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2015 (4) TMI 307 - PUNJAB & HARYANA HIGH COURT

2015 (4) TMI 307 - PUNJAB & HARYANA HIGH COURT - TMI - Application for approval of Scheme of Arrangement under Section 391-394 of the Companies Act,1956 - Objections received from Sales promotion employees of transferor company and one Unsecured creditor - Observations made by Official Liquidator and Regional Director - Held that:- It was submitted that it does not dispute the locus of employees, who filed the applications. He submitted that it is a small group of 750 employees out of total 1300 .....

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no locus to file the application.

In the report of the Official Liquidator, it has been stated that the Scheme of Arrangement is prejudicial to the interest of revenue and public at large, as the Scheme is designed to set off “Carry Forward and Set Off Accumulated Losses and Unabsorbed Depreciation” of the Transferor Company against profits of the profit making Transferee Company. The Scheme was sent to the Income Tax Department. No comments have been received. In case it is legally p .....

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y the Transferor Company.

A perusal of the order passed by the Commission shows that exhaustive exercise was carried out to find out the effect of merger on the public at large. The Commission has issued comprehensive directions in consonance with the provisions of the Competition Act, which are to be complied with by the Transferor / Transferee Companies.No doubt, the Commission has taken full care of the interest of the consumers of the medicines manufactured by both the companies, .....

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A Nos. 963-964 of 2014 , and CP No. 165 of 2014 (O&M) - Dated:- 9-3-2015 - Hon'ble Mr. Justice Rajesh Bindal,J. For the Petitioner : Mr. Anand Chhibbar, Senior Advocate with Mr. Jasmeet Singh Bhatia, Advocate, Mr. Tarun Dua, Advocate, Mr. Gaurav Mankotia, Advocate, Mr. Piyush Prasad, Advocate and Ms. Srishti Maheshwari, Advocate, for the petitioner- company. Mr. Ashok Aggarwal, Senior Advocate with Mr. M. P. S. Mann, Advocate, for the Transferee Company. Mr. Akshay Bhan, Senior Advocate with .....

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e of Arrangement (Annexure P-1) between the aforesaid Transferor Company with the Transferee Company. 2. This is the second motion petition. 3. It is averred in the petition that the registered office of the Transferor Company is situated at Mohali (Punjab), and registered office of the Transferee company is situated at Vadodara (Gujarat). 4. The Board of Directors of the M/s Ranbaxy Laboratories Limited (Petitioner-Transferor-Company) and M/s Sun Pharmaceutical Industries Limited (Transferee-Co .....

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ditors was allowed by this Court considering the fact that the petitioner Transferor company has 18 secured creditors, out of which 16, constituting 93.39% in value, had given their consent/no objection to the Scheme. Out of 7428 unsecured creditors, 65 constituting 88.79% in value, had also given no objection and consent to the scheme. Mr. Harkesh Manuja, and Ms. Puneeta Sethi, Advocates were appointed, as Chairman and Co- Chairperson, respectively, to convene the meeting of the equity sharehol .....

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. There were 30 members present personally. Out of the 236 shareholders, 33 abstained from voting. After polling, it was found that in all 203 ballots were polled, out of which 195 were found to be valid and 8 were found to be invalid. The invalid ballot papers 8 in numbers were pertaining to 48,184 shares, having value of ₹ 2,40,920/-. Out of 203 equity shareholders present and voting, 190 voted in favour of the Scheme of Arrangement, representing value of ₹ 1,42,37,91,500 i.e. 99.6 .....

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representative/ proxies folio wise who voted against the resolution: 5 2.5641 (c) Total Number of Members (folio wise who cast valid votes) 195 100 In value of shares Sr. No. Particulars In value % (a) Votes 'For' 1,42,37,91,500 99.6951% (b) Vote 'Against' 43,55,115/- 0.3049% (c) Total Valid Votes Cast 1,42,81,46,615 100 7. Vide order dated 29.9.2014, considering the fact that the Scheme has been approved by the majority of the equity shareholders, the first motion petition was d .....

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this effect has been placed on record. 9. Vide CA Nos. 963-964 of 2014 and CA No. 64 of 2015, two objections have been filed, which are being dealt with first before dealing with the case of the petitioner on merits. OBJECTIONS FILED AGAINST ACCEPTANCE OF SCHEME OF ARRANGEMENT . CA Nos. 963-964/2014 10 The present applications have been filed by Sales Promotion Employees working with the Transferor Company through the Federation of Medical and Sales Representatives' Associations of India. 1 .....

