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Keihin Automotive Systems India Private Limited Versus Keihin India Manufacturing Private Limited

2017 (5) TMI 924 - PUNJAB AND HARYANA HIGH COURT

Scheme of Amalgamation - Held that:- Considering all the relevant facts, the procedural requirements contemplated under Sections 391 to 394 of the Act, the relevant Rules and on due consideration of the reports of the Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi and the Official Liquidator and the separate reply(s) thereto by way of affidavits of the Authorised Signatory of the Petitioner-Companies, the Scheme of Amalgamation is hereby sanctioned and as a result t .....

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Companies, their respective shareholders, creditors and all concerned. - Let formal order of sanction of the Scheme be drawn in accordance with law and its certified copy be filed with the Registrar of Companies within 30 days from the date of receipt of the same. - A notice of the order be published in the newspapers, namely, “Indian Express” (English), “Jansatta” (Hindi) both Delhi/NCR Edition and in the Official Gazette of Government of Haryana. - Company Petition No. 209 of 2015 (O&M .....

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any-I) shall amalgamate into Keihin India Manufacturing Private Limited (Transferee Company/Petitioner Company-II). The registered office of the Transferor Company/Petitioner Company-I and Transferee Company/Petitioner Company-II are situated at Gurgaon, Haryana. The main objects of the Transferor Company/Petitioner Company-I and Transferee Company/Petitioner Company-II are detailed in their respective Memorandum and Articles of Association annexed with the petition at Annexures P-2 and P-4, res .....

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feree Company/Petitioner Company-II were dispensed with and since there were no Secured Creditors of the Transferor Company/Petitioner Company-I and Transferee Company/Petitioner Company-II, therefore, it was ordered that there was nothing to convene their meetings. Hence, the Ist motion petition was disposed of on 06.11.2015 with liberty to move the Second Motion Petition. In the present Second motion petition, on 30.11.2015, notice was issued to the Regional Director, Ministry of Corporate Aff .....

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ffidavit of A.K. Chaturvedi, Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi, dated 18.02.2016, in which the Regional Director has made observations in para Nos.7 to 11, which read as under: - 7. That the Deponent states that in response to the Deponent s letter dated 08.01.2016 issued to the Income Tax Department requesting to offer their comments, letter dated 20.01.2016 has been received on 25.01.2016 from the Deputy Commissioner of Income Tax, Circle-2, Gurgaon s .....

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r 2013-14 and Financial year 2014-15:- (i) Given the uncertainty of the business plan, the auditors were unable to comment on the recoverability of Cenvat Credit. In relation to the said qualification, the management responded that the company has business plans which would reduce the incidence of input credit and considered that the balance available is good and recoverable. It is seen from the qualification of Auditors on the accounts of the Transferee Company for the financial year ending on .....

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has been pointed out by the statutory auditors neither it is disclosed in the accounts of the company. (ii) The company has not provided and paid the provident fund on foreign component of salary paid to expatriate employees, as required in terms of the notification No.GSR 705 E and 706 E, dated 01.10.2008, issued by the Ministry of Labour and Employment, Govt. of India. In relation to the said qualification, the management responded that it is evaluating the implication of the aforementioned no .....

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, FEMA, IPC, SEBI Act, RBI Act etc. 9. That the Deponent states that the Registrar of Companies, Delhi & Haryana vide his above referred report stated that he has complied factual report on the basis of record maintained and documents filed by the concerned petitioner companies and has not made any adverse comments to the Scheme of amalgamation under reference. 10. That the Deponent states that Hon ble Court may direct the Petitioner Transferee Company to continue all the employees of the Tr .....

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Companies Act, 2013. In response to the aforesaid observations made by the Regional Director, Akihide Kato, Authorised Signatory of both the Petitioner Companies has filed reply by way of affidavit. The relevant averments made in the reply are reproduced as under: - 2. That the Regional Director in his Report in para 8(i) has referred to the qualification in Auditors Report of the financial years 2013-14 and 2014-15 regarding the recoverability of Cenvat Credit of the Transferee Company. 3. That .....

