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2012 DIGILAW 407 (GUJ)

Vasupujya Jewels P. Ltd. , In re v. .

2012-05-04

R.M.CHHAYA

body2012
JUDGMENT : R.M. Chhaya, J. These are the petitions filed by the three petitioner companies for sanction of the scheme of arrangement embodied in the scheme of amalgamation of Vasupujya Jewels P. Ltd., Mahendrakumar Babulal Jewels P. Ltd. (hereinafter referred to as "the transferor companies") with Kalyan Jewels P. Ltd. (hereinafter referred to as "the transferee company"). 2. The petitioner of Company Petition No. 198 of 2011 is Vasupujya Jewels P. Ltd. It was originally incorporated on February 1, 2010, as a private limited company in the office of the Registrar of Companies, Gujarat under the provisions of the Companies Act, 1956. The registered office of the transferee company is currently situated at FF 5, Shandilya Complex, Opp. Vikas Gruh, Paldi, Ahmedabad-380 007 in the State of Gujarat. The shares of the petitioner-company are not listed on any stock exchange and is therefore an unlisted company. 3. The petitioner of Company Petition No. 199 of 2011 is Mahendrakumar Babulal Jewels P. Ltd. The transferor company Mahendrakumar Babulal Jewels P. Ltd., is converted from the partnership firm in the Part IX of the Companies Act, 1956, as a private limited company in the office of the Registrar of Companies, Gujarat under the provisions of the Companies Act, 1956. The incorporation certificate issued on January 4, 2011, by the office of the Registrar of Companies, Gujarat under the provisions of the Companies Act, 1956. The registered office of the transferor company is currently situated at 5, Onyx Building, Beside Reliance Fresh, H. L. Commerce College Road, Navrangpura, Ahmedabad-380 009. The shares of the petitioner-company are not listed on any stock exchange and are therefore an unlisted company. 4. The petitioner of Company Petition No. 200 of 2011 is Kalyan Jewels P. Ltd. The petitioner-company was originally incorporated on November 10, 2004, in the name and style of Kalyan Jewels P. Ltd., as a private limited company in the office of the Registrar of Companies, Gujarat under the provisions of the Companies Act, 1956. The registered office of the transferee company is currently situated at 49, Super Mall, Nr. Lal Bunglow, C.G. Road, Ahmedabad-380 009. The share of the petitioner transferee company is not listed on any stock exchange and is therefore unlisted company. 5. The registered office of the transferee company is currently situated at 49, Super Mall, Nr. Lal Bunglow, C.G. Road, Ahmedabad-380 009. The share of the petitioner transferee company is not listed on any stock exchange and is therefore unlisted company. 5. Circumstances and/or reasons and/or grounds have necessitated and/or justified the scheme and the advantages thereof are, inter alia, as under : It is appropriate to merge the two companies to achieve a sustained growth, development and for the purpose of the future growth strategies. Accordingly it has been proposed to merge the three companies registered in the State of Gujarat. The management envisages the following reasons/advantages of merger. It is considered advantageous to amalgamate the transferor company with the transferee company. The amalgamation would result in optimum utilisation and management of other resources and would reduce the administrative costs. The resources of the company will be conveniently merged and pooled together leading to a more effective and centralised management and reduction in administrative expenses and overheads which are presently being multiplicated because of separate entities. The amalgamation will result in the larger pool of financial and other resources, which will enable the amalgamated company to broaden its asset base and in the long run improve financial gearing. Besides that, amalgamation would reflect the new economic value of the businesses. On account of amalgamation, operations would be streamlined through new management initiatives. After amalgamation, merged entity could install and implement adequate and suitable measure for corporate governance. 6. The petitioner of Company Petition No. 198 of 2011, i.e., Vasupujya Jewels P. Ltd., had filed an application in this court being Company Application No. 336 of 2011 was preferred by the petitioner-company. This court (Coram : Anant S. Dave, J.) vide order dated June 20, 2011, has dispensed with the meeting of equity shareholders and unsecured creditors of the petitioner-company in relation to the proposed scheme of amalgamation as required under section 391(2) of the Companies Act is not necessary to be held and direct to call and convene the meeting of the secured creditor. Company Application No. 372 of 2011 was preferred by the petitioner-company for seeking modification of the date of convening the meeting on August 25, 2011. 7. Mr. Virat B. Shah was appointed as the chairman of the meetings to consider the proposed scheme of amalgamation. 8. Company Application No. 372 of 2011 was preferred by the petitioner-company for seeking modification of the date of convening the meeting on August 25, 2011. 7. Mr. Virat B. Shah was appointed as the chairman of the meetings to consider the proposed scheme of amalgamation. 8. The chairman of the meeting was also directed by this court to issue advertisements in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition. 