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TMI Blog2018 (12) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is the group holding company and primarily holds shares in the Transferee Company. The Transferee Company is a specialty pharmaceutical company engaged in development, production and marketing of branded and generic formulations. 4. The Learned Counsel for the Petitioner Companies further submits that the rationale for the Scheme is as under: a. The merger will result in the promoter group of the Transferor Company directly holding shares in the Transferee Company, which will lead not only to simplification of the shareholding structure and reduction of shareholding tiers but also demonstrate the promoter group's direct commitment to and engagement with the Transferee Company; b. The promoter group of the Transferee Company is desirous of streamlining its holding in the Transferee Company. As a step towards such rationalization, it is proposed to merge the Transferor Company into the Transferee Company; c. The promoters would continue to hold the same percentage of shares in the Transferee Company, pre and post the merger. There would also be no change in the financial position of the Transferee Company. All cost, charges and expenses relating to the Scheme would be bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary Affidavits of compliance in the Tribunal. Moreover, the Petitioner Companies through their Counsel undertakes to comply with all statutory requirements, if any, as required under the Companies Act, 2013 and the rules made there under whichever is applicable. The said undertaking is accepted. 10. The Regional Director has filed his Report dated 27th December, 2017 stating therein that save and except as stated in paragraph IV of the said Report, it appears that the Scheme is not prejudicial to the interest of shareholders and public. In paragraph IV of the said Report, the Regional Director has stated as under: a) As per Clause 1.2 Definitions of the Scheme, "The Appointed Date" means the 1st April 2016 or such other date as may be approved by the National Company Law Tribunal or any other Competent Authority. In this regard, it is submitted in terms of provisions of Section 232(6) of the Companies Act, 2013, it should be to April 2016; b) The tax implication, if any arising out of this Scheme is subject to final decision of Income Tax Authorities. The approval of the Scheme by this Hon'ble Tribunal may not deter the Income Tax Authority to scrutinize the tax returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the Petitioner Companies through their Counsel submits that the Appointed Date shall be 1st day of April, 2016. 12. In so far as observation of the Regional Director, as stated in paragraph IV(b) of the Report is concerned, the Petitioner Companies through their Counsel undertakes to comply with all applicable provisions of the Income Tax Act and all tax issues, if any arising out of the Scheme will be met and answered in accordance with law. 13. In so far as observation of the Regional Director, as stated in paragraph IV(c) of the Report is concerned, the Petitioner Companies through their Counsel states that the Petitioner Company shall comply with the provisions of Section 232(3)(i) of the Companies Act, 2013. 14. In so far as observation of the Regional Director, as stated in paragraph IV(d) of the Report is concerned, the Petitioner Companies through their Counsel states that it shall comply with all applicable Accounting Standards and shall pass such accounting entries as may be necessary in connection with the Scheme to comply with any other applicable Accounting Standard. 15. In so far as observation of the Regional Director, as stated in paragraph IV(e) and (f) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Learned Counsel of the Transferee Company submits that the complaints against the Petitioner Company are not in connection with the Scheme and pertain to past years for which an appropriate reply has already been filed by the Petitioner Company with the ROC. Further, the Learned Counsel of the Transferee Company submits that the outcome of the above complaints shall be decided in accordance with the applicable law since these are not related to the Scheme. 21. Objections of Income Tax Department:- Income Tax Department raised various objections vide its letter dated 05.10.2017 and the same are narrated below:- (I) Office of the Deputy Commissioner of Income Tax Mumbai vide reply letter dated 05.10.2017, submitted a detailed report submitting the objection against the scheme of amalgamation and arrangements between Gabs Investment Pvt. Ltd. (GIPL) and Ajanta Pharma Ltd. (APL) and respective share holders. This representation has been forwarded with Prior approval of Principal Commissioner Income Tax (Central)-4. The department observed that 61.17% of shares are held by Agrawal Family Members in APL as on 31.07.2017. Share holding of GIPL is controlled by Agrawal Family Members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of Transferor Company holding fully paid up equity shares of Transferor Company and whose names appear in the register of members of the Transferor Company as on the Record Date, or to such of their respective heirs, executors, administrators or other legal representatives or other successors in title as may be recognized by the Board of Directors of the Transferor Company/Transferee Company in the following proportion: "83,92,262 fully paid up equity share of Rs. 2 each of the Transferee Company shall be issued and allotted as fully paid up to the equity shareholders of the Transferor Company in proportion of their holding in the Transferor Company". (b) The equity shares of the Transferee Company held by the Transferor Company shall stand cancelled in accordance with Clause 7.1 of the Scheme and as a result equivalent equity share capital of the Transferee Company and the book value of investments held by the Transferor Company in the Transferee Company recorded as per Clause 8.1 above shall stand cancelled. (c) The utilization of Securities Premium Account, as mentioned above in Clause 8.5 shall be effected as an integral part of the Scheme itself in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares at a value of Rs. 8,00,000/- per share was allotted as right issue. The Petitioner Company annexed a copy of the Audited Statements of Account as on 31st March, 2017 and provisional financial statements as on 30th June, 2017 respectively. Upon perusal of the balance sheet for the year ended 31, March 2017, it is observed that the company had issued 