Gujarat High Court
Jk Paper Limited vs Respondent(S) on 10 February, 2015
Author: Harsha Devani
Bench: Harsha Devani
O/COMP/232/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 232 of 2014
In
COMPANY APPLICATION NO. 178 of 2014
With
COMPANY PETITION NO. 233 of 2014
In
COMPANY APPLICATION NO. 179 of 2014
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JK PAPER LIMITED....Petitioner(s)
Versus
......Respondent(s)
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Appearance:
MR SN SOPARKAR, SR. ADVOCATE with MR ANIRUDH DAS, MR. NIRAG
PATHAK, ADVOCATES for M/s A & M & S SHROFF CO., ADVOCATE for the
Petitioner
MR DEVANG VYAS, ADVOCATE for the Respondent
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CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
Date : 10/02/2015
ORAL ORDER
1. Both these company petitions being interconnected, are disposed of by this common order.
2. Company Petition No. 232 of 2014 has been filed by JK Paper Limited (Petitioner / Transferee Company) and Company Petition No. 233 of 2014 has been filed by JK Enviro-tech Limited (Petitioner / Transferor Company) for sanction of the Page 1 of 14 O/COMP/232/2014 ORDER Scheme of Arrangement between JK Enviro-tech Limited and JK Paper Limited and their respective shareholders and creditors (hereinafter referred to as "the Scheme").
3. The Registered Offices of the Petitioner/Transferor Company and the Petitioner/Transferee Company are situated in Gujarat, within the jurisdiction of this Court.
4. The Petitioner/Transferor Company had earlier filed Company Application No.179 of 2014 before this Court seeking direction for holding and convening the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Petitioner/ Transferor Company, for the purpose of approving, with or without modification(s), the Scheme.
6. By an order dated 10 July 2014, this Court had directed the convening of the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Petitioner/ Transferor Company to consider the Scheme.
7. Pursuant to the order dated 10 July 2014 passed by this Court, the requisite notices of the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors were sent by registered post along with a copy of the Scheme, the Explanatory Statement as required under Section 393 of the Act and the Form of Proxy. The notice of the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors was also published and advertised in the Ahmedabad Edition of the English Daily "INDIAN EXPRESS"
and the Surat Edition of the Gujarati Daily "SANDESH". The Chairman appointed for the meetings has filed Affidavit of Page 2 of 14 O/COMP/232/2014 ORDER Service affirmed on 28 August 2014 affirming to the dispatch of notice to the Equity Shareholders, Secured Creditors and Unsecured Creditors and the publication of notice of these meetings in the newspapers.
8. The meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors were duly convened on 5 th September, 2014 at the Registered Office of the Petitioner/Transferor Company. The resolution approving the Scheme including the reduction in the Paid Up Equity Share Capital of the Petitioner/Transferor Company was approved unanimously by the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Petitioner/Transferor Company at their respective meetings. The Chairman appointed for the meetings has filed reports dated 9th September, 2014 with respect to each of the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors.
9. The Petitioner/Transferor Company has thereafter filed the present Company Petition No.233 of 2014 seeking sanction of the Scheme by the Court.
10. The Petitioner/Transferee Company had earlier filed Company Application No.178 of 2014 seeking direction from this Court for convening of the meeting of its Equity Shareholders for the purpose of approving with or without modification(s), the Scheme. By an order dated 10 July 2014, this Court had directed the convening of the meeting of the Equity Shareholders of the Petitioner/Transferee Company and also dispensed with the requirement of convening of the meetings of the Secured Creditors and Unsecured Creditors of Page 3 of 14 O/COMP/232/2014 ORDER the Petitioner/Transferee Company.
11. Pursuant to the order dated 10 July 2014, notice of the meeting of the Equity Shareholders of the Petitioner/Transferee Company was sent by registered post to each of the Equity Shareholder of the Petitioner/Transferee Company together with a copy of the Scheme, Explanatory Statement under section 393 of the Act and Form of Proxy. The notice of the meeting of the Equity Shareholders was also published and advertised in the Ahmedabad Edition of the English Daily "INDIAN EXPRESS" and the Surat Edition of the Gujarati Daily "SANDESH". The Chairman appointed for the meeting has filed Affidavit of Service affirmed on 28 th August, 2014 affirming to the dispatch of notice to the Equity Shareholders and the publication of notice of the meeting in the newspapers.