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onsidered recoverable by the management. 4. That further, with regard to the Regional Director s observation in para 8(ii) of the Report, the Regional Director has mentioned that the transferee Company has not provided and paid the provident fund on foreign component of salary paid to expatriate employees, as required in terms of notification No.GSR 705 E and 706 E, dated 01.10.2008, issued by the Ministry of Labour and Employment, Government of India. It is submitted that a petiton bearing No.W .....

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C.M. No.6321/2012 (stay)) is annexed hereto as Annexure A-1. 5. That it is undertaken that in the event of the Courts not agreeing with the contention, the Transferee Company undertakes to duly deposit the Provident Fund for the relevant period with the concerned authorities. 6. That without prejudice to the above, the said observations pertain to the Transferee Company only which is not being dissolved under the Scheme. 7. That further, as observed in para 10 of the Report of Regional Director .....

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the Companies Act, 1956 and under Section 133 of the Companies Act, 2013. 9. That in the light of the above submissions, not of the observations of the Regional Directors survive. The above stated explanation submitted by the authorised signatory of the Petitioner-Transferor & Transferee Companies meets with the observations made by the Regional Director. The Official Liquidator has filed his report dated 18.03.2016, who on the basis of the report of M/s K.D. & Associates, Chartered Acc .....

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Associates, Chartered Accountant, has verified the Accounts of Transferor Company and submitted his report to this office on 16.3.2016. The copy of report is enclosed and annexed as Annexure R-2. The learned Chartered Accountant has made following observations: - (a) That the Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) That there are some accumulated losses in the Company for past 4 years, can be briefed as unde .....

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bts to the tune of ₹ 7,758,872/- and ₹ 4,239,000/-. Out of this an amount of ₹ 3,519,873/- had been written back in FY 2013-14. It should also be noticed that such transactions have been undertaken with the group Companies itself. (d) That after carefully perusal of audit reports of the Company, we found that at some instance the audit report read with Companies (Auditor s report) Order, 2003 was qualified by auditors (shown in ITALICS as per guidelines of the ICAI), but not an .....

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r the transactions were made at prevailing market price at the relevant time. No explanation was offered by Company, in its BOD s report. Para (vi) of Companies (Auditor s report) Order, 2003: During the year no internal audit was carried out and accordingly, we are unable to comment on the internal audit system. No explanation was offered by Company, in its BOD s report. However, when confront the replies of the Company is very contradictory. Firstly vide reply dated 19th January 2016, the Comp .....

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e in its report. Our earlier reply in this matter was inadvertently mentioned as not applicable However, no documentary proof is submitted in this regard till date. Para (xvii) of Companies (Auditor s report) Order, 2003: According to information and explanation given to us and on an overall examination of the balance sheet of the Company, we report that funds amounting to ₹ 5,27,87,751/- have been used for long term investment representing acquisition of fixed assets and funding of losses .....

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t conducted past years, since there was no statutory requirement for the same in terms of section 138 of the Companies Act 2013 read with Rule 13 of the Companies (Accounts) Rules 2014. But vide reply dated February 16, 2016 the Company states that : We hereby submit that Company has internal audit system commensurate with the size and nature of business. Further please note that statutory auditor has also confirmed the above in its report. Our earlier reply in this matter was inadvertently ment .....

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ompanies Act, 2013 issued by ICAI read with Accounting Standard-6 and Schedule II of Indian Company Act, 2013. But vide reply dated February, 16th 2016 the Company had submitted management paper based on internal technical expert s review. But no such advice was submitted with us. In the absence of such technical advice, it appears that the Company is not following the Schedule-II of the Indian Company Act, 2013. (f) During the Financial year 2011-12, the Company had taken a Working Capital Loan .....

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here had been misapplication of the loan taken by the Company. It is further observed by the Official Liquidator in para 4(f) of his report that this issue was confronted to the Company by our questionnaire dated 8th February 2016 to which the Company submitted its reply on 18/02/2016 in which it has been stated that the Company is relying upon the audit report of their statutory auditors and hence, no proper justification had been provided. The Official Liquidator in para 4(g) of his report has .....