700 equity shares of Rs. 10 each on 18, March 2017, whereas reserves and surplus as on 31, March 2016, was (-)Rs. 2,25,51,523 and as on 31 March, 2017 was Rs. 58,84,37,074 predominantly in view of securities premium account. Further, perusal of the Balance Sheet, it is noted that the share holders of Gabs are namely Mrs. Manisha Y. Agrawal, Mrs. Richa R. Agrawal, Mrs. Smriti R. Agrawal, Mr. Ayush M. Agrawal. It is stated in the scheme that Equity shares held by Gabs would be cancelled and new shares will be allotted to the share holders of Gabs. 25. It is also noted that Gabs has passed a board resolution on 18.03.2017 for the proposed merger of the company into APL, whereas on the same day 700 equity shares at a value of Rs. 8,00,000/- per share was allotted i.e. after the appointed date fixed as 01st April 2016. It is also noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Gabs investment in APL started only in the financial year 2009 and the company had been incurring loss since financial year 2010-11. (a.) The submissions of the petitioner company i.e. Gabs is a promoter company of APL/group holding company with the sole object of holding investments in APL is factually incorrect in view of the facts as discussed above. Gabs have been purchasing shares of APL in the open market since 2nd December 2008. (b.) From the above analysis/facts it is noted that Gabs did not subscribe at the time of formation of APL or at the time of IPO of APL. Gabs started acquiring shares of APL only in the secondary market since 02.12.2008 even in small quantity of 100 shares on 01.01.2009 and 02.01.2009 at Rs. 54.69 and Rs. 54.55 per share. As on 03.09.2013, cumulative holding of Gabs in APL was 22,37,930 equity shares and because of bonus issue by APL on 19.09.2013 (for 2 share: 1 Share) Gabs was allotted 11,18,965 equity shares thereby total holding went upto 33,56,905 equity shares. Further because of shares split (share of Rs. 5 split into Rs. 2) on 23.03.2015 it was allotted another 50,35,357 equity shares thereby totaling to 83,92,262 equity shares of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 36. The rationale given in the scheme among others things are the proposed amalgamation of the transferor company into Transferee Company by the scheme, as a result of which the shareholders of the transferor company viz. the promoters of the transferor company (who are also the promoters of the transferee company) shall directly hold shares in the transferee company and the promoters would continue to hold the same percentage of shares in the Transferee company pre and post merger. 37. The above rationale presented by the petitioner company is without any Justification. Petitioner has to comply with all applicable laws. By this scheme of amalgamation and arrangement Gabs/shareholders of Gabs are avoiding full tax liability which is strenuously objected by the Income Tax Department as discussed Supra. Any transfer of property from one entity to other has to be treated as sale/transfer and the same has to comply with applicable provisions of law including applicable tax liability, stamp duty. In the instant case, the transferor is a private Ltd. company which is a separate legal entity and any transfer of shares to other entity including individuals from the legal entity would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,92,262 equity shares of APL and the market value as on the appointed date works out to Rs. 1,477 Crores approx. It is quite interesting to observe that on an investment of approx Rs. 48.70 Crores the Common Promoters would get market value of Rs. 1477 Crores without paying any income tax. Considering the above facts and circumstances, analysis of balance sheet, profit and loss account for various years, we are of the considered view that the proposed scheme of Amalgamation and Arrangement would benefit only the common promoters of both transferor and transferee companies and the scheme is devised only to benefit the common promoters and it does not serve any public interest as envisaged, more so unfair advantage flows only to the common promoters therefore, the bench is not inclined to sanction the scheme as proposed. 41. To buttress the argument the petitioner companies have relied upon various Judgments/Orders viz. (i) Judgment in company petition No. 215/1978 between A.W. Figgis & Co. Pvt. Ltd. decided by the Hon'ble High Court of Calcutta on 31st July 1978. (ii) Judgment in compa ny petition No 2 15/1978 betwee n A.W. Figgis& Co. Pvt. Ltd decided by the Hon' ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed scheme is devised only for the benefit of the few common promoters/shareholders of both the petitioner companies and no larger public interest is being served (total number of share holders of APL as on 31.03.2017 is 38,075), and also huge amount of tax loss would occur to the Government's exchequer. 48. It is an admitted legal position that Gabs is holdings shares in APL and not the 4 individual share holders whose names are mentioned above. Therefore any allotment of the shares other than to the original share holders would amount to transfer/sale of shares and that would attract applicable provisions of tax. In this case, the Income tax department has rightly quoted various provisions, objections and huge loss to exchequer etc. In the instant case shares of the transferee company were not directly allotted to individual share holders of Transferor Company, or it is not a bonus shares to be allotted to the individual share holders of the transferor company, nor it is transmission of shares to the individual share holders of the transferor company. Therefore we are also inclined to agree with the objection raised by the Income Tax Department. Any scheme of amalgamation/mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with him in such target company, entitle them to exercise 25% or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations. b) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty five percent or more of the voting rights in the target company but less than the maximum permissible non public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five percent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations. c) As per Regulations-7 of SAST Reg. the open offer for acquiring shares to be made by the acquirer and persons acting in concert with him under regulation 3 & 4 shall be for at least 26% of total shares of the target company. Further as per Regulation 8, the open offer for acquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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