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Limited only and not its subsidiary or associates. Same is the position with the Transferee Company, still in clause 13(b) of the Scheme of Arrangement, it has been mentioned that employees could be transferred to even the subsidiary of the Transferee Company. Such a transfer could be to a small time defunct company which can spoil the career of the applicants. He further submitted that the Transferor Company had recognised certain Negotiating Committees. Those committees should be allowed to co .....

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een filed by Genepharm S.A. Greece, one of the unsecured creditor, claiming that no notice was ever served upon it as firstly it was one of the creditors and secondly there was a licence and supply agreement dated 11.6.2012 executed between the parties which could not be assigned by either party without prior consent of the other. In the present case, the consent of the objector was not sought prior to filing of the petition for arrangement or any time thereafter. Communication was sent by Ranba .....

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ployees, who filed the applications. He submitted that it is a small group of 750 employees out of total 13000- 14000. All the rights of the existing employees of the Transferee Company have been fully protected under Clause 13 of the Scheme of Arrangement. It has been specifically mentioned therein. The apprehensions sought to be raised are totally misconceived. The transfer of the employees shall be strictly in accordance with terms of their appointment and so is the salary and other benefits. .....

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Act, there could be wage reduction as well, however, that right has been foregone by the Company for a period of one year. The Scheme is to be read in totality and no provision has to be read in isolation. There is no intention to reduce the wages of any of the employee. He has even filed affidavit dated 11.2.2015 of Ashok I. Bhuta, authorised person of Sun Pharmaceutical Industries Limited stating that if either Clause 13 (a) of the Scheme of Arrangement or the law does not permit, there will n .....

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n accordance with the terms and conditions of employment and subject always to applicable law, hence, the apprehension is totally baseless. 16. As regards the objections filed by Genepharm S.A., learned senior counsel for the Transferor Company submitted that the objector was one of the unsecured creditor to the extent of ₹ 17,86,276.80. A sum of Euro 45,000 were paid to the objector in June, 2014, which cleared entire debt due against the transferor company. Once it was not the creditor o .....

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party. 18. He further submitted that amount sought to be claimed for which a legal notice dated 21.1.2015 was issued by the objector is merely a claim of damages as assessed by the objector. The same has not been adjudicated upon by any Court. If any such claim is maintainable against the Transferor Company and the objector raises the issue in any Court of law, the Transferee Company shall defend the same and bound by the result thereof. Before adjudication by any Court to the extent the amount .....

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ed, a company registered under the Act and having its registered office at SPARC, Tandalja, Vadodara - 390020, Gujarat, India; (v) 'Undertaking' shall mean the entire business and the whole of the undertakings of the Transferor Company as a going concern, all its assets, rights, licenses and powers, and all its debts, outstandings, liabilities, duties, obligations and employees as on the Appointed Date including, but not limited to, the following: (i) All the assets and properties (wheth .....

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g material, raw materials, formulations, tablets, capsules, vials, ointments, active pharmaceutical ingredients and drugs intermediaries, capital work in progress, sundry debtors, furniture, fixtures, interiors, office equipment, vehicles, appliances, accessories, power lines, depots, deposits, all stocks, stocks of fuel, assets, investments of all kinds (including shares, scripts, subsidiaries, stocks, bonds, debenture stocks, units or pass through certificates) including shares or other securi .....

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s or under any guarantees, reversions, powers, bids, tenders, letters of intent, expressions of interest, development rights (whether vested or potential and whether under agreements or otherwise), municipal permissions, tenancies or license in relation to the office and /or residential properties (including for the employees or other persons), guest houses, godowns, warehouses, licenses, fixed and other assets, intangible assets (including but not limited to software), trade and service names a .....

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ng tax benefits), assets held by or relating to any Transferor Company employee benefit plan, export incentives accrued, derivative instruments, forward contracts, insurance claims receivable, tax holiday benefit, incentives, credits (including tax credits), minimum alternative tax credit entitlement tax losses, rights, easements, privileges, liberties and advantages of whatsoever nature and wheresoever situate belonging to or in the ownership, power or possession and in the control of or vested .....

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ations, tax deferrals and benefits, subsidies, concessions, grants, rights, claims, leases, tenancy rights, liberties, special status and other benefits or privileges and claims as to any patents, trademarks, designs, quotas, rights, engagements, arrangements, authorities, allotments, security arrangements, benefits of any guarantees, reversions, powers and all other approvals of every kind, nature and description whatsoever relating to the Transferor Company business activities and operations. .....

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regulations thereunder, or taxation laws of other countries, or any other or like benefits under the said acts or under and in accordance with any law or act, whether in India or anywhere outside India. xx xx xx (vii) All other obligations of whatsoever kind, including liabilities of the Transferor Company with regard to their employees, or the employees of any of their subsidiaries, with respect to the payment of gratuity, pension benefits and the provident fund or other compensation or benefi .....

