Gujarat High Court
Edelweiss vs Respondent(S) on 30 March, 2012
Author: R.M.Chhaya
Bench: R.M.Chhaya
Gujarat High Court Case Information System
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COMP/180/2011 8/ 8 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY
PETITION No. 180 of 2011
In
COMPANY
APPLICATION No. 447 of 2011
=========================================================
EDELWEISS
STOCK BROKING LIMITED - Petitioner(s)
Versus
.
- Respondent(s)
=========================================================
Appearance :
MRS
SWATI SOPARKAR for
Petitioner(s) : 1,
MR PS CHAMPANERI for Respondent(s) :
1,
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CORAM
:
HONOURABLE
MR.JUSTICE R.M.CHHAYA
Date
: 30/03/2012
ORAL
ORDER
1. This is a petition filed by the petitioner Transferor Company viz. Edelweiss Stock Broking Limited, ESBL (formerly known as Anagram Stockbroking Limited), for the purpose of obtaining the sanction of this Court to a Scheme of Arrangement in the nature of Amalgamation of Edelweiss Stock Broking Limited with Edelweiss Financial Advisors Limited, EFAL, (formerly known as Anagram Capital Limited) proposed under Section 391 and 394 of the Companies Act, 1956.
2. It has been submitted that the petitioner Transferor Company is a wholly owned subsidiary of the Transferee Company. It has been stipulated vide clause 8 of the said scheme that upon scheme being effective, the entire issue, subscribed and paid up capital of the said Transferor Company shall stand automatically cancelled and no new shares shall be issued by the holding Transferee Company for the transfer and vesting of the said Undertaking of the Transferor Company. In light of the said provision, the contention was taken that since the Share Capital Structure of the Transferee Company shall not go undergo any change, the rights and interests of the shareholders of the Transferee Company shall not be affected, in any way. Considering the said contention and in light of the settled legal position, the separate proceeding for the Transferee Company was dispensed with vide order dated 9th November 2011 passed in Company Application No. 448 of 2011.
3. The petition gives details of the current commercial activities of both the companies. Briefly, ESBL, the Transferor Company is engaged primarily in the business of acting as consultants and brokers in relation to shares, stock, bonds, debentures, securities etc. and in Stockbroking Business. It has membership of Bombay Stock Exchange Limited (BSE). EFAL, the Transferee Company is also engaged in Stock broking Business and it has membership of National Stock Exchange of India Limited (NSE). Both the companies are profit making companies. The amalgamation is proposed to achieve synergic benefits, administrative convenience and economies of scale. The petition provides in detail, the commercial advantages that would flow by virtue of the proposed amalgamation. It is visualized by the Board of Directors of the Petitioner Company that this will be beneficial to shareholders, creditors and investors.
4. It has been submitted that vide order dated 9th September 2011 passed in Company Application No. 447 of 2011, the meeting of the Shareholders and Secured Creditors of the Transferor Company was dispensed with in view of the written approval of the scheme, and a meeting of the Unsecured Creditors of the Transferor Company was directed to be convened for the purpose of seeking the approval from all the concerned parties to the proposed scheme. Pursuant to the directions, issued with regard to the meetings, after the due notices to the concerned parties as well as the public notice, the said meeting was duly convened on 21st October 2011 and the proposed scheme was duly approved unanimously i.e. 100% in number and 100% in value at the said meeting of the Unsecured Creditors. The result of the said meetings were duly reported to this Court vide the report along with the affidavit of the Chairman dated 15th November 2011.
5. The substantive petition for the sanction of the scheme was filed by the petitioner company, which was admitted on 28th November 2011. The notice for the hearing of the petition was duly advertised in the newspapers being 'Indian Express' and 'Sandesh' both Ahmedabad editions of 29th December 2011 and the publication in the Government gazette was dispensed with as directed in the said orders. Pursuant to the said publication in the newspapers, no objections were received by the petitioner or its advocate and the said fact has been affirmed in the additional affidavit dated 26th March 2012 filed on behalf of the petitioner.
