TMI Blog2018 (12) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2017 AND CSP No. 996 of 2017 In CSA No. 791 And 792 Of 2017 - - - Dated:- 30-8-2018 - Shri B. S. V. Prakash Kumar, Member (Judicial) And Shri Ravikum ar Duraisamy, Member (Technical) For The Regional Director : Mr. Rakesh Tiwari , Joint Director For The Official Liquidator : Mr. Santosh Dalvi ORDER Per Ravikumar Duraisam y, Member 1. Heard the Learned Counsel for the Petitioner Companies. None appears before the Tribunal to oppose the Scheme or to contravene averments made in the Petition. 2. The sanction of the Tribunal is sought under Sections 230 to 232 read with Section 52 and Section 66 and other applicable provisions of the Companies Act, 2013 to the Scheme of Amalgamation and Arrangement between Gabs Investments Private Limited ( Transferor Company ) and Ajanta Pharma Limited ( Transferee Company ) and their respective shareholders. 3. The Learned Counsel for the Petitioner Companies states that the Transferor Company is the group holding company and primarily holds shares in the Transferee Company. The Transferee Company is a specialty pharmaceutical company engaged in development, production and marketing of bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their respective heirs, executors, administrators or other legal representatives or other successors in title as may be recognized by the Board of Directors of the Transferor Company/Transferee Company in the following proportion: 83,92,262 fully paid up equity share of ₹ 2 each of the Transferee Company shall be issued and allotted as fully paid up to the equity shareholders of the Transferor Company in proportion of their holding in the Transferor Company 8. The Learned Counsel for the Petitioner Companies further states that, the Petitioner Companies have complied with all the directions in orders passed in Company Scheme Application No. 791 and 792 of 2017 and that the Company Scheme Petitions have been filed in consonance with the orders passed in the respective Company Scheme Application. 9. The Learned Counsel for the Petitioner Companies further states that the Petitioner Companies have complied with all requirements as per the directions of this Tribunal and they have filed necessary Affidavits of compliance in the Tribunal. Moreover, the Petitioner Companies through their Counsel undertakes to comply with all statutory requirements, if any, as required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tificate from Auditor of the Company that the accounting treatment proposed by the Company for such reduction is in conformity with the Accounting Standards specified in Section 133 or any other provisions of the Companies Act, 2013; g) The Petitioner ensure compliance of directions issued by Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE) in their communication vide letters dated 19-07-2017 towards the aforesaid Scheme of Amalgamation; h) As regards Para No. 8.5 of the Scheme, the difference, if any, of the value of Assets over the value of Liabilities and Reserves transferred to the Transferee Company and the face value of New Equity Shares issued by the Transferee Company, after providing for adjustments shall be adjusted in the Reserves of the Transferee Company preferably against the Capital Reserve as per the requirements of Para No. 35 of AS-14 notified by the Central Government. 11. In so far as observation of the Regional Director, as stated in paragraph IV(a) of the Report is concerned, the Petitioner Companies through their Counsel submits that the Appointed Date shall be 1st day of April, 2016. 12. In so far as observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferee Company, after providing for such adjustments as stated in the Scheme. The utilization of Securities Premium Account, as mentioned in Clause 8.5 of the Scheme, shall be effected without having to follow the process under Section 66 of the Act separately and the order of the NCLT sanctioning the Scheme shall be deemed to be also the order under Section 66 of the Act for the purpose of confirming the reduction. 18. The observations made by the Regional Director have been explained by the Petitioner Companies in paragraphs 11 to 17 above. 19. The Official Liquidator has filed his report on 20th December, 2017 in the Company Scheme Petition No. 995 of 2017 inter-alia, stating therein that the affairs of the Transferor Company have been conducted in a proper manner and that the Transferor Company may be ordered to be dissolved without winding up by this Hon ble Tribunal. 