9. Accordingly as per the direction of this court individual notice was sent under certificate of posting to the secured creditor of the company together with the scheme of arrangement and explanatory statement as required under section 393 of the Companies Act, 1956, with proxy form and attendance slip. The notice of the meeting was also advertised as directed by this court in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition on August 3, 2011. 10. The meeting of the secured creditor of the company was held on August 25, 2011, at 3.00 p.m., the chairman of the meeting read out the explanatory statement and explained the scheme. The resolution was put to vote to ascertain the wishes of the secured creditor. 11. The meeting of the secured creditor held on August 25, 2011, at 3.00 p.m., and in the said meeting, one secured creditor remained present either personally to vote on the scheme. The scheme was approved by 100 per cent. in number and 100 per cent. in the number of secured creditor present and voting. 12. The chairman's reports have been filed as on September 2, 2011, i.e., within 7 days of the said meetings. The meeting of secured creditor was attended by one secured creditor and the total value of debt was Rs.600 lakhs. 13. Similarly the petitioner of Company Petition No. 199 of 2011, i.e., Mahendrakumar Babulal Jewels P. Ltd., had filed an application in this court being Company Application No. 335 of 2011 was preferred by the petitioner-company. This court vide order dated June 20, 2011, has dispensed with the meeting of equity shareholders of the petitioner-company in relation to the proposed scheme of amalgamation as required under section 391(2) of the Companies Act is not necessary to be held and be directed to call and convene the meetings of the secured creditor and unsecured creditors. This court vide order dated June 20, 2011, has dispensed with the meeting of equity shareholders of the petitioner-company in relation to the proposed scheme of amalgamation as required under section 391(2) of the Companies Act is not necessary to be held and be directed to call and convene the meetings of the secured creditor and unsecured creditors. Company Application No. 371 of 2011 was preferred by the petitioner-company for seeking modification of the date of convening the meetings on August 25, 2011. 14. Mr. Virat B. Shah was appointed as chairman of the meetings to consider the proposed scheme of amalgamation. 15. The chairman of the meetings was also directed by this court to issue advertisements in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition. 16. Accordingly as per the direction of this court individual notice was sent under certificate of posting to the secured creditor and unsecured creditors of the company together with the scheme of amalgamation and explanatory statement as required under section 393 of the Companies Act, 1956, with proxy form and attendance slip. The notice of the meeting was also advertised as directed by this court in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition on August 3, 2011. 17. The meeting of the secured creditor was held on August 25, 2011, at 3.30 p.m., since requisite quorum was not present therefore the said meeting was adjourned to September 26, 2011. 18. The meeting of the unsecured creditors was held on August 25, 2011, at 4.00 p.m., and in the said meeting, 23 unsecured creditors remained present personally to vote on the scheme. Out of 23 unsecured creditors, one unsecured creditor has given consent on attendance slip, stated no objection. If considered valid vote, valid vote in favour are 23 in number and none voted against. The scheme was approved by 100 per cent. in number and 100 per cent. in the number of unsecured creditor present and voting. If one vote has to be considered invalid vote, valid votes in favour are 22 in number and none voted against. The scheme was approved by 100 per cent. in number and 100 per cent. in the number of unsecured creditor present and voting. in number and 100 per cent. in the number of unsecured creditor present and voting. If one vote has to be considered invalid vote, valid votes in favour are 22 in number and none voted against. The scheme was approved by 100 per cent. in number and 100 per cent. in the number of unsecured creditor present and voting. Thus, the resolution approving the proposed scheme was carried out by requisite statutory majority by the unsecured creditors present and voting. 19. The chairman's reports have been filed as on September 2, 2011, i.e., within 7 days of the said meetings. 20. The adjourned meeting of the secured creditor was held on September 26, 2011, at 3.30 p.m., and since requisite quorum was not present therefore the said meeting was adjourned to November 4, 2011. The adjourned meeting of the secured creditor was held on November 4, 2011, at 3.30 p.m., and since the requisite quorum was not present therefore the said meeting was adjourned to November 18, 2011. The adjourned meeting of the secured creditor was held on November 18, 2011, at 3.30 p.m., and in the said meeting, one secured creditor remained present personally to vote on the scheme. Valid vote in favour is one in number and none voted against. The scheme was approved by 100 per cent. in number and 100 per cent. in amount of secured creditor present and voting. Thus, the resolution approving the proposed scheme was carried out by the requisite statutory majority by the secured creditor present and voting. 