TaxTMI 
TaxTMI 
2015 (6) TMI 72
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....view of the fact that the Transferor Company does not have any creditors, secured or unsecured. 3 It had also been directed vide order dated 4.12.2013, passed in C P 166 of 2013, that meetings of the equity shareholders, secured creditors and unsecured creditors of the Transferee Company be convened to consider the Scheme on 18.1.2014 at Oswal Woollen Mills Ltd., G T Road, Sherpur, Ludhiana. Sh. Arjun Partap Atma Ram and Sh. Aman Sharma, Advocates had been appointed as Chairman and Co-chairman, respectively, for conducting the meetings of the equity shareholders and secured creditors of the Transferee Company. Sh. Animesh Sharma and Sh. Keshav Gupta, Advocates, had been appointed as Chairman and Co - chairman, respectively, for conducting the meeting of the unsecured creditors of the Transferee Company. 4 Accordingly meetings were held and the respective Chairmen filed their reports which were taken on record on 4.2.2014. As per the reports the Scheme was unanimously approved by 100% of the shareholders, present and voting, and also 100% by the secured creditors, present and voting. The Scheme was approved by 100% of the unsecured creditors, present and voting. 5 The first....
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....ed if deem fit and proper by the Hon'ble Court." 8. The Official Liquidator has also filed his report dated 21.3.2014 and along with the report of the Chartered Accountant appointed for scrutinizing the books of accounts and papers of the Transferor Company. The Official Liquidator has in para 5 of his report stated as under: "5. That in view of the report of the Chartered Accountant, the Official Liquidator most respectfully submits that the amalgamation is not prejudicial to the interest of its Members or to public interest." 9. In response to the objections raised by the Regional Director, Northern Region, Ministry of Corporate Affairs, Sh. Sat Paul Nijhawan, the Authorised Signatory of the Transferor Company, filed an affidavit dated 25.3.2014 stating as under: " 3. That with reference to the observations made by the Ld. Regional Director in Para 4 of his affidavit, regarding giving an undertaking by the transferor company for complying with all compliances required by the Reserve Bank of India, the deponent on behalf of the transferor company submits as under: a. The Transferor Company is a non deposit taking Non-Banking Finance Company (NBFC) and does not accept a....
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....tor in Para 5 of his affidavit, regarding the seeking of further time for examination of records of the Transferor Company, by the Income Tax Department, the deponent on behalf of the Transferor Company submits as under: a. That the Transferor Company has filed all requisite returns and papers as are statutorily required with the Income Tax Department every year. b. That there is no outstanding tax demand against the Transferor Company as on date. This has been duly certified by the Chartered Accountant appointed by the Official Liquidator. c. That clause 4.2 of the Scheme reads as follows: "All assets and liabilities along with debts, obligations and duties of the Transferor Company as on the Appointed Date, whether or not included in the books of the Transferor Company, shall be deemed to be and shall become the assets, liabilities, debts, obligations and duties of the Transferee Company and all assets and properties which are acquired by the Transferor Company on or after the Appointed Date but prior to the Effective Date shall be deemed to be and shall become the assets and properties of the Transferee Company and shall under the provisions of Sections 391 to 394 an....
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....in any case it would be an opportunity for shareholders of the Transferor Company to share the larger operations of the Transferee Company. Needless to say that the large scale business would obviously be more beneficial from all angles to all concerned persons, be it members, creditors or employees, than being run on a small scale. Moreover the Transferor Company has got limited business operations i.e. investment and earning interest income whereas the Transferee Company is a multi-unit industrial profit making company. Therefore the benefits of the amalgamated business would be automatically available after the merger to the shareholders of Transferor Company. The learned counsel, Mrs. Munisha Gandhi, contended that even though the Transferor company may be having a small capital base but it also has other assets which would definitely be used in a more fruitful manner once they merged with the Transferee company which is having a greater capital base and greater resources. She further submits that the companies are part of the same group of companies and economies of scale would be achieved by merging the two entities. 12. The next observation made by the Income Tax Departme....
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....he share exchange ratio does not appear to be in best interest of the shareholders, creditors, employees, customers of the Transferee Company. 15. Mrs. Munisha Gandhi submits that valuation of the assets and liabilities of the companies is done by an independent expert to ensure the fairness of the transaction. It has to be kept in view that before formulating the proposed Scheme of Amalgamation, expert opinion was obtained by the Petitioner companies from a firm of Chartered Accountants, who having considered all the relevant aspects, suggested the aforesaid exchange ratio keeping in view the valuation of shares of respective companies.The shareholders of both the companies have approved the scheme, which necessarily includes the share exchange ratio. It is not in the purview of the Income Tax Department to sit in judgment over the share exchange ratio or on the other modalities and procedures contemplated in the scheme. The shareholders are the sole authority to decide regarding the exchange ratio of merger and once the shareholders have approved and accepted the same it would not lie with the Income Tax Department to sit in judgment on the wisdom and decision of the sharehold....
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....es. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently the Company Court's jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. xxxxx In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged: 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 meetings 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 391Sub-Section (2). 3. That the concerned meetings of....
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....ments Ltd. and others [(1995) 4 Comp LJ 330 (Cal.)] "It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefitted or of expenses is a matter for the shareholders to consider" c. Vijran Hotel & Estates P. Ltd. (2008)146 Comp. Cases 386 (Mad) the Hon'ble Madras High Court has held that objections by authorities like the Regional Director in opposing the exchange ratio which is accepted the shareholders cannot be sustained and it has reiterated the position that the court will not sit on judgment on the exchange ratio. Similar is the view taken by our own High Court in the case of Max Estates Ltd. [(2008) 141 Comp. Cases 341 (P &H)] and by the Hon'ble Apex Court in G. L. Sultania Vs. Securities Exchange Board of India [2007] 137 Comp. Cases 658 (S.C)] 19. Having gone through the Scheme of Amalgamation and taking into consideration the views of....