TaxTMI 
TaxTMI 
2015 (4) TMI 448
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....ferred to as "Transferor Company No.5) (The Petitioner Company, Transferor Company No.1, Transferor Company No.3, Transferor Company No.4 and Transferor Company No.5 collectively (hereinafter referred to as the "Transferor Companies") and Tech Mahindra Limited (hereinafter referred to as "Transferee Company") wherein it is proposed to merge Venturbay Consultants Private Limited, the Petitioner Company, C & S System Technologies Private Limited, CanvasM Technologies Limited, Mahindra Logisoft Business Solutions Limited with Tech Mahindra Limited and their respective shareholders and creditors. 02. The petitioner is a leading information communications and technology Company has got wide range of expertise and also business nationally and internationally. The other Companies and also the transferee Company Tech Mahindra Limited (TML) also deals with the similar business. The particulars of their investments and the memorandum of articles of association have been detailledly given in the application. The scheme of amalgamation is said to be for the following advantages:- A) As a measure of consolidation of the information technology businesses in a single entity which wi....
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....i B.Ramalinga Raju with regard to fudging of the accounts and irregularities in conducting the business and he has stepped down as Chairman. The Company Law Board in C.P.No.1 of 2009 suspended the entire Board with immediate effect. On 09-01-2009 a fresh Board was constituted with some of the nominated members and also Chartered Accountants and Solicitors. Forensic investigation was also directed to be undertaken. The CBI has taken up investigation and Serous Fraud Investigation Office (SFIO) and SEBI have also taken up investigation. The CBI filed a charge sheet against the former promoters. SFIO has also started investigation into seven cases and the petitioner compounded the offences. The petitioner has also settled with the Security Exchanges Commission, USA by paying $ 10 Million dollars. 05. The Board of Directors, who are constituted by the orders of the Company Law Board, intended to bring strategic investor who could bring in funds and managed the affairs of the Company. A competitive global bidding was undertaken under the supervision of Justice S.P.Bharucha, Former Chief Justice of India on 13-04-2009 and the transferor Company which was wholly owned subsidiary of....
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....ngs Private Limited was the principal shareholder in the erstwhile promoter's group. It is claimed that certain other group companies of the erstwhile promoters had borrowed funds from certain institutions and that the Petitioner Company's shares held by SRSR Holdings Private Limited were offered as collateral. It is claimed that the group companies of erstwhile promoters advanced the funds so raised in the market to the Petitioner Company. It is also claimed that the shares were sold by Financial Institutions and that the loans have been squared off as between lenders and group companies of erstwhile promoters. Several group companies have filed suits against the Petitioner Company and these are being contested by the Petitioner Company". 07. It was also pleaded that the transferor-Company has got sound financial capability and potentiality for advancement of the common business effectively. As per the scheme of amalgamation with regard to legal proceedings under Part "C" with reference to the petitioner-Company under Clause.7.6, it is as follows:- "7.6". "With effect from the Appointed Date, all debts, liabilities, contingent liabilities, duties and obligations of Mahin....
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.... a prima facie establishment of the claim, which is also admitted and the claim of the petitioner is that the creditors are dubious and consequently no need to call for the unsecured creditors' meeting and the claim for ignoring the debts is not illegal. 11. According to the petitioner in C.A.No.862 of 2012, mere solvency of the petitioner is not sufficient and the refusal to pay and taking shelter under the investigation by the Central Bureau of Investigation or SFIO is not proper. In fact, a civil suit was filed for recovery of a sum of Rs. 275 Crores against the petitioner and it is a fit case for admission of the winding-up petition. This claim was objected by the petitioner solely on the ground that the debt is not genuine and also on the ground that it is barred by time and the claim for winding-up is not bona fide and it was only a ruse to pressurise the payment of money even without determining the liability. 12. 37 creditors have filed Company Applications objecting the scheme of amalgamation mainly contending inter alia that the mandatory provisions under Sections 391 and 394 of the Act are not complied with as the meeting of the unsecured creditors is not called fo....
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....ecessary to take note of the necessary factors in an application for amalgamation or arrangement. The decision on this aspect is Miheer H.Mafatial Vs. Mafatial Industries (1), which has been followed consistently in the subsequent decisions relied on by both the parties and consequently the other decisions are not being referred to as they only reiterated the same law. In para.28 the Supreme Court has laid down the following broad principles while considering an application under Section 391 of the Act, which reads as under:- 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 Sub-Section (2). 3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so a....
