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TMI Blog2013 (5) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... dations to achieve Vision 2012 there was one recommendation that sharing of infrastructure of telecom companies must be promoted "so that costs can be kept down." It was also recommended that such share should be incentivized. This was considered essential for rural penetration. In the same report, in Chapter 10 (Recommendations and Suggestions) it was stated under the Sub Head 'Mobile Towers' that "there is an urgent need to bring an appropriate legislation so that the towers are shared by mobile operators resulting in reduction in cost." Under the Sub Head 'Rural Telecom Development' it was recommended that sharing of infrastructure should be promoted to keep the costs low for the provision of rural telephony. 3. On 19th January 2007 VIL was incorporated under the Act with the Registrar of Companies ('ROC'), Maharashtra under the name of Perfect Tribute Impex Private Limited ('PTIPL'). Later the name was changed to Vodafone Essar Infrastructure Private Limited ('Vodafone Essar') on 18th October 2007. On 20th November 2007 Indus was incorporated with the ROC, Delhi and Haryana. ICTIL was incorporated with the ROC, Delhi and Haryana on 3rd December 2007 and BIVL was incorporated w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interests of the parties as well as their respective shareholders and creditors. 6. Clause 2.2.1 provided that upon the Scheme becoming effective on the 'record date' Indus would issue and allot to the equity shareholders of each of the Transferor companies, whose names were registered in the register of members of those Transferor companies on the record date, an aggregate of 1,200 equity shares of Indus of the face value of Re. 1 each credited as fully paid-up in a manner that the shareholding ratio among the shareholders of the first, second and third Transferor companies in Indus, i.e., Transferee company would remain at 42:42:16 ('share ratio'). It was mentioned in Clause 2.2.3 that the share ratio was based inter alia upon the proportion in which Passive Infrastructure Assets ('PIA') were proposed to be contributed by each of the Transferor companies. It has been agreed among the shareholders of both the Transferor and Transferee companies that the PIA proposed to be contributed by them would be evaluated in accordance with a points-based system. It was further stated that the PIA proposed to be contributed by each of the Transferor companies to the Transferee company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fone Essar Limited along with its sister concerns ('Vodafone Entities') and VIL as well as their respective shareholders filed petitions before the Bombay High Court, Calcutta High Court, Madras High Court and this Court for approval of the Scheme of Arrangement to demerge certain PIA owned by Vodafone Entities (hereinafter referred to as 'Vodafone Demerger Scheme') into VIL. The Calcutta High Court approved the Vodafone Demerger Scheme on 28th October 2009 in respect of Vodafone East Limited. On 17th November 2009 the Madras High Court approved the Vodafone Demerger Scheme in respect of Vodafone Cellular Limited. On 17th December 2009 the Bombay High Court approved the Vodafone Demerger Scheme in respect of Vodafone Essar Limited. 9. On 9th December 2010 a learned Single Judge of the Gujarat High Court accepted the objections filed by the Income Tax Department ('ITD'), Ahmedabad and rejected the petition filed by Vodafone West Limited (formerly known as Vodafone Essar Gujarat Ltd.) seeking sanction of the Vodafone Demerger Scheme. Aggrieved by the aforementioned order dated 9th December 2010 Vodafone West Limited filed an appeal before the Division Bench ('DB') of the Gujarat Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders, secured and unsecured creditors. 13. On 9th November 2011 a common order was passed by the learned Company Judge allowing the applications filed by the Transferor companies and the Transferee company. It was directed that a meeting of the unsecured creditors of ICTIL be held. A Chairperson and Alternate Chairperson of the meeting were appointed. Likewise, Indus was directed to hold a meeting of its unsecured creditors and for that purpose the Chairperson and Alternate Chairperson were appointed. Liberty was granted to the Petitioner companies to file a joint petition after the conclusion of the meetings. Pursuant to the above directions, meetings were convened of the unsecured creditors of ICTIL and Indus and the reports of the Chairpersons of the meetings have been placed on record. 14. Thereafter the present petition was filed seeking the reliefs as noted hereinbefore. Pursuant to the notices issued in this petition on 9th January 2012, the Regional Director ('RD'), Northern Region filed an affidavit dated 27th March 2012 stating as under: (i) The Scheme does not mention whether the Petitioner companies have complied with the Accounting Standard ('AS')-14 issued by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even if the appeal is ultimately allowed, that will have no bearing on the matters which are listed before the Company Judge. The matter before the learned Company Judge is now coming up for hearing on 5th October, 2012. It will be for the parties to make their submissions on the aforesaid aspect before the learned Company Judge. The Company Judge, if convinced that two matters are independent, would be free to go ahead with the matter. The application stands disposed of." 18. This Court has heard the submissions of Mr. Rajiv Nayar and Mr. Mihir Joshi, learned Senior counsel for Petitioner Nos.1, 3 and 4, Mr. Gopal Jain, learned counsel for Petitioner No.2, Mr. A.S. Chandhiok, learned Additional Solicitor General of India ('ASG'), Mr. Abhishek Maratha, learned Senior Standing counsel and Mr. Nitin Mehta, learned counsel for the ITD, Mr. Rajiv Bahl and Mr. Manish K. Bishnoi, learned counsel for the OL and Mr. K.S. Pradhan, Deputy ROC. 19. In the first instance, the objections raised by the RD are dealt with. In the affidavit dated 26th March 2012 it is stated by the RD that as per Clause 4.4.1 of the Scheme, all the permanent employees of the Transferor companies would become t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in it by the three Transferor companies. The aggregate number of equity shares held by them were to be issued in the same proportion as contribution of PIA by a ratio of 42:42:16 and therefore, in terms of Clauses 2.2.2 and 2.2.3 of the Scheme there was no requirement for the submission of a valuation report. A perusal of the said clauses substantiates the contentions of the Petitioners that there is no requirement of a valuation report. Clauses 2.2.2 and 2.2.3 of the Scheme read as under: "2.2.2 The aggregate number of equity shares of the Transferee company to be issued pursuant to Clause 2.2.1 above to the shareholders of the Transferor companies has been mutually agreed by the shareholders of the Transferor companies with the Transferee company. 