TaxTMI 
TaxTMI 
2011 (4) TMI 1021
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.... 10, 2008, in the State of Maharashtra. The registered office of the transferor company was thereafter shifted to the State of Tamil Nadu. 3. The authorised capital of the transferor company as on March 31, 2010, is Rs. 2,00,00,000 (rupees two crores only) divided into 20,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the transferor company as on March 31, 2010, is Rs. 1,54,10,000 (rupees one crore fifty four lakhs and ten thousand only) divided into 15,41,000 equity shares of Rs. 10 each. 4. M/s. India Securities Ltd., the transferee company is a company registered under the Companies Act, 1956, with its registered office at New No. 77/56, C. P. Ramasamy Road, Abhiramapuram, Chennai-18. 5. The transferee company was incorporated under the name and style of "Dear Leasing and Finance Ltd." on June 28, 1984, in the Union Territory of Delhi. The name of the transferee company changed to "India Securities Ltd." on May 1, 1987. The registered office of the transferee company was shifted to the State of Tamil Nadu with effect from November 28, 1988. The name of the transferee company was thereafter changed to "India Securities Ltd." on May 23,....
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....growing company will mean enhanced financial and growth prospects for the people and organisations connected with the company, and will be in public interest. (g) The shareholders, employees and other stakeholders of both the companies would benefit as a result of the proposed amalgamation. 9. As per the scheme, the equity shareholders of the transferor company as on date are to be allotted 330 equity shares of face value of Re. 1 as fully paid-up in the transferee company for every one equity share of face value of Rs. 10. 10. It is also proposed the transferee company on sanction shall without any further application or deed, issue and allot to every member of the transferor company, holding fully paid-up equity shares 1 (one) 0.10 per cent. non-cumulative preference share of Rs. 2,000 each fully paid-up by the transferee company for every equity share held in the transferee company redeemable at the end of 72 months at a price of Rs. 4,000 per share from the date of allotment of each of such preferential share of Rs. 2,000 each. 11. The transferee company is also to issue and allot to every debenture holder of the transferor company holding optionally convertib....
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.... petition as annexure VII). 16. In C. A. No. 1725 of 2010, this court directed the transferee company to convene a meeting of equity shareholders of the transferee company for the purpose of considering and if thought fit, approving with or without modification of the scheme of amalgamation of the transferor and transferee companies. Whereas in C. A. No. 1724 of 2010 this court was pleased to dispense with the convening, holding and conducting of meeting of equity shareholders of the transferor company for approving the scheme of amalgamation. 17. The transferor company also has no secured creditors. The certificate of chartered accountant in support of this petition has been placed on record. As per the scheme of amalgamation, the entire assets and liabilities of the transferor company is to be taken over by the transferee company from the appointed date as a going concern. 18. There are no proceedings pending against either of the companies under sections 235 to 251 of the Companies Act, 1956, nor any proceedings under the Income-tax Act, 1961, are pending against either of the companies. 19. Mr. P. J. Rishikesh, chairman appointed by this court in C. A. No. 1726 of 2....
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.... Total Nil 4. The report of the scrutineers is annexed herewith and marked as annexure 1. 5. I declared the resolution passed and the scheme of amalgamation of Essar Telecommunication Holdings P. Ltd., with India Securities Ltd., as placed before the meeting, was approved by the requisite majority without any modification. The said resolution is given hereunder : 'Resolved that the scheme of amalgamation of Essar Telecommunication Holdings P. Ltd., with India Securities Ltd., placed before the meeting and initiated by the chairman for the purpose of identification, be and is hereby approved. Further resolved that the board of directors of the company be and is hereby authorised to make and/or consent to any modifications, alterations or amendments in the scheme, which may be deemed to be necessary by them or which are desired, directed or imposed by this court or any other authority and to take all such steps as may be necessary and desirable to implement the scheme and to give effect to this resolution'." 20. In pursuance to the notice of these petitions issued, the R....
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....ed any dividend till April, 2009. Pursuant to the scheme of arrangement in the nature of demerger approved by the High Court, for every 5 shares held in the company as on April 13, 2009, company had issued 3 new equity shares of Rs. 10 each of the company and 2 equity shares of Rs. 10 each of Essar Securities Ltd. Since the shareholder was holding only one share, he was sent DD No. 525902 dated February 10, 2010, towards his share of fractional entitlement which was duly encashed by him on April 5, 2010. (5) I further submit that a news item appeared in The Business Line dated January 21, 2011, focussed on the objections raised by Vodafone regarding amalgamation of Essar Telecommunication Holdings P. Ltd., with India Securities Ltd. On January 24, 2011, The Times of India reported that Essar did not give information on merger claimed by Vodafone. Copies of newspaper extracts are enclosed with affidavit (annexures A and B) to enable this court to decide the scheme. (6) I further submit that this office has received an e-mail from the Securities and Exchange Board of India forwarding a letter received from Vodafone International Holdings BV (Vodafone) co....
