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TMI Blog2016 (5) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... te limited company and is engaged in four different activities, namely, Knitting, Processing, Investment activities and Generation of Power using windmill. Zenitex Mill Private Limited, the Resulting Company is a newly incorporated company with an objective of processing of cloth on job work basis and generation of power using windmill. Since it is newly incorporated company, by way of its merger with the Processing and Windmill Divisions of the Demerged Company, divisions with similar objects, it would be able to focus on its core business in an efficient and effective manner. 3. It has been further pointed out that both the Companies in the Scheme of Arrangement belong to the same group of management. Zenith Silk Mills Private Limited viz. the Demerged Company is engaged in four different activities, namely, Knitting, Processing, Investment activities and Generation of Power by windmill. In order to grow beyond the obvious, Zenith Silk Mills Private Limited is aggressively pursuing a policy of expansion and diversification. It has proposed the present demerger of its Processing and Windmill Divisions into Zenitex Mill Private Limited. In order to achieve efficiency of operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors, approving the proposed Scheme and confirmation of the same by the certified Chartered Accountant, being placed on record. There are no Secured Creditors of the Resulting Company. 6. The attention of the Court was drawn to Clause 14 of the Scheme, where the restructure of Equity Share Capital of the Demerged Company is proposed. The proposed reduction is essentially consequential and is proposed as an integral part of the Scheme. The interests of the creditors of the Demerged Company are not in any way affected by such reduction. It has been submitted that the reduction of the Equity Share Capital does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paidup share capital. Further it is also pointed out that the approval granted to the present Scheme by the Equity Shareholders of the Demerged Company, in form of the consent letters, shall be treated as the Special Resolution as required under Section 100 of the Companies Act, 1956. In view of the said submission, vide the above referred order dated 28th September 2015, the procedure prescribed under Section 101(2) of the Companies Act, 1956 and under Rules 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional affidavit dated 21st April, 2016, filed by the respective Companies. This clarifies the position with regard to the compliance made by the Petitioner Companies. In view of the above explanation, no directions are required to be issued. (iii) The next observation made by the Regional Director vide paragraph no.2(d) of the affidavit pertains to the reduction of the Equity Share Capital of the Demerged Company pursuant to the Scheme coming into effect. The Regional Director has observed that, as proposed in clause 17.1 of the Scheme, the Authorized Share Capital of Rs. 58,50,000/of the Demerged Company is to be transferred to the Resulting Company. It has also been observed that the Authorized Share Capital of the Demerged Company cannot be transferred to the Resulting Company in such a manner. This is the case of demerger and not amalgamation and hence there is only transfer of undertaking of the Demerged Company and that the Authorized Share Capital of the Demerged Company cannot be transferred under this Scheme. Therefore, according to the Regional Director, the Demerged Company does not have intention to comply with the provisions of Section 61, 66 read with 117 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the Authorized Share Capital of the Resulting Company, it is submitted that an inadvertent error has crept in the Clause 17.2(b) of the Scheme at Annexure C to the petition. Both the Companies undertake that the same shall be corrected and the said Clause 17.2(b) shall be amended and read as below: "17.2 AUTHORISED SHARE CAPITAL OF THE RESULTING COMPANY VIZ. ZMPL. (a) ....... (b) Consequently, upon Scheme being effective, Clause V of the Memorandum of Association of the Resulting Company viz. ZMPL (relating to authorized share capital) shall, without any further act, instrument or deed, be and stand altered, modified and amended pursuant to Sections 16, 31, 94 and 394 and other applicable provisions of the Act, as the case may be, in the manner set out below and be replaced by the following clause: "The Authorized Share Capital of the Company is Rs. 63,50,000/( Rupees Sixty Three Lakhs Fifty Thousand only) divided into 6,35,000 (Six Lakhs Thirty Five Thousand) Equity Shares of Rs. 10/( Ten) each." (vi) The next observation made vide paragraph no. 2(e) pertains to obtaining licenses, approvals and other permissions from the regulatory authority for the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not necessary for the Resulting Company to file any compounding application. It is further clarified that the address mentioned on the letterhead of the letter dated 16th February, 2016 does not mention 'PLOT NO. 412/1 PAIKI, LAL DARWAJA' as this is a technical identification which in normal parlance is not known to public at large so the same is not required to be mentioned on the letterhead, otherwise the remaining address is same. This clarifies the issue with regard to the address of the Registered Office of the Resulting Company. As the Resulting Company