Punjab-Haryana High Court
Sukh Realters Private Limited vs --- on 30 September, 2014
Author: Mahesh Grover
Bench: Mahesh Grover
CP no. 203 of2013(O&M) 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CP no. 203 of2013(O&M)
Date of Decision : 30 .09.2014
In the matter of Section 391 and 394 of the Companies Act, 1956
AND IN THE MATTER OF :
Scheme of Amalgamation between Sukh Realters Private Limited and Ma-
Ganga Builders & Constructions Private Limited and Belisma Buildcon
Private Limited with North Star Apartments Private Limited and S S Group
Private Limited and their respective shareholders and creditors;
AND IN THE MATTER OF
Sukh Realters Private Limited;
A Company incorporated under the Companies Act, 1956 and having its
registered office at 4th Floor, the Plaza, IFFCO Chowk, M.G Road, Gurgaon
122002 Haryana
...Petitioner Company 1/Transferor Company 1
AND
Ma Ganga Builders Private Limited;
A Company incorporated under the Companies Act, 1956 and having its
registered office at 4th Floor, the Plaza, IFFCO Chowk, M.G Road, Gurgaon
122002 Haryana
...Petitioner Company 2/Transferor Company 2
AND
Belisma Buildcon Private Limited;
A Company incorporated under the Companies Act, 1956 and having its
registered office at 4th Floor, the Plaza, IFFCO Chowk, M.G Road, Gurgaon
122002 Haryana
...Petitioner Company 3/Transferor Company 3
AND
North Star Apartments Private Limited;
A Company incorporated under the Companies Act, 1956 and having its
registered office at 4th Floor, the Plaza, IFFCO Chowk, M.G Road, Gurgaon
122002 Haryana
...Petitioner Company 4/Transferor Company 4/
Transferee Company 1
AND
S S Group Private Limited;
A Company incorporated under the Companies Act, 1956 and having its
registered office at 4th Floor, the Plaza, IFFCO Chowk, M.G Road, Gurgaon
REKHA
2014.10.10 10:26
I attest to the accuracy and
authenticity of this document
High Court Chandigarh
CP no. 203 of2013(O&M) 2
122002 Haryana
...Petitioner Company 5/Transferee Company 2
CORAM : HON'BLE MR.JUSTICE MAHESH GROVER
Present : Ms. Munisha Gandhi, Sr. Advocate with
Mr. Gaurav Goel, Advocate
Mr. D.P.Ojha, Official Liquidator
MAHESH GROVER, J.
This is a petition under Sections 391 and 394 of the Companies Act, 1956 (hereinafter referred to as "The Act") seeking approval/sanction of the Scheme of Amalgamation (Annexure P-1).
The following would be constituent participants in the Scheme. Transferor companies :- Sukh Realters Private Limited (hereinafter referred to as the Petitioner Company no.1), Ma-Ganga Builders & Constructions Private Limited (hereinafter referred to as the Petitioner Company no.2.), Belisma Buildcon Private Limited (hereinafter referred to as the Petitioner Company no.3.), North Star Apartments Private Limited (hereinafter referred to as the Transferee Company no.1/Transferor Company no.4.) and S.S.Group Private Limited (hereinafter referred to as the Transferee Company no.2).
The proposed transfer envisages the vesting of the undertakings of the Transferor companies into Transferee Company no.2.
The registered offices of Transferor and the Transferee companies are located at 4th Floor, the Plaza, IFFCO Chowk, M.G, Road, Gurgaon.
The Board of Directors of petitioner Companies No. 1, 2 and 3 in their respective meeting held on 14.8.2013 approved the Scheme of Amalgamation. The respective resolutions are on record as Annexures P-2, P-3, P-4.
REKHA2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 3
The Board of Directors of the Transferee Company no.1/ Transferee Company no.2 also in their meeting held on 14.8.2013 approved the Scheme of Amalgamation of Sukh Realters Private Limited, Ma-Ganga Builders & Constructions Private Limited and Belisma Buildcon Private Limited with North Star Apartments Private Limited and the subsequent Amalgamation with S.S.Group Private Limited and their respective shareholders and creditors. A copy of the resolution to this effect is on record as Annexures P-5 and P-6.
The Petitioner Company no.1 was incorporated on 4th August, 1994 in the State of Delhi under the name of Sukh Realters Private Limited but its registered office changed to State of Haryana w.e.f 15.4.2013. The aims and objects of the Company as contained in the memorandum and articles of association are on record as Annexure P-7.
