TaxTMI 
TaxTMI 
2009 (6) TMI 580
X X X X Extracts X X X X
X X X X Extracts X X X X
....le of Strides Research and Specialty Chemicals Limited ("SRSCL"). However, after compliance of all necessary formalities under section 21 of the Act, the name of the company was changed to Sequent Scientific Ltd. ("SSL") with effect from 18-9-2006. The Transferor Company carries on business in the human healthcare segment and has invested significantly into strong Research and Development Team and facilities. It is engaged in the business of Specialty and Fine chemicals, contract manufacturing, contract research and development, outsourced drug discovery services and custom synthesis and API's. As on 31-3-2008 the authorised share capital of the Transferor company was Rs. 50,00,000 equity shares of Rs. 10 each in the value of Rs. 5,00,00,000. The issued, subscribed and paid up capital of the Transferor company is 38,50,000 equity shares of Rs. 10 each valued at Rs. 3,85,00,000. However, as on the date of filing of the Petition, the share capital of the Transferor company is stated to be authorised share capital of 50,00,000 equity shares of Rs. 10 valued at Rs. 5,00,00,000 and issued, subscribed and paid up capital of 43,50,000 equity shares of Rs. 10 valued at Rs. 4,35,00,000. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Transferee company, both the Petitioner/Transferor company and the Transferee company appointed Chartered Capital and Investment Ltd. as merchant bankers for giving fairness opinion or the valuation report. It is stated that upon the scheme being sanctioned the Transferor company will be dissolved without winding up in accordance with provisions of section 394 of the Act as stated in Clauses 12 and 13 of the Scheme. 5. The Petitioners took out summons for directions being Company Application Nos. 1552/2008 and 1553/2008 respectively. By order dated 21-11-2008, this Hon'ble Court dispensed with the meeting of the equity shareholders of the Transferor company since all the shareholders had given their consent. However, directed the Transferor company to hold meeting of secured creditors and unsecured creditors for the purposes of considering and if thought fit approving with or without modification the arrangement enrolled in the scheme of 3-1-2009 at the appointed time and place. Insofar as the Transferee company is concerned, this Hon'ble Court directed the Transferee company to hold meetings of its equity shareholders, secured creditors and unsecured creditors for the same p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inding on all the members and shareholders of the respective companies. The Petitioner asserts that no one will be prejudiced if the scheme is sanctioned and the sanction of the scheme will be in the interest of Transferee company, Transferor company, the general public and all concerned for which reason it is just and equitable that the scheme is sanctioned as the same is bound to benefit both the companies. 9. The Regional Director, Western Region, Ministry of Corporate Affairs has stated on affidavit that the scheme is not prejudicial to the interest of shareholders and public and the Court may pass such orders as it deems fit and proper. Having noticed that all necessary compliances have been made by the respective companies with assurance to comply all consequential formalities, even the Official Liquidator has submitted report regarding consent for sanction of the proposed scheme of amalgamation. No other shareholder or creditor has come forward to oppose these Petitions. The only objection registered is by M/s. CIBA (India) Ltd. by filing affidavit of Jimeasow-the Constituted Attorney of the Intervenor. In the reply affidavit the Intervenor has stoutly disputed the correctn....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the technology whether provided by Intervenor CIBA (India) Ltd. or developed by Transferor company shall exclusively belong to Intervenor company CIBA (India) Ltd. and is non-transferable, in view of the prohibition on Transferor company from assigning in whole or in part, its rights and obligations under the Supply Agreement without the prior written consent of the Intervenor company. It is then stated that it has now come to the notice of the Intervenor company that recently the Transferor company has already approached the only two upstream customers of CIBA in India and has offered to sell the said product PEPQ either directly or through a company called Qualichm Specialists Pvt. Ltd. As a result the Transferor company has or is likely to commit a breach of the Supply Agreement. It is stated that the Intervenor company has been advised to take recourse to appropriate proceedings in that behalf and is opposing the scheme proposed by the Transferor company without prejudice to its rights to take recourse to separate action against the Transferor company for committing breach of the said Supply Agreement. It is further stated that as per