TaxTMI 
TaxTMI 
TaxTMI 
2010 (12) TMI 1068
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.... of the transferee company was shifted to Tamil Nadu in the year 2008 as per the order of the Company Law Board, Chennai and the certificate of registration issued by the Registrar of Companies, Tamil Nadu on February 10, 2009 and the registered office of the petitioner/transferee company is situated at Plot No. 3, Phase II, Sipcot Industrial Park, Sandavellure C Village, Sriperumbudur Taluk, Kancheepuram District. 4. The petitioner/transferee company, which is a continuing company, has two equity shareholders, viz., Flextronics International Asia Pacific Ltd. and Charlie Rajadurai, with equity shares totalling 5,85,41,908, and it has one preference shareholder, viz., Flextronics International Asia Pacific Ltd., holding 10,56,68,199 preference shares. 5. As on March 31, 2009, the authorised capital of the petitioner/transferee company with 8,50,00,000 equity shares of Rs. 10 each and 11,50,00,000 cumulative redeemable convertible preference shares of Rs. 10 each is Rs. 200,00,00,000. The issued, subscribed and paid-up capital with 3,46,65,660 equity shares of Rs. 10 each and 10,56,68,199 redeemable optionally convertible cumulative preference shares of Rs.10 each is Rs. 140,33,38....
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..../transferee company subject to the confirmation of this court. 10. The first transferor company, viz., Flextronics Design Consumer Electronics (India) P. Ltd., was incorporated on April 9, 2003 and registered in Karnataka in the name of Avnisoft Systems P. Ltd., which was changed to the present name on March 14, 2006, vide fresh certificate of incorporation issued by the Registrar of Companies, Karnataka. The registered office of the first transferor company is situated at No. 570/571, 2nd Floor, Sarjapura Main Road, 3rd Block, Koramangala, Bangalore-560 034. 11. The first transferor company has three equity shareholders with total equity shares of 37,79,700. While Flextronics Telecom Systems Ltd., has 37,79,698 equity shares, Flextronics International Asia Pacific Ltd., which is a nominee of Flextronics Telecom Systems Ltd., and Ashish Bhardwaj are holding one share each. 12. The authorised capital of the first transferor company in the form of 2,35,00,000 equity shares of Rs. 10 each is Rs. 23,50,00,000 and the issued, subscribed and paid-up capital in the form of 37,79,700 equity shares of Rs.10 each is Rs. 3,77,97,000. A certified copy of the audited annual account of the fi....
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....ogy sector, including manufacture of electronic products and components, etc., and the second transferor company at present is engaged in the business of manufacturing of electronic products/components and providing related services in information technology sector. 21. The board of directors of the second transferor company by resolution dated January 11, 2010, have adopted the scheme, subject to the confirmation of the High Court of Karnataka. 22. The third transferor company, viz., Coldwatt India P. Ltd., was incorporated on July 27, 2004, with the Registrar of Companies, Karnataka in the name of GTI Power Systems India P. Ltd., which was changed to the present name on April 1, 2005, by obtaining fresh certificate of incorporation from the Registrar of Companies, Karnataka. The registered office of the third transferor company is situated at 28-A, Electronic City, Hosur Road, Bangalore-560 100. 23. The equity shareholders of the third transferor company are Coldwatt Inc. holding 5,04,749 equity shares and Flextronics Technologies (India) P. Ltd., holding one equity share. 24. The authorised capital of the third transferor company in the form of 10,00,000 equity shares of Rs.....
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.... technical expertise of all the companies could be better utilised by the petitioner/transferee company, which would be beneficial to it ; and (v)better financial structuring of the company could be ensured under the scheme. 29. As per the scheme, with effect from the appointed date, as per the provisions of the Companies Act, 1956, and the Income-tax Act, 1961, the assets and liabilities of the transferor companies stand transferred to and merge with the assets and liabilities of the petitioner/transferee company. The appointed date has been fixed as April 1, 2009, or such other date as may be fixed by the High Court of Karnataka and this court. 30. The scheme contains salient features and the provision regarding staff and employees states that on the coming into effect of the scheme, the staff and employees of the transferor companies in service are deemed to be the staff and employees of the petitioner/transferee company without any break in their service, etc., apart from transfer of provident fund, gratuity and other benefits. The scheme contains provisions regarding the issue of shares, accounting treatment, merger of authorised share capital of the transferor companies wi....
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....rged company was being increased as a result of the scheme of amalgamation and this could only be carried out after following the procedure prescribed by the relevant provisions of the Companies Act and held that in the case of such merger no such payment of fee to the Registrar of Companies or stamp duty to the State Government shall be payable." 35. It is also stated in the affidavit filed by the Regional Director that a complaint has been received from a creditor, however the petitioner/transferee company has stated that the complainant is a debtor. The Regional Director has stated that since the petitioner/transferee company shall be in existence, any dispute of the complainant can be resolved in due course of time. 36. It is also stated that the scheme protects the interest of all the employees of the transferor companies and provides for dissolution of the transferor companies upon amalgamation. 37. Therefore, the only objection is from one of the creditors. The said creditor is stated to be one Tejas Networks Ltd., and it has raised objections in the form of a statement. 38. As per the said objection, it is stated that the objector is an unsecured creditor of the petitio....
