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2012 DIGILAW 635 (GUJ)

Milestone Tradelinks P. Ltd. , In Re v. .

2012-09-03

ABHILASHA KUMARI

body2012
JUDGMENT : Abhilasha Kumari, J. These petitions have been filed by the petitioner-companies under sections 391 and 394 of the Companies Act, 1956 ("the Act", for short) seeking sanction of the scheme of amalgamation of Aditya Corpex P. Ltd., Ambitious Tradelinks P. Ltd., Anand Trade-Movers (Gujarat) P. Ltd., Hinduja Exports P. Ltd., Midex Overseas Ltd., Nabh Tradelink P. Ltd. and Surya-Rath Tradelinks P. Ltd. with Milestone Tradelinks P. Ltd. 2. The petitioner of Company Petition No. 113 of 2012, i.e., Milestone Tradelinks P. Ltd., had filed an application in this court being Company Application No. 208 of 2012 for dispensing with the convening and holding of the meetings of the equity shareholders, preference shareholders and unsecured creditors of the petitioner-company. It was also prayed that this court be pleased to dispense with the separate procedure to be followed under the provisions of the Act for the purpose of reduction of preference share capital as the same forms an integral part of the scheme itself. This court, vide its order dated May 9, 2012, in Company Application No. 208 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders, preference shareholders and unsecured creditors in view of the consent affidavits of the equity shareholders, preference shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. This court vide its order dated May 9, 2012, further held that no separate procedure is required to be followed for reduction of preference share capital as the same is part and parcel of the present scheme. 3. The petitioner of Company Petition No. 114 of 2012, i.e., Adtiya Corpex P. Ltd., had filed Company Application No. 209 of 2012 in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders and unsecured creditors of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 209 of 2012, had dispensed with the requirement of holding of the meeting of the equity shareholders and unsecured creditors in view of the consent affidavits of the equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 4. This court, vide its order dated May 9, 2012, in Company Application No. 209 of 2012, had dispensed with the requirement of holding of the meeting of the equity shareholders and unsecured creditors in view of the consent affidavits of the equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 4. The petitioner of Company Petition No. 115 of 2012, i.e., Ambitious Tradelinks P. Ltd., had filed Company Application No. 210 of 2012 in this court for requisite direction for dispensing with the convening and holding of the meeting of the equity shareholders of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 210 of 2012, had dispensed with the requirement of holding of the meeting of the equity shareholders in view of the consent affidavits of the equity shareholders. This court further noted that there are no secured creditors and unsecured creditors of the petitioner-company. 5. The petitioner of Company Petition No. 116 of 2012, i.e., Anand Trade Movers (Gujarat) P. Ltd., had filed Company Application No. 211 of 2012 in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders and preference shareholders of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 211 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and preference shareholders in view of the consent affidavits of the equity shareholders and preference shareholders. This court further noted that there are no secured creditors and unsecured creditors of the petitioner-company. 6. The petitioner of Company Petition No. 117 of 2012, i.e., Hinduja Exports P. Ltd., had filed Company Application No. 212 of 2012 in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders and unsecured creditors of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 212 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and unsecured creditors in view of the consent affidavits of the equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 7. This court, vide its order dated May 9, 2012, in Company Application No. 212 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and unsecured creditors in view of the consent affidavits of the equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 7. The petitioner of Company Petition No. 118 of 2012, i.e., Midex Overseas Ltd., had filed Company Application No. 213 of 2012 in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders in view of the consent affidavits to the scheme received from 85.71 per cent. in number of the total equity shareholders and 99.92 per cent. in value and the unsecured creditors of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 213 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 8. The petitioner of Company Petition No. 119 of 2012, i.e., Nabh Tradelink P. Ltd., had filed Company Application No. 214 of 2012, in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders, preference shareholders and unsecured creditors of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 214 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders, preference shareholders and unsecured creditors in view of the consent affidavits of equity shareholders, preference shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 9. The petitioner of Company Petition No. 120 of 2012, i.e., Surya-Rath Tradelinks P. Ltd., had filed Company Application No. 215 of 2012 in this court for requisite directions for dispensing with the convening and holding of the meetings of the equity shareholders and unsecured creditors of the petitioner-company. This court, vide its order dated May 9, 2012, in Company Application No. 215 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and unsecured creditors in view of the consent affidavits of equity shareholders and unsecured creditors. This court, vide its order dated May 9, 2012, in Company Application No. 215 of 2012, had dispensed with the requirement of holding of the meetings of the equity shareholders and unsecured creditors in view of the consent affidavits of equity shareholders and unsecured creditors. This court further noted that there are no secured creditors of the petitioner-company. 