21. The chairman's report dated September 30, 2011, November 11, 2011 and November 25, 2011, has been filed on September 30, 2011, November 11, 2011 and November 25, 2011, i.e., within the 7 days of the said meeting. 22. The petitioner of Company Petition No. 200 of 2011, i.e., Kalyan Jewels P. Ltd., had filed Company Application No. 337 of 2011 was preferred by the petitioner-company. 22. The petitioner of Company Petition No. 200 of 2011, i.e., Kalyan Jewels P. Ltd., had filed Company Application No. 337 of 2011 was preferred by the petitioner-company. This court vide order dated June 20, 2011, has dispensed with the meeting of all the equity shareholders of the petitioner-company in relation to the proposed scheme of amalgamation as required under section 391(2) of the Companies Act is not necessary to be held and further held that meeting of the creditors is not required to be called for as the rights of the creditors of the petitioner-company in no manner affected by the scheme and no compromise is offered to any of the creditors and neither any liability of the creditors under the scheme is being reduced or extinguished. 23. The petitioners thereafter filed company petitions, namely, Company Petitions Nos. 198 of 2011, 199 of 2011 and 200 of 2011 seeking sanction of the scheme of arrangement in the nature of amalgamation. This court vide its order dated February 2, 2012, admitted all the three petitions and directed issuance of notice to the Regional Director, in case of all the three companies and notice to the official liquidator in case of the transferor companies. This court also directed the publication of notice of petition in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition. 24. Pursuant to the order dated February 2, 2012, the petitioners have published a notice of admission in Western Times, English daily in Ahmedabad edition and Jansatta, Gujarati daily in Ahmedabad edition on February 15, 2012. Similarly, notice of hearing of petitions was served upon the official liquidator and the Regional Director on February 13, 2012. Mr. Virat B. Shah, the director of the company filed an affidavit of service indicating the service of notice published in the newspapers and also the notice of hearing of the petition served upon the Regional Director as well as the official liquidator. 25. Pursuant to the advertisement published in the newspapers as per orders in company application, no objections have been received. 26. In response to the notice to the official liquidator, in respect of the transferor companies, Mr. 25. Pursuant to the advertisement published in the newspapers as per orders in company application, no objections have been received. 26. In response to the notice to the official liquidator, in respect of the transferor companies, Mr. A.K. Chaturvedi, the official liquidator has filed a report dated April 26, 2012, in Company Petition No. 198 of 2011 and a report dated April 25, 2012, in Company Petition No. 199 of 2011, enclosing therewith the report/letter dated March 19, 2012, submitted by the chartered accountants. A perusal of this report discloses observations made by the official liquidator based on the report of the chartered accountant in the Company Petitions Nos. 198 and 199 of 2011 is that : "Therefore, in view of the aforesaid report of the chartered accountants, the official liquidator most respectfully submits that the affairs of the petitioner-company have not been conducted in a manner prejudicial to the interest of its members or in the public at large. This court may be pleased to decide the company's petition on merits and may be pleased to direct the company to preserve its books, papers and records and not to dispose of the records without prior permission of the Central Government under section 396A of the Companies Act, 1956. It is further submitted that the related office expenses of the office of the official liquidator for submitting this report are Rs.7,500 approximately. Therefore, this court may be pleased to direct the petitioner-company to pay such cost to the office of the official liquidator as may be considered appropriate by this court". 27. Mr. Sudhir Mehta, the learned advocate appearing for the petitioner-company in support of his submissions, while dealing with the observations made by the official liquidator as well as the chartered accountants, has submitted that the petitioner-company (Vasupujya Jewels P. Ltd., Mahendrakumar Babulal Jewels P. Ltd.) will preserve its books, papers and records and not to dispose of the records without prior permission of the Central Government under section 396A of the Companies Act, 1956, before the aforesaid period and the petitioner-companies (Vasupujya Jewels P. Ltd., Mahendrakumar Babulal Jewels P. Ltd.) will pay such cost of Rs.7,500 each or as may be considered appropriate by this court to the office of official liquidator. 