TMI Blog2012 (9) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... without objection. In fact, the Working Group under the Planning Commission has recommended sharing of infrastructure, and the present Scheme reserves flexibility to it for easing such process when required. It may be relevant to note that even the Central Government has not raised any objection to the Scheme and even the Department has not contended that the aforesaid objectives are imaginary. Therefore it cannot be said that the Scheme has no purpose or object and that it is a mere device/subterfuge with the sole intention to evade taxes, particularly when even the incidence of tax purportedly sought to be evaded is not established on facts. Transfer is void for want of consideration - Held that:- On agreeing with the view taken by the Delhi High Court that even if the consideration of one rupee can be said to be a valid consideration and it is not necessary that consideration is always a monetary consideration. In such type of cases wherein the reconstruction involves give and take and mutual/reciprocal promises and obligations, which can be said to be consideration for each other and it cannot be said that there is absolutely no consideration so far as Scheme of Arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on 18th October, 2007. The company again changed its name to Vodafone Essar Infrastructure Limited and obtained fresh certificate of incorporation on 17th January, 2008. Thereafter, the company shifted its registered office from the State of Maharashtra to NCT of Delhi and obtained a certificate in this regard from the Registrar of Companies, NCT of Delhi Haryana at New Delhi on 28th June, 2008. 3. The authorized share capital of the transferee company, as on 31st March, 2009, is Rs. 5,00,000/- divided into 50,000 equity shares of Rs. 10/- each. The issued, subscribed and paid up capital of the company is Rs. 5,00,000/- divided into 50,000 equity shares of Rs. 10/- each. 4. It is the case of the appellant Company that the Board of Directors of the appellant Company has approved the Scheme by Resolution passed in the meeting held on 21st September 2007 and further modified by a Resolution dated 30.4.2008. The Board of Directors of the transferee Company has also approved the Scheme by a Resolution dated 21.9.2007. 5. The Scheme envisages the demerger of the Passive Infrastructure Assets of each of the transferor Companies. Upon sanction of the Scheme, the Passive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure, within the Vodafone Essar Limited Group, the holding of the assets constituting the Passive Infrastructure Assets in a more efficient manner consistent with the diverse needs of business, and does not involve any movement of assets or liabilities to any company outside the Vodafone Essar Limited Group. The said transfer is without consideration as the transfer of the Passive Infrastructure Assets is within the Vodafone Essar Limited Group and according to the appellant company, the transferee company shall not be required to issue any shares or pay any consideration to any of the transferor companies or their shareholders for acquiring the Passive Infrastructure Assets. As pointed out earlier, the Board of Directors of the transferor and transferee companies, in their respective meetings, have unanimously approved and proposed the scheme of arrangements. The Scheme was accordingly placed before the learned Company Judge for according his sanction. 7 . The learned Company Judge admitted the petition on 11th August 2009 and notice was issued to the Central Government to be served through the Regional Director, Ministry of Corporate Affairs, Mumbai. Notice was also issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the licensed telecommunications services even after the completion of the demerger and therefore there was no requirement for the appellant Company to seek approval of the Department of Telecommunications for the Scheme. It was also submitted that the transferee Company is registered as an Infrastructure Provider Category-1 by the Department of Telecommunications which permits the transferee Company to establish and maintain Passive Infrastructure Assets to lease, rent or sell such assets to licensees of Telecom Services licensed under Section-4 of the Indian Telegraph Act, 1885. 10 . The learned Company Judge having considered the objections raised on behalf of the Income Tax Department and having heard learned counsel for the parties came to the conclusion that the sole object of the Scheme is to avoid tax. The learned Company Judge observed that the transaction is void under Section 281 of Income Tax Act and therefore the court will not exercise its jurisdiction to sanction a transaction which is pointed out to be void. The learned Company Judge observed that the Scheme appeared to be a camouflage to circumvent the mandatory provisions of Income Tax Act. The learned Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judge thus observed that it is a foregone conclusion that if the present scheme is sanctioned by him, it would result into avoidance of tax and that the transferee company is nothing but a paper company was being used only as an intermediary for transferring Passive Infrastructure assets from transferor companies to Indus for the purpose of tax evasion. The learned Company Judge has relied on the decision of Wood Polymer Ltd. [1977] 47 Co. Cases 597 (Guj) for coming to the conclusion that the scheme is nothing but a device and a conduit having the sole purpose of avoiding and evading taxes including income tax, stamp duty, registration charges and VAT. The purpose being tax avoidance is explicit from the facts that different accounting treatments are accorded to transferor companies having a positive net worth in comparison to ones which have negative net worth with an intention to maximize tax avoidance and therefore the Scheme is unreasonable, unfair and unjust. 