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2015 (8) TMI 238 - BOMBAY HIGH COURT

2015 (8) TMI 238 - BOMBAY HIGH COURT - TMI - Composite scheme of arrangement and amalgamation – Regional Director, Ministry of Corporate Affairs opposed scheme as rule that transferee company only can allot shares towards consideration of transfer, and not any other person was not in consonance with section 394 of Companies Act, 1956 – Held that:- Clauses (i) to (vi) of Section 394(1), were merely enabling provisions and cannot be construed as compulsory in nature – Company Court, while sanction .....

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of transferor company–Scheme of arrangement making provisions for consideration in terms of allotment of shares of companies other than transferee companies approved – Petition allowed – Decision of Miheer Mafatlal vs. Mafatlal Industries Ltd. [1996 (9) TMI 488 - SUPREME COURT OF INDIA], Pantaloon Retail (India) Limited Company [2010 (8) TMI 921 - BOMBAY HIGH COURT]followed – Decided in favour of petitioner.

Composite scheme of arrangement and amalgamation – Regional Director, Ministr .....

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all prevail and scheme shall stand modified – Also sanction of scheme, does not bind Income-tax Department to take any particular view of scheme of arrangement insofar as tax implications of transaction were concerned. - Company Scheme Petition No. 99 of 2015, Company Summons For Direction No. 892 of 2014, Company Scheme Petition No. 100 of 2015, Company Summons For Direction No. 891 of 2014 - Dated:- 2-7-2015 - S. C. Gupte, J. Mr.Janak Dwarkadas, Senior Advocate with Mr.Rohan Rajadhyaksha i/b. .....

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another resulting company (Resulting Company No.2), and their respective shareholders and creditors. 2. The transferor company, i.e. SHRIL, is a listed public company engaged in the business of vacation ownership and leisure hospitality. The company is primarily engaged in time share, resort business and holiday activities. The two transferee or resulting companies, namely, TCISIL and TCIL, are respectively engaged in the business of corporate agency for travel insurance, and integrated travel .....

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dertaking of SHRIL (i.e. exclusive of the demerged undertaking) with TCIL as a going concern. After demerger and amalgamation as aforesaid, the scheme envisages dissolution of SHRIL on and with effect from the effective date. The consideration of the demerger and amalgamation, respectively, is allotment of 116 equity shares of TCIL of Re.1/- fully paid up for every 100 equity shares of SHRIL of ₹ 10/- fully paid up and 4 equity shares of TCIL of Re. 1/- to be paid up for every 100 equity s .....

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the ground that having regard to the provisions of Section 394 of the Companies Act, only a transferee company can allot shares towards consideration of transfer, and not any other person, whereas for demerger and transfer of the undertaking of the resort business of SHRIL in the present case, the shares, namely, 116 equity shares of Re.1/- for every 100 shares of ₹ 10/- of SHRIL, have been allotted by TCIL, which is a parent company of the transferee company, namely, TCISIL. It is submitt .....

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sel is present on notice and also supports the objections raised by the Regional Director with reference to the provisions of the Income-tax Act. 4. Mr.Mehta, learned Senior Counsel appearing for the Regional Director, submits that the scheme in the present case consists of two separate parts, Part B consisting of demerger and Part C consisting of amalgamation. It is submitted that each of these parts must separately satisfy the requirements of law insofar as the arrangement is concerned. It is .....

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ubmits that the scheme, thus, being against the provisions of the Companies Act, ought not to be sanctioned by this Court. Mr.Mehta further submits that the demerger contained in the present scheme is not a demerger within the meaning of Section 2(19AA) of the Income-tax Act read with Section 2(19AAA) and 2(41A). Mr.Mehta submits that it is stated in the scheme that the scheme complies with all provisions of the Income-tax Act and this statement is not correct, since the demeger contemplated in .....

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tset, we may deal with the objections raised with reference to the provisions of the Income-tax Act. It is firstly to be noted that there is no prohibition contained in the Income-tax Act to a scheme such as the one proposed here. It is merely that if a scheme of arrangement, which is otherwise permissible both under the Companies Act and the Income-tax Act, does not amount to 'demerger' within the meaning of the Income-tax Act, it may have certain tax implications for the companies in q .....

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tand modified to the extent, if necessary, to comply with Section 2(19AA). It is thus very clear that the framing of the scheme and the corresponding sanction by this Court do not in any way prejudice the application of Section 2(19AA) of the Income-tax Act 1961. In any event, by sanctioning the present scheme, this Court is not in any way accepting the company's case that the scheme, as framed, complies with the provisions of 'demerger' within the meaning of 2(19AA). In fact, this C .....

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referred to above. 6. Coming now to the main objection of the Regional Director to the present scheme, namely, its non-compliance with Section 394 of the Companies Act, it is pertinent to note at the very outset that provisions referred to in Clauses (i) to (vi) of sub-section (1) of Section 394, which the Court may make whilst sanctioning a scheme, are merely enabling provisions. The Company Court, while sanctioning the scheme, may or may not make any of the provisions contained in Clauses (i) .....

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of the scheme, then the company court while sanctioning the scheme may make appropriate provision in respect of such allotment or appropriation. It is not that in every case the consideration for transfer of an undertaking as part of a scheme of arrangement must come in the form of an allotment of shares of a transferee company or for that matter allotment of any shares. The consideration for such transfer can be any legitimate consideration, which the transferor is entitled to accept for contra .....

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or reject such consideration. That is the principle of the decision of the Supreme Court in the case of Miheer Mafatlal vs. Mafatlal Industries Ltd. 1997 (1) SCC 579. 7. It is not the case of the Regional Director that there is any harm to public interest insofar as the transfer proposed in the scheme, or the consideration provided therefor, is concerned. In fact, the Regional Director makes it clear that there is no harm to public interest insofar as the present scheme is concerned. If that is .....

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scheme of arrangement between Pantaloon Retail (India) Limited and two resulting companies, Future Mall Management Limited ('FMML') and Future Merchandising Limited ('FML') and their respective shareholders and creditors, wherein FMML alone issued shares to the shareholders of the demerged company. Similarly, in the case of Keva Aromatics Private Limited Company Application No.455/2013 decided on 10.12.2013 amalgamation and arrangement between Kelkar Investment Company Pvt.Ltd. .....

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