In Re: Pinkcity Motels and Buildestates Private Limited and Others

Sangeet Lodha, J.

This Company Petition has been filed under Sections 391 to 394 of Companies Act, 1956 (for short "Act"), seeking sanction of proposed Scheme of Amalgamation between Pinkcity Motels and Buildestates Private Limited (hereinafter referred to as ''Transferor Company'') and Jaipur Motels and Buildestates Private Limited (hereinafter referred to as ''Transferee Company''), whereby the entire undertaking of the Transferor Company with assets and liabilities, upon the Scheme becoming effective, shall without further act, deed, matter or thing shall stand transferred to and vested in the Transferee Company, so as to become properties and liabilities of the Transferee Company.

The Petitioners Transferor Company and the Transferee Company have their registered offices situated at Corporate Tower, Plot No. 21 and 22, Behind Bank of Maharashtra, 2nd Puliya Commercial Centre, Chopasani Housing Board, Jodhpur, within the jurisdiction of this Court.

The Transferor Company and the Transferee Company belonging to same business groups, engaged in the same business, are owned by common shareholders and have common management. The Scheme of Amalgamation stands approved by the Board of Directors of both the Companies in their separate meetings held on 30.10.13.

The Transferor Company has 2 Equity Shareholders, 2 Unsecured Creditors and no Secured Creditor. Similarly, the Transferee Company has also 2 share holders, 2 Unsecured Creditors and no Secured Creditor.

The Transferor Company and the Transferee Company had filed a joint Company Application registered as Company Application No. 4/2013, seeking directions for dispensing with the requirement of convening, holding and conducting separate meetings of their Equity Shareholders, Secured Creditors and Unsecured Creditors. Vide order dated 17.12.13 passed by this Court, the requirement of convening the meetings of Unsecured Creditors of both the Companies was dispensed with, however, the Court directed to hold separate meetings of Equity Shareholders of both the Companies on the date and time specified, for the purpose of considering and if thought fit, approving with or without modification the Scheme of Amalgamation. The Court appointed Mr. Vijay Purohit, Advocate and failing him Mr. Arjun Bhattar, Advocate, to be the Chairman of the meeting of Equity Shareholders of the Transferor Company. Mr. Arjun Bhattar, Advocate and failing him Mr. Vijay Purohit, Advocate was appointed to be Chairman of the meeting of the Equity Shareholders of the Transferee Company.

Pursuant to order dated 17.12.13 passed by this court and in conformity with the provisions of the Companies (Court) Rules, 1959, the notices of the meetings were published in Dainik Navjyoti (Jodhpur Edition) and The Times of India (Rajasthan Edition), on 11.1.14. That apart, individual notice alongwith statement under Section 393, Scheme of Amalgamation and proxy form of the meetings were sent individually to the share holders through speed post on 10.1.14.

The meetings of shareholders of both the Companies were convened on 8.2.14 at the registered office of the Companies. Mr. Vijay Purohit, Advocate who presided over the meeting of Equity Shareholders of the Transferor Company and Mr. Arjun Bhattar, Advocate, who presided over the meeting of Equity Shareholders of Transferee Company, have submitted their reports supported by their own affidavits. As per the report, the following resolution put before the meetings for consideration has been approved and agreed to unanimously:

"RESOLVED THAT the Scheme of Amalgamation between Pinkcity Motels and Buildestates Private Limited, with Jaipur Motels and Buildestates Private Limited a copy whereof was placed before the Meeting and is hereby approved and that the Board of Directors of the Company be and is hereby authorised to take all necessary steps and to do all such acts, matters and things as it may consider necessary or expedient for carrying the said Scheme into effect and further to agree to such modifications and conditions as may be directed by the Hon''ble High Court of Judicature for Rajasthan at Jodhpur."

Now, the Transferor Company and the Transferee Company have preferred this joint petition seeking sanction of the Scheme of Amalgamation. Vide order dated 25.3.14 passed by this court, notice of the petition was directed to be issued to the Official Liquidator attached to this court, the Registrar of the Companies, Rajasthan and the Regional Director, Ministry of Corporate Affairs, North West Region, Ahmedabad.

