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Gujarat High Court · body

2014 DIGILAW 1093 (GUJ)

In re Sava Health Care Ltd. v. .

2014-10-17

N.V.ANJARIA

body2014
JUDGMENT : N.V. Anjaria., J. The captioned are the petitions filed by three companies for obtaining a sanction of this court to the Scheme of Arrangement in the nature of Amalgamation under Sections 391 to 394 of the Companies Act, 1956. The Scheme of Amalgamation is amongst Sava Health Care Limited and Sava Private Limited-the two transferor companies - the petitioners of Company Petition No. 63 of 2014 and Company Petition No. 64 of 2014, and Angha Pharma Private Limited-the transferee company-the petitioner of Company Petition No.65 of 2014. 2. All the three petitions being necessarily interconnected, they were heard together and are considered simultaneously by this common order. 3. Sava Health Care Limited, the First Transferor Company in Company Petition No.63 of 2014 was incorporated on 21/02/1989, as a Private Limited Company in the name of Biodeal Laboratories Private Limited, thereafter its name was changed to Sava Health Care Private Limited and thereafter it was converted into Public Limited Company and the name Sava Health Care Limited is the current name under which it stands incorporated. Sava Private Limited, Second Transferor Company in Company Petition No.64 of 2014 was incorporated on 17/09/2009, as a Private Limited Company in the name of Sava Infotech Private Limited, thereafter its name was changed to Sava Private Limited under which it stands incorporated and vide a special resolution the registered office of the Company was shifted from the State of Maharashtra to the State of Gujarat vide a certificate dated 10/05/2013 under section 8(3) of the Companies Act, 1956. Anagha Pharma Private Limited, the Transferee Company in Company Petition No.65 of 2014 was incorporated on 25/10/2004, as a Private Limited Company in the name of Anagha Pharma Private Limited under which it stands incorporated and vide a special resolution the registered office of the Company was shifted from the state of Maharashtra to the State of Gujarat vide a certificate dated 10/05/2013 under section 18(3) of the Companies Act, 1956. The respective petitions give the details of share capital of all the three petitioner companies in the respective petitions. 3.1 Both the Transferor Companies Sava Health Care Limited and Sava Private Limited are subsidiaries of the Transferee Company viz. Anagha Pharma Private Limited. The respective petitions give the details of share capital of all the three petitioner companies in the respective petitions. 3.1 Both the Transferor Companies Sava Health Care Limited and Sava Private Limited are subsidiaries of the Transferee Company viz. Anagha Pharma Private Limited. Sava Health Care Limited is presently engaged in the activity of manufacturing a range of pharmaceutical products on Principal to Principal basis (PIP Basis) and also markets the products outside India after getting approvals from drug authorities within the unregulated markets. AS a part of its long term plan the Company is contemplating setting up of a state of the art manufacturing facility capable of getting regulatory approvals for supply to the regulated markets of USA, Europe, Australia, Japan, etc. Sava Private Limited has its factory located at Malur, near Bangalore. It has recently acquired neutraceutical business and has activated this business in the financial year 2012-13. 3.2 The Transferee Company Anagha Pharma Private Limited is primarily engaged in the business of trading of wide variety of pharmaceuitcal products in the unregulated markets. Its business model predominantly envisages procurement of pharmaceutical products of leading brands and marketing the same in unregulated markets through its marketing and distribution channels set up in various countries. 3.3 All the Companies belong to the same group of management. The merger of Sava Health Care Limited (SHL) and Sava Private Limited (SPL) with Anagha Pharma Private Limited (APL) will enable significant consolidation of Health Care business into a single entity, which will provide more efficient utilisation of capital, human resources and infrastructure to create a stronger base for future growth. The amalgamation is proposed in order to achieve synergic benefits and consolidation of the activities for the rapid growth of the Transferee Company, submitted learned advocate for the Petitioner Companies. 4. Heard learned advocate Ms. Vaibhavi Parikh for the Petitioner Companies and learned Assistant Solicitor General Mr. Devang Vyas appeared for the Central Government. 