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....approval is given to the merger of these two companies, an opportunity may please be given to the Assistant Commissioner of Income-Tax, Circle 5(1) Mumbai to submit the objections of the Income-tax Department to these transactions so as to protect the interest of the revenue. (9) I further submit that clause 10 of the scheme protects the interest of the employees of the transferor company and clause 6.1 of the scheme provides for dissolution of the transferor company without winding up, upon amalgamation. (10) In view of the observations made above, it is prayed that this court may take the above submissions into consideration and pass such order or orders as this court may deem fit and proper in the circumstances." 21. The official liquidator has also filed his report which reads as under : "(1) The official liquidator begs to submit that M/s. Essar Telecommunications Holdings P. Ltd. (hereinafter referred to as 'transferor company') preferred a petition before the High Court, Madras in C. P. No. 340 of 2010 for (a) sanctioning the scheme of amalgamation with M/s. India Securities Ltd. (hereinafter referred to as 'transferee company') and (b) fo....
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..../officers and found nothing prejudicial to the interest of the shareholders, creditors and others. That the company has not accepted any deposits from the public. Hence the question of commenting on compliance of the requirements of the Act relating to deposits does not arise. That the company has no unpaid/ unclaimed dividend and hence the question of commenting on compliance of section 205A of the Companies Act, 1956, does not arise. (7) That the chartered accountants have observed and reported as under on the share valuation report dated July 14, 2010, given by M/s. Bansi S. Mehta and Co., Chartered Accountants, Mumbai. (i) The said share valuation report is dated July 14, 2010, whereas the board has adopted the scheme of amalgamation on June 4, 2010, how could the scheme have been adopted by the board without the share valuation report in place. (ii) The share valuation report is dated July 14, 2010 and is based on unaccounted accounts as at March 31, 2010. The accounts of the transferor company were audited immediately thereafter on July 15, 2010 and its subsidiary ETHL Communications Holdings Ltd., which holds shares in Vodafone Essar L....
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....f shares in Vodafone Essar Ltd. By the transferor company's subsidiary, thus the valuation of the Vodafone Essar Ltd., should have translated into these two allotments. (v) On October 11, 2010, the shareholders of the transferee company have given permission for sale of the "finance division" of the transferee company to another company. "Frontier Leasing and Finance Ltd." in which Essar group owns 72.08 per cent. stake. The share valuation report of M/s. Bansi S. Mehta and Co., has excluded the finance division from the workings for computation of share value of the transferee company. Since this is only a sale of the undertaking at fair value, such exclusion need not have been done as the transferee company would have received money or money equivalent for the transfer of this division. (vi) Page 7 of the valuation report mentions that pursuant to the scheme of arrangement under section 391 read with section 394 of the Companies Act, 1956, the board of ISL has proposed to transfer its finance division, which is mainly engaged in hire purchase business. The appointed date for the proposed transfer is April 1, 2010. However, it looks like the transferee c....
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....e of shares of Vodafone Essar based on this put option price. (xii) We wish to draw your attention to the balance-sheet of ETHL Communications Holdings Ltd. (subsidiary of the transferor company) as at March 31, 2010 Schedule 3 secured loans. It is clearly mentioned that its 10.97 per cent. stake in Vodafone Essar Ltd., have been pledged to raise the debentures of Rs. 3,707.54 crores. This fact of pledge of the shares has not been discussed/considered in the share valuation to determine the swap ratio. The money raised from these debentures has been invested in a subsidiary company ETHL Communications (Mauritius) Ltd., end use of the funds has not been disclosed in the financials. (xiii) There are a number of companies in the listed space in India doing business quite similar/identical to that of Vodafone Essar Ltd. We do not know why the share value of these companies has not been considered/benchmarked for valuation of shares of Vodafone Essar Ltd. (xiv) The meeting of the equity shareholders of the transferor company was dispensed with. However the hon'ble High Court, Madras directed that a meeting of the equity shareholders of the transferee be held. ....