12. The meeting of the Equity Shareholders was held on 5 th September, 2014 at the Registered Office of the Petitioner/Transferee Company. At the said meeting, the resolution approving the Scheme and the reduction of the Securities Premium Reserve of the Petitioner/Transferee Company was approved unanimously by the Equity Shareholders of the Petitioner/Transferee Company. The Chairman appointed for the meeting of the Equity Shareholders has filed report dated 9th September, 2014.
13. The Court by an order dated 10th July, 2014 had also directed the Petitioner/Transferee Company to place the result of the approval of the public shareholders by postal ballot and e-voting [pursuant to Circulars dated 4th February, 2014 and Page 4 of 14 O/COMP/232/2014 ORDER 21st May, 2014 issued by SEBI (SEBI Circulars)]. The notice of the postal ballot dated 24th July, 2014 was sent to the public shareholders and the public shareholders were advised to send their votes to the appointed scrutinizers on or before 2 nd September, 2014. The Chairman of the Petitioner/ Transferee Company has declared the result of the postal ballot and e- voting on 3rd September, 2014, which result along with the scrutinizers report dated 3rd September, 2014 has been filed in this Court along with Company Petition No.232 of 2013.
14. In terms of the scrutinizers report dated 3 rd September, 2014 and the result of the postal ballot to Company Petition No.232 of 2014, the public shareholders of the Petitioner/Transferee Company have approved the Scheme including the reduction in the Securities Premium Reserve of the Petitioner/ Transferee Company.
15. The Petitioner/Transferee Company thereafter filed Company Petition No.232 of 2014 seeking sanction of the Scheme.
16. By orders dated 24th September, 2014 and 1st October, 2014, Company Petition No.232 of 2014 and Company Petition No.233 of 2014 were admitted.
17. Affidavits dated 16th October, 2014 and 21st November, 2014 have been filed on behalf of the Petitioner Companies affirming compliance regarding service of notice of the petition on the Regional Director, North Western Region, Registrar of Companies and also affirming publication of notice of the petition in the English Daily newspaper, INDIAN EXPRESS and Page 5 of 14 O/COMP/232/2014 ORDER the Gujarat Daily, SANDESH.
18. Pursuant to the notice in the newspapers, no notice of objection to the Scheme has been received by the Petitioner Companies from any member of the public.
19. In response to the notice issued by the Court, the Regional Director has filed an affidavit dated 16 th December, 2014 (RDC Report). In response thereto, the Petitioner Companies have filed affidavit in reply dated 24 th December, 2014.
20. Mr. Saurabh Soparkar, Senior Advocate, learned counsel for the Petitioner Companies submitted that no proceedings under sections 235 and 250A of the Companies Act, 1956 (hereinafter referred to as "the Act"), or the applicable provisions of the Companies Act, 2013 are pending against the Petitioner Companies.
21. A perusal of the report submitted by the Regional Director shows that in para 2 (c) thereof, it has been observed that the Scheme provides for payment of consideration to the Petitioner/Transferor Company as consideration for transfer and vesting of the Lime Kiln Undertaking of the Petitioner/Transferor Company with the Petitioner/Transferee Company and that the consideration is not being paid to the shareholders of the Petitioner/Transferor Company. In this regard, the learned counsel for the Petitioner Companies submitted that the payment of consideration by the Petitioner/Transferee Company to the Petitioner/ Transferor Company in terms of the Scheme is within the scope and Page 6 of 14 O/COMP/232/2014 ORDER ambit of the provisions of sections 390 and 391 of the Act. There is no impediment under law or under the Act for payment of the consideration by the Petitioner/Transferee Company to the Petitioner/ Transferor Company. It is further submitted that the present Scheme contemplates the transfer and sale of a business undertaking being the Lime Kiln Undertaking for which consideration is being paid by the Petitioner/ Transferee Company to the Petitioner/ Transferor Company and is not a demerger of an undertaking as understood under the provisions of section 2 (19AA) of the Income Tax Act, 1961. In this regard, the attention of the Court was drawn to the following judgments:
i. Order dated 17th September, 2010 in Company Petition No.72 of 2010 of the High Court of Punjab & Haryana at Chandigarh;
ii. Order dated 25th May, 2006 in Company Petition No.67 of 2006 of the High Court of Delhi;
iii. Order dated 24th January, 2008 in Company Petition No.59 of 2007 of the High Court of Punjab & Haryana at Chandigarh.
22. A perusal of the terms of the Scheme makes it clear that the present Scheme contemplates a transfer and sale of the Lime Kiln Undertaking and is not a case of demerger as contemplated under section 2 (19AA) of the Income Tax Act, 1961. Moreover, the payment of consideration to the Petitioner/Transferor Company is not in any manner prohibited by law. Accordingly, having regard to the facts of the present Page 7 of 14 O/COMP/232/2014 ORDER case, there appears to be no legal impediment for the transfer and vesting of the Lime Kiln Undertaking of the Petitioner/ Transferor Company to the Petitioner/Transferee Company and the consequent payment of consideration by the Petitioner/Transferee Company to the Petitioner/Transferor Company.