5. It was pointed out from the record by Order dated 8th January 2014 passed in the Company Application No.7 of 2014 filed by Sava Health Care Limited, meetings of the Equity Shareholders and sole Preference Shareholder of the Transferor Company were dispensed with in view of the written consent letters from all the concerned persons being placed on record and substantiated by the certificates of the Chartered Accountant. Separate meetings of the Secured Creditors and Unsecured Creditors were directed to be convened for the purpose of seeking the approval from all the concerned parties to the proposed scheme. Pursuant to the directions issued with regard to the conduct of the meetings, after the due service of individual notice to all the Secured and Unsecured Creditors, as well as after giving public notice, the said meetings were duly convened on 24th February 2014. the proposed scheme was considered at the said meetings and it was approved unanimously at the meeting of the Secured Creditors viz. 100% in number and 100% in value by the Secured Creditors present and voting and the proposed scheme was approved by requisite statutory majority at the meeting of the Unsecured Creditors viz. 86.67% in number and 94.36% in value by the Unsecured Creditors of the Company present and voting at the meeting. The Chairman's report dated 4th March 2014 for both the meetings is placed on record confirming the result of these meetings; 5.1 Similarly, in case of Sava Private Limited by order dated 8th January, 2014, passed in the Company Application No. 8 of 2014, meeting of the Equity Shareholders of the Transferor Company was dispensed with in view of the written consent letters from all the concerned persons being placed on record. There are no Secured Creditor of the company, recorded the said order dated 8th January, 2014. Both these facts are substantiated by the certificates of the Chartered Accountant which are placed on record. A meeting of the unsecured creditors was directed to be convened for the purpose of seeking the approval from the concerned parties to the proposed scheme. Pursuant to the directions issued with regard to the directions issued with regard to the conduct of the meeting, after the due service of individual notice to all the Secured Creditors, as well as after giving public notice, the said meeting was duly convened on 24th February, 2014. The proposed scheme was considered at the said meeting and it was approved unanimously at the meeting of the secured creditors viz. 100% in number and 100% in valued by the secured creditors present and voting at the meeting. The Chairman's report dated 4th March, 2014 for the said meeting is placed on record confirming the result of the meeting. The proposed scheme was considered at the said meeting and it was approved unanimously at the meeting of the secured creditors viz. 100% in number and 100% in valued by the secured creditors present and voting at the meeting. The Chairman's report dated 4th March, 2014 for the said meeting is placed on record confirming the result of the meeting. 5.2 Similarly, in case of the Transferee Company Anagha Pharma Private Limited, by virtue of order dated 8th January, 2014, passed in the company application No. 9 of 2014, the meeting of the Equity Shareholders was dispensed with in view of the written consent letters from all the concerned persons being placed on record and substantiated by the certificate of the Chartered Accountant. 6. The present substantive petitions were thereafter filed by the Transferor Companies and Transferee Company placing the Scheme of Amalgamation for consideration and sanction of this court. The scheme is produced at Annexure-C. 6.1 The substantive petitions were admitted by order dated 27th March, 2014. The public notice for the same were duly advertised in the newspaper Indian Express, English daily and Akila, Gujaraty daily, both Surendranagar Editions dated 9th April, 2014, and the publication in the Government Gazette was dispensed with. Affidavit dated 22nd April, 2014, confirms the same. No one has come forward with any objection to the said petitions even after the publication. The same has been further confirmed by the additional affidavit dated 14th October, 2014. 6.2 Notice of the petitions was served upon the Central Government through Regional Director. Learned Assistant Solicitor General appeared for the Central Government. Common affidavit dated 28th August, 2014, came to be filed by one Mr. Shambhu Kumar Agarwal, the Regional Director. In that common affidavit, the said authority made certain comments and observations. 6.3 In response to the aforesaid common affidavit, one Mr. Anand Choudhary, authorised signatory of all the three companies has filed a common additional affidavit and has dealt with the observations and comments of the Regional Director. 7. Proceeding to consider observations and comments of the Regional Director and the response of the petitioner companies in its additional affidavit mentioned above. 7.1 The first observation of the Regional Director is regarding accounting entries/adjustments as envisaged vide Clause 18 of the Scheme. 7. Proceeding to consider observations and comments of the Regional Director and the response of the petitioner companies in its additional affidavit mentioned above. 7.1 The first observation of the Regional Director is regarding accounting entries/adjustments as envisaged vide Clause 18 of the Scheme. It has been contended by the Regional Director that as per Clause 15 of the Scheme it is proposed that the equity shares shall be issued at a premium and due to which Securities Premium Account will be created in the books of the petitioner Transferee Company which is in fact Amalgamation Reserve Account. It has also been contended that the excess of assets over liabilities shall be treated as Amalgamation Reserve Account arising on amalgamation and the same shall not be available for distribution of dividend. 