The authorized, issued, subscribed and paid up share capital of petitioner Company 1 as existing on 31.3.2012 as per the audited financial statements have been set out in the petition alongwith certified copies of the audited balance sheets for the financial year ending on 31.3.2012 and unaudited balance sheet for year ending 31.3.2013 are on record as Annexure P-8. It has been stated that equity shares of the petitioner company no.1 are not listed on any stock exchange.
The Petitioner Company no.2 was incorporated on 13th September, 1995 in the State of Delhi under the name of Ma Ganga Builders & Constructions Private Limited but its registered office changed to State of Haryana w.e.f 16.5.2013. The aims and objects of the Company as contained in the memorandum and articles of association are on record as Annexure P-9.
REKHA2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 4
The authorized, issued, subscribed and paid up share capital of petitioner Company 1 as existing on 31.3.2012 as per the audited financial statements have been set out in the petition alongwith certified copies of the audited balance sheets for the financial year ending on 31.3.2012 and unaudited balance sheet for year ending 31.3.2013 are on record as Annexure P-10 collectively. It has been stated that equity shares of the petitioner company no.2 are not listed on any stock exchange.
The Petitioner Company no.3 was incorporated on 18th January, 2010 in the State of Delhi under the name of Belisma Buildcon Private Limited but its registered office changed to State of Haryana w.e.f 4.5.2013. The aims and objects of the Company as contained in the memorandum and articles of association are on record as Annexure P-11.
The authorized, issued, subscribed and paid up share capital of petitioner Company 1 as existing on 31.3.2012 as per the audited financial statements have been set out in the petition alongwith certified copies of the audited balance sheets for the financial year ending on 31.3.2012 and unaudited balance sheet for year ending 31.3.2013 are on record as Annexure P-12. It has been stated that equity shares of the petitioner company no.3 are not listed on any stock exchange.
The Transferee Company no.1 was incorporated on 18th March, 1993 in the State of Delhi under the name of North Star Apartments Private Limited but its registered office changed to State of Haryana w.e.f 25.4.2013. The aims and objects of the Company as contained in the memorandum and articles of association are on record as Annexure P-13.
The authorized, issued, subscribed and paid up share capital of petitioner Company 1 as existing on 31.3.2012 as per the audited financial REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 5 statements have been set out in the petition alongwith certified copies of the audited balance sheets for the financial year ending on 31.3.2012 and unaudited balance sheet for year ending 31.3.2013 are on record as Annexure P-14. It has been stated that equity shares of the petitioner company no.4 are not listed on any stock exchange.
The Transferee Company no.2 was incorporated on 22nd June, 2010 in the State of Punjab under the name of S.S.Group Private Limited but its registered office changed to State of Haryana w.e.f 5.4.2013. The aims and objects of the Company as contained in the memorandum and articles of association are on record as Annexure P-15.
The authorized, issued, subscribed and paid up share capital of petitioner Company 1 as existing on 31.3.2012 as per the audited financial statements have been set out in the petition alongwith certified copies of the audited balance sheets for the financial year ending on 31.3.2012 and unaudited balance sheet for year ending 31.3.2013 are on record as Annexure P-16. It has been stated that equity shares of the petitioner companies are not listed on any stock exchange.
That on 31.10.2013 this Court passed an order in Company Petition No.155 of 2013 directing the Petitioner Company no.4 (Transferee Company 1) to convene a meeting of the unsecured creditors Petitioner Company no.4 on 7.12.2013 for the purposes of considering the proposed Scheme of Amalgamation. Mr. Karanvir Singh Khehar, Advocate was appointed as Chairman and Ms. Amandeep Sibia, Advocate as co-Chairman.
The meeting was convened in accordance with law after due publication and notices issued to all the concerned persons. Chairman has since submitted his report and it is on record of the First Motion Petition. REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 6
The Scheme of Amalgamation also forms a part of the petition. It has been stated that the Scheme is beneficial to all the constituents. It has been stated on affidavit that no investigation or proceedings are pending against the constituents companies under the provisions of Section 235 to 251 of the Companies Act.