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....sidered the swap ratio and the basis for consideration in Para No.39, which reads as under:- "It was submitted that the exchange ratio of equity shareholders so far as the transferee-Company is concerned works very unfairly and unreasonably to them. As per the proposed scheme 5 equity shares of transferor-Company are to be exchanged for 2 equity shares of transferee-Company. So far as this contention is concerned it has to be kept in view-that before formulating the proposed Scheme of Compromise and Amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors appellant himself was a members. M/s. C.C. Choskhi & Co., a reputed firm of Chartered Accountants, having considered all the relevant aspects suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies. It must at once stated that valuation of shares is a technical and complex problem which can be appropriately left 1 to the consideration of experts in the filed of accountancy". 18. Therefore, broadly speaking the mandatory provisions, according to the objecting parties, are not followed and, therefo....
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....ng of the unsecured creditors was not called for on the ground that so-called debts are not real and binding on the Company and they are said to be tainted. The contention of the objecting petitioners is that the petitioner cannot individually decide about the nature of the debts. The purpose of calling for amalgamation meeting of the creditors is to ascertain their views and mostly it is the interest of the creditors to be safeguarded. Under Section 391(2) of the Act, the opinion of majority of 3/4th of the creditors will be binding on the others. In this case, except 37 Companies who filed the objections petitions, there is no other unsecured creditor opposing the petition and on the other hand the secured creditors have accepted for the scheme. It is also not in dispute that though the meeting was not called earlier, it can be called by the court subsequently. The object of calling such a meeting is only to obtain the views of the creditors. Now those creditors themselves have come up before the Court and raised the objections which are to be answered by the Court. Therefore, I feel the failure to call a meeting of the unsecured creditors even assuming for a moment that the debt....
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.... contend that the meeting of the creditors cannot be dispensed with and it is mandatory. This objection has already been answered earlier. Since the claim of the creditors is being considered based on the material, there is no prejudice for not calling the meeting. 23. Before considering the merits of all these applications, a few facts have to be noted. The petitioner-Company was in high reputation and globally recognized with respect and nobody has lifted the veil of secrecy of the affairs of the Company till 07-01-2009 when the confessional statement of the Ex- Chairman Sri B.Ramalinga Raju was addressed to the Board of Directors about the affairs of the Company, which, for the purpose of convenience, reads as under:- "The Balance Sheet carries as of September 30, 2008. a. Inflated (non-existent) cash and bank balances of Rs. 5,040 crore (as against Rs. 5361 crore reflected in the books) b. An accrued interest of Rs. 376 crore which is non-existent c. An understated liability of Rs. 1,230 crore on account of funds arranged by me An over stated debtors position of Rs. 490 crore (as against Rs. 2651 reflected in the books) .................... ................... .............
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....ions between M/s SCSL and the companies and also that the other Board of Directors of M/s SCSL were kept in the dark with regard to these borrowals and the resultant liability on M/s SCSL. The accused persons fraudulently and dishonestly suppressed the liability on M/s SCSL on account of these borrowals to the investors also. 76. After the said letter of confession dt. 7.1.09 of Sri B.Ramalinga Raju(A-1), letters were issued to M/s SCSL by 37 companies who had advanced loans to M/s SCSL, the next day i.e. 8.1.09 demanding repayment of the outstanding amounts. These letters were issued by the Directors of these companies at the behest of Sri B.Ramalinga Raju(A-1) and Sri B.Suryanarayana Raju(A-6) as revealed during the investigation. These borrowed amounts were not reflected in the Books of accounts or in the annual financial statements of M/s SCSL published from time to time. There is no documentary evidence to that effect. As these loans were raised by the Companies floated by Sri B.Ramalinga Raju (A-1), B.Rama Raju (A2) and their near relatives, apprehending changes in the Management and Constitution of the Company and in view of the non-reflection of the liabilities in the book....
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.... creditor is identified, disclosure requirement under AS 18 as to 'Related party' does not arise. d. Ekdanta Greenfields Private Limited claimed that in spite of receipt of funds by Mahindra Satyam it was not recognized as a Creditor. In this regard Ekdanta Greenfields Private Limited submitted their statement of account maintained with Axis Bank,F.No.201, H.No.1-11-192, Kamala Arcade, sham Lal Building, Begumpet, Hyderabad - 500016. The bank statement clearly states that from 31st July, 2008 to 22nd September, 2008 Rs. 36.50 Crores have been paid to "Satyam Computer Services Ltd through 7 cheques bearing Nos.2201 to 2207. In this regard we would like to bring to your attention that the bank statement submitted by Ekdanta Greenfields Private Limited is not in the name of Ekdanta Greenfields Pvt. Ltd, but it is in the name of "Ekdanta Greenlands Pvt.Ltd".(Annexure). In this connection it is relevant to note that the Directors of Satyam Computer Services Ltd in their report under the head "Management Discussion and Analysis" which is part of annual reports for financial years 2008-09 & 2009-10 and Auditors in their report stated as under on Rs. 1,230.40 crores ....