28. In response to the notice to the Regional Director, Western Region, Department of Company Affairs, Mr. 28. In response to the notice to the Regional Director, Western Region, Department of Company Affairs, Mr. M. Iqbal A. Shaikh, learned Central Government Standing Counsel appearing for the Central Government has appeared and has filed an affidavit dated April 25, 2012, of Mr. Kashmir Lal Kamboj, the Regional Director. A perusal of this Affidavit discloses that there is five observations made by the office of the Regional Director. (a) Observation No. 1 is as under : "That, clause No. 8.4 of the scheme, inter alia, provides that upon the scheme becoming finally effective, the authorised share capital of all the transferor companies would be merged with the authorised share capital of the transferee company without any further act and deed and without the requirement of payment of any Registrar of Companies fees/stamp duty/registration charges as, such charges has already been paid in the past by the respective companies. The deponent however, respectfully submits that, the scheme does not provide for automatic amendment in the capital clause of the memorandum of association and the articles of association of the transferee company. The deponent further respectfully submits that memorandum of association and the articles of association of a company can be amended only after complying with the provisions of sections 17, 31, read with section 192 of the Companies Act, 1956 and on payment of requisite filing fees required to be paid on the prescribed forms to be filed with the Registrar of Companies. The court may therefore, be pleased to direct the petitioner transferee company to amend the capital clause of the memorandum of association and the articles of association, as the case may be, after complying with the aforesaid provisions of the Companies Act, 1956, and on payment of requisite filing fees thereon. It is submitted that the petitioner transferee company will amend the capital clause of the memorandum of association and the articles of association, as the case may be, after complying with the provisions of sections 17 and 31, read with section 192 of the Companies Act, 1956 and on payment of requisite filing fees thereon." Therefore, the observation does not survive. (b) Observation No. 2 is as under : "It is submitted that the accounting entries/adjustments to be made in the books of account of the petitioner transferee company are stated at clause No. 10 of the scheme. (b) Observation No. 2 is as under : "It is submitted that the accounting entries/adjustments to be made in the books of account of the petitioner transferee company are stated at clause No. 10 of the scheme. It is further submitted that the accounting entries/adjustments, as a consequence of the scheme of amalgamation, are to be made as per Accounting Standard 14 notified by the Central Government under section 211(3A) of the Companies Act, 1956." 29. The deponent respectfully submits that clause No. 11.1, provides as under : It is provided that the excess of the value of the net assets of the transferor companies as per methods suggested in AS 14 over the paid-up value of the shares to be issued and allotted pursuant to the terms of clause 7 above, shall be credited in the books of the transferee company to a separate account to be named and styled as "Amalgamation Reserve Account". The said account shall be considered as free/general reserve and shall form part of the net worth of the transferee company however short fall of the value of the net assets of the transferor companies, shall be accounted for and dealt with in the books of the transferee company as separate account to be named and styled as "amalgamation shortfall/goodwill account" or "titles/trade mark account" as the case may be. 30. The deponent respectfully submits that, the aforesaid clause of the scheme, inter alia, seeks sanction of this court, through this scheme, for giving effect to and adjustment of the amalgamation in the general reserve indirectly treating the "Amalgamation Reserve Account" as free/general reserve, which is not in accordance with the requirements of Accounting Standard 14 (AS-14) notified by the Central Government under section 211(3A)/(3C) of the Companies Act, 1956. 31. Further, the subsequent sub-clause No. 11.5 of the said clause, indirectly empowers the board of directors of the transferee company to account any of the balances in its books of account, in any manner as it may deem fit, and indirectly enables the transferee company to escape from the exact compliance of requirements of AS-14 under the order of this court on the scheme. 32. The court may therefore, be pleased to direct the petitioner transferee company to comply with the requirements of AS-14 read with section 211(3A) of the Companies Act, 1956 strictly. 32. The court may therefore, be pleased to direct the petitioner transferee company to comply with the requirements of AS-14 read with section 211(3A) of the Companies Act, 1956 strictly. "It is submitted that petitioner transferee company will make adjustments in their books of account as per the Accounting Standard 14 notified by the Central Government under section 211(3A) of the Companies Act, 1956." Therefore, the observation does not survive. (c) Observation No. 3 is as under : 33. That, clause No. 11.2 of the scheme provides as under : "It is provided that any share application money of the transferor company will be treated as unsecured loan of the transferee company." 