Notice of this petition as well as Amended Scheme of Amalgamation was issued to the Official Liquidator and the Regional Director who have submitted their reports. Affidavits dated 7.8.2014 and 9.9.2014 have also been filled by Mrs. Dayawanti, Authorized Signatory of the petitioner Companies to the reports of the Official Liquidator and Regional Director. The Official Liquidator has submitted on the basis of the report of the Chartered Accountant that the Transferor companies are in default as far as their statutory dues of Income Tax Liability for more than 3 years are concerned. The relevant portion of the objections raised by the Official Liquidator are extracted herebelow:-
"4. That M/s Anand Sabharwal & Associates, Chartered Accountant has verified the Accounts of Transferor Companies and submitted his report to this office on 21.5.2014. The copy of report is enclosed and annexed as Annexure R-2. The learned Chartered Accountant has made following observations:-
4(1)(A) Pending statutory dues of Income Tax Liability since more than 3 years:-
That the Transferor companies are under default of not depositing the statutory dues of Income Tax liability since more than 3 years. The aggregate unpaid income tax liability as REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 7 on 31/03/2013 was Rs.58.69 crores & unpaid interest is Rs.21.61 Crores, aggregating Rs.80.30 Crores. The Companies wise details of income tax (unpaid) & interest payable are given as under:-
Particulars M/s Sukh Realters M/s Ma Ganga M/s North Star
Pvt. Ltd. Builders & Apartments Pvt. Ltd.
Constructions Pvt.
Ltd.
Unpaid Income Tax
(in crores) 23.6 3.14 31.95
Unpaid interest (in 10.52
crores)
9.19 1.9
Total 32.79 5.04 42.47
4(1)(B) That Transferor Company 4 has filed the belated income tax return on 30/03/2013 for the Asstt. Year 2012-13, in which a cheque amounting to Rs.13,72,83,210/- towards self-assessment tax deposited on 30/03/2013 was returned unpaid as dishonored due to insufficient funds.
4(1)(C ) That in response to this continuing default of non payment of statutory dues of income tax liability & due interest worth Rs.80.30 crores, the management of the company has informed in their reply that the said statutory due of income tax liability shall be taken over by the Transferee Company 2 as per the Scheme of Amalgamation. The reply of the management of the company is baseless & not satisfactory because the Transferee Company 2 is a small subsidiary company of Transferor Company 4 not doing any business operations having Net worth of Rs.12.80 lacs only, issued & paid up share capital of Rs.10 lac. Net Profit earned during the F.Y 2012-13 for Rs.6.37 lacs & after deduction of carried REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 8 forward losses the balance amount of Rs.2.80 lacs has been transferred to Reserves & Surplus as on 31.03.2013. Therefore, the Transferee Company has no capacity/resources to pay such huge statutory dues of income tax liability of Rs.80.30 crores belonging to Amalgamation/Transferor Companies 1, 2, 3 & 4.
4(1)(D) No uniformity in basis of proposed purchase consideration in Amalgamation 1 &2 We also noted that in the Scheme of Amalgamation, there is no uniformity in basis of proposed purchase consideration mentioned in the first Amalgamation between Transferor Company 1, 2 &3 with Transferor Company 4 and the second Amalgamation between Transferor Company 4 & Transferee Company 4(2) in the first Amalgamation between the Transferor Company 1, 2 &3 with Transferor Company 4 the purchase consideration has been fixed for issuing of Equity/Preference shares of Rs.10 lacs each to Transferor Company 1, 2 &3 aggregating to worth Rs.30 lacs only, whereas in the second Amalgamation between Transferor Company 4 & Transferee Company 2 the purchase consideration has been fixed for issuing of 3,31,60,000 equity shares of the face value of Rs.10/- each at a premium of Rs.577/- each and 7000 non-cumulative redeemable preference shares of the face value of Rs.1000/- each, aggregating to worth Rs.1949.10 Crores.
Whereas the management has worked out Purchase Consideration worth Rs.1949.10 Crores on the basis of REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 9 valuation of properties which largely belongs to Transferor Company 1, 2 & 3 and also have the right in the properties of Transferor Company 4 being its holding companies. However the same method of the calculation of purchase consideration has not been adopted while calculating the purchase consideration in the first Amalgamation which is just worth Rs.30 lacs only. Whereas in the First Amalgamation the share in the valuation of properties of the Transferor Company 1, 2 & 3 is Rs.1941.53 Crores out of total valuation of all properties Rs.1949.10 Cr. The details of the gross share in the valuation of properties of these companies in tabular form are given as under:-
Sr. Name of the Share Valuation of Share in Total share in No Company holding in Properties properties as the properties the ( In crores) holding (in crores) Transferor Companies Co.4 (in crores) M/s Sukh Realters Pvt. Ltd. (Transferor 1 Co.No.1) 26.08% 228.38 448.76 677.14 M/s Ma Ganga Builders & Constructions Pvt.