10. The petitioners thereafter filed company petitions namely Company Petitions Nos. 113 to 120 of 2012 seeking sanction of the scheme of amalgamation. This court vide separate order dated May 11, 2012, admitted all the said petitions and directed issuance of notice to the Regional Director in case of all the petitioner-companies and to the official liquidator in the case of Aditya Corpex P. Ltd., Ambitious Tradelinks P. Ltd., Anand Trade Movers (Gujarat) P. Ltd., Hinduja Exports P. Ltd., Midex Overseas Ltd., Nabh Tradelink P. Ltd., and Surya-Rath Tradelinks P. Ltd. This court also directed publication of the notice of the petition in the English daily newspaper Indian Express, Ahmedabad edition and Gujarati daily newspaper Sandesh, Ahmedabad edition. 11. Pursuant to the order dated May 11, 2012, the petitioner-companies have published the notice of hearing of the petition in the English daily newspaper Indian Express, Ahmedabad edition and the Gujarati daily newspaper Sandesh, Ahmedabad edition, respectively. Affidavits have been filed on behalf of the petitioner-companies dated June 15, 2012, confirming the publication of notices in the newspapers as directed and also of the notice of the hearing of the petition, served upon the Regional Director as well as the official liquidator. 12. Pursuant to the notice to the official liquidator in respect of Aditya Corpex P. Ltd., Ambitious Tradelinks P. Ltd., Anand Trade-Movers (Gujarat) P. Ltd., Hinduja Exports P. Ltd., Midex Overseas Ltd., Nabh Tradelink P. Ltd., and Surya-Rath Tradelinks P. Ltd., seven reports, all dated July, 2012, have been filed by the official liquidator in Company Petitions Nos. 114 to 120 of 2012, respectively. In the said reports, at paragraph 14, it is, inter alia, stated by the official liquidator that the affairs of the petitioner-company have not been conducted in a manner prejudicial to the interest of its members or the larger public interest. 13. In response to the notice to the Regional Director, Ministry of Corporate Affairs, the Regional Director has filed his common affidavit dated June 28, 2012. 13. In response to the notice to the Regional Director, Ministry of Corporate Affairs, the Regional Director has filed his common affidavit dated June 28, 2012. Thereafter, the petitioner-company Milestone Tradelinks P. Ltd., has filed an affidavit in reply dated July 11, 2012, in response to the common affidavit dated June 28, 2012, filed by the Regional Director. 14. The Regional Director, in his affidavit dated June 28, 2012, has observed that as a consequence of the scheme of amalgamation, it is mandatory to make accounting entries/adjustments, as per the Accounting Standard 14 notified by the Central Government under section 211(3A) of the Companies Act, 1956. Referring to clause 11 of the scheme, it is observed that the entire clause neither refers nor ensures compliance of, the requirements of Accounting Standard 14 in the line as notified by the Central Government. It is further stated by the Regional Director that as per clause 11 of the scheme, it is proposed that the residual amount of amalgamation reserve arising after recording all assets and liabilities of the respective transferor companies, shall be treated as free reserve and the same shall be available for distribution of dividend, which is not in accordance with the requirements of Accounting Standard 14, as well as the generally accepted principles of accountancy. It is further stated that the amalgamation reserve arising out of the transfer of assets and liabilities, being of a capital nature (and not revenue nature) is not available for distribution of dividend ; therefore, this court may direct the petitioner transferee company to comply with the requirements of Accounting Standard 14, strictly. It is stated by the Regional Director that as represented by the Registrar of Companies, Gujarat, vide his report dated June 12, 2012, no complaint or representation has been received against the petitioner-company in respect of the proposed scheme of amalgamation. Apart from the observations made hereinabove, there appears to be no other objection to the proposed scheme of amalgamation which, as stated, does not appear to be prejudicial to the interest of the shareholders of the company and the public at large. 15. Apart from the observations made hereinabove, there appears to be no other objection to the proposed scheme of amalgamation which, as stated, does not appear to be prejudicial to the interest of the shareholders of the company and the public at large. 15. An affidavit-in-reply has been filed by the petitioner-company Milestone Tradelinks P. Ltd., dated July 11, 2012, wherein it has been stated in reference to the observations made by the Regional Director, that the deviation from Accounting Standard 14 is permissible under section 211(3B) of the Companies Act, 1956 and that the petitioner transferee company shall make necessary disclosures in its financial statements as enumerated under section 211(3B) of the Act after the scheme is sanctioned by this court, therefore, no direction is required to be issued to the petitioner transferee company to comply with the requirements of Accounting Standard 14, strictly. 16. Heard Mr. Mihir Joshi, the learned senior advocate with Ms. Shraddha Sheth for Singhi and Co., on behalf of the petitioner and Mr. P. S. Champaneri, learned Assistant Solicitor General of India for the Central Government. 17. It is submitted by Mr. Mihir Joshi, the learned senior advocate, that it is permissible to deviate from the Accounting Standard, as has been held by various courts, including a Division Bench of this court. He has referred to the following judgments in support of this submission : (1) Hindalco Industries Ltd., In re (2009) 151 Comp Cas 446 (Bom) ; (2) Sutlej Industries Ltd., In re (2007) 135 Comp Cas 394 (Raj) ; and (3) Judgment dated July 30, 2012 in O. J. Appeal No. 31 of 2012, in the matter ofsince reported in (Adishree Tradelinks P. Ltd., In re (2013) 176 Comp Cas 67 (Guj)). 