34. The deponent respectfully submits that the transferee company being a private limited company under the provisions of section 3 of the Companies Act, 1956, is barred by its articles of association in accepting, renewing or otherwise any deposits which includes unsecured loans which is not from its own shareholders or directors. The deponent further respectfully submits that he is not aware as to whether the transferor companies have accepted/renewed any further share application money from the persons other than their shareholders and directors after the date of their last audited balance-sheets. The deponent respectfully submits that in case, any such share application money have been accepted, the same shall be required to be refunded before the scheme is sanctioned by this court. As such the said clause in the scheme is not in accordance with the provisions of section 3 of the Companies Act, 1956. The court may be pleased to direct the petitioner-companies to amend the scheme to that extent by deleting the aforesaid clause No. 1.2 from the scheme. 35. It is submitted that the transferor companies have not accepted/renewed any further share application money from the persons other than their shareholders and directors after the date of their last audited balance-sheets. It is submitted that the petitioner-companies will amend the scheme to that extent by deleting clause No. 1.2 from the scheme. Therefore, the observation does not survive. 35. It is submitted that the transferor companies have not accepted/renewed any further share application money from the persons other than their shareholders and directors after the date of their last audited balance-sheets. It is submitted that the petitioner-companies will amend the scheme to that extent by deleting clause No. 1.2 from the scheme. Therefore, the observation does not survive. (d) Observation No. 4 is as under : "That the Registrar of Companies, Gujarat has submitted his report vide his letter No. ROC/Mahendra-Vasupujya-Kalyan/STA/(K)/2010-11/151 dated April 20, 2012 and as per the said report, no complaint and/or representation has been received against the petitioner companies including any complaint/representation in respect of the proposed scheme of amalgamation." The above-said observation is formal observation. (e) Observation No. 5 is as under : "That, the deponent further submits that, there appears no other objection to the proposed scheme of amalgamation of transferor companies, namely, Vasupujya Jewels P. Ltd., and Mahendrakumar Babulal Jewels P. Ltd., with the transferee company, namely, Kalyan Jewels P. Ltd., and, the scheme does not, prima facie appear to be prejudicial to the interest of the shareholders of the petitioner companies and the public at large." The abovesaid observation is formal observation. 36. In view of the report of the Regional Director and official liquidator, the scheme is not prejudicial to the interest of the shareholders and public and the petitioner companies have not been conducted in a manner prejudicial to the interest of its members or the public interest. 37. It is further submitted that section 391 of the Companies Act is a complete code in itself. A scheme of arrangement/amalgamation falls squarely within the four corners of the section. The scheme of arrangement/amalgamation can be sanctioned even if it involves doing acts for which the procedure is specified in other sections of the Act. 38. Having heard Mr. Sudhir Mehta, the learned advocate appearing for the petitioner-companies and Mr. M. Iqbal A. Shaikh, learned Central Government Standing Counsel appearing for the Central Government and having considered the observations made by the Regional Director as well as the reply affidavit filed on behalf of the petitioner-companies, the court is of the view that none of these observations have any bearing in the eye of law. 39. M. Iqbal A. Shaikh, learned Central Government Standing Counsel appearing for the Central Government and having considered the observations made by the Regional Director as well as the reply affidavit filed on behalf of the petitioner-companies, the court is of the view that none of these observations have any bearing in the eye of law. 39. Considering the entire facts and circumstances of the case, the court is of the view that the scheme of arrangement as proposed is in the interest of the companies and they are duly approved by the shareholders and all concerned. No one has raised any objection. It is also not contrary to the public interest. In view of the report of the Regional Director and official liquidator, the scheme is not prejudicial to the interest of the shareholders and the public and the petitioner-companies have not been conducted in a manner prejudicial to the interest of its members or the public interest. Hence prayers made in the respective company petitions are hereby granted. 40. The petitions are disposed of accordingly. So far as cost to be paid to the learned Central Government Standing Counsel is concerned, the same is quantified at an amount of Rs.10,000 (rupees ten thousand only) per petition. The same may be paid to Mr. M. Iqbal A. Shaikh, learned Central Government Standing Counsel appearing for the Central Government. So far as cost to be paid to the official liquidator is concerned, the same is quantified at an amount of Rs.7,500 each (rupees seven thousand five hundred only) for the transferor companies.