13. The aforesaid order passed by the learned Company Judge in not granting sanction to the Scheme in question has given rise to this appeal at the instance of the appellant - Vodafone Essar Gujarat Limited. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed on it under the relevant provisions of the Income Tax Act, in accordance with law. Similar statement has also been made before the Delhi High Court in the case of Vodafone Essar Limited ors. v. Vodafone Essar Infrastructure Limited, reported in [2011] 2 Comp LJ 317. It is submitted that once the dues of Income Tax Department are taken care of, it has no further locus standi to challenge the Scheme. It is further submitted that under Sections 391-394 of the Companies Act, 1956 only the Central Government, through the Regional Director has the powers to study the Scheme and raise such objections as it thinks fit. Thus, besides the shareholders and creditors of the company to whom an arrangement and/or compromise is offered by the company, only the Regional Director has locus standi in respect of the proceedings under sections 391-394 of the Companies Act. The Income Tax Department, which is a revenue collecting arm of the Central Government, cannot object to the proposed Scheme. He submitted that it is only the Central Government through Regional Director which is vested with the powers to raise the objections qua the Scheme but, when the Regional Director has not rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid objectives has been sanctioned by different High Courts. 17. Mr Joshi has further contended that the Scheme of Arrangement was necessitated for reasons set out in clause 1.4 thereof. Mr Joshi has relied upon various clauses in the Scheme. It is further argued that under the Income Tax Act, there is no liability for payment of tax on capital gains since there would be a transfer of capital assets under a gift as envisaged under section 47(iii), which excludes application of section 45. It is also submitted that there is a clear rationale for nil monetary consideration since the Appellant and the transferee company are both wholly owned subsidiaries of Vodafone Essar Limited as per Clause 3.1 of the scheme and even a transfer at book value would not have resulted in capital gains. Therefore the scheme in any case is not for the purpose of avoiding capital gains. 18. Mr Joshi has further contended that the plea of the Income Tax Department that had there been a direct transfer of PI assets to Indus Towers Limited, there would have been a liability for capital gains is misconceived. He submitted that the Income Tax Department is purposefully seeking to overlook the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme the Court does not sit in appeal over the decision taken by the shareholders who have, in their commercial wisdom, given their approval to the scheme. Even if there are various ways to carry out a particular transaction, if one of the modes is chosen by the Vodafone group entities, the complexity of direct transfer by seven separate Vodafone group entities to Indus; the number of Vodafone group entities as shareholders in Indus compared to one Vodafone entity as shareholder in Indus; the issues pertaining to the success of Bharti and Idea to transfer their respective PI assets to Indus; the successful completion of transfer of PI assets by all the three joint venture partners into Indus; the option for Vodafone to accomplish the object of the Working Group in case the joint venture partners are not successful in transferring the PI assets to Indus. It is submitted by Mr Joshi that on the basis of the relevant consideration as pointed above if the Scheme is floated, it cannot be said that the same is floated with the sole object of avoiding tax. Even incidentally in a given case it may result into tax saving or evading of tax, then also, it can never be said that the sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that both reconstruction and amalgamation are statutorily recognized as an arrangement and/or compromise under Section 391. It necessarily implies that once a scheme is in the nature of reconstruction, which in the facts of the present case it is, the same is bound to be recognized as an arrangement and/or compromise under section 391 of the Companies Act. He submitted that once there is a Scheme of reconstruction, the same is bound to be recognized as a compromise/agreement under Section 391 of the Companies Act. It is further argued that it can never be said that in the present Scheme there is only transfer of assets and not transfer of undertaking and that it cannot be said that unless there is a transfer of undertaking, it cannot be said that it is a demerger. It is submitted that it is nobody's case that the present Scheme is a demerger under the Income-tax Act and simply because it is not under section 2(19AA), it does not mean that the present scheme is not a reconstruction under sections 391-394 of the Companies Act, 1956. Even if no liabilities are transferred, the same would still be a reconstruction under the Companies Act, 1956. It is also submitted that in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be treated as a device of tax avoidance and the real question to be asked is whether the act of the assessee falls in the category of colourable device. vii . Azadi Bachao Andolan, [2004] 10 SCC 1, for the proposition that McDowell cannot be read as laying down that every transaction or arrangement perfectly permissible under law, which has the effect of reducing the tax burden of the assessee must be looked upon with disfavour. viii. United Bank of India Ltd. v. United India Credit Development