TMI Blog2019 (1) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... ner-company after approval by the Tribunal has to comply with the directions issued by the BSE in the letter dated August 1, 2016. In the light of my above discussions, the arrangement can be approved subject to compliance with directions issued by the BSE in the letter dated August 1, 2016. Further the scheme is not opposed to public policy and no objection received from shareholders or creditors. Therefore, the scheme of arrangement can be approved. - C. P. No. 416 of 2016 and C. P. (TCAA) No. 63 /HDB/ 2017. - - - Dated:- 16-11-2018 - Ratakonda Murali Judicial Member For the Petitioner-company : Vivek Ganesh ORDER RATAKONDA MURALI (JUDICIAL MEMBER). - 1. At the first instance, this petition was filed by the petitioner-company before the hon'ble High Court of Judicature at Hyderabad under section 391 read with section 394 of the Companies Act, 1956, seeking approval of the scheme of arrangement between International Paper APPM Ltd., and its shareholders, under which the company proposes to transfer an amount of ₹ 288.76 crores lying to the credit of general reserves to the credit of the profit and loss account to enable the company to pay out to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed in Company Applications Nos. 1531 and 1532 of 2016, directed to convene the meeting of equity shareholders (members) on December 21, 2016 at Rajamundry and dispensed with conducting of meeting of unsecured creditors of the petitioner-company as the 85 per cent. of the unsecured creditors have given their consent to the proposed scheme of arrangement. The Chairman, appointed by the hon'ble High Court convened the meeting of Members and filed his report on December 22, 2016 and has reported that shareholders holding 75.34 per cent. of the total equity shares of the petitioner-company voted in favour of the proposed scheme of arrangement. 6. Learned counsel for the petitioner further avers that on the direction of hon'ble High Court, notices were served on the Income-tax Department, the Regional Director, South East Region, Hyderabad, SEBI, NSE and BSE Ltd. Further as per directions, publication was also carried out in Business Standard, English daily (Hyderabad edition) and Andhra Prabha, Telugu daily (Hyderabad edition) on March 7, 2017. 7. Learned counsel for the petitioner contended that the Income-tax Department filed its report with the Regional Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. I have heard counsel for the petitioner-company and CGSC for the Regional Director. 14. This petition is filed for approval of scheme of arrangement entered between the company and its shareholders. The petition was originally filed under sections 391-394 of the Companies Act, 1956 before the hon'ble High Court for the States of Andhra Pradesh and Telangana. Subsequent to conferring jurisdiction on the Tribunal pursuant to the notification of the Companies (Removal of Difficulties) Fourth Order, 2016 and the Companies (Transfer of Pending Proceedings) Rules, 2016 by the Ministry of Corporate Affairs, New Delhi in the Gazette of India, dated December 7, 2016 with effect from December 15, 2016 this case was transferred to this Tribunal and it is renumbered as C. P. (TCAA) No. 63/HDB/2017. 15. At the first instance in a common order in C. A. Nos. 1531 and 1532 of 2016 dated November 7, 2016 the hon'ble High Court dispensed with convening meeting of creditors but ordered for convening meeting of shareholders. The Chairperson appointed by the hon'ble High Court conducted meeting of members of the petitioner-company and filed his report. It is shown at page Nos. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reserves to be transferred to the credit of profit and loss account suffered taxation earlier, subject to fulfilment of which, reclassification may be permitted and petitioner-company be directed to file all details before the Assessing Officer. So, the basic point raised by the Income-tax Officer that the petitioner-company to explain that whatever amount is lying in general reserves was earlier subjected to taxation. 20. The Regional Director has filed second affidavit/report dated November 21, 2017. In the additional affidavit/report wherein the Regional Director observed that general reserves is a part of shareholder funds. He has categorically stated in the report that there is neither an express nor implied prohibition either in the Accounting Standards or Generally accepted Accounting Principles and Practices (GAPP) nor in the format of balance-sheet prescribed under the Companies Act to transfer back the General Reserves to the credit of profit and loss account. He observed that the decision to utilise general reserves in the manner deemed fit is best left to the shareholders of the company and not be subjected to any judicial determination. He observed that earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed memo dated December 2, 2017 and cited following decisions : (a) Jaques v. Federal Commissioner of Taxation [1924] HCA 60. (b) Navjivan Mills Co. Ltd., In re [1972] 42 Comp Cas 265 (Guj). (c) Vasant Investment Corporation Ltd. v. Official Liquidator, Colaba Land and Mill Co. Ltd. [1981] 51 Comp Cas 20 (Bom). (d) Larsen and Toubro Ltd., In re [2004] 121 Comp Cas 523 (Bom). (e) Tatanet Services Ltd. and Tata Services Ltd. (f) Balakrishna Industries Ltd. 24. Learned counsel for the petitioner-company has also filed one more memo dated January 22, 2018. He relied on the decision of the hon'ble High Court of Karnataka in the matter of United Spirits Ltd., In re [2015] 190 C-C 225 (Karn). This decision is shown at pages 6-12. 25. The contention of learned counsel for the petitioner-company that the present arrangement is permissible under law. He relied on the following definition as provided under section 390(1)(b) of the Companies Act, 1956, which is as follows : the expression 'arrangement' includes a reorganization of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing by which parties agree to do a certain thing notwithstanding the fact that there was no dispute between the parties. 29. Learned counsel also relied on the decision reported in Vasant Investment Corporation Ltd., In re [1978] CDJ BHC 227 ; [1982] 52 C-C 139 (Bom) in paragraph 5 of the judgment order as follows (page 144 of 52 C-C) : It has further been argued by the official liquidator that the proposed scheme is not a scheme or an arrangement contemplated under section 391 of the Companies Act because the scheme does not propose any arrangement or rearrangement regarding the rights of the creditors or shareholders of the company. It is, however, not necessary that an arrangement under section 391 should be an arrangement with creditors of the company or should involve any change in the rights of the shareholders of the company. 30. Learned counsel for the petitioner-company also relied on the decision of the hon'ble High Court of Gujarat Alembic Ltd., In re [2008] 144 Comp Cas 105 (Guj) wherein the hon'ble High Court has approved the scheme for transferring an amount not exceeding ₹ 102.58 crores out of general reserve to be utilised against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit side in the profit and loss account will be written off. 34. Now, the transfer of certain amount to the general reserve whenever dividend is declared is not made compulsory under the provisions of the Companies Act, 2013. It is only optional. The transfer of funds from general reserve to the profit and loss account can be by way of arrangement between the company and its members. The arrangement is a broad term and the proposed transfer is well within four corners of arrangement. So the same can be approved. 35. Learned counsel for the petitioner-company filed a memo dated November 14, 2018 along with no objection issued by the BSE and NSE. However, as per letter issued by the BSE, the petitioner-company after approval by the Tribunal has to comply with the directions issued by the BSE in the letter dated August 1, 2016. 36. So, in the light of my above discussions, the arrangement can be approved subject to compliance with directions issued by the BSE in the letter dated August 1, 2016. Further the scheme is not opposed to public policy and no objection received from shareholders or creditors. Therefore, the scheme of arrangement can be approved. 37. After hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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