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.... accountant. (9) The transferor company in its letter dated February 28, 2011, has replied with reference to the observations of M/s. K. S. Jagannathan and Co., chartered accountant as under : Second proviso to section 394(1) of the Companies Act, 1956, requires that no order for the dissolution of any transferor company shall be made by the court unless the official liquidator has on scrutiny of books and papers of the company, made a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. For this prescribed objective, M/s. K. S. Jagannathan and Co., chartered accountants (auditor) were appointed by your office to conduct the scrutiny of books and papers of our company. In our opinion observations/remarks made by the auditor regarding valuation methodology of India Securities Ltd., disclosures made to the shareholders of India Securities Ltd., are not connected with the opinion on whether the affairs of the transferor company were conducted in a manner prejudicial to the interest of their members, or their creditors or to the public. Notwithstanding the above, we are subm....
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....chant Banker. (vi) reply to query at point 4(c) of the letter-the auditor has not given any basis for his assumption of enterprise value of Vodafone Essar Ltd., in 2007. However, it may be noted that the value of equity is arrived at after deducting debt from the enterprise value. In any case, acquisition value by Vodafone Group in March, 2007 is not relevant in this exercise. (vii) reply to query at point 4(d) of the letter regarding issue of shares on premium by the company, it may be noted that both these allotments are made to the holding company holding 100 per cent. share capital of the company and as such reflection of underlying assets is not a pre-requisite for the same as the pre and post shareholding pattern of the company remains the same after these allotments. (viii) reply to query at point 5 of the letter-regarding exclusion of finance division ISL, auditor is contradicting his statement in point No. 8 which is self explanatory. (ix) reply to query at point 6 of the letter it is clarified that it was proposed to transfer the finance undertaking of ISL through scheme of arrangement under section 391 of the Companies Act, 1956, howev....
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....roup and stakeholder in leading telecom company in India are mentioned as objects of the scheme. It is well known public information that Essar group holds stake in only one leading telecom companies in India and, i.e., Vodafone Essar Ltd. Mere omission to mention the name of the company in which stake is held cannot be construed as suppression of the facts especially when it was clearly mentioned in consolidated balance-sheet of the company and valuation report which was available for inspection of members till the time of conclusion of court convened meeting. A copy of the valuation report as well as copy of notice sent to the shareholders (page 8 specifies documents available for inspection) is enclosed herewith. Further it is stated that put option agreement is merely an option available with Essar group which may or may not be exercised and hence has no bearing on the proposed scheme of amalgamation. Thus as rightly specified in point No. 20 of the disclosures as prescribed by the SEBI, there is no other information required to be disclosed to the shareholders under section 393 of the Companies Act, 1956, which is necessary for enabling them to make an informed decision. It is....
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....0 each fully paid-up and the third series 197,328 convertible debentures of Rs. 100 each fully paid-up. It is also seen that under the head current liabilities and provisions, dues to sundry creditors for other than micro, small and medium enterprises is shown as Rs. 56,562 and for other liabilities is shown as Rs. 20,144. (14) Subject to the above observation, the official liquidator has not got any material to come to a conclusion that the affairs of the transferor company have been conducted in a manner which was prejudicial to the interest of their members or their creditors or to the public, or there were any transactions to attract the provisions of sections 542 and 543 of the Companies Act, 1956. (15) In view of the above, suitable order or orders as this hon'ble court may deem fit and proper may kindly be passed." 22. The reading of the affidavit filed by the Regional Director, Ministry of Corporate Affairs, Chennai would show that a positive report is submitted that Vodafone, has no locus standi to object to the scheme, whereas suggestion has been made to give an opportunity of hearing to the Assistant Commissioner of Income-tax to file objection to pr....
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.... scheme of amalgamation are therefore rejected. 31. The objections have also been raised by M/s. Vodafone International BV. A number of company applications have been filed by M/s. Vodafone International Holdings Ltd., which, are as under. 32. C. A. No. 310 of 2011 has been filed, to implead the Securities and Exchange Board of India as party to the proceedings in respect of C. P. No. 340 of 2010. This application on the face of it is misconceived. M/s. Vodafone International Holdings has no locus standi to request to implead a party especially when the SEBI has already filed no objection stating that it has no concern or locus standi in the matter. 33. Even otherwise, it is not for Vodafone International Holdings to request for impleading of the parties by invoking provisions of Order 1, rule 8A and rule 10(2) of the Code of Civil Procedure, 1908, read with rules 6, 9, 11 and 19 of the Companies (Court) Rules, 1959. 34. C. A. No. 311 of 2011 has been filed directing the respondent to provide copies of the documents enumerated in the schedule to the judge's summons to the application. This application is again misconceived. Vodafone International Holdings, admittedly is....