7.1.1 It was submitted that the accounting treatment proposed in Clause 18 of the Scheme is not contradictory to the accounting principles and is permissible in law. It was also submitted that it is already envisaged in the Scheme at Clause 18 that amalgamation of the Transferor companies with the Transferee company shall be accounted for in accordance with "Purchase Method" of accounting as pre Accounting Standard-14 as notified under Section 211(3C) of the Act. It was further contended that Section 211(3B) of the Companies Act, 1956 provides that if the practise adopted for such accounting entry, varies from the said standard, necessary disclosure should be made in the financial statements. The Transferee company hereby undertakes that in case of deviation from the aforesaid Accounting Standard or Practise, the Transferee company shall make necessary disclosures in its First Financial Statement after the Scheme is made effective and also that the petitioner companies shall comply with the necessary Accounting Principles. The said issue is already settled by several decisions of various High Courts, including this Court. Reliance was placed in the case of Hindalco Industries Limited [(2009) 151 Company Cases 446 (Bombay) and a Division Bench judgment of this Court in the cases of Adishree Tradelinks Private Limited passed in O.J. Appeal No.31 of 2012 and allied matters, decided on 30.07.2012, wherein the Division Bench has taken the view that such Amalgamation Reserve Account can be utilised for the purpose of declaring dividends. Hence, the observation made by the Regional Director pertaining to Accounting Standard-14 is answered and hence does not survive. Hence, the observation made by the Regional Director pertaining to Accounting Standard-14 is answered and hence does not survive. 7.2 The second observation is in respect of absorbing the permanent employees of the Transferor companies by the Transferee company as envisaged in the Scheme. 7.2.1 It was submitted that the employees other than permanent employees that are employed by the Transferor companies are as per the contractual obligations and therefore cannot be absorbed by the Transferee company as the validity of the contract is for a specific period. In any case, the employees other than the permanent employees are automatically covered under the Scheme as all the contracts entered into by the Transferor companies which are valid as on the effective date shall be binding on the Transferee company and therefore, this becomes an automatic absorption of all the employees other than permanent employees by the Transferee company. The Clause 4.9(b) and 10 of the Scheme clearly envisages that all the agreement/contracts shall continue in full force and effect in favour of the Transferee company and therefore, it is not required to amend Clause 12 of the Scheme. It was further submitted that the Transferee company undertakes to absorb all the employees of both the Transferor companies upon Scheme coming into effect. Hence, the observations made by the Regional Director is clarified and answered and therefore, there is no need to amend any clause of the Scheme. 7.3 The third observation is in respect of placing on record the details with respect to convening of the meetings of the Secured Creditors and Unsecured Creditors of the Transferee company. 7.3.1 It was submitted that the proposed Scheme does not envisages any compromise or agreement with the Secured Creditors and/or Unsecured Creditors of the Transferee company. The Transferee company shall continue to exist and carry on its commercial activities even after the Scheme is made effective. Further, both the Transferor and Transferee companies are profit making companies and belong to the same group of management and in view thereof, the rights and interests of the Creditors of the Transferee company are not likely to be affected in any manner. It is further submitted that despite publication in the newspapers inviting objections to the proposed Scheme, none of the Creditors of the Transferee company have come up with any objections. It is further submitted that despite publication in the newspapers inviting objections to the proposed Scheme, none of the Creditors of the Transferee company have come up with any objections. This aspect reaffirms the contention of the petitioners that the rights and interests of the Creditors of the transferee company are not affected due to the Scheme. It was submitted that considering the above facts and circumstances of the case, this Court has not issued directions with regard to the approval/consent of the Creditors of the Transferee company. For this purpose, reliance was placed on the judgment passed by the Division Bench of this Court in case of Union of India v. Ambalal Sarabhai Enterprise [(1984) 55 Company Cases 623 (Guj.)]. The contention of the Regional Director is devoid of substance and stands negated. 