Co. Ltd. Of Calcutta High Court, [1977] 47 CC 689 for the proposition that where there are several legitimate alternatives, means and procedure for attaining the same object, there is no bar in choosing any one of them. ix. Larsen Toubro Ltd. [2004] 121 CC 523, for the proposition that though the word 'amalgamation' is not defined specifically, it has a wide range and ambit and is a term of wider connotation. x . Re T N Ltd. - Chancery Division , [2007] 1 All ER 851 for the proposition that it is not a necessary element of an arrangement for the purposes of Section 425 or that it should alter the rights existing between the company and the Creditors or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ulterior purpose. It is submitted by Mr Thakor that the learned Company Judge has considered the arguments of both the sides and simply because the judgment might not have been happily worded this Court can examine the aspect involved in the matter on its own. It is submitted that it is ultimately for the Court to consider as to whether the Scheme is required to be sanctioned and the Court is required to be satisfied itself, even if there is no objection by anyone, to find out whether the Scheme is required to be sanctioned or whether it violates any law or whether it is contrary to the public policy. It is submitted by Mr Thakor that in view of the decision of this Court in the case of Wood Polymer Private Limited ( supra ) the present Scheme is floated with the sole purpose of avoiding the tax as the transaction in the present case and Wood Polymer Private Limited ( supra ) can be said to be of a similar nature. It is submitted that the Scheme is nothing but camouflage and the object of the Scheme is nothing but avoidance of capital gains tax. It is submitted by Mr Thakor that looking to the Scheme it is evident that it is not a Scheme for reconstruction nor it is a Schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that too without consideration and therefore meeting of Secured Creditors was necessary and not that of the shareholders, who retain their control over the assets and are not the class of person with whom any arrangement or compromise is entered into, as sought to be claimed. 26 . It is also submitted by Mr Thakor that the Scheme is ultra vires Companies Act as admittedly, there was no power to gift under the Memorandum of Association of the petitioner company and it was by in an Extraordinary General Meeting of Shareholders that a Resolution was passed on 21st September 2007 wherein Memorandum of Association is amended to incorporate the power of gift. He further submitted that the proposed scheme being based on an ultra vires resolution of Board of Directors is void and it cannot be ratified even if all the shareholders have given their consent. He has also contended that jurisdiction under Section 391 of the Companies Act is not available for want of authority to the Company to gift and thus the Scheme is void. Mr Thakor, therefore, submitted that if Scheme before the Court is void, ab-initio it cannot be ratified even if all the shareholders agree and the Court cannot s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement of law, and in the process to defeat tax liability that would otherwise arise. It is submitted that the Supreme Court in case of Miheer Mafatlal v. Mafatlal Industries Ltd. 1997 (1) SCC 579 , has held that 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. He submitted that applying this mandate of Miheer Mafatlal ( supra ) this Court can pierce the veil of apparent corporate purpose underlying the scheme and look at the schemes of both the Stage 1 2, which would reveal the real purpose that is the transfer of assets to Indus without payment of taxes. Once the Court ascertains the real purpose, after piercing the veil by considering the composite transaction, it would not lend any assistance by permitting the completion of even Stage 1, even assuming if the same is found to be meeting the requirements of law, as this would perpetuate and lend a helping hand in the process to achieve the ultimate purpose of defeating the tax, which, as held is contrary, to public policy and public inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd deleted by CIT(A) the objector had preferred the appeal before ITAT which has been dismissed by its common order dated 9.1.2009. Against the said common order of ITAT, to the extent of dismissal of its Appeal, the objector has challenged the same before this Court. Similarly a demand of Rs. 118,99,33,185/- was raised for assessment years 2006-07 out of which Rs. 87,99,42,566/-is pending recovery. To the extent of the said demand raised and confirmed by CIT(A), the appellant has preferred an appeal before ITAT, in which stay has been granted against recovery on the condition of the petitioner depositing Rs. 30 crores. Further the Department has raised a penalty demand of Rs. 210,33,19,341/- for the year 2005-06 which entirely is pending recovery. Accordingly, sum of around Rs. 326,98,54,277/- is pending recovery from the petitioner. The aforesaid claim shall further be increased on addition of interest recoverable on the aforesaid amount. Mr.Thakore further submitted that for assessment years 2007-08 and 2008-09 the assessments are pending finalization and the objector apprehends demand amounting to hundred of crores, pursuant to issues similar to previous assessment year. 