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....petitioner/transferee company not giving any notice to the objector for shifting of the registered office, for a letter of the objector dated April 14, 2010, marked as annexure 3, asking for certain records to be made available, the petitioner/transferee company has not given any information and in fact, the objector has also written to the Company Law Board on April 14, 2010, for copies of such records. 40. Apart from the above said preliminary objection, the objector has also stated that even as per the company petition, the scheme sets out the conditionalities of the scheme and the first and foremost condition is that the petitioner/transferee company has agreed to get consent of the scheme by the requisite majority of shareholders and creditors of all the companies involved, including the creditors of the petitioner/transferee company and non obtaining of such consent from the creditors, including that of the objector, itself is sufficient for dismissing the petition in limine. 41. Even as per the balance-sheet as on March 31, 2009, of the petitioner/transferee company filed as annexure 1, there are confirmed unsecured creditors to the extent of Rs. 12,65,84,113 and confirmat....
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....d for reduction, or debt or claim has been discharged or has been secured and that the petitioner/transferee company should have filed a petition under section 101 of the Act and in not filing the same, the petitioner/transferee company has wantonly prevented this court from exercising its powers under section 101(2) of the Act. It is also stated that rule 85 of the Companies (Court) Rules, 1959, deals with reduction of capital and the petitioner/transferee company has failed to comply with the provisions of the Act in this regard. 48. It is also stated that the objector has issued a legal notice on July 25, 2009, under section 434 of the Act demanding a sum of Rs. 4,99,57,909.29 and a reply was sent belatedly on December 9, 2009 and in spite of it the petitioner/transferee company has failed to pay the dues despite several reminders, which resulted in filing of a company petition for winding up by the objector. 49. It is stated that efforts were made to reconcile the accounts to arrive at the pending dues between the parties and in spite of the same, the petitioner/transferee company was unable to reconcile their accounts and the purpose is only to delay the payment lawfully due....
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....y has submitted that by virtue of the scheme the petitioner/transferee company is going to be a continuing company and therefore, there is no necessity for any apprehension and it is his submission that there is no dilution of rights of creditors. He has also referred to various provisions of the scheme to show that the financial status of the petitioner/transferee company is not going to be affected. 55. It is also submitted that the objector has no locus standi and that the objector has not even made a proper claim and without any particulars it has filed the objection. It is also submitted that the objector has already approached this court by way of a petition in C.P. No. 118 of 2010 for winding up and it is for it to workout its remedy in the said company petition. It is his submission that the objector is not a creditor, but a debtor and there are no materials to prove that the petitioner/transferee company is bound to pay amount to the objector. 56. It is submitted that the shifting of the registered office of the petitioner/transferee company to Tamil Nadu was effected only after the Company Law Board passed orders and the same was in accordance with law and there is no n....
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....ity. He would also refer to various annexures filed by the petitioner/transferee company itself to show as to how the transferor companies are in a financially bad position. 63. He would also bring to the notice of this court the contents of the scheme to show that the scheme contemplates the consent from the creditors and submit that the non obtaining of such consent itself is a ground for the purpose of rejecting the proposal. 64. He would also refer to the provisions of sections 216 and 217 of the Act which relates to the balance-sheet and profit and loss account to show that the qualifying statement of the auditor is sufficient to prove that the claim of the petitioner/transferee company is not genuine. 65. He would also refer to the provisions of section 391 of the Act to substantiate his contention that furnishing of the latest financial position with auditor's report is a must for the purpose of approval of the scheme. 66. I have heard learned counsel for the petitioner and learned counsel for the objector and given my anxious thought to the issue involved in this case. 67. As stated above, the Regional Director, Ministry of Corporate Affairs, in the affidavit has state....
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....ntity, which is not the case on hand. 71. It is also relevant to point out that the objector's case appears to be not with the interest of claiming or making recoveries of the amounts due to protect its interest, but the main opposition is to the scheme. If that is so, certainly it is mandatory on the part of the objector to bring to the notice of this court about the grave situation either by suppression or illegality which may result in public interest or irredeemable consequence to the corporate personality of the petitioner/transferee company. 72. The objector mainly relies upon the remarks made by the statutory auditors about the nature of functioning and financial status and so on, but curiously the capital structure of the petitioner/transferee company has never been questioned by the objector. On the other hand, there are records to show that the assets of the petitioner/transferee company worth nearly Rs. 433 crores are available as on date. While the claim of the objector is only few lakhs, the same is objected to by the petitioner/transferee company. 73. The contention of learned counsel appearing for the objector by relying upon the provisions of the Act, especially ....