7.4 The fourth observation is regarding the Appointed Date prescribed under Clause 4.2 of the Scheme being 01st April, 2012. 7.4.1 It was submitted that there is no legal bar on the selection of the Appointed Date. It is the prerogative of the Board of Directors of the petitioner companies to select the Appointed Date for the Scheme. The same is required to be approved by the shareholders of the respective petitioner companies. Both these requisites have been complied with, in the present proceedings. All these companies belong to the same group of management. Considering the said fact, interest of any shareholders is not likely to be affected by the same. It is purely an administrative exigency due to which such date is chosen by the management and approved by the shareholders. The contention of the Regional Director is devoid of substance and stands negated. 7.5 The fifth observation is regarding the compliance by the Transferee company with respect to Change in the Name. 7.5.1 It was submitted that Clause 19 of the Scheme relates to the Change in the Name of the Company on approval of the Scheme by this Court. The petitioner companies undertake to comply with the relevant provisions of the new Companies Act, 2013 and rules thereto for Change in the Name of the Transferee company upon Scheme coming into effect. The petitioner companies undertake to comply with the relevant provisions of the new Companies Act, 2013 and rules thereto for Change in the Name of the Transferee company upon Scheme coming into effect. 7.6 The sixth observation is regarding the activities carried out by the Company are ultra vires of the Memorandum of Association and the Company should be covered in the category of NBFC as the Company's income during the Financial Year 2011-12 is mainly generated from sources such as interest and dividend income which is an investment activity. 7.6.1 It was submitted that the total revenue of the Transferee company as on 31st March, 2013 is to the tune of Rs.35.80 crores comprising of Rs.28.74 crores is from other income including dividend income from the wholly owned subsidiary companies for the year ending on 31st March, 2013. Thus more than 75% of the total income has been derived out of sale of pharmaceutical products only and accordingly it cannot be considered that substantial income has been received from the business of NBFC. The said fact is very much evident and is reflected from the Audited Balance Sheet as on 31st March, 2013 of the Transferee company in the section of the notes to and forming part of Financial Statements for the year, which is placed on record as Annexure B-1 to the petition. It is further submitted that the Transferee company has invested only in the group companies including foreign subsidiary companies which are having similar object as that of the Transferee company, and therefore, this cannot be considered as NBFC investment but the investment in the group companies, that is either the wholly owned subsidiary or subsidiary companies or joint venture companies for the furtherance of the main object of the Transferee company. More so, to cancel such type of huge investment in the group concerns/subsidiaries companies, the proposed Scheme of Amalgamation has been designed so that in both the Transferor companies, the investment of the Transferee company shall be cancelled and the entire fixed assets and current assets of the Transferor companies shall form part of the fixed assets and current assets of the Transferee company. This will have following dual effects: (i) Investments will be replaced by fixed assets and current assets of the Transferor companies; (ii) Dividend income will be replaced by revenue from the pharmaceutical business of the Transferor companies. This will have following dual effects: (i) Investments will be replaced by fixed assets and current assets of the Transferor companies; (ii) Dividend income will be replaced by revenue from the pharmaceutical business of the Transferor companies. 7.6.2 It was submitted that as the petitioner Transferee company is still engaged in the business of manufacturing and trading of pharmaceutical products as mentioned in the Memorandum of Association, the same is not ultra vires of the Memorandum of Association and also the Company will not be covered in the category of NBFC as more than 50% of the total income has been derived our of sale of pharmaceutical products. Hence, the observations made by the Regional Director is clarified and answered. 7.7 The seventh observation is about non-response of the Income Tax Department to the letter of the Regional Director and requiring the Companies to comply with the Income Tax clause. 7.7.1 The next observation of the Regional Director vide para 2(g) confirm no response received from the Income Tax Department. This implies that the Income Tax Department has not found anything objectionable in the proposed Scheme. The company has agreed to comply with the applicable provisions of the Income Tax Act and rules. 7.8 The Regional Director in its affidavit has observed that as per the said report, no complaint has been received against the petitioner Companies including any complaint/representation against the scheme of amalgamation. 