6. Notice of the petition have been served upon the Official Liquidator, who appointed a Chartered Accountant out of the panel maintained by him to look into the affairs of the company. Based on the report of the said Chartered Accountant, the Official Liquidator submitted his report before this Court on 14th February 2012. Perusal of this report confirms that the affairs of the petitioner Transferor Company are not conducted in a manner prejudicial to the interest of its members, creditors or to the public interest. However, in compliance to the provisions of Sec. 396A of the Companies Act, 1956, it is hereby directed that the petitioner company shall preserve its books of accounts, papers and records for a period of 8 years from the date of sanctioning of the scheme of amalgamation and shall not dispose off the records without prior permission of the Central Government.
7. Notice of the petition have been served upon the Central Government and Mr. P.S. Champaneri, Assistant Solicitor General appears for the Central Government. An affidavit dated 30th January 2012 has been filed by Mr. Kashmir Lal Kamboj, the Regional Director, (In- Charge) North-Western Region, Ministry of Corporate Affairs, whereby several observations are made. The same pertains to - (a) the Accounting Treatment to be followed by the Transferee Company and (b) the Appointed Date being defined as 1st April 2008.
8. The attention of this Court is drawn to the Additional Affidavit dated 26th March 2012, whereby all the above issues have been dealt with. I have further heard submissions made by Mrs. Swati Soparkar, learned Advocate appearing for the petitioners as follows :
(a) It has been submitted that under Sec.211(3B) of the Companies Act, the petitioner is required to make certain disclosures when the accounting treatment proposed is not in consonance with AS-14. If the practice adopted for such accounting entry, varies from the said standard, necessary disclosure would be made in the financial statements. Placing reliance on several decisions of various High Courts, on the said issue, it is submitted that the compliance of the AS-14, if not made while passing the accounting entries, the petitioner hereby undertakes to abide by the directions that the Court may issue with regard to the said disclosures to be made in the first financial statements of the Transferee Company after the Scheme being sanctioned.
(b) With regard to the issue of Appointed Date, it has been submitted that there is no legal bar on the choice of the Appointed Date. It is the prerogative of the Board of Directors of the petitioner companies to select the Appointed Date for the Scheme. The same is required to be approved by the shareholders of the respective petitioner companies.
Both these requisites have been complied with in the present proceedings. Since the petitioner companies are engaged in stock broking business and have the membership of respective stock exchanges, the Scheme has been duly considered by concerned Stock Exchanges viz. Bombay Stock Exchange Limited and National Stock Exchange of India Limited as well as by Securities and Exchange Board of India. The said stock exchanges have not found the Appointed Date as objectionable. The attention of the Court is also drawn to the commercial rationale for selecting the Appointed Date as 1st January 2008. The petitioner Transferor Company is the wholly owned subsidiary of the Transferee Company and the commercial operations of both the companies are carried out as if they are separate divisions of the same entity. In order to meet the working capital requirements and other financial requirements, both the companies have provided the consolidated financial results since 1st January 2008 to various banks for availing their facilities. Moreover, a large number of customers of both the companies have been common since then. It has been specifically asserted by the petitioner Company that since both the companies have been profit making companies, the scheme sanctioned with Appointed Date of 1st April 2008 shall not result in any special tax benefit to the company or any loss of revenue to the Government. Considering the facts and circumstances of the present case, and considering the submissions made, in my view it is not necessary to issue the directions to change the Appointed Date.
9. Considering all the facts and circumstances and taking into account all the contentions raised by the affidavits and reply affidavits and the submissions during the course of hearing, I am satisfied that the observations made by the Regional Director, Ministry of Corporate Affairs do not survive. I have come to the conclusion that the present scheme of arrangement is in the interest of its stakeholders viz. Shareholders, Creditors as well as in the public interest and the same deserves to be sanctioned.
10. Prayers in terms of paragraph 21(a) of the Co. Petition No. 180 of 2012 for the Transferor Company are hereby granted.
11. The petition is disposed of accordingly. So far as the costs to be paid to the Central Government Standing Counsel is concerned, I quantify the same at Rs.7,500/- per petition. The same may be paid to the Counsel appearing for the Central Government. The cost of Rs. 7,500/- be paid to the office of the Official Liquidator for the Transferor Company.
Sd/-
(R.M. Chhaya, J.) M.M.BHATT Top