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al liabilities in the books of the petitioner Company, part of which are relatable to the assets under transfer. Since liabilities of the said assets would remain with the petitioner Company there would be a continuous charge of interest and other liabilities with respect to the said assets in its hands. This would reduce the taxable profit in the hands of the petitioner Company in the succeeding years. On the other hand, the books of the transferee Company would show exorbitant and inflated income and since the same is infrastructure Company, it may ultimately claim deductions under various provisions of Chapter VIA of the Income Tax Act on its inflated profits, leading to great loss of revenue to the exchequer. Moreover, pursuant to the scheme the petitioner Company will be required to pay access charges or some other charges to the transferee Company for using the said assets, which it is not paying before the scheme. This would further reduce the taxable profit of the petitioner Company. By transferring the said assets at the book value the petitioner Company is trying to evade capital gain which otherwise would be payable at the market value. He has further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of avoiding the tax liability and to avoid taxes liable to be paid under various statutes like Income-tax, Stamp Act, etc. The Court is also required to consider whether the Scheme in question is in violation of public policy and whether the Income-tax Department has locus standi to raise the objections in connections with sanctioning the scheme in question. This Court is also required to consider whether the learned Company Judge has committed an error in refusing to accord sanction to the Scheme in question. This Court is also required to consider whether the learned Company Judge has committed an error in refusing to accord sanction to the Scheme in question. Locus Standi 35. So far as the preliminary contention raised by the learned counsel for the appellant about the locus standi is concerned, except the Income-tax Department, no one else has raised any objection before the learned Company Judge in response to the public advertisement. It is required to be noted that the proceedings between the appellant - transferor company and the Income-tax Department are going on before the Tribunal regarding the liability of payment of tax by the transferor company in past t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has no locus to put forward its objections in this behalf. In other words, even if there are no objections, which are received against the Scheme pursuant to the public advertisement, yet the Court is required to examine the Scheme while giving its approval. In our view, the learned Company Judge has rightly allowed the Income-tax Department to have its say by raising objections in connection with the Scheme in question. Even a similar objection had been raised by the Income-tax Department before Delhi High Court and the Delhi High Court has considered the objections raised by the Income-tax Department on its own merits. Considering the same, in our view, in cannot be said that the Income-tax Department has no right to lodge its objections as the Income-tax Department raised a substantial demand towards tax from the transferor company. The aforesaid point raised by Mr Joshi is therefore negative by holding that the Income-tax Department has the right to place its objections against sanctioning of the Scheme in question. The Income Tax Department will be free to examine the aspect of any tax payable as a result of the Scheme. Is object of the Scheme Avoidance of Tax Liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is raised only by the Income Tax Department. On behalf of the Regional Director a stand is taken that the Regional Director has no objection to the Scheme except by pointing out that the Assistant Commissioner of Income Tax, Ahmedabad has raised objections in connection with the tax liability of the appellant Company. On behalf of the Regional Director, a stand was taken before various High Courts before which the company petitions were filed for giving sanction to the Scheme by various other transferor companies to the effect that it has no objection if the Scheme is sanctioned because the Scheme does not appear to be prejudicial to the interests of the shareholders and the public. It is required to be noted that except before this Court and the Delhi High Court, the Income Tax Department has not raised similar such type of objections before any other Court. The Regional Director had not raised any objections qua sanctioning the Scheme on the ground that there is no consideration involved in the transfer or that it is not a Scheme of Arrangement and that Section 391 and 394 of the Companies Act are not attracted, etc. Such objections were not taken by the Income Tax Department be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part II deals with demerger of the Passive Infrastructure Assets of the Transferor Companies into the Transferee Company. Part-III of the Scheme deals with Accounting Treatment in the Books of the Transferor Companies. Part-IV provides General Clauses and Terms and Conditions. Part-V deals with other terms and conditions. We have also gone through various clauses of the Scheme of Arrangement. The Passive Infrastructure Assets are defined as all present and future wireless and broadcast towers that host or assist in the operation of the plant and equipment used for transmitting telecommunication signals, being towers owned and operated by the Transferor Companies situated in India and include any and all towers under construction; all rights, title, deposits and interests in, or over, the land or property on which such towers have been constructed or erected or installed; and all plants and equipments customarily treated by telecommunications operators worldwide as forming part of the Passive Infrastructure Assets. 