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2015 (12) TMI 847 - DELHI HIGH COURT

2015 (12) TMI 847 - DELHI HIGH COURT - TMI - Demerger - date with effect from which demerger is sought to be effected - Held that:- The Format of Notice of Demerger, given in the Rules supra also requires the date with effect from which demerger is sought to be effected to be specified, meaning that the demerger need not be necessarily from the date of the notice and can be from a date prior to or after the date of notice of demerger.

A perusal of the complete Rules, which the counsel .....

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Thus in this regard notice that though Section 25 of the Chartered Accountants Act, 1949 prohibits “company” from practising as a Chartered Accountant but does not contain any such bar against a partnership firm. Rather, the First and the Second Schedule to the Act while stipulating what is professional misconduct describe expressly what conduct as partner of a firm amounts to misconduct. It appears, that in the said spirit, the Rules of Merger and Demerger aforesaid were framed. - W .....

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; Co. Chartered Accountants to M/s Arun Khanna & Associates Chartered Accountants of demerger w.e.f. 1st July, 2015 satisfies the criteria laid down by the Council and that the firm is eligible to demerge the firm w.e.f. 1st July, 2015. The petitioner also seeks a declaration of restoration of his rights as partner of respondent no.2 M/s Sawhney Verma & Co. under the Partnership Deed dated 14th October, 2013. Direction to the respondent no.1 Institute to take disciplinary action against .....

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dent no.1 Institute; (iii) a Partnership Deed dated 14th October, 2013 was also executed between the petitioner on the one hand and the original six partners of respondent no.2 M/s M/s Sawhney Verma & Co.; (iv) that under the said merger, M/s Arun Khanna & Associates ceased to exist and merged with respondent no.2 M/s Sawhney Verma & Co. and of which the petitioner besides its six original partners, became partners; (v) the petitioner on 7th July, 2015 and 13th July, 2015 gave notice .....

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ii) that though the original partners of respondent no.2 M/s Sawhney Verma & Co. had so admitted the petitioner to be a partner till 20th July, 2015 but on 24th July, 2015 gave a notice to the respondent no.1 Institute of de-merger w.e.f. 1st July, 2015 of M/s Arun Khanna Associates from respondent no.2 M/s Sawhney Verma & Co.; (viii) the respondent no.1 Institute has vide impugned letter dated 10th August, 2015 to the petitioner intimated to the petitioner that notice dated 24th July, 2 .....

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o precede demerger. The Merger agreement itself shall contain the terms and conditions for demerger. Therefore no concurrence / acceptance is required from continuing partners. The Merger Agreement shall stipulate that in case 75% or more of the continuing partners of one of the erstwhile firm(s) are willing to demerge then they can do so after giving due notice in Form F to the other partners and to the Institute. (ii) In case 75% or more of the continuing partners of one of the erstwhile mergi .....

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l date of establishment, the date of its merger and the date of the demerger. For the purpose of computing seniority of the firm, the total period will be reckoned from the original date of establishment. (v) The demerger can be demanded within a period of 5 years from the date of merger. 4. The contention of the counsel for the petitioner is that the original partners of respondent no.2 M/s Sawhney Verma & Co., could have given notice of their own de-merger and not of the de-merger of M/s A .....

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in the said period of five years opted to de-merge, resulting in uncoupling of the two merging firms. I have as such enquired from the counsel for the petitioner as to how the effect of the respondent no.2 M/s Sawhney Verma & Co. de-merging would be different from M/s Arun Khanna & Associates de-merging from respondent no.2 M/s Sawhney Verma & Co. Rather, since the merged firm adopted the name of respondent no.2 M/s Sawhney Verma & Co., demerger could only be by uncoupling of M/s .....

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er and de-merger dealing with the said aspect. The Rule which is cited is not shown to have been violated by the de-merger approved of by the respondent no.1 Institute. 8. The counsel for the petitioner has also contended that respondent no.2 M/s Sawhney Verma & Co. has indulged in forgery by de-merging w.e.f. 1st July, 2015. 9. It is not in dispute that notice given by the original partners of respondent no.2 M/s Sawhney Verma & Co. to the respondent no.1 Institute is dated 24th July, 2 .....

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ndent no.1 Institute of accepting the de-merger, therefore has no merit. 11. The petitioner, with respect to the partnership disputes, would have his remedies in accordance with law. 12. The petition is dismissed. 13. I have however before signing this order examined the Rules of NETWORK AND Merger - Demerger Amongst The Firms Registered With The Institute Of Chartered Accountants OF INDIA available on the website of Institute of Chartered Accountants of India. The same are divided into two part .....

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Concept of Merger & Demerger: (i) The Partnership Act has not prescribed merger & demerger of partnerships. In the corporate world, merger and demerger have become universal practices for securing survival, growth, expansion and globalization of enterprise and achieving multitude of objectives. Merger is the fusion of two or more existing companies. On the other hand, demerger signifies a movement in the company just opposite to merger. "Demerger‟ is also used to describe spi .....

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ruary, 1999 and in 223rd Meeting held from 2nd to 5th February, 2002 considered the Seniority and Mergers of the firm and implications of the decisions, are enclosed in Tabular form. (iii) In order to have an orderly and sustainable growth of the CA firms, it is desirable that the coming together of the firms begins with networking and then matures to mergers. Networking will enable the firms to develop working relationships with each other. However, it is not to suggest that there cannot be mer .....

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(ii) Upon the merger of the firms, the Institute will freeze the names of the merging firms and shall not allot the same names to any other firm. 14. Thereafter, is Rule 4 titled Demerger already reproduced above. After Rule 4, are the Council Decision on change in Firm name / Seniority of Firms, the Format of Merger Agreement and the Format of Notice for Demerger. Clauses 1 to 5 of the Format of Merger Agreement are as under: 2.And in case 75% or more of the continuing partners of one or more e .....

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ll be the date of demerger. 4. That to effectuate such demerger, no concurrence/acceptance is required from the other continuing partners of the merged firm. The partners of such demerged firm shall execute a partnership deed. The merged firm as well as the demerged firm shall submit fresh Form 18 as prescribed under the Chartered Accountants Regulations, 1988 to the Institute within the prescribed period. 5. In case of 75% or more of the continuing partners of one of the erstwhile merging firm .....

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