TMI Blog2013 (5) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of Section 2(19AA) of the Income Tax Act, 1961, was to be transferred to IRTL and for this reason only the respondent had not paid any capital gains tax on the said transfer; that under the said transfer, the properties of the Undertaking being transferred as a going concern, would also stand transferred; that the assets including the housing colony occupied by the workers of IRTL, qua which the application was filed were the assets of the Undertaking of the spinning business; however the Scheme did not mention or refer to the said assets and thus the Scheme was liable to be modified to make it Section 2(19AA) compliant. Held that:- The filing of the application u/s 392(1)(b) by the appellant after nearly three years of acquiring the said spinning business by purchase of shareholding of IRTL is nothing but an act of greed and arm twisting the respondent to continue allowing the appellant to use the said assets. A change of shareholding of a Company which has in law been conferred the status of a juristic person, does not entitle the company to wriggle out of past commitments/representations. Thus, modification sought by the appellant is against the fabric of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant before the learned Company Judge that under the Scheme sanctioned by this Court the Undertaking of the spinning business, as a going concern within the meaning of Section 2(19AA) of the Income Tax Act, 1961, was to be transferred to IRTL and for this reason only the respondent had not paid any capital gains tax on the said transfer; that under the said transfer, the properties of the Undertaking being transferred as a going concern, would also stand transferred; that the assets including the housing colony occupied by the workers of IRTL, qua which the application was filed were the assets of the Undertaking of the spinning business; however the Scheme did not mention or refer to the said assets and thus the Scheme was liable to be modified to make it Section 2(19AA) compliant. 5. The learned Company Judge held, (i) that a reading of the Scheme of Arrangement sanctioned on 27th February, 2003 as a whole showed that the housing colony as well as the common utilities were specifically agreed to be retained and owned by the respondent; (ii) that the properties, buildings and assets that were transferred to IRTL were specifically mentioned; (iii) that the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequences for the respondent only; (x) that compliance with Section 2(19AA) cannot be read as a mandatory requirement for all Schemes of amalgamation/arrangement/demerger under Sections 392, 393 and 394 of the Companies Act; (xi) that what the appellant is wanting is re-writing of the Scheme of arrangement which is impermissible under Section 392(1)(b) of the Companies Act; (xii) that when the Scheme was sanctioned in the year 2003, the respondent as well as IRTL were both managed by the same group but the position had since changed; accordingly, Clause 36 of the Scheme providing for arbitration of disputes by the named Arbitrator was modified to provide for arbitration of the disputes by Arbitrator appointed with the consent of the parties. 6. The senior counsel for the appellant has, (a) taken us through Section 2(19AA) of the Income Tax Act and contended that the test to be complied is whether all the properties of the Undertaking which is to be transferred as a going concern, are being transferred or not and which would include all the properties which the Undertaking has been using till then; (b) contended that the housing colony though situated on leasehold land in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be re-written but has by modifying the arbitration clause re-written the Scheme; (o) argued that the learned Company Judge ought to have amended the arbitration clause in the MoU also, and without the same, the amendment of the arbitration clause in the Scheme does not serve any purpose; reference is made to Rustom Cavasjee Cooper Vs. Union of India (1970) 3 SCR 530 holding essential staff to be part of Undertaking and it is argued that the same principle would apply to housing colony also; (p) argued that the jurisdiction of the Company Court under Section 392(1)(b) is original jurisdiction; (q) contended that the arbitration commenced by the respondent have either to be stayed or the award therein to be set aside for the reason of the arbitration clause in the Scheme having been modified; attention is invited to Section 2(47) of the Income Tax Act defining transfer‟; (r) contended that the learned Company Judge without making any enquiry whether the housing colony and the utilities are part of business of the Undertaking which was transferred, could not have said whether it was part of the undertaking which was transferred or not; (s) contended that the learned Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act defining business and Section 211 (3A) of the Companies Act and the Accounting Standards formulated by the Institute of Chartered Accountants which define the expression going concern‟; (xiii) stated that foreseeable future has been defined as one year; more than ten years have gone by since the demerger aforesaid and the undertaking of the demerged entity continues to function; (xiv) stated that the balance sheet of the appellant also does not show that the same is not a going concern; (xv) argued that the balance sheet of the first year of the IRTL after amalgamation states that the same has been prepared by following the accounting standards; (xvi) argued that even Section 2(19AA) does not require all the properties of the undertaking to be transferred and only the property being transferred is required to be property of the transferee; (xvii) contended that the swap ratio of the shares was decided on the basis of the valuation of the assets which were being transferred and in which the housing colony was not included; (xviii) stated that in the Scheme, the assets which were being transferred were mentioned and all the other assets remained with the respondent; (x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the appellant has also handed over a compilation of judgments but since no specific reference thereto was made during the course of hearing except to Meghal Homes (P) Ltd. Vs. Shree Niwas Girni K.K. Samiti (2007) 7 SCC 753 and S.K. Gupta Vs. K.P. Jain (1979) 3 SCC 54, we do not deem it expedient to burden this judgment with the same. 10. We have bestowed our thoughtful consideration to the rival contentions aforesaid. We agree with the reasoning given by the learned Company Judge in the detailed judgment and do not feel the need to reiterate the same and proceed to give only our further analysis of the controversy. 11. Shorn of legalese, the contention of the appellant is that:- A. though administrative block, SOC Building, Heath Centre, Septic Tank and Sock Pit, Fire Hydrant System, Invertors Chilled Water Plant, Sewage Treatment Plant, Communication System, Computer and Office Equipment and certain other equipment all valued at Rs.8,44,38,916/- and staff and worker colony, DG Set, Electricity sub-Station, Chillers, Part of Administrative block to be completed and Security Barracks valued at Rs. 61,30,56,983/- i.e. total of Rs.69,74,95,899/- were also being used fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are so essential to the running of the spinning business so as to make the absence of the same fatal to the running of the said business. 14. Our opinion is clearly no. 15. The filing of the application under Section 392(1)(b) by the appellant after nearly three years of acquiring the said spinning business by purchase of shareholding of IRTL is found by us to be nothing but an act of greed and arm twisting the respondent to continue allowing the appellant to use the said assets. We fail to see, as to how the appellant who had earlier represented to this Court that the assets aforesaid were not essential to the running/operation of the spinning business, can now be heard to the contrary. A change of shareholding of a Company which has in law been conferred the status of a juristic person, does not entitle the company to wriggle out of past commitments/representations. Merely because over the years, the shareholders of the predecessor of the appellant have changed and the predecessor has been amalgamated with the appellant and control and management of the appellant is now with different persons does not entitle the appellant to take a different stand from that taken before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable and it was held that as long as the possibility to run the business remains from alternative sources, it cannot be said that the demerged business has become unviable. 21. Even otherwise, the modifications which the Court can carry out are only to be for the proper working of the Scheme and not for any other purpose and the Court cannot change the basic fabric of the Scheme. A modification for the proper working of the Scheme is distinct from a modification of the Scheme itself and what is permissible under Section 392(1)(b) is the former and not the latter. 22. We are of the view that the modification sought by the appellant is against the fabric of the Scheme and in the domain of modifications of the Scheme and not of modification for working of the Scheme. 23. As far as Section 2(19AA) of the Income Tax Act, on which the entire argument of the appellant hinges, is concerned, we agree with the respondent that for the Court to sanction a Scheme of demerger, compliance of Section 2(19AA) is not essential. The reference to Section 2(19AA) in the Scheme is only for the purpose of making the transaction tax neutral. The same cannot be said to be a pivot around which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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