2.2.3 The share ratio is based, inter alia, upon the proportion in which Passive Infrastructure Assets are proposed to be contributed by the First Transferor company, the Second Transferor company and the Third Transferor company, to the Transferee company, namely 42:42:16. It has been agreed among the shareholders of the Transferor companies that the Passive Infrastructure Assets proposed to be contributed by each of the Transferor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or companies to Indus does not arise. Further a perusal of the registration certificates shows that this is a complete compliance under the requirements of the Indian Telegraph Act, 1885. The change of name of the companies has also been duly recorded by the authority issuing the certificates. 26. In a decision dated 6th July 2009 in Co. Petition No. 160 of 2009 [In re: Keane International (India) Private Limited] this Court in similar circumstances noted that there was no third party interest involved in the scheme of merger. The shareholders, secured and unsecured creditors had also given their written consents to the scheme and the share exchange ratio proposed therein. The following passage in the decision of the Bombay High Court in Advance Plastics (P) Ltd. & Dynamic Plastics (P) Ltd. 138 Com Cas 1006 was quoted with approval: "The shares are the properties of the shareholders and they are the ultimate and the best judge of the value they would put on their charges. There is no requirement in the Companies Act, 1956 that in such a case the ratio of exchange has to be determined on a valuation made by a chartered accountant and the auditor. In the present case, no shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Petition No. 334 of 2009 pertain to independent issues. The attention in this regard is drawn to the order passed by the DB of this Court on 11th September 2012 in Company Appeal No. 63 of 2012. 32. It is seen that the said order was passed in an application filed by the Petitioners herein before the DB contending that the present petition is independent of the appeal. In that context, the DB clarified that the said submission should be made before this Court and that "the Company Judge, if convinced that two matters are independent, would be free to go ahead with the matter." 33. The arguments concerning the issue whether both the matters are independent have necessitated the Court having to hear extensive arguments on the merits of the present petition itself. As a result, the Court proposes to deal with the said issue as part of the present judgment, which, it is clarified, is subject to the decision in the appeal pending before the DB. 34. The first substantive objection of the ITD is that no separate notice was issued in the petition to the Central Government as contemplated under Section 394A of the Act which reads as under: "394A Notice to be given to Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also filed its written submissions. 37. The first substantive objection to the Scheme on merits is that the Petitioner companies have suppressed the fact that the Petitioners 1 to 3 had entered into an 'Indefeasible Right to Use Agreement' ('IRU Agreement') with Indus in 2008 with an effective date of 1st January 2009. Under the said IRU Agreement, Indus acquired an exclusive, unrestricted and indefeasible right to use the passive infrastructure until such time it was transferred to Indus by way of one or more Schemes of Arrangement under Sections 391 to 394 of the Act. The ITD accordingly points out that in terms of the IRU Agreement, Indus not only had the operational and physical control but had absolute, complete, unfettered and irrevocable right over the PIA and for all practical purposes the PIA vested in Indus with effect from 1st January 2009. The stand of the ITD is that the Demerger Schemes involving VIL, BIVL and ICTIL and the present Scheme are inter-connected and interdependent. It is pointed out that in 2008 itself it had been contemplated that the PIA should be ultimately transferred to Indus by way of Demerger Schemes under Sections 391 to 394 of the Act as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have fairly admitted that any question of tax liability is within the purview of the income-tax department and that it is free to pursue either the Transferor companies or of the Transferee company, as it may be advised, notwithstanding the sanction of the scheme by this Court. Neither counsel seeks a finding by this Court with regard to the tax implications of the proposed Scheme. It is agreed that the scheme may be sanctioned whilst relegating the parties to the appropriate fora to determine the tax liability, if any, that may arise. No action which may be violative of a statute is being legitimized by approval of the scheme, and the income tax authorities are free to move against any of the parties concerned, in case they are of the belief that there has been any impermissible evasion of payment of tax by the Petitioners. 70. In my view, if the Court is indeed to sanction the scheme, the powers of the income-tax department must remain intact. The authorities relied on by the Petitioners also support this proposition, with the only exception being a situation where the scheme itself has only one purpose, which is to create a vehicle to evade the payment of tax, rather than mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unsecured creditors of the Petitioner and the Regional Director, Western 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 At, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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