: The decision applied the Tribunal's earlier first-motion directions (recorded in the file) dispensing with meetings of certain classes. Interpretation and reasoning: The Tribunal relied on earlier orders (first motion) that dispensed with meetings of the Transferor Company's equity shareholders, secured and unsecured creditors, and the Transferee Company's secured creditors, while directing meetings only for specified classes. No subsequent material objection challenged that dispensation. Ratio vs. Obiter: Ratio - dispensation was appropriate given prior compliance and absence of objections; Obiter - none additional. Conclusion: The earlier directions to dispense with specified class meetings were affirmed as part of the sanction process. ISSUE-WISE DETAILED ANALYSIS - 3. DETERMINATION OF APPOINTED DATE(S) Legal framework: Section 232(6) permits the Tribunal to specify the appointed date(s) for purposes of amalgamation and other parts of a scheme where the scheme itself contemplates dates. Precedent Treatment: The Regional Director drew attention to two appointed dates in the Scheme; the Tribunal applied statutory power to determine them. Interpretation and reasoning: The Scheme specified Appointment Date 1 for amalgamation and Appointment Date 2 for reduction of share capital. The RD sought clarification on Appointment Date 2. The Tribunal adopted the dates as specified in the Scheme: 01.04.2020 for Part II (Amalgamation) and 31.03.2021 for Part III (Reduction of Share Capital), invoking Section 232(6) to fix them. Ratio vs. Obiter: Ratio - where a scheme specifies appointed dates, the Tribunal may formally fix those dates under Section 232(6); Obiter - RD's query does not preclude adoption of scheme-specified dates where appropriate. Conclusion: Appointed Date 1 fixed as 01.04.2020 (amalgamation); Appointed Date 2 fixed as 31.03.2021 (capital reduction). ISSUE-WISE DETAILED ANALYSIS - 4. RESPONSES OF STATUTORY AUTHORITIES Legal framework: Notices to statutory/regulatory authorities are mandated to enable objections; Tribunal must consider their reports before sanction. Precedent Treatment: Tribunal considered reports filed by the Regional Director and Official Liquidator; absence of replies from other authorities was treated as no objection. Interpretation and reasoning: The Regional Director's report highlighted the two appointed dates and the authorized capital enhancement and noted the Scheme's statement that no additional fee/stamp duty was payable while advising that the Transferee may be directed to remit any differential fee per Section 232(3)(i). The Official Liquidator filed a report after an auditor's enquiry into the Transferor Company's books, raising no objection but requesting inclusion of the auditor's report and fixation of remuneration. Other authorities (Income Tax Department, ROC) did not file objections; Tribunal inferred they had no objection for sanction purposes. Ratio vs. Obiter: Ratio - absence of material adverse findings from statutory authorities supports sanction; RD's and OL's procedural observations can be addressed by directions (e.g., differential fees, auditor remuneration). Obiter - silence of authorities is treated as no objection absent contrary material. Conclusion: The Tribunal accepted statutory reports subject to directions: (a) Transferee to remit differential fees if any; (b) payment of auditor's remuneration to the Official Liquidator as directed. ISSUE-WISE DETAILED ANALYSIS - 5. VALUATION, SHARE EXCHANGE RATIO AND ACCOUNTING TREATMENT Legal framework: Schemes involving share exchange require independent valuation and accounting/auditor certification in accordance with applicable Indian Accounting Standards and the proviso to Section 230(7)/Section 232(3). Precedent Treatment: The Tribunal considered the registered valuer's report and statutory auditors' certificates placed on record. Interpretation and reasoning: The valuation report provided total company values and derived per-share values leading to a proposed exchange ratio (14 shares for every 600 shares) with provision for cash consideration for fractions. Statutory auditors certified that the accounting treatment complies with the proviso to Section 230(7)/Section 232(3) and applicable Indian Accounting Standards. No material objection to valuation or accounting treatment was placed before the Tribunal. Ratio vs. Obiter: Ratio - a scheme supported by an independent valuation and auditor certification satisfies the statutory certification requirements absent contrary material; Obiter - details of valuation methodology were not questioned. Conclusion: Valuation and accounting treatment were accepted as compliant, supporting sanction and the specified share-exchange mechanism (with cash for fractional shares). ISSUE-WISE DETAILED ANALYSIS - 6. PAYMENT OF AUDITOR'S REMUNERATION TO OFFICIAL LIQUIDATOR Legal framework: When an Official Liquidator or its appointed auditor investigates company affairs and requests remuneration, the Tribunal may direct payment as part of sanction proceedings. Precedent Treatment: The Official Liquidator sought to take the auditor's report on record and fix professional fees; the Tribunal acted on that request. Interpretation and reasoning: The Chartered Accountant's verification yielded observations (e.g., filing regularity, absence of prosecutions, books maintained, loans noted). The Official Liquidator sought the auditor's report to be taken on record and remuneration fixed. The Tribunal directed the Transferor Company to pay Rs. 50,000 to the Official Liquidator for the auditor's professional fees. Ratio vs. Obiter: Ratio - Tribunal can direct payment of auditor's fees for investigation ordered/accepted during sanction proceedings; Obiter - quantum fixed by Tribunal on the facts. Conclusion: Transferor Company ordered to pay Rs. 50,000 to the Official Liquidator for auditor's fees; the auditor's report was taken on record. ISSUE-WISE DETAILED ANALYSIS - 7. CONSEQUENTIAL EFFECTS & SAVING CLAUSES Legal framework: Sanctioning an arrangement under Section 232 causes vesting of assets/liabilities, continuation of proceedings, transfer of employees, allotment of consideration, and requires compliance with filings and payments (fees, stamp duty) to ROC; sanctions do not obviate other statutory obligations or liabilities under other enactments. Precedent Treatment: The Tribunal issued directions consistent with Section 232(3) and ancillary requirements (filing of certified copy with ROC, consolidation of files, payment of differential fees if any). Interpretation and reasoning: The Tribunal ordered automatic vesting of all properties, rights and interests, and transfer of liabilities, continuance of proceedings in the Transferee Company's name, and continuity of employees without break. It directed allotment of shares to non-dissenting members, filing of revised Memorandum & Articles, payment of differential fee for enhanced authorized capital after set-off, delivery of certified copy of the order to ROC leading to dissolution of the Transferor Company and consolidation of records, and left liberty for interested persons to apply for further directions. The Tribunal clarified that the sanction does not exempt payment of stamp duty, taxes, or other charges nor bar action for statutory violations. Ratio vs. Obiter: Ratio - standard consequential directions following sanction under Section 232 are binding and include vesting, continuation of liabilities/proceedings and employee transfer; Obiter - reminder that sanction does not confer immunity from compliance with other laws. Conclusion: The Tribunal issued comprehensive consequential orders implementing the Scheme, fixed appointed dates, preserved rights of interested persons to seek further directions, and clarified that statutory duties (fees, stamp duty, taxes, compliance) remain enforceable.