has not changed its Registered Office, compliance under Section 12(3) of the Companies Act, 2013 is not required and in view of the above, no directions are required to be issued. (viii) The next observation made by the Regional Director vide paragraph no. 2(g)(A) of the affidavit pertains to the noncompliance of various Accounting Standards by the Demerged Company as required under various Sections of the Companies Act, 2013 and Rules under Companies (Accounts) Rules, 2014 in its Audit Report/Annual Report as on 31.03.2014 and 31.03.2015. It has been observed by the Regional Director that the Demerged Company has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56, with specific and categorical disclosure as to Authorised, Issued, Subscribed and Paid up Capital, Face Value and Issue price. Having disclosed these details and having no other class of share capital, the Petitioner Resulting Company has duly complied with the provisions of the relevant Act and Rules read with Schedules. Though this information has clearly been stated in the Balance Sheet, it has been once again stated that Petitioner Resulting Company is a private limited company and it has only one class of shares referred to as Equity Shares having a par value of Rs. 10/. Each equity shareholder is entitled to one vote per share. It has been clarified that the Resulting Company undertakes to comply with all the necessary provisions as required under the Companies Act, 1956 / 2013 and therefore no directions are required to be issued. (x) The Regional Director has observed vide paragraph no. 2(h) of the affidavit that the statement of the Demerged Company in its Financial Statement as on 201213, 201314 and 201415 with respect to nonapplicability of the Accounting Standard- 17 regarding Segment reporting is a false statement, as the Demerged Company has stated in Paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal of the said Statements makes it clear that the figures stated in the Valuation Report and the Statement showing details of assets and liabilities of the Demerged Company to be transferred to the Resulting Company which was given by the Demerged Company vide its letter dated 16th February, 2016 are the same and there is no contradiction in the said statements. It has been further clarified that there is no misstatement and the figures stated in both the financial statements are tallying with each other. In fact the Statement placed on record at Annexure B to the Affidavit filed by the Regional Director is incomplete and therefore the figures are not tallying. It is further clarified that the Statement in the Valuation Report at Annexure1 is the unit wise entire balance sheet as on 31/03/2013 and the Statement provided by the Demerged Company vide letter dated 16th February, 2016 at Annexure3 is the list of only current and noncurrent assets and current and noncurrent liabilities which are tallying with the Statement in the Valuation Report. As the said issue has been clarified and no false statement of the details of assets and liabilities of the Demerged Company to be transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usand only) arising consequent to demerger has been adjusted in the Reserves of division of ZSM. In our opinion, in view of the above rationale and discussions, the entitlement ratio of 9 (Nine) equity shares of Zenitex Mills Private Limited for every 10 (Ten only) equity shares held in ZSM to the equity shareholders of ZSM, at par, is just and fair. " ANNEXURE 2 ZENITH SILK MILLS PVT. LTD. Computation of Entitlement Ratio on Net asset Method PARTICULARS Resultant Company (Rs.) Demerged Company (Rs.) Total (a) PARTICULARS 12,111,700 (13,504,077) (1,392,377) (b) Bifurcationi) Share capital 4,295,619 477,291 ii) Reserves and surplus 7,816,081 (13,981,368) Total 12,111,700 (13,504,077) Entitlement Ratio Bifurcating Value Per Share of Each Unit SAY 9 1 As can be seen from the above, the exchange ratio has been worked out properly. The Regional Director has compared the highlighted figures from the table which are absolutely incomparable. Net Assets Value of the Resulting Company cannot be divided by Shares of the Demerged Company to arrive at per share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge Ratio and no questions have been raised in this regard. (xiv) The observation of the Regional Director made vide paragraph no. 2(k) pertains to the letter dated 15th January, 2014 sent by the Regional Director to the Income Tax Department, inviting their objections, if any. Since the statutory period of 15 days, as envisaged by the relevant circular of the Ministry of Corporate Affairs, is over, it can be presumed that the Income Tax Department has no objection to the proposed Scheme of Arrangement. The Petitioner Companies have agreed to comply with the applicable provisions of the Income Tax Act, 1961 and Income Tax Rules, 1962. In view of the same, no further directions are required to be issued to the Petitioner Companies in this regard. 10. Insofar as the compounding of offences against the petitionerCompany is concerned, as has been observed by the Regional Director, the learned advocate for the petitioner has submitted that no offences have yet been registered against the petitionerCompany, therefore, there is no question of compounding them. 11. Considering all the above facts and circumstances and taking into account all the contentions raised in the affidavits and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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