7.9 The Regional Director is in its affidavit vide paragraph 2(m) has observed that the proposed Scheme of Amalgamation is not prejudicial to the interest of the shareholders of the petitioner companies and the public at large. 8. Notices of the petitioner of the Transferor Companies were served upon the Official Liquidator. The Official Liquidator filed his report dated 13th October, 2014. Therein, the Official Liquidator has raised three issues viz. (a) The 'Appointed Date' as proposed under the Scheme, (b) all the employees of the Transferor Companies to be transferred to the Transferee Company and (c) Mismatch of the amount of Authorised Share Capital in the MCA data and the Audited Balance Sheet as on 31.03.2013 of Sava Private Limited. Therein, the Official Liquidator has raised three issues viz. (a) The 'Appointed Date' as proposed under the Scheme, (b) all the employees of the Transferor Companies to be transferred to the Transferee Company and (c) Mismatch of the amount of Authorised Share Capital in the MCA data and the Audited Balance Sheet as on 31.03.2013 of Sava Private Limited. 8.1 The two issues with respect to (a) The 'Appointed Date' as proposed under the Scheme and (b) all the employees of the Transferor Companies to be transferred to the Transferee Company are the same which are raised by the Regional Director and answered by the Petitioners as noted in the foregoing paragraphs. 8.2 The third issue raised by the Official Liquidator is regarding mismatch of the amount of Authorised Share Capital in the MCA data and the Audited Balance Sheet as on 31.03.2013 of Sava Private Limited. 8.2.1 It was submitted that it was an inadvertent error in mentioning the amount of Authorised Share Capital in the Audited Balance Sheet as on 31/03/2013 and the same has been rectified by following required procedure. A copy of the Provisional Balance Sheet of Sava Private Limited as on 31/03/2014 is placed on record along with the additional affidavit as Annexure-I, which reflects the rectified Authorised Share Capital of the Transferor Company viz. Sava Private Limited which corresponds with the amount mentioned in the MCA data. 8.3 The Official Liquidator had otherwise opined that the affairs of the Transferor Companies have not been conducted in a manner prejudicial to the interest of its members or to the public interest. The Official Liquidator has requested that the Transferor Companies may be directed to preserve the books of accounts and records and not to dispose of the records without prior permission of the Central Government. 9. In view of above, all the observations and comments by the Regional Director made in respect of the Scheme in question have been explained and/or met with and/or do not sustain. The necessary report is produced by the official liquidator. Furthermore, from the material on record and perusal of the Scheme, the Scheme appears to be fair and reasonable and is not in violation of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the Scheme except as mentioned above. All requisite statutory compliance's are fulfilled. Furthermore, from the material on record and perusal of the Scheme, the Scheme appears to be fair and reasonable and is not in violation of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the Scheme except as mentioned above. All requisite statutory compliance's are fulfilled. 9.1 This court is accordingly satisfied that the Scheme of Arrangement in the nature of Amalgamation amongst the petitioner companies deserve to be granted. Accordingly, prayer in paragraph-22(a) in Company Petition Nos. 63 of 2014, paragraph-21(a) in Company Petition Nos. 64 of 2014, as well as prayer in paragraph-15(a) in Company Petition No. 65 of 2014 are hereby granted. 9.2 It is further ordered that as required under Section 396-A of the Companies Act, 1956, the transferor companies shall not dispose of or destroy its books of accounts and other connected papers without the prior consent of the Central Government and shall preserve the same. 10. All the three petitions are allowed and disposed of accordingly. 11. The petitioner companies shall pay towards professional charges to learned Additional Solicitor General Rs.7,500/- in respect of each of the three petitions. The official liquidator shall be paid cost of Rs.7,500/- in each of the two petitions by the transferor companies being Company Petition Nos. 63 of 2014 and 64 of 2014. 12. The petitioner companies are further directed to lodge a copy of this order, the schedules of immovable assets of all the transferor companies as on the date 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. 13. The petitioner companies are directed to file a copy of this order along with a copy of the Scheme with the concerned Registrar of Companies, electronically, along with Employee-Form 21 in addition to physical copy as per relevant provisions of the Act. 14. Filing and issuance of drawn up order is hereby dispensed with. All the 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 along with Scheme as expeditiously as possible.