Ltd. (Transferor 2 Co.No.2) 47.83% 0 823.02 823.02 M/s Balisma Buildcon Pvt. Ltd. 3 (Transferor Co.No.3) 25.65% 0 441.37 441.37 M/s North Star Apartments Pvt. Ltd. 4 (Transferor Co.No.4) 0.44% 1720.72 7.57 Total 100.00% 1949.1 1720.72 1941.53
In this regard the management has informed that the Transferor Company 1, 2 & 3 which are going to merge with Transferor Company 4 & further the said Transferor Company 4 is merging with Transferee Company 2. Therefore REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 10 they have not adopted the Asset Valuation method in the first Amalgamation as that would lead to recoding of consideration & immediate cancellation of shares on merger of Transferor Company 4 with Transferee Company 2 in the second Amalgamation. Further as the beneficial shareholding is held by the same set of individuals, post-merger the consideration is not prejudicial to their interests.
The contentions/replies of the management are neither satisfactory nor acceptable and according to the principles of natural justice & law. In the post merger the shareholders of Transferor Company 1 are taking purchase consideration worth Rs.10 lacs as Preference Shares instead of having share in the properties worth Rs.677.14 Crores. Secondly shareholders of Transferor Company 2 are taking purchase consideration worth Rs.10 lacs as Preference Shares instead of having share in the properties worth Rs.823.02 Crores. Similarly, shareholders of Transferor Company 3 are taking purchase consideration worth Rs.10 lacs as Equity Shares instead of having share in the properties worth Rs.441.36 Crores. Therefore in our opinion the criteria of calculation of purchase consideration adopted by the companies in the first Amalgamation & the second Amalgamation is not uniform; therefore the Scheme is prejudicial to the interest of the members.
4(3) That while calculating the valuation of the properties, the Transferor Companies has taken value of assets which does not belong to the Transferor Companies REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 11 exclusively. However, it includes 9 properties having aggregate valuation of Rs.1014.66 crores which belongs to subsidiaries companies as well as associate companies. The Transferor Companies are having Development Rights of the land in these properties whereas no such investment in the land was done by the Transferor Companies. Further the companies has executed addendum to collaboration agreement just 2 or 3 days prior to the close of the financial year 2012-13 for subsequent purchase of land after development. Moreover some collaboration agreements were executed on 8.5.2013 after the date of valuation in respect to the development rights of the land only in which no clause regarding the transfer of ownership of land in the favor of Transferor Companies was mentioned.
In our opinion where the company has not paid any consideration or advance against proposed purchase of land and have the development rights only, in that event the entire valuation of the properties taken by the companies as on 01.04.2013 for determination of purchase consideration is not genuine & incorrect.
The details of these companies in respect to its name of the project, nature of project, ownership, area/location, status, valuation etc are given as under:-
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S. Pro Name & The owner Areas (in Location Status of Valuation N pert Nature of the Company Acres) the (Rs. In o y Project property crores) No Primary North Star Towers Sector Plot school Pvt. Ltd. 48, 1 5 0.98 Gurgaon 4.41 Nursery North Star Towers Sector Plot school Pvt. Ltd. 48, 2 6 0.2 Gurgaon 0.94 Nursery North Star Towers Sector Plot Home Pvt. Ltd. 48, 3 7 0.47 Gurgaon 2.16 Sec 83 GH-I/ A & D Estates Pvt. Sector Vacant Group Ltd. 83, Land 4 13 Housing 11.45 Gurgaon 164.38 Sec 83 GH-II/ A & D Estates Sector Vacant Group More Build Tech 83, Land Housing Pvt. Ltd. Goldline Gurgaon Build Tech Pvt.