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....ompany not to return the amounts until further instructions from the ED. The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings initiated by these thirty seven companies. In view of the above, we are unable to determine whether any adjustments/disclosers will be required in respect of the aforesaid alleged advances amounting to Rs. 12,304 Million (net) and in respect of the non-accounting of any damages/compensation/ interest in these financial statements." We are therefore of the opinion that the accounting system adopted by M/s.Satyam Computer Services Limited., in accounting for Rs. 1,230.40 crores for the years ended 31-03-2009 and 31-03-2010 is justified. 26. The cumulative effect of all the above facts clearly goes to show that though the Ex-Chairman claims to have received these monies they were not accounted for and they are suspected transactions. The alleged borrowings from the 37 Companies is said to be without proper authority from the Board of Directors. Therefore, it i....
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....he debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors. 29. Added to the above circumstances, the payments by the 37 Companies were alleged to have been made from 2006 to 2008, which are not supported by any corporate document or resolutions. Though the repayment was made by SCSL to Ekadanta, it was also not reflected. It can only be taken as an internal understanding lacking genuineness of the transaction. Even after a period of four years except filing of the suits by a few companies, the others have not filed any suits and a relevant consideration arises as to whether they are barred by time except the claim of Ekadanta who has filed a suit for recovery of the amount. The bona fides of ....
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....Companies and the potentiality after the merger is clearly disclosed in the financial statements and in fact it is not seriously disputed by any person about the competency of the transferee-Company or the beneficial advantage to the petitioner by scheme of amalgamation. The transferee-Company and the petitioner-Company as on date are sufficiently solvent to meet the demand of the creditors provided the binding nature of the debts on the petitioner-Company is established by the objecting creditors. 31. Ignoring the basic truth, a Court cannot base findings on imaginations or surmises. The arguments of the objectors is more personalised in their own interest for money rather than the duty of the court which has to consider several circumstances about the validity of scheme of amalgamation and also the beneficial interest to the public or the majority of the shareholders. Therefore, I find that the debts claimed by the objecting creditors and the petitioner for winding up are found to be under a cloud of suspicion and about the binding nature of the same on the petitioner. Therefore, it cannot be said that there is a prima facie case for the above creditors. That being so, non- cal....
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....d and lot of money has been supplied and, therefore, the transactions as to how Venturbay Consultants became an investor with the petitioner-Company is not behind the scenes and it is open. Further-more, merely because it happens to be a subsidiary of the transferee-Company, no fraud or undue advantage can be attributed to the transferee-Company or to Venturbay Consultants. The Court cannot ignore the fact that the investment made by Venturbay Consultants was at a time when the share value has collapsed. Merely because, with the further investments and with the effort of the newly constituted Board at the instance of the Company Law Board, the petitioner could post some profits on higher side, it cannot be said that all the dealings are not fair. In fact, the Company nominees and the shareholders participated in the meeting and majority of the shareholders have approved the scheme of amalgamation. It is evidently the commercial wisdom that has to prevail and more than 3/4th of the shareholders have adopted the amalgamation and the said decision is binding on the minority shareholders also. Further-more, the Directors who are common on the Board did not participate in the shareholde....
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....Director cannot be taken advantage by objecting creditors and on the other hand they do certify the beneficial interest of amalgamation. I, therefore, find that there is also no violation of the requirement from calling information from the Official Liquidator or the Regional Director. It has been already observed that the reports of the Official Liquidator or the Regional Director are not final and it is ultimately for the Court to consider the effectiveness of those reports. In this case, the court was inclined to accept the conditions that are to be imposed for amalgamation as suggested by the Regional Director. 38. Therefore, on a comprehensive assessment of the claims, this court feels that the scheme of amalgamation is in the interest of the public and the shareholders and the interest of the workmen is also protected. There is no attempt to defeat any provision of law with regard to pending of future prosecutions or liabilities. There is also no escaping of the liability with regard to disputed creditors in case they are found to be true. I, therefore, feel that this court by applying the provisions under Section 391 and 394 of the Act satisfactorily finds that the scheme o....