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s under provisions of the Indian Company Act (1956 and 2013) read with Companies (Accounting Standards) Rules, 2006. The year wise detail can be summarized as below: - 1. F.Y. 2011-12 : Accounting standard - 15: Employee Benefits & Accounting Standard - 26: Intangible assets. 2. F.Y. 2014-2015: Accounting Standard - 17 : Segment Reporting. In response to the aforesaid observations made by the Official Liquidator, Akihide Kato, Authorised Signatory of both the Petitioner Companies has filed r .....

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working capital requirements which was partially used for long term investments and funding of losses. In this relation, the Transferor Company would like to submit that it has a closing cash balance of ₹ 9,06,20,048.71/- in FY 2011-12 as highlighted in the auditor s report itself. This would clearly justify the fact that such working capital loan has not been used for long term investments purposes. The Transferor Company has used equity funding of ₹ 20,00,00,000/- in that financial .....

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s All legal proceedings of whatsoever nature by or against the Transferor Company pending and/or arising at the Appointing Date and relating to Transferor Company or its properties, assets, debts, liabilities, duties and obligations, shall be continued and/or enforced until be Effective as desired by the Transferor Company and as and from the Effective Date shall be continue and enforced by or against the Transferee Company in the same manner and to the same extent as would or might have been co .....

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en that the Scheme of Amalgamation provides for transfer of all the liabilities /proceedings of the Transferor Company to the Transferee Company (i.e. the surviving entity post approval of the Scheme of Amalgamation), the Transferee Company shall remain liable and responsible with the relevant authority with respect to the observations highlighted in the auditor s report by the Official Liquidator. 8. That the Transferee Company further undertakes that upon sanction of the Scheme of Amalgamation .....

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r survive. The above stated explanation submitted by the authorised signatory of the Petitioner-Transferor & Transferee Companies meets with the observations made by the Official Liquidator. During the course of hearing, learned counsel for the petitioner- Companies in response to the observation made by the Official Liquidator at para 4(b) of his report that the Transferor Company suffered losses from 2010-11 to 2013-14 has submitted that it is not a ground under law for denying a merger/am .....

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r the balance sheet of 2014-15 attached at page 107 of the petition. In response to the observation made at para 4(d) by the Official Liquidator in his report that for the Financial Year 2012-13 and 2013-14, the auditor has observed comparative quotes for contracts above ₹ 5 lacs are not available and no explanation was offered by the petitioner-Transferor Company in auditors report, learned counsel for the petitioner-Companies has submitted that it is not a ground to deny the merger/amalg .....

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idator is unable to comment on the internal audit system. Learned counsel for the petitioner-Companies has submitted that the company has already replied that no internal audit has been conducted in the past years since there was no statutory requirement for the same in terms of Section 138 of the Act read with Rule 13 of the Companies (Account) Rules, 2014 [for short the Rules ] and it is further submitted without prejudice to the above, as per para 8 of the reply to the report of the Official .....

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nies Act, 2013. The impact of the same on the financial statements is not material. The reasons for considering different life and rates and value with regard to items under Schedule II of Companies Act, 2013 are on the basis of technical evaluation done by technical people estimating the life and the realizable value. In response to the observation made at para 4(g) by the Official Liquidator in his report, learned counsel for the petitioner-Companies has submitted that the company is a small a .....

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hereto by the counsel for the petitioner-Companies are as follows:- Sr. No. Objections raised by the counsel for the Official Liquidator Reply by counsel for the petitioner-Companies to the objections 1. The foreign exchange outflow is more than inflow. As per the averments made in para 4 to 6 of the additional affidavit dated 17.11.2016, the company is trading automobile components and it imports the trade goods for which foreign exchange is required for sale in domestic market where sales are .....

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petitioner-Companies not produced. Audited Balance Sheets for the Financial Year 2015-16 were filed along with CA No.525 of 2016 which was taken on record by this Court on 04.11.2016. I have heard both the learned counsel for the parties and after considering all the relevant facts, the procedural requirements contemplated under Sections 391 to 394 of the Act, the relevant Rules and on due consideration of the reports of the Regional Director, Northern Region, Ministry of Corporate Affairs, New .....

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