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2012 (8) TMI 79 - HC - Companies LawScheme of De merger - spinning business was to be demerged as a going concern and transferred to respondent-IRSL - applicant contested agianst scheme stating the transferred undertaking could not be regarded as a going concern apart from the fact that such incomplete transfer would not satisfy the requirement of sub-Section (i) of Section 2(19AA) - Held that:- Upon reading the Scheme of Arrangement in its entirety no hesitation in concluding that the Housing colony as well as common utilities were specifically agreed to be retained and owned by respondent-IRSL - Even the Applicant before entering into the share purchase agreement was aware of the Memorandum of Understanding which specifically stated that housing colony was being offered by respondent-IRSL as a resource to IRTL for five years upon payment of actual cost, thus if respondent-IRSL was not the owner of the common resources and infrastructure, there was no question of it offering the common assets for use to IRTL on payment of cost. This Court is not in agreement with the Applicant's submissions that in a Scheme of Demerger by virtue of Section 2(19AA) of the Act, 1961, all the properties of the undertaking become the property of the resulting company. This Court is of the view that non-transfer of some of the pervious common assets being used by the transferee undertaking will not affect IRTL status as a going concern - infact it is settled legal position that there is no requirement under the provisions of the Act, 1961 or Act, 1956 for transfer of all common assets and/or liabilities relatable to the Undertaking being demerged. Applicant's submission that all common assets that cannot be divided must be transferred to the transferee namely, IRTL overlooks the explicit language of Section 2(19AA)(i) of the Act, 1961, which states that ''all the properties of the undertaking being transferred by the demerged company, immediately before the demerger becomes the property of resulting company by virtue of the demerger." Whether or not Section 2(19AA) of the Act, 1961 has been complied with, is not to be determined pre-merger, but post merger and that too by the tax authorities. Thus if the Scheme of Arrangement is not tax complaint, then the tax authorities will levy capital gains tax, if any, on the transferor, namely, respondent-IRSL - Consequently, the contention urged by the Applicant that in view of Section 2(19AA) of the Act, 1961, the Scheme of Demerger must necessarily comply with Section 2(19AA) which is meant for availing tax concession cannot be read as a mandatory requirement for all schemes of amalgamation/arrangement/de-merger under Sections 391/392/394 of the Act, 1956, thus, the Applicant is in error in contending that the common infrastructure is liable to be made over to them by virtue of reasoning of Section 2(19AA) It is apparent that in the proceedings under Section 392(1)(b) of the Act, 1956, the Court cannot rewrite the scheme approved in the meeting called under Section 391(2) of the Act, 1956; but, it can only make such modification as it may consider necessary for proper working of the compromise or arrangement - when the scheme was sanctioned in the year 2003, both the Transferor and Transferee Companies were owned and managed by O.P. Lohia group but now as both the entities are owned and managed by different business groups. Consequently, to ensure that the scheme sanctioned by this Court is properly implemented, this Court modifies only the dispute redressal mechanism in Clause 36 of the Scheme by directing that in the event of any dispute, doubt or issue arising between the parties, the same shall be referred to a sole arbitrator to be appointed with the consent of the parties - application aginst the Scheme stands disposed of.
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