Pranavaditya Spinning Mills Limited Vs

Kishore Vemulapalli, Member (Judicial)

This Bench is convened through video conferencing today.

Heard Learned Counsel for the Petitioner Companies. No objector has come before this Tribunal to oppose the Scheme and nor has any party controverted any averments made in the Petition.

The sanction of this Tribunal is sought under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 to the said Scheme of Amalgamation (by way of Merger by Absorption) of Pranavaditya Spinning Mills Limited with Indo Count Industries Limited and their respective shareholders.

The Petitioner Companies have approved the Scheme by passing the Board Resolutions at their respective board meetings held on 21th October, 2020 and have approached the Tribunal for sanction of the Scheme.

The Equity Shares of First Petitioner Company are listed on BSE Limited (“BSE”) and the Equity Shares of Second Petitioner Company are listed on BSE and National Stock Exchange of India Limited (“NSE”). Accordingly, BSE by its letter dated March 25, 2021, has given their “No Objection Letter” to the First Petitioner Company, to file the Scheme with the Tribunal. Similarly, BSE and NSE by its letter dated March 25, 2021 and March 26 2021 respectively have, given their “No Objection Letter” to the Second Petitioner Company, to file the Scheme with the Tribunal

The Learned Counsel for the Petitioner Companies submits that:

The Transferor Company, listed on BSE Limited and the Transferee Company, listed on BSE Limited and National Stock Exchange of India Limited, both are a part of the same group. Further, the Transferor Company is a subsidiary of the Transferee Company wherein the Transferee Company holds majority shareholding in the Transferor Company. The main business of PSML has been manufacturing of cotton yarn and it has a huge freehold land of ~ 34 acres at Plot No.266 Village Alte, Tal. Hathkanangale, Dist. Kolhapur (near textile hub Ichalkaranji) and ~ 20000 spindle capacity for spinning. The land, machinery, infrastructure and all other resources available with the Transferor Company can be utilized in cost effective and efficient manner to carry out Transferee Company’s business expansion. The Transferor and Transferee’s industrial units are situated within a distance of ~ 40 kilometers. Hence, it is proposed to amalgamate Transferor Company into the Transferee Company in this Scheme.

Further, the Amalgamation of the Transferor Company into the Transferee Company would inter alia have the following benefits:

a. Consolidation of the Transferor Company and the Transferee Company will achieve simplified corporate structure, rationalise the number of listed entities and result in a single listed entity with combined businesses.

b. Provide an opportunity to leverage combined assets and build a stronger sustainable business. Specifically, it will also enable optimal utilization of existing resources which are in excess of the current business requirements of the Transferor Company and provide an opportunity to fully leverage assets, capacities, experience and infrastructure of the Transferor Company and Transferee Company.

c. Reducing managerial overlaps involved in operating multiple entities, enable cost savings and effective utilization of valuable resources which will enhance the management focus thereby leading to increase in operational and management efficiency; integrate business functions; eliminate duplication and rationalization of administrative expenses.

d. Synchronization of efforts to achieve uniform corporate policy, greater integration and greater financial strength and flexibility for the Transferee Company.

e. Better value creation for the shareholders of both the companies enabling the public shareholders to hold shares of the combined listed entity.

f. Upon completion of the amalgamation, the Transferor Company will be dissolved. Consequently, there would be lesser regulatory and legal compliance obligations including accounting, reporting requirements, statutory and internal audit compliance requirements, tax filings, company law compliances, Stock Exchange compliances etc. and therefore reduction in administrative costs.

The intended Scheme is not prejudicial to the interest of the creditors or the employees of the Transferor Company and the Transferee Company.

The Learned Counsel for the Petitioner Companies further submits the following:

i.The First Petitioner Company is authorised to carry on, inter alia, the business of manufacturing of cotton yarn.

ii.The Second Petitioner Company is engaged in the business of manufacturing of home textiles and its products broadly falls under the categories of Bed Sheet, Pillow Cover and Comforter.

The Learned Counsel for the Petitioner Companies further submits that the present Company Petition is filed in consonance with Section 230-232 of

the Companies Act, 2013 and in terms of order pronounced on 18th August 2021 in CA(CAA)/143/MB-IV/2021.