20. The report of the Registrar of Companies ( ROC ) dated 28th November, 2017 provides that there are six complaints against the Transferee Company. In this regard, the Learned Counsel of the Transferee Company submits that the complaints against the Petitioner Company are not in connection with the Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GIPL. Further, in case the applicability of MAT u/s. 115JB @ 20% should also be kept in mind, in case the GIPL adopts another method of computation of income. This tax of ₹ 287.50 Crores will be lost if this amalgamation scheme is approved by the NCLT Mumbai. (V) In view of the above computation, total loss to the revenue will be approximately ₹ 421.66 Crores, if this amalgamation Scheme is approved. (VI) The department has further argued that in view of GAAR provisions, the scheme of amalgamation is a deliberate measure to avoid tax burden by using the via media of NCLT and this scheme is purely Impermissible Avoidance Agreement (IAA) and should not be allowed by the NCLT. (VII) The proposed scheme of arrangement is nothing but Round trip financing which includes transfer of funds among the parties to the arrangements through the series of transactions. 22. Important provisions of the Scheme:- (a) The transferee company shall, without any application, act or deed, issue and allot equity shares, credited as fully paid up, to the extent indicated below, to the members of Transferor Company holding fully paid up equity shares of Transferor Company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at that time. 23. Observations of the Bench:- Upon perusal of the documents submitted, written submissions made by the counsel on behalf of the petitioner companies, Judgments relied upon by the Counsel, Bench made the following observations. (a.) Gabs Investments Pvt. Ltd. (Gabs) was incorporated on 04.01.1995, and Ajanta Pharma Ltd. (APL) was incorporated on 31.12.1975. The petitioner/transferor company is engaged in the business of making investments and hold shares and primarily holds shares in the Transferee Company. The main object of Gabs is to carry on the business as an Investment Company. Gabs have been purchasing share of the APL in the secondary market at various points of time and at various prices. (b.) The issued, subscribed and paid up capital of Gabs as on 31/03/2016 was 18,410 equity shares of to 10 each amounting to ₹ 184,100/- and as on 31/03/2017, was 19,110 equity shares of ₹ 10 each amounting to ₹ 1,91,100. The bench has also noted that Gabs has passed a board resolution on 18.03.2017 for the proposed merger of the company into APL, whereas on the same day 700 equity shares at a value of ₹ 8,00,000/- per share was allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account of the transferor company shall stand transferred to and vested in the transferee company. Further it is stated that the equity shares of the transferee company held by the transferor company shall stand cancelled in accordance with clause 7.1 of the scheme. However, treatment for these 700 shares allotted by way of rights issue on 18.03.2017 and amount shown under the head securities premium account have also not been explained. 28. Gabs received divided income from Ajanta Pharma Ltd. amounting ₹ 11,74,91,668 for the year ended 31, March 2016 and ₹ 10,90,99,406 for the year ended 31, March 2017. 29. Gabs generated total revenue of ₹ 11.88 Crores as at 31.03.2016 and ₹ 11.36 Crores as at 31.03.2017 (more than 92% of dividend income from APL), and for the quarter ended 30.06.2017, total revenue generated was only ₹ 6,03,233/- from interest on fixed deposit. 30. Gabs is not a subsidiary of any company including APL. 31. Investments in APL is appearing in the balance sheet of Gabs since FY ended 31.03.2009, and shown as 3,98,930 shares of APL at the market value of ₹ 51.35 and total value is shown as ₹ 2,07,45,05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 1,40,00,944 (-) 143,53,753 (-)760.51 2012 (-)19 ,80,969 (-)352,809 (-)107.60 2011 (-) 16,28, 160 16,28, 160 76.13 2010 226 ,679 226,679 38.25 From the above analysis of the balance sheet and profit and loss account of Gabs, it is observed that the company has been incurring loss from the financial year 31.03.2011, its reserves and surplus is also (-) from FY 2012 upto 2015 and EPS is also (-) since then. Securities Premium account amounting to approximately ₹ 55.99 Crores. Further it is also noted that EPS of ₹ 10 each is ₹ 2,766 as on 31.03.2017. Gabs obtained ₹ 45 Crores as long term borrowings from Citicorp Finance India Ltd. and ₹ 15 Crores from Family Credit Ltd. as at 31.03.2016. 