the Supply Agreement the Intervenor compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f or likelihood of breach of conditions of Supply Agreement operating between the Intervenor and the Transferor company. The Counsel appearing for the Transferor company has rightly pressed into service decision of the Delhi High Court as well as of the Calcutta High Court to contend that the Intervenor company as of now has no cause of action to resist the proposed scheme. The fact that on account of the scheme coming into force, there is likelihood of breach of some contractual terms between the Intervenor company and the Transferor company cannot be the basis to consider the efficacy and the justification for introducing proposed scheme of amalgamation. In the case of Telesound India Ltd., In re [1983] 53 Comp. Cas. 926 (Delhi). In Paragraph 16 of the said decision, while considering similar grievance the Court observed thus :- "... This Court is, however, not concerned at this stage if the transfer by or consequent on amalgamation by the order of the Court would nevertheless be tantamount to the assignment of a tenancy and if without the consent of the landlord would render the company or the transferee-company liable to eviction under section 14(1)(b) of the Rent Control Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e inter alia for :- '(a )the transfer to the transferee-company of the whole or any part of the undertaking and of the property or liabilities of any transferor-company.' 15. It is to be ordered that the section does not merely say, as does order 23, rule 3 in the case of compromises of suits, that the Court 'Shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith' but directs the making of a further order by the Court on its own account for the transfer of assets in addition to sanctioning the scheme. Even then, it is not left to the order itself to effectuate the transfer by its own force as an order of the Court. It is provided further by sub-section (2) of the section that :- 'Where an order under this section, provides for the transfer of property....' that property shall, by virtue of the order, be 'transferred to and vest in .... the transferee company.' There, at last, the transfer is accomplished, and the clear statutory provision is that it takes place by virtue of the order passed by the Court. It does not take place by an assignment by the transferor company, for that company makes no assignment at all, e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether the transfer of tenancy emanating from the sanction of a scheme of amalgamation is in the nature of voluntary transfer or involuntary transfer. In these decisions the Apex Court, no doubt, has expounded that on account of the scheme of amalgamation the tenancy rights in respect of premises in question stood transferred in favour of the Transferee company; it then proceeded to observe that by no standard, such transfer can be said to be involuntary transfer. However, what is significant to note is that the Court was called upon to examine the core question as to whether such transfer is prohibited "within the meaning of the concerned Rent Control Legislation". The Apex Court proceeded to hold that even if it was an involuntary transfer, it would offend the provisions of the Rent Control Legislation and result in unlawful subletting. That opinion is rendered in the proceedings taken out by the landlord for possession of the suit premises on the ground that original tenant unlawfully transferred and sublet the suit premises to the Transferee company as a consequence of scheme of amalgamation. As aforesaid, the consequence of approving proposed scheme of amalgamation results in b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsfers effected by orders of the court or by operation of law. In a situation of amalgamation, the transfer is not by way of sale, exchange, lease or rent so as to fall within section 269UA. Further, the process by which the land in question stood vested in the transferee-company by virtue of the amalgamation order, would not answer the description of 'immovable property' within the meaning of clause (d)(ii ) nor does it answer the description of 'transfer' as defined in clause (f)(ii ) of section 269UA of the Income-tax Act. (See in this connection Sailendra Kumar Ray v. Bank of Calcutta Ltd. [1948] 18 Comp. Cas. 1 (Cal.) and Suhti-Yanidhi (Virudhnagar) Ltd. v. A.R.S. Subrahmanya Nadar [1951] 20 Comp. Cas. 214 (Mad.) and Telesound India Ltd., In re MANU/DE/0024/1980. In Sailendra Kumar Ray's case [1948] 18 Comp. Cas. 1 , the Calcutta High Court held that in a situation of amalgamation even if it can be said that there was a transfer of asset, the transfer was not by way of an assignment but by the order of the court backed up by the force of a statutory provision and by operation of law. In Sahayanidhi's case [1951] 20 Comp. Cas. 214 (Mad.), the Madras High Court reiterated this p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of the Company Court's order and/or by operation of law; it ceases to be a contractual or a consensual transfer. The contention, therefore, is that Chapter XX-C is not attracted to such a transfer by operation of law. This contention has substance and needs to be upheld." 