In response to the notice, the Official Liquidator put in appearance and preferred an application with the submission that for the purpose of making the report, examination of statutory records and books of accounts of the Transferor Company for last five years is requisite. It was submitted that examination of the statutory records and books of accounts is a specialized job and would particularly require expertise knowledge of accounts; and for such scrutiny and study, services of Chartered Account having experience in such matter, is required. Accordingly, vide order dated 13.5.14 passed by this court, the Official Liquidator was permitted to take the services of Mr. Ankur Soni, Chartered Accountant.

The Official Liquidator has filed the report with the conclusion that the affairs of the Transferor Company has not been conducted in a matter prejudicial to the interest of its members and creditors and therefore, the Official Liquidator has no objection, if upon sanctioning of the Scheme of Amalgamation, the Transferor Company is ordered to be dissolved without winding up within the meaning of Section 394 (1)(iv) of the Act.

The Regional Director, North Western Region, has filed affidavit stating that clause 8.3(e) of the Scheme of Amalgamation is not in accordance with Accounting Standard-14 (AS-14) as required. The clause 8.3(e) of the Scheme objected to by the Regional Director, reads as under:

"(e) the excess, if any, of the value of aggregate value of the said assets of the Transferor Company over the aggregate value of the liabilities, balance in Profit and Loss Account and reserves of the Transferor Company after adjustment of inter-se loans and investments, if any, pursuant to the Scheme, recorded by the Transferee Company upon their transfer to and vesting the Transferee Company under the Scheme shall be credited to an "Amalgamation Reserve Account" and the same shall be treated as reserve forming part of the net worth of the Transferee Company. However, in case of reverse situation, after recording the necessary entries as envisaged in para (a) to (c) herein above, the difference shall be first adjusted against the revaluation reserve account and the balance, if any, shall be adjusted from the Profit and Loss account of the Transferee Company."

It is submitted that as per the requirements of AS-14, the excess of assets over liabilities should be credited to Amalgamation Reserved Account and the shortfall, if any, should be debited to Goodwill Account only, whereas, the Petitioner Companies proposes in Scheme to transfer the deficit of Net Assets Value to Revaluation Reserve Account/Profit and Loss Account of the Transferee Company.

It is further submitted by the Regional Director that the Ministry of Corporate Affairs vide its Circular No. 2/1/2014 dated 15.1.14 has directed that the Regional Director concerned shall invite specific comments from the Income Tax Department giving 15 days time to the Income Tax Department to inform objections, if any, to the proposed Scheme under Section 391 or 394, as the case may be and file the report on behalf of the Central Government. It is stated that the Directorate vide letter dated 4.4.14 requested the Chief Commissioner of Income Tax, Rajasthan, to give specific comments of the Income Tax Department about the proposed Scheme, however, no reply has been received from the Income Tax Department in this regard. It is stated that as per the report of the Office of Registrar of Companies, there are no complaints against the petitioner Company including any complaint/representation against the Scheme of Amalgamation of the Company. It is categorical stand of the Regional Director that the Scheme of Amalgamation is not prejudicial to the interest of Shareholders of the Petitioner Company and the public at large.

Vide order dated 5.12.14 passed by this court, the notice of the hearing was also directed to be advertised in Hindi and English daily newspapers wherein the notices of the meetings of the Equity Shareholders of both the Companies are published. The notices have been duly published, however, no objection whatsoever against the grant of sanction to proposed Scheme of Amalgamation has been received from any other party till this date.