23. The second observation at para 2 (d) of the Report suggests that the Petitioner/Transferee Company requires the approval of SEBI to the Scheme. The learned counsel for the Petitioner Companies submitted that in terms of Clause 5.1 of the SEBI Circular No. CIR/CFD/DIL/5/2013 dated 4 th February 2013 (1st SEBI Circular), listed companies desirous of undertaking a Scheme of Arrangement under Chapter V of the Companies Act, 1956 shall file the draft Scheme with the Stock Exchanges in terms of Clause 24 (f) of the Listing Agreement. Further, Clause 5.3 of the 1st SEBI Circular provides that the listed companies shall choose one of the stock exchanges having nation wide terminals as the designated stock exchange for the purpose of coordinating with the Securities and Exchange Board of India (SEBI). Thereafter, the stock exchanges shall issue 'objection/no objection' letter on the draft Scheme to SEBI. SEBI upon receipt of the 'objection/no objection' letter from the stock exchanges shall provide its comments on the draft Scheme and consequently the stock exchanges shall issue an observation letter to the listed company after incorporating the comments received from SEBI. Accordingly, it is clear that listed companies only receive an observation letter from the stock exchanges (where they are listed) and such letters of the stock exchanges include SEBI's comments (if any) with respect to the scheme and the Page 8 of 14 O/COMP/232/2014 ORDER listed companies are under no obligation to directly and/or separately to seek any no objection from SEBI with respect to the Scheme. In the light of the aforesaid, the Regional Director's observation that the Petitioner/Transferee Company i.e. JK Paper Limited should have sought independent/ separate approval from SEBI does not appear to be justified. The Petitioner/Transferee Company has already received the desired approvals from both, the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange Limited (BSE) vide letters dated 5th May, 2014 and 6th May, 2014 respectively, copies whereof have been placed on record with the Company Petition. The said communications dated 5 th May, 2014 and 6th May, 2014 of NSE and BSE refer to the Petitioner /Transferee Company complying with the provisions of Circulars dated 4th February, 2013 and 21st May, 2013 (2nd Circular) of SEBI.
24. The learned counsel for the petitioner Companies further submitted that the Petitioner/Transferee Company is in due compliance of the aforesaid Circulars and pursuant thereto has obtained the approval from the public shareholders by postal ballot and e-voting, details of which have been set out at paras 21 and 22 of the Company Petition No. 232 of 2014. It is submitted that in addition to complying with the aforesaid Circulars of SEBI, the requisitions of SEBI as set out in the communications of NSE and BSE have also been complied with by the Petitioner/Transferee Company. It is submitted that the rationale for two different valuations as communicated on 20 th December, 2013 to BSE and the email dated 29 th April, 2014 to SEBI have been put up and displayed by the Petitioner/Transferee Company on its website along with the Page 9 of 14 O/COMP/232/2014 ORDER documents as required by the Circulars of SEBI. It is further submitted that the Petitioner/Transferee Company undertakes that upon the effectiveness of the Scheme, it shall comply with the observations issued by NSE and BSE by their communications of 5th May, 2014 and 6th May, 2014.
25. Having regard to the submissions advanced by the learned counsel for the petitioner Companies, it is evident that the Petitioner/Transferee Company is in compliance with the SEBI Circulars and has also further undertaken that it shall comply with the observations issued by the NSE and the BSE by their communications dated 5th May, 2014 and 6th May, 2014, the said observation stands redressed.
26. The third observation of the Regional Director is that the list of assets and liabilities of the Lime Kiln Undertaking have not been disclosed. The learned counsel for the Petitioner Companies submitted that the Scheme provides for the transfer and vesting of the Lime Kiln Undertaking of the Petitioner/ Transferor Company with the Petitioner/ Transferee Company. The Lime Kiln Undertaking is clearly defined in the Scheme and there is no further requirement of listing out the assets and liabilities of the said undertaking in the Scheme. In any event of the matter, the details of the assets and liabilities being transferred as part of the Lime Kiln Undertaking have been duly provided to the office of the Regional Director by a letter dated 12th November, 2014 which is annexed to the affidavit-in-reply dated 24th December, 2014 filed by the Petitioner Companies.
