TMI Blog2021 (6) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... No objector has come before this Hon'ble Tribunal to oppose the Scheme nor has any party controverted any averments made in the Petition. 2. The sanction of the Tribunal is sought under Sections 230 to 232 of the Companies Act, 2013 to the Scheme of Arrangement of Primesec Investments Limited ('PIL' or 'the Transferor Company 1') and Prime Commodities Broking (India) Limited ('PCBIL' or 'the Transferor Company 2') with and into Prime Securities Limited ('PSL' or 'the Transferee Company') and reduction of the share capital and reorganisation of reserves of the Transferee Company and their respective Shareholders. 3. The Learned Counsel for the Petitioner further submits the Introduction and Rationale for the Scheme of Arrangement Primesec Investments Limited The Transferor Company 1 is inter alia engaged in the business activities that includes restructuring advisory services which includes refinancing of debt, advisory assignments relating to insolvencies under the IBC cases, etc. Prime Commodities Broking (India) Limited The Transferor Company 2 is engaged in the business of providing services auxiliary to fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders, creditors, lenders and various other stakeholders of the respective companies. It is not prejudicial to the interests of shareholders, creditors, lenders and various other stakeholders of the respective companies. 4. The Learned Counsel for the Petitioners states that the Transferor Company 1, Transferor Company 2 and Transferee Company have approved the Scheme of Arrangement by passing the Board Resolution in their meeting held on January 9, 2020. The Appointed Date fixed under the Scheme is April 1, 2020. 5. The Learned Counsel appearing on behalf of the Petitioner Companies states that the Joint Company Scheme Petition have been filed in consonance with the order passed in Company Scheme Application Nos. 1058 of 2020 of National Company Law Tribunal, Mumbai Bench. 6. The Learned Counsel appearing on behalf of the Petitioner Companies states that the Petitioner Companies have complied with all requirements as per directions of the Hon'ble Tribunal and they have filed necessary affidavits of compliance with Hon'ble Tribunal. Moreover, Petitioner Companies undertake to comply with all statutory requirements, if any, as required under the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this Scheme is approved by the requisite majority of members and creditors as per Section 230(6) of the Act in meetings duly held in terms of Section 230(1) read with Sub-section (3) to (5) of Section 230 of the Act and the Minutes thereof are duly placed before the Tribunal. d. Hon'ble NCLT may kindly direct the petitioners to file an affidavit to the extent that the Scheme enclosed to Company Application Company Petition, are one and same and there is no discrepancy/any change/changes are made, for changes if any, liberty be given to Central Government to file further report if any required; e. The Petitioners under provisions of Section 230(5) of the Companies Act, 2013 have to serve notices to concerned authorities which are likely to be affected by Amalgamation. Further, the approval of the scheme by this Hon'ble Tribunal may not deter such authorities to deal with any of the issues arising after giving effect to the scheme. The decision of such Authorities is binding on the Petitioner Company(s). f. Petitioner Company have to undertake to comply with section 232(3)(i) of Companies Act, 2013, where the transferor company is dissolved, the fee, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 read with section 52 and other applicable provisions of the Act and no separate sanction under section 66 read with section 52 and other applicable provisions of the Act will be necessary. In this regard it is submitted that the Petitioner Company shall also comply the provisions of Section 66 read with Section 52 and other relevant provisions of the Companies Act, 2013. k. As per Part 3 Clause 3.2(3.2.2 3.2.3) of the Scheme (Reclassification of General Reserves), Upon the Scheme becoming effective, the entire amount standing to the credit of the General Reserve Account of the Company as on the Appointed Date shall be reclassified and credited to the Profit and Loss Account of the Transferee Company. The amount credited to the Profit and Loss Account pursuant to Clause 3.2.2 above shall be reclassified as and constitute to be accumulated profits of the Transferee Company for the previous financial year, arrived at after providing for depreciation in accordance with the provisions of the Act and remaining undistributed in the manner provided in the Act and other applicable laws. The amount so reclassified in the Profit and Loss Account shall be available for distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the observation raised by the ROC Mumbai, mentioned at para 22 above Hon'ble NCLT may pass appropriate orders/orders as deem fit; 8. In response to the Report filed by the Regional Director, the Petitioner Companies have filed rejoinder and clarified as under: a. As far as the observation of the Regional Director, as stated in paragraph IV(a) of the report is concerned, the Petitioner Companies submits that in addition to compliance of IND AS - 103, the Transferee Company shall pass such accounting entries which are necessary in connection with the scheme to comply with other applicable Accounting Standards such as IND AS-8 etc. b. As far as the observation of the Regional Director, as stated in paragraph IV(b) of the Report is concerned, the Petitioner Companies submits