18. Mr. P. S. Champaneri, the learned Assistant Solicitor General of India has submitted that the surplus arising out of the scheme of amalgamation is of a capital nature, therefore, it cannot be considered as a general reserve and dividend cannot be paid out of the capital reserve. 19. Considering the above submissions made by learned counsel for the respective parties, reference may be made to the judgments cited by the learned advocate for the petitioner. 20. In Hindalco Industries Ltd., In re (2009) 151 Comp Cas 446, the Bombay High Court was considering an objection similar to the one raised in the present petition by the Regional Director. Considering the above submissions made by learned counsel for the respective parties, reference may be made to the judgments cited by the learned advocate for the petitioner. 20. In Hindalco Industries Ltd., In re (2009) 151 Comp Cas 446, the Bombay High Court was considering an objection similar to the one raised in the present petition by the Regional Director. The said objection was negatived in the following terms (page 461) : "The next question is : whether there would be violation of Accounting Standards. The objection will have to be answered keeping in mind provisions of section 211 of the Act. Sub-section (3A) thereof stipulates that every profit and loss account and balance-sheet of the company shall comply with the Accounting Standards. Sub-section (3B) provides that where the profit and loss account and the balance- sheet of the company did not comply with the Accounting Standards, the said company shall disclose in its profit and loss account and balance-sheet, the deviation from the Accounting Standards, reasons for such deviation and financial effects, if any, arising due to such deviation. On conjoint reading of sub-sections (3A) and (3B) of section 211, it necessarily follows that deviation from the Accounting Standards is permissible subject, however, to compliance of the requirement of disclosure in the profit and loss account and balance- sheet of such deviation and the reasons for such deviation and financial effects thereof. In other words, deviation of the Accounting Standards is not wholly prohibited, but is regulated by the provisions of section 211 of the Act. The petitioner assures to abide by the said regime. So long as such disclosure is made, the company cannot be faulted with regard to the profit and loss account and balance-sheet being in deviation from the Accounting Standards." 21. In Sutlej Industries Ltd., In re (2007) 135 Comp Cas 394 (Raj), the same argument, as has been put forth by the Regional Director in the present case, was dealt with, as follows (page 398) : "The contention of the Regional Director that 'arrangement/amalgamation reserve' cannot be utilised for distribution to the share holders, was not objected to by the shareholders and the meeting of shareholders unanimously approved the scheme of arrangement. I, therefore, do not see good reason to exclude paragraph 9.9 of Part III of the scheme. I, therefore, do not see good reason to exclude paragraph 9.9 of Part III of the scheme. Broadly the scheme appears to be fair, reasonable, according to law and in the interest of shareholders." 22. A Division Bench of this court, in O. J. Appeal No. 31 of 2012 and connected matters, vide judgment dated July 30, 2012since reported in (Adishree Tradelinks P. Ltd., In re (2013) 176 Comp Cas 67 (Guj)) has held as under (page 72) : "Considering the various case laws, it is clear that the reserve can be utilised for the purpose of declaring dividends. Since, the aforesaid aspect was not pointed out to learned counsel for the appellant, either at the time of hearing of the petition or when the matter was kept for dictating the order, in our view, there was no justification in imposing such a condition, while sanctioning the scheme in connection with non-utilisation of amalgamation reserve for the purpose of declaring dividend. Here, it is required to be noted that no objection was taken by the Regional Director to the said clause and even the shareholders have unanimously approved the scheme with the original clause 10.5. Considering the same, it cannot be said that incorporation of the said clause is in violation of public policy and as held by various courts, such amalgamation reserve can be utilised for the purpose of declaring dividends. Even, the learned single judge of this court has, earlier, taken the similar view. In view of the same, the direction given by the learned single judge that such amalgamated reserve shall not be used, in any manner, for declaring dividend, requires to be set aside and the scheme is held to have been sanctioned as a whole, including the original clause 10.5 of the scheme." 23. Taking into consideration the law laid down in the above judgments and the fact that the shareholders have unanimously approved the scheme and the aspect that it has been stated in the affidavit filed by Milestone Tradelinks P. Ltd., the petitioner transferee company, that it shall make all necessary disclosures in its financial statements as enumerated under section 211(3B) of the Act, after the scheme is sanctioned by this court, there does not appear to be any legally justifiable reason for withholding sanction to the scheme. 24. 24. Considering the facts and circumstances of the case, it appears that the scheme is in the interest of the shareholders and creditors of the respective petitioner-companies. 25. Accordingly, all the petitions are allowed and the scheme is sanctioned. 26. Fees of Mr. P. S. Champaneri, the learned Assistant Solicitor General of India are quantified at Rs.7,500 in each of the petitions. Costs for the official liquidator are quantified at Rs.5,000 each, in the case of Aditya Corpex P. Ltd., Ambitious Tradelinks P. Ltd., Anand Trade-Movers (Gujarat) P. Ltd., Hinduja Exports P. Ltd., Midex Overseas Ltd., Nabh Tradelink P. Ltd., and Surya-Rath Tradelinks P. Ltd. The said fees shall be paid by the petitioner-companies.