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ctually as if the same had been originally instituted and/ or pending and/ or arising by or against the Transferee Company. (b) The Transferee Company will undertake to have all legal or other proceedings initiated by or against the Transferor Company referred to in Section 5(a) above transferred to its name and to have the same continued, prosecuted and enforced by or against the Transferee Company. xx xx xx xx 13. TRANSFEROR COMPANY EMPLOYEES (a) Upon the Scheme coming into effect and with eff .....

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y. The Transferee Company undertakes to continue to abide by any agreement/ settlement, if any, validly entered into by the Transferor Company with any union/employee of the Transferor Company recognized by the Transferor Company. (b) Without prejudice to the provisions of this Scheme and the rights and obligations of the Transferee Company under applicable law, for a period of 12 months after the Scheme comes into effect, (the "Relevant Period"), the Transferee Company shall provide ( .....

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ase in a Transferred Employee's base salary or base wage rate in effect immediately prior to the Scheme coming into effect. To the extent that: (i) the applicable law of any jurisdiction; (ii) any collective bargaining agreement, works council agreement or similar agreement; or (iii) any employment agreement would require the Transferee Company to provide any more favorable terms of employment to any Transferred Employee than those provided in the preceding sentence, the Transferee Company s .....

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rangement and further they may be transferred to some insignificant companies. 22. In my opinion, though in clause 13(a) and (b) of the Scheme of Arrangement, the interest of the employees of the Transferor Company has been fully taken care of, but still to clarify the issue further affidavit dated 11.2.2015 of Ashok I. Bhuta, authorised person of Sun Pharmaceutical Industries Limited has been filed undertaking therein that Clause 13 (b) of the Scheme of Arrangement shall not be used as an instr .....

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fect, there shall be no decrease in a Transferred Employee's base salary or base wage rate from the base salary or base wage rate which was applicable immediately prior to the Scheme coming into effect. Thus, the Transferred Employees are protected during the Relevant Period from any reduction in their base salary or base wage rate. This provision is without prejudice to the provisions of this Scheme and the rights and obligations of the Transferee Company under applicable law. If either Sch .....

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submits and undertakes that it shall not use the Hon'ble Court's sanction to the Scheme including clause 13(b) of the Scheme as an instrument to reduce the base salary or base wage rate of the Transferred Employees, and any variation (increase or reduction) in the base salary or base wage rate of Transferred Employees after the Relevant period will be in accordance with the terms and conditions of employment, and subject always to all the extant laws including labour laws in this regard .....

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ntire share holding of the Transferor Company in other companies in which the Transferor Company has majority share holdings, automatically gets transferred to the Transferee Company and as a result thereof change to that extent will be affected which is a natural consequence, hence, nothing hinges on that. CA No. 73/2015 25. The objection sought to be raised by Genepharm S.A. Greece, is that it is one of the unsecured creditor of the Transferor Company and further that it has to recover a sum o .....

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ought vide letter dated 4.12.2014 after the entire exercise had already been done by the Transferor Company. Ranbaxy (U.K.) is the subsidiary of the Transferor company. 26. The case set up by the Transferor Company is that in terms of Clause 16.6 of the Licence and Supply Agreement, the agreement remains binding on the parties despite any change of management control on either party and further in Clause 21 thereof there is an arbitration clause for settling the dispute, if any, arising out of t .....

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one into by any court of law. As per the scheme of Arrangement, the Transferee Company steps into the shoes of the Transferor Company and will defend and settle the claim, if any, as per law. The relevant clauses of the Licence and Supply Agreement dated 11.6.2012 entered into between the Transferor Company and the applicant - Genepharm S.A. Greece, are extracted below:- 14. ASSIGNMENT 14.1 This Agreement may not be assigned by either Party without the prior written consent of the other, such co .....

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icably. Any disputes which cannot be resolved in this way within sixty (60) days of one Party notifying the other of the existence of a dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The arbitration shall be conducted in English in London. 28. Similar Clauses are there in the agreement signed by Ranbaxy (U.K.) with the applicant. Clause 14 of the Agreement provides th .....

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management of the Parties with an attempt to resolve the same. If the dispute cannot be resolved within sixty (60) days, the matter shall be referred to Arbitration. The place of arbitration has been chosen as London. 29. Considering the aforesaid clauses, in my opinion, the objections filed by the applicant that its prior consent was required for giving effect to the scheme of Arrangement between the Transferor and Transferee Companies is not tenable. In case the applicant is aggrieved, comple .....

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he amount due to it, as on 31.3.2014 was ₹ 17,86,276.80. To settle the account a sum of Euros 45,000 were transferred in the account of the applicant in June, 2014, hence, nothing was due. As regards the claim of Euros 15,37,619.80 on account of damages is concerned, the same is the amount claimed by the applicant vide legal notice dated 21.1.2015. It is yet to be determined by any authority or the Court of law. In terms of Clause 5 of the Scheme of Arrangement, upon coming into effect of .....

