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2013 DIGILAW 670 (GUJ)

In re. Quick Flight Limited v. .

2013-11-20

R.M.CHHAYA

body2013
ORDER : R.M. Chhaya, J. These are the petitions filed by two companies viz. Quick Flight Limited and Shreno Limited, for the purpose of obtaining the sanction of this Court to a Scheme of arrangement in the nature of De-merger and Transfer of the de-merged Undertaking viz. Aviation Undertaking of Quick Flight Limited to Shreno Limited, as well as Restructure of Share Capital of Quick Flight Limited, the De-merged company, proposed under Sections 391 and 394 read with Sections 100 to 103 of the Companies Act, 1956. 2. It has been submitted that Quick Flight Limited, the De-merged Company is a wholly owned subsidiary of Shreno Limited, the Resulting Company. It has been pointed out that the de-merged Company is engaged in the business of providing chartered aviation services for commercial and non commercial purposes, hiring and leasing aircrafts as well as paper printing and providing packaging solutions. 3. On the other hand, Shreno Limited, the Holding Resulting Company is engaged in several areas of commercial activities viz. glass manufacturing and trading, providing engineering solutions and real estate business. It is a substantially profit making Company. 4. It has been realised by the management of the Demerged Company that the activities undertaken by it require different focus considering its market segments. Different strategies and different management skills are required to achieve growth rate for these two segments. In order to achieve efficiency of operations and realigning the business operations the two activities need to be segregated. Thus, the proposed demerger is a commercial requirement and it is envisaged that it would be beneficial to the companies as well as the stake holders. The petitions give in detail the commercial advantages that would flow by virtue of the proposed de-merger. 5. Further, as a consequence of the above de-merger, vide clause-15 of the Scheme, the De-merged Company proposes to restructure its Share Capital. It is envisaged that the Preference Share Capital of the De-merged Company shall be cancelled and reduced to Nil. It is also envisaged to reduce its Equity Share Capital, as per the provisions of Sections 100 to 103 of the Companies Act, 1956. However, this is proposed as an integral part of the proposed Scheme of arrangement. 6. It is envisaged that the Preference Share Capital of the De-merged Company shall be cancelled and reduced to Nil. It is also envisaged to reduce its Equity Share Capital, as per the provisions of Sections 100 to 103 of the Companies Act, 1956. However, this is proposed as an integral part of the proposed Scheme of arrangement. 6. It has been submitted that vide order dated 24th April 2013 passed in Company Application No.113 of 2013, the meetings of the Equity Shareholders and Preference Shareholders of the De-merged Company were dispensed with in view of the written consent letters from all of them, approving the proposed scheme, being placed on record. There being no Secured and Unsecured Creditors of the Demerged Company, such meetings were not required. Vide aforesaid order dated 24th April 2013, separate procedure for Reduction of Capital and the procedure under Section 101(2) read with Rules 48 to 65 of the Company Court Rules were dispensed with. 7. In case of the Parent resulting Company, vide order dated 24th April 2013, the Court was pleased to dispense with the meetings of the Preference Shareholders and Secured Creditors in light of the consent letters. However, the Court directed to convene a meeting of the Equity Shareholders for the purpose of seeking their approval to the proposed scheme. Pursuant to the directions, issued with regard to the conduct of the meeting, after the due notices to all the Equity Shareholders as well as the public notice, the said meeting was duly convened on 24th June 2013. At the said meeting the Scheme was duly approved unanimously by the Equity Shareholders present and voting. The Chairmans report alongwith affidavit dated 28th June 2013 has been placed on record which confirms the result of the said meeting. 8. The substantive petitions for the sanction of the Scheme were filed by the De-merged Company and Resulting Company which were admitted on 25th July 2013. The notice for the hearing of the petitions were duly advertised in the newspapers being Indian Express, English daily and Divya Bhaskar Gujarati daily, both Vadodara editions of 5th August 2013 and the publication in the Government gazette was dispensed with as directed in the said orders. Pursuant to the said publication in the newspapers, no objections were received by the petitioner or its advocate. 9-10. Pursuant to the said publication in the newspapers, no objections were received by the petitioner or its advocate. 9-10. Notice of the petitions have been served upon the Central Government and Mr.M.I.A.Shaikh, learned Standing Counsel appears for the Central Government. An affidavit dated 24th September 2013 has been filed by Mr.Kashmir Lal Kamboj, the Regional Director, North-Western Region, Ministry of Corporate Affairs, whereby, several observations are made. The same pertain to - (a) the meeting of the unsecured creditors of the Resulting Company; (b) obtaining the requisite licenses for the aviation business by Resulting Company, (c) disputed tax liabilities of the Resulting Company, (d) compliance sought vide the Scheme for provisions of Income Tax Act. (e) transfer of Authorised Capital of the De-merged Company to the Resulting Company (f) Restructure of share capital leading to direction to add suffix and reduced in case of Demerged company, (g) an error with regard to the name of the authority granting the shifting of the registered office of the De-merged Company from State of Delhi to the State of Gujarat. (a) First observation is merely factual narration and no response is necessary. (b) With regard to the approval of the unsecured creditors of the Resulting Company, it has been submitted that the Scheme does not affect the rights and interests of the creditors of the Resulting Company, which is a profit making Company and has already undertaken to pay all the dues of the creditors in regular course of business. No one has come