Ltd. & Style
5 14 Towers Pvt. Ltd. 11.42 178.25
Sec 83-CI / A & D Estates Pvt. Sector Vacant
Commercial Ltd. & Goldline 83, Land
Build Tech Pvt. Gurgaon
6 15 Ltd. 14.7 209.72
Sec 83-C 2/ A & D Estates Pvt. Sector Vacant
Commercial Ltd. 83, Land
7 16 8.61 Gurgaon 118.71
Commercial / North Star Towers Sector Vacant
Agricultural P Ltd. North Star 86, Land/
Land Apartments Pvt. Gurgaon License
Ltd. & Matrix not yet
8 18 Buildwell Pvt. Ltd. 2.51 granted 35.14
Agricultural Shive Profins Pvt. Sector Vacant
land/ Ltd. North Star 84,85,86, Land/
Residential Towers Pvt. Ltd., 90 License
North Star Gurgaon not yet
Apartments Pvt. granted
Ltd., Matrix
Buildwell Pvt.
Ltd., Green Gem
Estates Pvt. Ltd.,
Esteem Towers P.
Ltd. Bluechip
9 19 Properties Pvt. Ltd. 106.25 300.95
Total
valuation 1014.06
That while calculating the valuation of properties the cost of land payable as on 31/03/2013 was not deducted from the valuation of properties to arrive at the accurate calculation of REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 13 net asset value.
That while calculating the valuation of properties, outstanding liabilities as on 31/03/2013 towards land & land development was not deducted from the valuation of properties to arrive at the accurate calculation of net asset value.
In our opinion the above said liability should be deducted from valuation of the respective assets at the true & actual valuation of the assets/properties for the purpose of calculation of purchase consideration.
4(4) valuation of properties not prepared by independent approved valuer During the examination, we have noticed that in the Scheme of Amalgamation, purchase consideration has been fixed by the companies i.e 3,31,60,000 equity shares of the face value of Rs.10/- each at a premium of Rs.577/- each & 7000 non-cumulative redeemable preference shares of the face value of Rs.1000/- each aggregating to worth Rs.1949.10 crores on the basis of valuation of properties. However, the said valuation of properties has not prepared by the Independent Approved Valuer for the purpose of above said Amalgamation and has been prepared by the management on the basis of portfolio valuation reports as on 28/09/2012 & 10/05/2013 prepared by M/s Knight Frank Pvt. Ltd. Gurgaon in the normal course of business. In the absence of such a report the genuineness of share exchange ratio is apparently suspicious.
In our opinion the companies should obtain valuation REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 14 report of the properties from an Independent Approved Valuer for the purpose of Amalgamation. The proper fair valuation approach to arrive at the swap ratio by using the combination of 3 methods namely; Asset Value Approach, Markeet Value Approach, Income Approach have to be applied following the directions of Hon'ble Supreme Court in the decision of Hindustan Lever Employees Union v/s Hindustan lever Ltd. & others (1995) 83 Company Case 30. The said valuation report should have been placed in the Board Meeting of the Companies as well as in the General Meeting for the approval of the members and same should be placed before the Hon'ble High Court of Punjab & Haryana while filing the petition of Amalgamation along with Scheme of Amalgamation. Therefore, in light of above said circumstances, this Scheme of Amalgamation is insufficient & incorrect to purpose the purchase consideration between the companies under Amalgamation.
In the absence of Independent Valuation Report & basis of calculation of purchase consideration in the form of issuing of Equity & Preference shares in the Scheme of Amalgamation, the Board of Directors has taken the Fairness Opinion Report from the M/s SSPA & Co., Chartered Accountants, Gurgaon dated 12/08/2013 to justify the basis of calculation of purchase consideration prepared by the management. In this regard, we have noticed that the M/s SSPA & Co. (Chartered Accountants), Gurgaon has given their Fairness Opinion Report REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 15 only on the basis of management recommendations; for issuing of equity & preference shares in lieu of purchase consideration without examining the valuation of properties, valuation reports, method of valuation adopted 7 basis of proposed swap ratio worked out by the management. Therefore, the Fairness Opinion Report is not true & fair and could not serve the purpose of basis of calculation of purchase consideration in this Scheme of Amalgamation.
4(5) The management of the companies under Amalgamation has willfully opted for the route of reverse merger by merging the Transferor Company 4 (As holding company) with Transferee Company 2 (being 100% subsidiary Company of the Transferor Company 4). Normally in the merger between the holding company with the 100% subsidiary company, there is no such requirement of the purchase consideration because the investment shown in the books of the holding following the pooling of interest method, a method of accounting for Amalgamation in the nature of merger.