A rejoinder to the affidavit filed by the Regional Director, North Western Region, Ministry of Corporate Affairs, Ahmedabad has been filed on behalf of the petitioner companies categorically stating that the petitioner companies shall comply with the requirement of AS-14 with regard to Accounting Treatment of Amalgamation and the excess of assets over liabilities shall be credited to Amalgamation Reserve Account and the shortfall, if any, shall be debited to Goodwill Account. It is clarified that shortfall will not be charged to the Revaluation Reserve Account/Profit and Loss Account and further that reserve so created, if any, shall not be available for distribution of dividend. In this regard, the Resolution adopted by the Board of Directors of the Petitioner companies in their respective Board''s meeting held on 19.6.14, amending relevant clause 8.3(e) has been set out in the rejoinder filed and the revised Scheme of Amalgamation has been placed on record as Annexure A. The amended clause 8.3(e) reads as under:

"(e) the excess, if any, of the value of aggregate value of the said assets of the Transferor Company over the aggregate value of the liabilities, balance in Profit and Loss Account and reserves of the Transferor Company after adjustment of inter-se loans and investments, if any, pursuant to the Scheme, recorded by the Transferee Company upon their transfer to and vesting in the Transferee Company under the Scheme shall be credited to an "Amalgamation Reserve Account" and the same shall be treated as reserve forming part of the net worth of the Transferee Company. However, in case of reverse situation, after recording the necessary entries as envisaged in para (a) to (c) hereinabove, the differences, if any, shall be debited to the goodwill account of the Transferee Company."

Thus, the objection raised by the Regional Director as aforesaid, stands satisfied.

Mr. A.K. Rajvanshy, Assistant Solicitor General, appearing for the Regional Director has placed on record a communication dated 21.11.14 of the Government of India, Ministry of Corporate Affairs, clarifying that since the petitioner companies have ensured about compliance of AS-14 in revised Scheme at para 8.3(e) and also undertaken for compliance of provisions of Income Tax Act and the Rules, therefore, the Directorate does not have to say anything further.

As noticed above, the Transferor Company and the Transferee Company belonging to same business group, engaged in same business, are owned by common shareholders, under the common management. No adverse remark or comment, irregularity or mismanagement of the affairs of the petitioner companies, is reported by the Auditor in the Audit Report. No investigation proceedings are alleged to be pending against the Petitioner Companies under Section 235 to 251 or any other provisions of the Act of 1956.

In view of the unanimous approval accorded by the Equity Shareholders and Unsecured Creditors of the Petitioner Companies; the opinion of the Regional Director, North-Western Region, Ministry of Corporate Affairs in terms that Scheme of Amalgamation is not prejudicial to interest of Shareholders of the Petitioner Companies and public at large and since the Petitioner Companies have complied with all the statutory requirements and formalities, this court is of the opinion that Scheme of Amalgamation is fair and reasonable and therefore, deserves to be sanctioned.

Accordingly, the Company Petition is allowed. The Revised Scheme of Amalgamation between Pinkcity Motels and Buildestates Private Limited-''Transferor Company'' and Jaipur Motels and Buildestates Private Limited-Transferee Company and their respective Shareholders and Creditors, placed on record as Annexure-A, is hereby sanctioned in terms of the provisions of Section 391 and 394 of the Act. As per the Scheme with effect from the appointed date, the undertaking of Transferor Company (as defined in para No. 1.8 of the Scheme), shall stand transferred to and vest in or be deemed to be transferred to and vested in Transferee Company, on a going concern basis without any further act, deed, matter or things. Similarly, in terms of the Scheme, all the liabilities and duties of the Transferor Company shall stand transferred to the Transferee Company without any further act or deed.

The order be drawn up in the prescribed form in terms of Rule 81 and 84 of the Company (Court) Rules, 1959.

The Petitioner Companies shall file certified copy of the order with the Registrar of Companies within a period of 30 days from the date of receipt of the same.

It may be clarified that this order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges if any, payable in accordance with any law or permission/compliance with any other requirement which may be specifically required under any law.

Any person interested shall be at liberty to apply to the Court in the above matter for any direction that may be necessary.

The Petitioner Companies shall deposit a sum of Rs. 50,000/- in common pool fund of Official Liquidator and shall pay the costs quantified at Rs. 10,000/- to the Regional Director, North Western Region, within a period of four weeks from the date of receipt of certified copy of this order.