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....jection, it is pleaded that the clarification issued on January 19, the deals with selected issues, and fails to address various other issues raised by the objectors. 41. The objection is raised that shareholders of the transferor company were required to furnish relevant material to entitle them to arrive at the decision regarding the scheme, therefore this court should taken into consideration whether there was sufficient materials furnished to the equity shareholders. 42. It is not in dispute that the shareholders of the transferee company in the meeting held under the chairman appointed by this court, have considered the scheme and approved it. 43. The objections filed by Vodafone International P. Ltd., are objected to by the petitioner-companies by raising preliminary objection, that it has no locus standi to file objections. 44. The locus standi of M/s. Vodafone International Holding B. V., is questioned, on the ground that the scheme of amalgamation is arrangement between the shareholders and creditors of the transferor and transferee companies. 45. This court while considering the scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956, is....
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.... [1983] 53 Comp Cas 926 (Delhi), in paragraph 16 of the said decision, while considering similar grievance the court observed thus (page 947) : '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 or otherwise be actionable in a regular civil action against them. Such a matter has to be examined and decided in accordance with the special jurisdiction created by that Act or on a regular civil action, if maintainable. No cause of action accrues to the landlord before the amalgamation and consequential vesting. The cause of action, if any, follows the amalgamation and the vesting. Neither the amalgamation nor the vesting would deprive the landlord of any plea based on alleged assignment which may be open in law to the landlord. If there is any assignment in law, which may attract the provisions of the Delhi Rent Control Act, the landlord would be free to take recourse to the proceedings u....
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....modifications in the compromise or arrangement as the court may consider necessary for the proper working of the compromise and arrangement. The power of the widest amplitude has been conferred on the court under section 392(1)(b) and the width and the magnitude of the power can be gauged from the language employed in section 392(1)(a) which confers a sort of a supervisory role on the court during the period the scheme of compromise or arrangement is being implemented. Reading clauses (a) and (b) of sub-section (1) of section 392, it appears that Parliament did not want the court to be functus officio as soon as the scheme of compromise and arrangement is sanctioned by it. The court has a continuing supervision over the implementation of compromise and arrangement. Unenvisaged, unanticipated, unforeseen or even unimaginable hitches, obstruction and impediments may arise in the course of implementation of a scheme of compromise and arrangement and if on every such occasion, sponsors have, to go back to the parties concerned for seeking their approval for a modification and then seek the approval of the court, it would be a long-drawn out, protracted, time-consuming process with no g....
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.... the resultant action only on that ground. Therefore, when sub-section (2) confers power on the court to act on its own motion, the question of locus standi hardly arises. The High Court while examining the question of locus standi, after combing the provision contained in sub-section (2), wholly overlooked the important provision therein contained that the High Court can act on its own motion. It was, however, said in passing that sub-section (2) enables the court to wind up the company and, therefore, the court may act on its own motion or on the application of any person interested in the affairs of the company not for modifying the scheme or for any directions but for winding up the company. But when the court is required to act under section 392(1), the limitations and restrictions imposed upon the court under section 391(1) must be read in section 392(1) because the sections are complementary to each other. This submission overlooks the two different stages at which sections 391 and 392 operate though they may be complementary to each other. Two sub-sections of section 392 have to be harmoniously read and sub-section (2) clearly indicates the power of court to take action suo....
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.... be filed in Form No. 39. 50. The contention of learned counsel for the petitioner therefore was that the Legislature/rule making authority in its wisdom has drawn a clear distinction between the person, who can participate in the meeting to approve the scheme, and regarding the petition for sanction of scheme after approval of the equity shareholders and creditors. 51. Learned senior counsel for the objector contended that the use of the words "any person in Form No. 5" would entitle, any person to file objection against the scheme therefore it cannot be said, that the objector has no locus standi to file objection. 52. It is also the contention of learned counsel for the petitioner that the hon'ble Supreme Court in the case of National Textile Workers' Union v. P. R. Ramakrishnan [1983] 53 Comp Cas 184, while considering the objection filed by the workmen against winding up order, held that as the workmen will be directly affected by the order of winding up, they have a right to be heard. 53. The contention of learned senior counsel for the objector therefore is that on the same principle, as the petition is advertised in Form No. 5, therefore any person would be enti....