Whereas in this Amalgamation under reverse merger of the holding company with the small scale subsidiary company, the shareholders of the Transferee Company 2 has fixed up themselves the purchase consideration aggregating to worth Rs.1949.10 Crores against the cancellation of present net worth of all the 4 Transferor Companies amounting Rs.176.29 Crores. The said computation of purchase consideration is illogically & unfair without taking valuation report from the independent REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 16 valuer against the properties.
Moreover due to the unfair inflated share capital to be issued by the Transferee Company 2, the Fictitious Goodwill of Rs.1772.81 Crores will be accounted for in the books of amalgamated company as difference between amounts of share capital to be issued minus book value of the assets of the Transferor Company 4.
In our opinion this purchase consideration is unfair & incorrect w.r.t ownership rights in the properties, non- availability of the Independent Valuation Report, without any basis of calculation of the purchase considerations/swap ratio for issuing the shares in the Scheme of Amalgamation, no uniformity in fixations of purchase consideration in First & Second Amalgamations and non-compliance of the provisions of section 391 to 394 of the Companies Act, 1956 before filing the petition of Amalgamation before the Hon'ble High Court of Punjab & Haryana. Therefore, the said Amalgamation is clearly prejudicial to the interest of members.
4(6) Legally Incorrect modification to the Scheme of Amalgamation (second motion petition) only filed by the companies In first motion petition (C.P.No.155 of 2013), the company has filed Scheme of Amalgamation, minutes of Board meetings, consent of the shareholders on affidavits, consents of creditors, approval/consent of the financial institutions & affidavits of the directors and all necessary documents for approval of the REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 17 Scheme of Amalgamation. The said first motion petition was allowed by this Hon'ble High Court on 20/12/2013 with Purchase Consideration for issue of:
33,16,000 equity shares of the face value of Rs.10/- each at a premium of Rs.577/- each of Transferee Company no.2 credited as fully paid up to all the equity share holders of the Transferor company no.4 as on the Record date, in proportion of their holding in the Transferor company no.4 and
-7000 non-cumulative redeemable preference shares of the face value of Rs.1000/- each of Transferee Company no 2 credited as fully paid up to all the preference shareholders of the Transferor company no.4, as on Record date, in proportion of their holding in the Transferor company no.4 While examination of records in respect to minutes of the Board Meetings, Petitions of Amalgamation, Affidavits of the shareholders regarding consent on purchase consideration, consents of creditors on affidavits, basis of calculations of shares & fairness opinion for the purpose of proposed Amalgamation obtained by the company and we noticed that the statement of properties valuations prepared & placed before us by the management for worth Rs.1949.10 Crores instead of Rs.195.35 Crores worth of shares to be issued under purchase consideration as per the first motion petition. Further the management of the companies has carried over the above mistake in all the documents as well as in the Scheme of Amalgamation in the first motion & second motion petition. REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 18
On realizing the above mistake in the calculation of purchase consideration management of the companies in order to rectify this mistake has filed the modification to the Scheme of Amalgamation vide (C.P.No.151 of 2014, dated 18/03/2014) with Hon'ble High Court of Punjab & Haryana stating that it is a typographical error in the clause 23.1.1 of the Scheme of Amalgamation & submitted all the relevant revised documents viz. Fairness opinion report given by the SSPA & Co. (Chartered Accountants) dated 12/08/2013, Board resolution of the petitioner companies, amended Scheme for Amalgamation, Consent of the shareholders of the companies & certificate of Chartered Accountant etc. for approval of the Scheme of Amalgamation with approval of Purchase Consideration for issue of :
33,16,000 equity shares of the face value of Rs.10/- each at a premium of Rs.577/- each of Transferee Company no.2 (SS Group Pvt. Ltd.)credited as fully paid up to all the equity share holders of the Transferor company no.4 as on the Record date, in proportion of their holding in the Transferor company no.4 and
-7000 non-cumulative redeemable preference shares of the face value of Rs.1000/- each of Transferee Company no 2 (SS Group Pvt. Ltd.)credited as fully paid up to all the preference shareholders of the Transferor company no.4, as on Record date, in proportion of their holding in the Transferor company no.4 REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 19 In our opinion the modification filed by the companies is legally incorrect as the first motion petition (C.P. 155 of 2013) has already been approved by the Hon'ble High Court therefore the modified second motion petition cannot be legally different from first motion petition which was already approved by the Hon'ble High Court on 20/12/2013.