27. A perusal of the letter dated 12 th November, 2014 shows Page 10 of 14 O/COMP/232/2014 ORDER that the petitioner - Transferee Company has in response to the letter dated 14th October, 2014 of the Regional Director, clarified that the Scheme does not contemplate a demerger of the Lime Kiln Undertaking. Demergers are usually undertaken at book value of the assets and liabilities that are transferred as a part of such demerger. The Scheme contemplates a slump sale of the Lime Kiln Undertaking at a lump sum consideration, which is not based on the value of individual assets and liabilities of such an undertaking. As stated in clause 4.2.4 of the Scheme, the Scheme has been drawn up in accordance with section 2(42C) of the Income Tax Act, 1961, and in terms of the said section, a slump sale has to be for a lump sum consideration without values being assigned to the individual assets and liabilities. However, the details of the assets and liabilities of the Lime Kiln Undertaking that are being transferred to the Transferee Company have been annexed as Annexure-1 therewith. Having regard to the fact that the Scheme envisages a slump sale of Lime Kiln Undertaking, the value thereof would not be based on the value of individual assets and liabilities. In any case, the petitioner Transferee Company has furnished the details of the assets and liabilities of the Lime Kiln Undertaking along with the letter dated 12th November, 2014. Under the circumstances, the observation made by the Regional Director stands addressed.
28. The fourth observation of the Regional Director refers to licences/approvals of the Petitioner/Transferor Company with respect to its operation as regards the Lime Kiln Undertaking and the requirement of the Petitioner/ Transferee Company to obtain such licences/ approvals from regulatory authority. The Page 11 of 14 O/COMP/232/2014 ORDER learned counsel for the Petitioner Companies submitted that the Petitioner/Transferor Company has been issued the necessary licences, approvals and permissions relating to the Lime Kiln Undertaking which is proposed to be transferred and vested in the Petitioner/Transferee Company. In terms of the Scheme and more particularly Clause 3.1.2 (vii), all licences, approvals and permissions with respect to the Lime Kiln Undertaking shall stand transferred and vested in the Petitioner/Transferee Company. It is further submitted that should any further applications be required to be made by the Petitioner/Transferee Company to facilitate the transfer of such licences, approvals and permissions, the Petitioner/Transferee Company undertakes to make such applications for endorsement in the name of the Petitioner/Transferee Company of all such licences, approvals and permissions.
29. In view of the assurance given by the Petitoner - Transferee Company, that if necessary it shall make further applications to facilitate the transfer of licences, approvals and permissions and that it undertakes to make such applications for endorsement in the name of the petitioner - Transferee Company of all such licences, approvals and permission, the said observation stands substantially redressed.
30. The learned counsel for the Petitioner Companies further submitted that in terms of Circular dated 15 January 2014 of the Ministry of Corporate Affairs, Government of India, no response has been received from the office of the Income Tax Department and in terms of the Circular, no further direction in this regard are required and that in any event, pursuant to the Page 12 of 14 O/COMP/232/2014 ORDER sanction of the Scheme, the Petitioner Companies shall continue to be assessed by the relevant offices of the Income Tax Department.
31. In view of the approval accorded by the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Petitioner/Transferor Company and the Equity Shareholders and public shareholders of the Petitioner/Transferee Company, there appears to be no impediment to the sanction of the Scheme. Consequently, sanction is hereby granted to the Scheme of Arrangement under sections 391 to 394 of the Act including to the reduction in the Securities Premium Reserve of the Petitioner/Transferee Company and the reduction in the Paid Up Equity Share Capital of the Petitioner/Transferor Company as an integral part of the Scheme.
32. As regards the Petitioner/Transferor Company, the form of minute proposed to be registered with respect to the reduction in the Paid Up Equity Share Capital of the Petitioner/Transferor Company has been set out along with the Company Petition No. 233 of 2014. The form of minute is accordingly hereby approved and shall be filed with the Registrar of Companies, Ahmedabad within 30 days of the receipt of the certified copy sanctioning the Scheme. The form of minute shall also be published in the Ahmedabad Edition of the English Daily "INDIAN EXPRESS" and the Surat Edition of the Gujarati Daily "SANDESH".
33. The sanction of the Scheme shall not be construed as absolving the Petitioner Companies from compliance with the Page 13 of 14 O/COMP/232/2014 ORDER provisions of any other law.
34. Cost of Rs.10,000/- be deposited towards the fees of the Central Government counsel within two weeks from today.
35. Company Petition No. 232 of 2014 and Company Petition No. 233 of 2014 are allowed in the above terms.
(HARSHA DEVANI, J.) parmar* Page 14 of 14