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ove transferred to its name and to have the same continued, prosecuted and enforced by or against the Transferee Company. The Transferee Company is bound by the result thereof, even if the cause of action arose to a party prior to the effective date. 31. For the reasons mentioned above, the objections raised by the applicants to the Scheme of Arrangement are not tenable. Hence, the same are dismissed. CP No. 165/2014 ON MERITS 32. Pursuant to the notice of second motion petition, the Official Li .....

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ounting Standard 14 -" Accounting for Amalgamation" (AS-14) as notified under the Companies Act, 1956 (which continue to be applicable in respect of section 133 of the Companies Act, 2013 in terms of General circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs), the accounting treatment in respect of assets, liabilities and reserves and surplus of the Transferor Company in the books of the Transferee Company shall be governed by, the provision of AS-14, " .....

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to submit that as stated by ROC the valuation report has been prepared by Walker Chandilok & Co LLP and Method of Valuation adopted is Net Asset Value Method, Market Price Method. 7. That the Deponent craves leave to submit that with reference to this Directorate's letter dated 10.12.2014 issued to Securities and Exchange Board of India copy enclosed as "Annexure- A", the SEBI has furnished its comments stating as under:- i. It is noted that the Designated Stock Exchange' v .....

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e submission of documents/information in accordance with the Circulars, to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial soundness of any scheme or for the correctness of the statements made or opinions expressed in the documents submitted. 8. That the Deponent craves leave to submit with reference to this Directorate's letter dated 18.11.2014 issued to the Registrar of Comp .....

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se of 31" day of March, 2014, shall be, in the books of the Transferor Company, adjusted/reduced as follows in accordance with provisions of section 391 to 394, section 78 and 100 to 103 of the Companies Act, 1956 and Section 52 of the Companies Act, 2013 and any other applicable provisions of law: (a) Firstly, against reduction of Capital Reserve Account of the Transferor or Company amounting to INR 176.20 Crore. (Rupees One hundred Seventy Six corers and twenty lacs only). (b) Secondly, a .....

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pany shall be carried in the books of the Transferor Company as on 31' March 2014. 33. The Official Liquidator in his report dated 30.1.2015 while referring to the observations made by the Chartered Accountant in audit report has submitted that the Scheme is designed to set off Carry Forward Accumulated Losses and Unabsorbed Depreciation of the Transferor Company against profits of the Transferee Company which is prejudicial to the interest of revenue and the public at large. 34. In the subm .....

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ceived. Meaning thereby that the Income Tax Department has no objection. 35. With reference to the facts stated in para 7 of the affidavit filed by the Regional Director, the Transferor Company, while stating that the Scheme is strictly in accordance with the law and is not prejudicial to public interest, submitted that the Transferor Company shall comply with all the legal requirements, whichever applicable. 36. To the observations made by the Registrar of Companies in his communication dated 9 .....

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be strictly adhered to. The observations were totally uncalled for. In fact after Scheme of Arrangement comes into effect, more revenue will be generated. 38. Heard learned counsel for the parties and perused the paper book. 39. As far as the issue raised by the Regional Director in his affidavit, the Transferor Company has clarified that the Scheme has been prepared in terms of Accounting Standard-14. Copy of the Scheme was sent to the Chief Commissioner of Income Tax, Chandigarh. However, no .....

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making Transferee Company. The Scheme was sent to the Income Tax Department. No comments have been received. In case it is legally permissible for the Transferor Company to carry forward and set off all the losses, it shall be entitled to the benefit in case the law does not put a restriction thereon. 42. Certain other issues have been raised in the report of the Official Liquidator in terms of the comments made by the Chartered Accountant in its report. Those are pertaining to certain losses s .....

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ransferor and Transferee Companies under Section 6(2) of the Competition Act. The Scheme of Arrangement was submitted for approval to the Commission. Certain queries raised by the Commission were replied to and the information was furnished. Prima facie, the Commission in its meeting held on 7.7.2014 found that the proposed combination is likely to cause an appreciable adverse effect on competition in the relevant markets in India. Hence, the notice was issued to the parties under Section 29(1) .....

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anies. 45. No doubt, the Commission has taken full care of the interest of the consumers of the medicines manufactured by both the companies, however, still as an abundant caution, it is added that during the period the entire process of Divestment is completed, the monitoring agency shall also monitor the prices of the drugs manufactured by the combined entity. 46. The petitioner- company has confirmed that there are no investigations or proceedings pending against it under Sections 235 to 251 .....

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