that the Appointed Date would be April 1, 2020 as mentioned in Clause 1.1.3. of Part 1 - Definitions and Share Capital of the Scheme which is in compliance with Section 232(6) of the Companies Act, 2013 and the Scheme shall take effect from such Appointed Date. Further, the Petitioner Companies undertakes to comply with the requirements clarified vide circular No. F. No. 7/12/2019/CL-I d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in CSA No. 243 of 2017 in the matter of Housing Development Finance Corporation Limited, in CSA No. 915 of 2017 in the matter of Godrej Consumer Products Limited, in CSA No. 899 of 2017 in case of Mahindra CLE Automotive Limited, in CSA No. 1019 of 2017 in case of Godrej Properties Limited, in CSA No. 1615 of 2018 in case of Dolvi Minerals and Metals Private Limited, in CSA No. 396 of 2019 in case of JSW Logistics Infrastructure Private Limited, in CSA No. 3123 of 2019 in case of Jai Realty Ventures Limited has taken a similar view. d. In so far as observations made in paragraph IV(d) of the Report of Regional Director is concerned, the Petitioner Companies submits that the Petitioner Companies undertakes that Scheme enclosed to the Company Application and Company Petition are one and the same and there are no discrepancy/changes made. e. As far as the observation of the Regional Director, as stated in paragraph IV(e) of the Report is concerned, the Petitioner Companies submits that in accordance with Section 230(5) of the Companies Act, 2013 and Order delivered by the Tribunal on November 10, 2020, the Petitioner Companies have served notices to all such relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserve, Capital Redemption Reserve, Share Forfeiture Account, and Securities Premium as aforesaid shall be effected as an integral part of the Scheme and the order of the NCLT sanctioning this Scheme shall be deemed to be an order under section 66 read with section 52 and other applicable provisions of the Act and no separate sanction under section 66 read with section 52 and other applicable provisions of the Act will be necessary. k. As far as the observation of the Regional Director, as stated in IV(k) above is concerned, the Petitioner Companies submits that re-classification of General Reserves of the Third Petitioner Company and credit to Profit and Loss account of the Third Petitioner Company should not be in violation of the provisions of Companies Act, 2013 since there are no provisions under the Companies Act, 2013 that prohibit re-classification of general reserves to profit and loss account and therefore not in violation of section 123(1) of the Companies Act, 2013 read with Rule 3 of the Companies (Declaration and Payment of Dividend Rules, 2014). Further, reliance can be placed on similar Schemes which are approved by the Hon'ble NCLT, Hyderabad Bench, in CP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 260 lacs. It seems that management is only rewarding itself and there is no consideration for the shareholders. In my opinion the MDs salary increase should be kept in abeyance till the shareholders get a descent dividend. The business of the company does not require cash. Then why is there no distribution? The Third Petitioner Company has replied on 30th September, 2019 to the said shareholder, extract of which is as under: Dear Mr. Jain This is with reference to your email dated September 19, 2019. Your letter to the Chairman has received serious attention by the Board members and on their behalf, I would like to respond as under: Declaration of Dividend The Dividend declaration has not been possible till date due to the provisions of the Companies Act in case of requirement of no accumulated losses in the books. As you would be aware, the Company had incurred losses in the period upto March 2013. Since then the management adopted a new business model that focused on fee based incomes that does not require deployment of capital. The new model has met with tremendous success, as the results for the last two years have shown. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time. This has been approved by the Board of Directors of the Company, after taking into consideration the experience and association of Managing Director with the Company and his critical contribution in the new business model, based on performance and approved by the Shareholders of the Company at the Annual General Meetings, as required under provisions of the Companies Act. We wish to assure you that the board has always exercised caution while protecting shareholder interests and many data points are considered before any decision making. Further the Third Petitioner Company has received an email from the National Stock Exchange Limited of India Limited ( NSE ) in respect of the same query on 20th September, 2019 to which the Third Petitioner Company has replied on 30th September, 2019 enclosing the same reply sent to the concerned shareholder. Thereafter, the Third Petitioner Company has not received any further query from the concerned shareholder, NSE or any other regulatory authorities. q. Paragraph IV(q) of the Report of Regional Director is in relation to the observations raised by RoC, Mumbai, mentioned at para 22 of the report, extract of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Para j. On the basis of observations made by the Regional Director and reply submitted by the Petitioner Company thereon, Hon'ble Tribunal may pass appropriate orders/orders as deem fit. f. Para k. On the basis of observations made by the Regional Director and reply submitted by the Petitioner Company thereon, Hon'ble Tribunal may be pleased to direct as to how the