41. As pointed out earlier, the appellant and all other transferee company is wholly owned subsidiary of the transferor company, that is, Vodafone Essar Gujarat Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s policy of segregation of telecommunication services and telecommunication infrastructure business as per the global trends prevailing as on today. During the course of hearing it has been pointed out that the working group under the Planning Commission has recommended sharing of infrastructure. Keeping the said object in mind if the Scheme has been framed and is approved by the shareholders in their wisdom, in our view, it cannot be said that the Scheme itself is floated with the sole criteria of tax avoidance simply because it may have effect and result into avoidance tax. If the Scheme is evolved by way of an arrangement and with an object of converting the PI assets from non-revenue generating assets; improved network quality and greater coverage etc. Moreover the segregation of telecommunications services and telecommunications infrastructure business reflects the global trend and has been adopted by telecommunication companies in India without objection. In fact, the Working Group under the Planning Commission has recommended sharing of infrastructure, and the present Scheme reserves flexibility to it for easing such process when required. It may be relevant to note that eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cases 538 (Gujarat), this Court was dealing with the Scheme for amalgamation of five subsidiary companies with the holding company. In the said case also there were no secured creditors. No objection was raised to the petitions even after the publication. The Official Liquidator in his report has stated that the auditors appointed for the purpose of scrutiny and investigation of the books of account and affairs of the company had in their report pointed out violation of the provisions of the Companies Act, 1956 and Accounting Standards and evasion of stamp duty and income-tax. The learned Company Judge held that the objections raised by the auditors would not affect the scheme and that sanction to the scheme would not absolve the companies from any liability that may arise in future on violation of any statutory provisions or that the Scheme would not affect proceedings pending either before the civil or criminal courts and the liability that may be inflicted upon the petitioners or their Directors, would not be affected simply by virtue of the Scheme of Amalgamation. In the case of Vodafone International Holdings B.V. v. Union of India and Another, [2012] 1 Comp LJ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whilst not a tax resident in India, holds the underlying Indian assets. The Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the look at test to ascertain its true legal nature. The corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device. In para 45 it has been held that the tax planning may be legitimate provided it is within the framework of law. In the latter part of para 45, it held that colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes without resorting to subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. The following observations of the Honourable Supreme Court in the aforesaid case are relevant for our purpose: "64. Shareholders can enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act. In our view, therefore, the principle of piercing the veil of incorporation can hardly apply to a situation as the one before us. 164. If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the real motive of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o-the-wisp. 166. We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents. 167. In the result, we are of the view that Delhi High Court erred on all counts in quashing the impugned circular. The judgment under appeal is set aside and it is held and declared that the Circular No.789 dated 13-4-2000 is valid and efficacious. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even repeated by all the counsels appearing for both the parties that I need not discuss the same threadbare and it will be sufficient for me to hold that I accept the arguments and contentions of Mr. S. C. Sen, Mr. R. C. Nag and Mr. S. B. Mukherjee on this question which I have set out before. It is premature for the court to judge now whether the business envisaged by the scheme of amalgamation to be carried on in future would become profitable and a success. The court is only to see whether it is feasible having potentiality in the facts and circumstances of this case. In my view, prima facie, I am satisfied that in the present set up and conditions, particularly as it appears from the Report of the Banking Commission, the relevant articles of which I have quoted before, that there is nothing wrong or objectionable in the scheme of amalgamation being put through. In fact, the State of West Bengal appearing before me through Mr. D. P. Gupta is supporting the said scheme so also the Life Insurance Corporation of India and other statutory bodies. I have no hesitation in holding that the business of the amalgamated company is highly potential and conducive to the economy and devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Scheme certain assets are to be transferred without consideration and without transfer of liability in respect thereof. At this stage, it is required to be noted that the proposition that so far as expression of arrangement with members is concerned, it is not defined in the Companies Act. However, in the instant case it cannot be said that the majority of the shareholders wanted confiscate the rights of the objecting minority shareholders. In the instant case no shareholder has raised any objection regarding such an arrangement. There is no question, therefore, of forcing the Scheme on a class of members against their wish. 47. Mr Thakor has placed strong reliance upon the decision of this Court in the case of Wood Polymer ( Supra ). In