forward with any objection to the Scheme in response to the public notice of the petition. Hence, no directions are necessary to obtain their approval at this stage. (c) With regard to the requisite licenses, approvals and other permissions from any regulatory authority/concerned Ministry and DGCA, it has been submitted that all such licenses and permissions have been obtained by the Demerged Company and the same shall be transferred to the Resulting Company. The Resulting Company has further undertaken that it shall takfe all necessary actions in this regard upon the Scheme being effective. (d) With regard to the outstanding tax liabilities of the Resulting Company, a detailed statement has been placed on record to point out the status of all pending disputes before respective appellate authorities. The Resulting Company has undertaken to pay the same, if any liability is crystalised. (d) With regard to the outstanding tax liabilities of the Resulting Company, a detailed statement has been placed on record to point out the status of all pending disputes before respective appellate authorities. The Resulting Company has undertaken to pay the same, if any liability is crystalised. It is further clarified that this order sanctioning the Scheme shall not come in the way of the aforesaid proceedings. (e) With regard to the observation of the Regional Director for assessing the amount of benefit to be realised to the Resulting Company as a result of its compliance with the provisions of the Income Tax Act, it has been submitted that the exact amount of such benefit cannot be ascertained today as it depends upon various uncertainties including finalisation of pending assessments and appellate proceedings. (f) With regard to the transfer of part of the Authorised Capital to the Resulting Company, it has been submitted that the Authorised Capital of any company is an entitlement of the Company. Under the scheme, the transfer of the undertaking is envisaged with all the entitlements. Further, there is no legal prohibition for the transfer of the Authorised Capital of the De-merged Company to the Resulting Company. Reliance has been placed on a large number of Schemes of De-merger wherein the said transfer of Authorised Capital has been permitted by the High Court of Gujarat, including this Court. (g) With regard to the proposed Restructure of Capital in form of Reduction of the Preference and Equity Share Capital, the observation giving details of the proposed reduction is factual and needs no response. With regard to addition of suffix and reduced it has been submitted that sub-Section (3) of Section 102 of the Companies Act is discretionary in nature. In normal circumstances, such directions are not issued. Such kind of direction may be necessary in exceptional cases where facts and circumstances so require. In the present case, the Demerged Company is the wholly owned subsidiary of the Resulting Company. There being no public interest and the proposed reduction having no impact on public interest, there is no specific ground for such directions. The reduction is proposed merely to make necessary accounting adjustments as a consequence of the de-merger and adjust the accumulated losses so as to make its financial statements realistic. The concerned stakeholders of the Company viz. There being no public interest and the proposed reduction having no impact on public interest, there is no specific ground for such directions. The reduction is proposed merely to make necessary accounting adjustments as a consequence of the de-merger and adjust the accumulated losses so as to make its financial statements realistic. The concerned stakeholders of the Company viz. the shareholders, Secured Creditors and the Unsecured Creditors have not raised any objection on such ground. Considering the facts and circumstances of the present case, there is no justification or special reason for issuing such direction to add And Reduced" as a suffix to its name. 11. Considering all the facts and circumstances and taking into account all the contentions raised by the affidavits and reply affidavits, the reliance placed on the judgments of this Court and the submissions during the course of hearing, I am satisfied that the observations made by the Regional Director, Ministry of Corporate Affairs, do not survive. I have come to the conclusion that the present Scheme of arrangement is in the interest of its shareholders and creditors as well as in the public interest and the same deserves to be sanctioned. The Scheme is hereby sanctioned. 12. The Reduction of Issued, Subscribed and Paid up Preference Share Capital as well as Equity Share Capital of the De-merged Company as envisaged under clause 15 of the scheme is hereby granted. Prayers in terms of paragraph 18 (a) and (b) as well as the minutes as under Section 103 in terms of Paragraph 17 of the Company Petition No.188 of 2013 for the De-merged Company and prayers made in paragraph 21 (a) of the Company Petition No.189 of 2013 for the Resulting Company are hereby granted. 13. The petitions are disposed of accordingly. So far as the costs to be paid to the Central Govt. Standing Counsel is concerned, I quantify the same at Rs.7,500/- per petition. The same may be paid to the learned Standing Counsel appearing for the Central Govt. 14. The petitioner companies are further directed to lodge a copy of this order and the Scheme duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty, if any, on the same within 60 days from the date of the order. 15. 14. The petitioner companies are further directed to lodge a copy of this order and the Scheme duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty, if any, on the same within 60 days from the date of the order. 15. The Petitioner companies are directed to file a copy of this order alongwith a copy of the Scheme with the concerned Registrar of Companies, electronically, along with E-Form 21 in addition to physical copy as per relevant provisions of the Act. 16. Filing and issuance of drawn up order is hereby dispensed with. 17. All concerned authorities to act on a copy of this order along with the Scheme duly authenticated by the Registrar, High Court of Gujarat. The Registrar, High Court of Gujarat shall issue the authenticated copy of this order alongwith Scheme as expeditiously as possible.