TMI Blog2009 (5) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... Harin P. Raval for the Regional Director. JUDGMENT 1. These are the petitions filed by the petitioner-companies for sanction of a composite scheme of arrangement in the nature of purchase of shares and demerger of hotel business of Gallops Realty (P.) Ltd., the demerged company to Atithya, Inn (P.) Ltd., the resulting company and the consequent reconstruction of the share capital of the demerged company under section 391 read with sections 394, 78 and 100 to 104 of the Companies Act, 1956. 2. It has been submitted that with the object of realignment of the shareholding pattern of the demerged company as agreed between the shareholders, the proposed scheme envisages the purchase of equity shares from the shareholders and subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of arrangement and the proposed reduction does not involve diminution of liability in respect of unpaid share capital but it does involve payment of a part of the paid-up share capital to the shareholders. Since there are no secured creditors of the demerged company and all the unsecured creditors had given their written approval to the proposed scheme, vide the said order, this court has further granted the dispensation with the procedure prescribed under section 101(2) of the Companies Act, 1956 as well as rules 48 to 65 of the Companies (Court) Rules, 1959. 6. In case of resulting company vide the order dated 26-2-2009, passed in Company Application No. 31 of 2009, the meeting of equity shareholders was dispensed with in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 8.1.3 of the scheme the capital profit on demerger shall be transferred to the general reserve in the books of the resulting company. According to the Regional Director, it is not in consonance with the generally accepted accounting principles as also Accounting Standard-14 which provide that any profits arising out of a capital transaction like merger or demerger ought to be treated as capital profits and hence shall be transferred to the capital reserve and not to the general reserve. 10. An additional affidavit dated 27-4-2009, has been filed by Mr. N.G. Patel, the director of the petitioner-companies, which deals with the above observation. It has been submitted that the allegation that the proposed accounting treatment is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taken care of and proper explanation has been rendered by the company. As rightly pointed out by Mr. Soparkar that the said observation is not in consonance with the accounting principles in general and Accounting Standard-14 in particular. The plain reading of the Accounting Standard-14 makes it very clear that the same is applicable only in case of amalgamation and not in the case of demerger as envisaged in the present scheme. This view is supported by the decision of the Allahabad High Court in the case of Jagran TV (P.) Ltd., In re [2009] 90 SCL 138 , wherein it is held that with regard to Accounting Standard-14 a statement was given in the Delhi High Court that since the transferor company will merge into the transferee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being unpaid on any shares held by the members of the company. Thus, the Companies Act clearly and specifically permits utilisation of the reserve arising out of revaluation of the assets for the purpose of issuing fully paid-up bonus shares. 13. Reference is also made to the decision of the Rajasthan High Court in the case of Sutlej Industries Ltd., In re [2007] 135 Comp. Cas. 394 , wherein similar objection was raised by the Regional Director. The objection was raised to the effect that since surplus arising out of the scheme of arrangement, i.e., arrangement/amalgamation reserve is of capital nature and cannot be considered as general reserve as the same (general reserve) is free for distribution to the shareholders of a company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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