34. From the analysis of the annual report of APL for the year 2016-17, it is noted under the heading share holding of promoters, Gabs Investments Pvt. Ltd. was holding 83,92,262 equity shares amounting to 9.54% of tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity share capital of only ₹ 1,91,100 the promoters/share holders of Gabs who are also the common promoters of APL, by way of this proposed scheme of amalgamation and arrangement would get the shares of APL worth ₹ 1477.50 Crores (market value as on 31.03.2017) and that too without paying any Income Tax, Stamp Duty etc. for which the bench is of the considered view that the same is not in the public interest, thousands of shareholders of Transferee company especially retail shareholders. The market value of the same number of shares as at 31.03.2016 was ₹ 1,182.59 Crores. 39. Since Income Tax department (IT) has raised strong objections about tax benefit, tax avoidance, tax loss as discussed above, we are of the opinion that it would be advisable to settle the important/crucial issue of huge tax liability before sanctioning the scheme by the Tribunal rather than disputing the same at a later stage after the scheme is sanctioned by the Tribunal. It is mandatory as per section 230(5) of the Companies Act, 2013, a notice under sub-section (3) along with all the documents in such form shall also be sent to central government, Income Tax Authorities, RBI, SEBI, RO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ring Plus Aqua Ltd. in Company Scheme Petition No. 105/2014 decided by the Hon ble High court of Judicature at Bombay on 09.05.2014. (viii) Vodafone International Holdings Vs. Union of India and Ors. 42. Upon perusal of the Judgment in the case of Sesa Goa Ltd., the prayer sought is to implead Income Tax Authority as necessary party and the Hon ble High Court held that the applicants have no locus to intervene in the above company petition and dismissed. 43. In the case of Cairn India Ltd. the Income Tax Department filed objections to sanctioning the scheme since huge demands of Tax have remained outstanding against the Transferor Company and the petitioner company has defaulted in payment of taxes from the Assessment Years 1990 to 2000 to the Assessment Year 2013-14 and the transferor company and transferee should be directed to clear outstanding income tax dues before granting the scheme of amalgamation. 44. In the case of Trinity India Ltd., the issue involved/decided is relating to scrutiny of the accounts of the company which is not the issue in the instant scheme matter. 45. In the case of AVM Capital Services Private Limited, an objector has raised various iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid up share capital of Gabs. Further as discussed supra, all these 4 share holders and the Gabs itself holding shares ranging from 24% - 30% shares of APL during the financial year ended 31.03.2016 2017 respectively. As per the proposed scheme of amalgamations and arrangement shares of transferee company will be allotted only to these 4 share holders of Gabs who are nothing but promoters of the transferee company/common promoters of both transferor and transferee company. 50 We have also taken into consideration, objections/representation of Income Tax Department and total loss of revenue to the exchequer amounting to approximately ₹ 421.66 Crores (Rs. 287.50 Crores + ₹ 134.16 Crores), the proposed scheme is a deliberate measure to avoid tax burden, it results directly and indirectly, in the misuse or abuse of the provisions of IT Act etc. As discussed supra, no provision is also made with regard to open offer to be made by the promoters of Gabs. 51. Incidentally the bench also noted that the common Promoters of petitioner companies are prima-facie required to comply with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s company will escape from complying with the Takeover Regulations and no financial outflow will be from these persons acting in concert. 53. Though the counsel in the written note on arguments dated Nil submitted in the month of July 2018 that the scheme would achieve greater efficiency of promoter shareholding in APL and will remove one unnecessary layer of shareholding-meeting one of the objectives of the Companies Act 2013 -namely reduction in the number of layers of companies in shareholding across companies. However, the same is not in compliance with the provisions of Income Tax Act 1961 and of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011. 5\43. RD, RoC, Stock Exchanges, SEBI have not offered their comments/inputs with regard to huge benefit of more than ₹ 1,400 Crores flowing only to the few common promoters of the petitioners companies as observed by this Bench. 55. Finally the Bench holds that the scheme is devised mainly to benefit the four share holders of Gabs who are also the promoters of APL (common promoters). In addition to the above, by this scheme, huge tax liability is being avoided, the scheme does not provide for compl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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