Petition Companies is ensuring compliance of the Provision of Section 123(1) of the Companies Act, 2013 read with rule 3 of Companies (Declaration and payment and Dividend) Rule, 2014. g. Para I. and m. On the basis of observations made by the Regional Director and reply submitted by the Petitioner Company thereon, Hon'ble Tribunal may pass appropriate orders/orders as deem fit. h. Para n. and o. states that Reply of the Petitioners Companies appears to be satisfactory. i. Para p. and q. On the basis of observations made by the Regional Director and reply submitted by the Petitioner Company thereon, Hon'ble Tribunal may pass appropriate orders/orders as deem fit. 10. The Official Liquidator has filed his report dated March 3, 2021 with the Hon'ble NCLT. In paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any has taken a huge amount of Interest free inter corporate deposits from Prime Securities Limited which is Transferee Company in the proposed scheme. The Company has received huge amount as mentioned in above table as Interest Free Corporate deposits from Transferee Company consecutively for more than 5 years. 4) The Company is having negative net worth of ₹ 2316.05 lakhs as at 31.03.2020 and ₹ 3000.95 as at 31.03.2019. 5) From the copies of Balance Sheet at 31.03.2020, 31.03.2019, 31.03.2018, 31.03.2017 and 31.03.2016, it is found that the Directors have not disclosed the DIN while signing the Balance Sheet as obligated vide provisions of Section 158 of Companies Act, 2013. 11. In response to the above observations, the response submitted by the First Petitioner Company along with Official Liquidator's comments are as follows: a. In relation to observation of the Official Liquidator, as stated in paragraph 5(I)(1)(a) of the report: Management Response: The management was of the opinion that based on the discussion with the lender, and the settlement arrived at with them, the said secured loan was no longer payable and managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Company is a 100% subsidiary of Prime Securities Limited (Transferee Company). It can take free inter corporate deposit from its Parent Company f. In relation to observation of the Official Liquidator, as stated in paragraph 5(I)(4): Management Response The First Transferor Company is 100% subsidiary of Prime Securities Limited (Transferee Company) and the accounts of the First Transferor Company are consolidated in the account of the Transferee Company at every year end and accordingly, there will be no impact of the negative net worth on the Scheme of Arrangement. Official Liquidator's Comments The explanation appears to be satisfactory g. In relation to observation of the Official Liquidator, as stated in paragraph 5(I)(5): Management Response The DIN of the Directors has been mentioned in the Annual Report, of which the Balance Sheet forms part of. Official Liquidator's Comments The default may be made good by filing of compounding application before the appropriate authority 12. Paragraph 5(II) of the Official Liquidator's Report deals with the observation on the proposed Scheme to be considered by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings. 4(ii). At the moment this scheme is not being examined with reference to the taxation aspect vis- -vis. other such schemes if any. In future, if it is discovered that this scheme or similar such schemes are in any way acting for tax-avoidance then department will be at liberty to initiate the appropriate course of action as per law. 4(iii). The Income tax department will be free to examine the aspect of any tax payable as a result of the Scheme and in case it is found that the scheme of arrangement ultimately results in tax avoidance or is not in accordance to the merger/demerger provisions of the Income Tax Act then the Department will be at liberty to initiate the appropriate course of action as per law. 4(iv). It is further requested that the rights of the Income Tax department should remain intact to take out appropriate proceedings regarding raising of any tax demand against the demerger Company at any further date and these rights should not be adversely affected in view of the sanction of the scheme. 5. It is reiterated that any sanction to the Scheme of Arrangement under Section 230 to 232 of the Companies Act, 1956 should not adversely impact the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, any tax liability on the First Petitioner Company, will be vested/assumed by the Transferee Company upon the Scheme becoming effective. 16. From the material on record, the Scheme appears to be fair, reasonable and is not violative to any provisions of law nor is contrary to public interest. Since all the requisite statutory compliances have been fulfilled, the Company Scheme Petition No. 1084 of 2020 are made absolute in terms of prayer clauses. Hence ordered. ORDER i. The said Scheme of Arrangement is hereby sanctioned and declared the same to be binding on the ( Transferor Company 1 ) and ( Transferor Company 2 ) and ( Transferee Company ) AND their respective shareholders. ii. The Petitioner Companies are directed to file a copy of this order along with a copy of the Scheme of Arrangement with the concerned Registrar of Companies, electronically, along with e-Form INC-28, within 30 days from the date of receipt of the Order duly certified by the Deputy Director or Assistant Registrar, of the National Company Law Tribunal, Mumbai Bench. iii. The Petitioner Companies to lodge a copy of this order and the Scheme duly certified by the Deputy Director or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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