Moreover, the contentions of company in said modification that it is typographical error in the clause 23.1.1 of the Scheme of Amalgamation is also incorrect because no such basis of the said calculation of shares under purchase consideration has been given in the Scheme of Amalgamation from which this typographical error has been occurred under modified second motion petition with Hon'ble High Court.
In our opinion, such typographical error has not been occurred while drafting the first motion & second motion petitions. However, it was a mistake in the calculation of purchase consideration. There is a difference of Rs.1753.75 crore (1949.10 crore minus 195.35 crore) between the purchase consideration mentioned in lieu of issuing the shares in the first motion petition & modified second motion petition. In these circumstances, to rectify the mistake by the management; the revised petition under first motion to be filed with the Hon'ble High Court with the modified Scheme of Amalgamation alongwith all revised necessary consents, approvals of the Creditors, financial institution, members etc. and to file required documents according to the provision u/s 391 to 394 REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 20 of the Companies Act, 1956.
4(7) Willfully writing off the advance amount of Rs.87 lacs During the examination of books of accounts of the third Transferor company BELSIMA BUILDCON PVT. LTD. We have observed that the company has given an advance for Rs.87.00 lakhs paid to M/s North Star Towers Pvt. Ltd. ( a group Subsidiary Company) on dated 21/02/2013 & written off the same as on 31/03/2013; claimed as business loss in the books of accounts as well as in the income tax return for the financial year 2012-13.
Therefore the company in order to reduce the net profit as well as income tax liability for the financial year 2012- 13, has willfully written off the advance amount of Rs.87.00 lakhs due towards its group subsidiary company under same management. Hence the said Amalgamation is prejudicial to the interest of revenue as well as members of the company. 4(8) We hereby submit that the above said report is prepared on the basis of Audited Statement of Accounts, discussions with authorized representatives of the Transferor Company and information & explanations given to us. The necessary documents are enclosed with this Report to make this Report self explanatory. In view of the contents of this Report, we are of the opinion that Affairs of the Transferor Companies 1,2,3 &
4 has been conducted in a manner prejudicial to the interest of Revenue, Members & the public at large as per our observations on scrutiny of books & accounts given above in REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 21 respect to non-payment of statutory dues of income tax liability for Rs.80.30 crores, over valuation of properties worth Rs.1014.66 crores & difference of Rs.1753.75 Crores in the purchase consideration between the first motion petition & second motion petition, willfully written off the advance amount of Rs.87.00 lakhs, breaching the trust of the creditors by diverting their funds worth Rs.20.33 Crores and inconsistent criteria adopted for calculation of Purchase consideration under Amalgamation 1 & 2.
5. That M/S Anand Sabharwal & Associates., Chartered Accountant has stated in his report that in view of the contents of our Report, we are of the opinion that Affairs of the Transferor Companies have been conducted in a manner prejudicial to the interest of Revenue, Members & the public at large."
It is evident that serious objections have been raised by the Official Liquidator to the Scheme of Amalgamation. The petitioner in turn has filed an affidavit assuring compliance of the statutory provisions of the Income Tax Act and adhering to the guidelines of the RBI.
The Official Liquidator apart from raising objections to the Scheme which have been extracted hereinabove has opposed the motion as sought for by the Companies seeking Amalgamation.
Learned counsel for the respondents responding to the objections of the Official Liquidator has placed reliance on judgment of the Hon'ble Supreme Court in case titled as Miheer H Mafatlal vs. Mafatlal Industries Ltd. reported as (1997) 1 SCC 579 where it has been observed REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 22 as follows:-
"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 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 fair to the class as whole so as to legitimately blind even the dissenting members of that class.
4. That all the necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391 sub-Section (1).
5. That all the requisite material contemplated by the provision of sub-Section (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a Scheme and the Court gets satisfied about REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 23 the same.
6. That the proposed Scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the Scheme and can judiciously X-ray the same.
7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8. That the Scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the Scheme is meant.
9. Once the aforesaid broad parameters about the requirements of a Scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the Scheme even if in the view of the Court there would be a better Scheme for the company and its members or creditors for whom the Scheme is framed. The REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 24 Court cannot refuse to sanction such a Scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the Scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction."