the said case, Company Petitions Nos. 10 and 12 of 1975 are filed by Wood Polymer Limited and Bengal Hotels Private Limited, respectively, under sections 391(2) of the Companies Act, praying for according sanction to a scheme of amalgamation of the afore-mentioned two companies. Wood Polymer Limited is public limited company and it is the transferee-company. Bengal Hotels Private Limited is a private limited company and is the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings 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 and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4. That all 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 proviso 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 the same. 6. That the proposed scheme of compromise and arrangement is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct its business in an alternative form by dividing telecommunication business and telecommunication infrastructure business in the manner business being carried on by the Appellant, in a manner that the telecommunications infrastructure business would be carried on by the transferee company. The said business will be continued and carried on by substantially the same persons who are presently carrying on the consolidated business since both the transferor and the transferee companies are wholly owned subsidiaries of Vodafone Essar Limited which will continue to carry on the businesses. 51. On perusal of section 394(1) and 394(1)(a) it is evident that both reconstruction and amalgamation are statutorily recognized as an arrangement and/or compromise under section 391. It necessarily implies that once a scheme is a reconstruction, which in the facts of the present case it is, the same is bound to be recognized as an arrangement and/or compromise under section 391. The Income Tax Department, by raising such a contention, is unnecessarily putting restrictions on the language of section 394(1) and section 394(1)(a) which the legislature has not deemed it fit to impose. In Larsen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as it would be clear from the earlier paragraph cannot be equated with expropriation/confiscation/extinguishment of rights of the Income Tax Department. 52. So far as argument of the Revenue that the transfer is void for want of consideration is concerned, it is required to be noted that the Income Tax Department is not a party to the transaction. We agree with the view taken by the Delhi High Court that even if the consideration of one rupee can be said to be a valid consideration. In our view, while examining the Scheme each and every objection of a third party cannot be considered by carrying out microscopic examination. It is also required to be noted that it is not necessary that consideration is always a monetary consideration. In such type of cases wherein the reconstruction involves give and take and mutual/reciprocal promises and obligations, which can be said to be consideration for each other and it cannot be said that there is absolutely no consideration so far as Scheme of Arrangement is concerned. The Court is required to see whether the Scheme in question is for the benefit of shareholders and whether it is framed with the sole object of avoidance of the Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition deed. In short, under the said documents the family transferred to the charity their interest in the usufructuary mortgage, Ex. A-1, in discharge of their obligation to pay the trust a sum of Rs. 36,988-9-8. The High Court, on a consideration of the said documents, arrived at exactly the same finding. The learned Judges of the High Court clearly held that the mortgage interest in Ex. A-1 was transferred in discharge of the liability undertaken under Ex. B-1. When the matter carried in appeal, while dismissing the appeal the Honourable Supreme Court held as under:- "So far as is relevant to the present enquiry, the content of the two definitions is practically the same, though the expression "valuable" is implied under S. 2(d) of the Contract Act, for consideration shall be "something which not only parties regard but the law can regard as having some value". From the definitions it is apparent that consideration may be negative or positive. In the present case the mortgage interest was transferred in trust to the charity. What was the consideration that passed from the charity to the family? The family was under an obligation to pay to the charity the amount set apart to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Region to the proposed Scheme of Arrangement, as well as the submissions of the Income Tax Department, there appear to be no further impediments to the grant of sanction to the Scheme of Arrangement. Consequently, sanction is hereby granted to the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956 while protecting the right of the Income Tax Department to recover the dues in accordance with law irrespective of the sanction of the Scheme. However, while sanctioning the Scheme it is observed that said sanction shall not defeat the right of the Income Tax Department to take appropriate recourse for recovering the existing or previous liability of the transferor company and the transferor company is directed not to raise any issue regarding maintainability of such proceedings in respect of assets sought to be transferred under the proposed Scheme and the same shall bind to transferor and transferee company. The pending proceedings against the transferor company shall not be affected in view of the sanction given to the Scheme by this Court. In short, the right of the Income Tax Department is kept intact to take out appropriate proceedings regarding recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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