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....gamation, thereby requiring a special resolution to be passed under section 100 of the Act. It is only when the company passes a resolution for the purpose of reduction of share capital, the question of objection by any of the creditors of the company comes in as contemplated under section 101(2)(a) of the Act, which is as follows : "101. Application to court for confirming order, objections by creditors, and settlement of list of objecting creditors.-. . . (2) Where the proposed reduction of share capital involves either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, and in any other case if the court so directs, the following provisions shall have effect, subject to the provisions of sub-section (3) :- (a) every creditor of the company who at the date fixed by the court is entitled to any debt or claim which, if that date were the commencement of the winding up of the company, would be admissible in proof against the company, shall be entitled to object to the reduction ;" 76. In a scheme for approval under section 391 of the Act, what is required to be done is the approval of the court, which is p....
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.... conditions are to be satisfied before the court approves the scheme for amalgamation (page 630) : "(1)The court should be satisfied that the resolutions are passed by the statutory majority in value and in number in accordance with section 391(2) of the Companies Act at a meeting or meetings duly convened and held. This factor is jurisdictional in the matter of confirmation of the scheme. The court should not usurp the right of the members or creditors to decide whether they approved the scheme or not. Therefore, if a class whose interests are affected by a scheme does not assent to the scheme or approve it at a meeting convened in accordance with the provisions of section 391, the court will have no jurisdiction to confirm the scheme, even if it considers that the class concerned is being fairly dealt with or that it would approve the scheme. (2)The court should satisfy itself that those who took part in the meeting are fairly representative of the class and that the statutory meeting did not coerce the minority in order to promote the adverse interest of those of the class whom they purport to represent. (3)Lastly, in exercising its discretion under sections 391 and 394, the ....
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.... a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs." which uses the term "member or creditor", which includes any such person interested in the affairs of the company also and therefore, the question of locus standi hardly matters for the court in cases of scheme to be approved, since the court independently decides the issue. It was held by the Supreme Court as follows (page 353 of 49 Comp Cas) : "If the court can suo motu act, it is immaterial as to who drew the attention of the court to a situation which necessitated court's intervention. Where the power is conferred on the court to take action on its own motion the information emanating from whatever source which calls for court's attention can as well be obtained from any person without questioning his credentials moving an application drawing attention of the court to a situation where it must act. Undoubtedly, the court may decline to act at the instance of a busybody but if the action proposed to be taken is justified, valid, legal or called for, the capacity or credentials of the person who brou....
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....of any person interested in the affairs of the company. If such be the power conferred on the court, it is difficult to entertain the submission that an application for directions or modification cannot be entertained except when made by a member or creditor. It would whittle down the power of the court in that it cannot do so on its own motion." 81. While referring to the said sections 391 to 394 of the Act along with the Companies (Courts) Rules, 1959, in Teck-men Tools (P.) Ltd., In re [2009] 150 Comp. Cas. 800/1 92 SCL 59 (AP), while referring to the wishes of the creditors, it was held as follows (page 811) : "On a conjoint reading of sections 391 and 394 of the Companies Act, 1956, and rules 80 to 83 of the Companies (Court) Rules, 1959, it is evident that, while no specific provision has been made for ascertaining the wishes of the creditors in a scheme of arrangement between the company and its members, the Legislature, and the Supreme Court, have, necessary implication, entrusted the court with the duty to ascertain whether the scheme affects the interests of the creditors to such an extent that holding of their meeting is essential and, if the court were of the view tha....
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.... For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same. (7)That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. (8)That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. (9)Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there could be a better scheme f....
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.... 100 and FTIPL shall not nor shall be obliged to call for a separate meeting of its shareholders and creditors for obtaining their approval sanctioning the reduction of share premium account, as the case may be, as contemplated herein." 85. Clause 17.2 of the scheme, which is as follows : "17.2 On the scheme being agreed to by the requisite majorities of the classes of the shareholders and/or creditors, transferor companies and FTIPL shall, with all reasonable dispatch, apply to the High Court for sanctioning the scheme under sections 391 and 394 of the Act, and for such other order or orders, as the said High Court may deem fit for carrying this scheme into effect." also contemplates the agreement of the majority of the classes of the shareholders and/or creditors of both transferor and transferee companies for making application under section 391 of the Act. 86. The conditionality of scheme in clause 18, relied upon by learned counsel for the objector, which is as follows : "18. Conditionality of scheme. The scheme is conditional upon and subject to : (a)the scheme being agreed to by the respective requisite majority of shareholders and creditors of transferor companies and....
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....urred cash losses in the current and previous year and the accumulated losses of the company as at March 31, 2009, does not exceeded 50 per cent of capital and reserves." 88. The statutory auditor's report dated September 3, 2010, which has been filed before this court after the filing of the above company petition, shows that the objector, viz., Tejas Networks India Ltd., has an amount of Rs. 1,97,91,789 to be paid to the petitioner/transferee company as on August 31, 2010. The certificate is as follows : "We are the statutory auditors of M/s. Flextronics Technologies (India) P. Ltd. ('Flextronics') having its registered office at Plot No. 3, Phase II, SIPCOT Industrial Park, Sandavellure C Village, Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu. At the specific request of Flextronics, we are issuing this certificate for the limited purpose of filing with High Court of Chennai. In issuing this certificate, we have examined the un-audited books, records and other related documents maintained by Flextronics for the period from April 1, 2009 to August 31, 2010 and related information and explanation provided to us. Based on the said examination, we hereby certify that M/s.....