Reliance has also been placed upon a decision rendered by this Court in Company Petition no. 25 of 2014 connected with Company Petition no.166 of 2013 in the Scheme of Amalgamation between Ludhiana Holdings Limited with Oswal Woolens Mills where this Court observed as follows:-
"19. Having gone through the Scheme of Amalgamation and taking into consideration the views of the Regional Director and the Official Liquidator, the resolutions passed by the Board of Directors, the consents given by the shareholders of the Transferor Company, and the unanimous approval of the Scheme by the shareholders, secured creditors and unsecured creditors of the Transferee Company and the submissions made by the learned counsel for the petitioner companies, I find no reason to decline the prayer for approval/ sanction of the Scheme of Amalgamation to amalgamate and merge the Transferor company, M/s Ludhiana Holdings Limited with the Transferee Company, M/s Oswal Woollen REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 25 Mills Limited. The objections/ observations made by the Income Tax Department are overruled. It is however made clear that in the eventuality of the Income Tax Department raising any demand regarding statutory dues payable to the Department the same shall be discharged by the Transferee Company in accordance with law, as undertaken by it. The petitioner companies are directed to file the documents namely the Order of sanction of the Scheme passed by this High Court i.e., Form 21 filedwith the Registrar of Companies and a Duly Audited Combined balance sheet of the Transferor Company and Transferee Company, post the sanction of the Amalgamation before the Reserve bank of India as per the undertaking dated 25.3.2014 given by the authorized signatory of the Transferor Company. In view of clause 4.2 of the Scheme, whereby all liabilities of the Transferor company are being transferred to the Transferee company, and the undertaking given by the authorized signatory of the Transferor company, the observation pertaining to the Income Tax Department is suitably covered. Hence the Scheme of Amalgamation is hereby sanctioned subject to the Petitioner Companies honouring in letter and spirit the undertakings dated 25.3.2014 filed regarding the observations of the Regional Director, Northern Region, Ministry of Corporate Affairs, Noida. The petition is consequently allowed as prayed for."
Evidently all these objections regarding the existing liability under the Income Tax Act of the constituent Companies would be a matter REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 26 safely left to the income tax authorities and the undertaking furnished by the Companies that they would abide by the provisions of the Income Tax Act.
The afore-extracted observations of the Hon'ble Supreme Court sets to rest any ambiguity regarding the role of Company Court which has merely to ensure that procedural requirements are adhered to strictly while leaving the issue of merger and Amalgamation to the wisdom of the directors, shareholders and the creditors and of all interested in the affairs of the Company. The Court, therefore, has no role to substitute its own opinion in this regard and would safely leave the affairs of the constituent Companies who seek merger/Amalgamation for the complete support of the participants of the affairs of the Company. For this reason the objections of the Official Liquidator in this regard opposing the motion are rejected.
For the aforesaid reasons and upon consideration of the entire material and keeping in view the provisions of Section 391 to 394 of the Companies Act and upon consideration of the reports of the Regional Director to the Northern Region, Ministry of Corporate Affairs, Noida and the Official Liquidator as also the affidavit that there are no investigation or proceedings pending against the constituent Companies to the Scheme on Amalgamation under Section 235 and 251 of the Companies Act, the Scheme of Amalgamation is hereby sanctioned and as a result thereof the assets and liabilities of the Transferor Companies 1, 2, 3 and 4 shall stand vested in the Transferee Company no.2 and the Transferor Companies shall be dissolved without being wound up.
The Scheme shall be binding on the participants Companies and therefore, respective shareholders, creditors and all concerned.
Let a formal order of sanction of the Scheme of Amalgamation REKHA 2014.10.10 10:26 I attest to the accuracy and authenticity of this document High Court Chandigarh CP no. 203 of2013(O&M) 27 be drawn up in accordance with law and a certified copy be filed with the Registrar of Companies within 30 days of the same.
The report of the Regional Director regarding the effective date as per Section 391(3) to be the date when certified copy filed with Registrar of Companies is accepted.
Notice of the orders be published in the daily Financial Express (English), Dainik Tribune (Hindi) and in the official gazette of Govt. of Haryana. Any person interested shall be at liberty to apply to the Court for appropriate directions, if any, in accordance with law.
The petition is disposed of accordingly.
September 30, 2014 (MAHESH GROVER)
rekha JUDGE
REKHA
2014.10.10 10:26
I attest to the accuracy and
authenticity of this document
High Court Chandigarh