18. It may be useful also to consider the following observations in the same Judgment which reads thus :- "The contention urged by the petitioners as well as the fifth respondent, appropriate authority, that a no objection certificate under Chapter XX-C is a condition precedent to the Company Court considering the scheme for amalgamation also does not appear to be tenable for several reasons. First, whenever the Legislature wanted a sanction order to be subject to some condition precedent, the Legislature has so provided expressly. (See in this connection provisions of sections 23 and 24 of the Monopolies and Restrictive Trade Practices Act prior to the deletion of these sections from the Act by amendment of 1991). While interpreting a statute, the court has to consider the legislative habit. The legislative habit indicates that where the Legislature intended a sanction to an amalgamation scheme was subject t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the amalgamation scheme, has no statutory basis and cannot be accepted." 19. In the light of the exposition in this decision of the Division Bench of our High Court, the argument of the Intervenor that the transfer is not involuntary transfer and that it is likely to result in breach of conditions of Supply Agreement is of no avail. Assuming that it results in transfer and such transfer is in breach of contractual terms under the Supply Agreement, that is a matter which will have to be addressed at the appropriate stage. The Intervenor is free to invoke the terms of contract and terminate the agreement, as also claim relief of damages or any other civil or criminal action as may be permissible by law. Although it may not be necessary for this Court to answer the issues raised by both sides in the context of terms of Supply Agreement, I would briefly refer to the stand taken by the Transferor company which prima facie in my opinion appears to be a plausible argument. The Supply Agreement clearly provides that the other part of the agreement, namely, the Transferor company, shall unless it be repugnant to the context and meaning thereof, be deemed to mean and include its successors....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ger, the scheme of amalgamation and the legal provisions as the case may be under which such transfer, devolution, merger, takeover or amalgamation as the case may be may have taken place. It follows that subject to such terms it becomes liable to be impleaded or becomes entitled to be impleaded in the place of or in addition to the transferor company or corporation in any action, suit or proceeding filed against the transferor company or corporation by a third party or filed by the transferor company or corporation against a third party and that whatever steps have already taken place in those proceedings will continue to operate against and be binding on the transferee company or corporation in the same way in which they operate against a person on whom any interest has devolved in any of the ways mentioned in rule 10 of order 22 of the Code of Civil Procedure, 1908 subject of course to any terms in the contract of transfer or merger, scheme of amalgamation or other relevant legal provisions governing the transaction under which the transferee company or corporation has become the successor-in-interest of the transferor company or corporation." [Emphasis supplied] (p. 540) 20. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or company or the Transferor company. Once again it is clarified that this is only an incidental enquiry and not a final pronouncement on the issue as to whether the scheme of amalgamation results in transfer of the rights and liabilities under the Supply Agreement in favour of the Transferee company in violation of the said agreement. It is also not necessary for me to elaborate as to whether it would be a matter of transfer or assignment or neither of them, in the present proceedings. All those matters will have to be addressed at the appropriate stage in the event the Intervenor company decides to terminate the agreement or to proceed for breach of the terms and conditions of the Supply Agreement in the Court of law which claim will have to be decided on its own merits in accordance with law. All questions in that behalf are left open. However, at the same time I may place on record that the Counsel appearing for the Transferee company assured the Court that the Transferee company would abide by every singular condition of the Supply Agreement including the confidentiality clause having stepped in the shoes of the Transferor company. Assurance so given on behalf of Transferor as....