Learned Counsel appearing on behalf of the Petitioner Companies has stated that the Petitioner Companies have complied with all requirements as per directions of this Tribunal and they have filed necessary affidavit of service with the Tribunal and also made requisite filings to demonstrate compliance with this Tribunal. Moreover, the Petitioner Companies undertake to comply with all the statutory requirements, if and to the extent applicable, as may be required under the Companies Act, 2013 and the rules made thereunder. The said undertaking is accepted.

The Counsel for the Petitioners further submits that in compliance of order dated 18th July 2022 passed in the aforesaid petition, the Petitioners have filed Additional Affidavit dated 4th August 2022 disclosing therein details of Corporate Guarantees, Bank Guarantees, Contingent liabilities, details of fixed deposits placed with bank as margin money, Letters of credit and pending litigation.

The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, has filed a Report dated 25th March 2022 inter-alia stating in paragraphs IV (a) to (h). In response to the observations made by the Regional Director, the Petitioner Companies have also given necessary clarifications and undertakings vide their Affidavit in Rejoinder dated 11th April 2022. In response to the reply of the Petitioner Companies, the Regional Director has filed his Supplementary Report dated 04th May 2022 stating that the replies of the Petitioner Companies on all the observations filed via the said Rejoinder Affidavit appears to be satisfactory. The observations made by the Regional Director and the clarifications and undertakings given by the Petitioner Companies are summarized in the table below:

Para

Observation   by   the   Regional Director

Undertaking          of          the Petitioner     Companies     /

Rejoinder Affidavit

IV(a)

In  compliance  of  AS-14  (IND AS-103),          the Petitioner Companies     shall     pass     such accounting    entries    which    are necessary in connection with the scheme   to   comply   with   other applicable Accounting Standards such as AS-5 (IND AS-8) etc

In so far as observations made in   paragraph   IV   (a)   of   the Report of Regional Director is

concerned,     the     Petitioner Companies    undertake    that they  will  comply  with  AS-14 (IND     AS-103)     and     the Petitioner   Companies   shall pass  such  accounting  entries which     are     necessary in connection  with  the  scheme to comply      with      other applicable Accounting Standards such as AS-5 (IND AS-8) etc.

IV(b)

The Petitioners under provisions of     section     230(5)     of     the Companies   Act,   2013  have  to serve     notices     to     concerned authorities which are likely to be affected    by    Compromise    or arrangement.       Further,       the approval  of  the  scheme  by  this Hon'ble  Tribunal  may  not  deter such authorities to deal with any of  the  issues  arising  after  giving effect     to     the    scheme.     The decision  of  such  Authorities  is binding      on      the      Petitioner Company(s).

The   Petitioners   Companies have   served   notices   under section       230(5)       of       the Companies  Act,  2013  to  the concerned    regulatory authorities.    In    so    far    as observations         made        in paragraph IV (b) of the Report of     Regional     Director     is concerned,     the     Petitioner Companies   undertakes   that the approval of the scheme by this Hon'ble Tribunal will not deter          the          regulatory authorities  which  have  been served   notice   under   section 230(5) of the Companies Act, 2013  to  deal  with  any  of  the issues    arising    after    giving effect   to   the   scheme.   The decision of such Authorities is binding    on    the    Petitioner Companies,  unless  otherwise appealable by them.

IV(c)

The  Hon'ble  NCLT  may  kindly direct to the Petitioners to file an undertaking to the extent that the Scheme       enclosed       to       the Company   Application   and   the scheme       enclosed       to       the Company   Petition   are   one   & same and there is no discrepancy or deviation.

In so far as observations made in   paragraph   IV   (c)   of   the Report of Regional Director is concerned,     the     Petitioner Companies   undertakes   that Scheme     of     amalgamation enclosed    to    the    Company Application to NCLT and the Company   Petition,   are   one and   same   and   there   is   no discrepancy/any          change made.

IV(d)

As per Definition of the Scheme "Appointed    Date"    means    1st October 2020 or such other date as   may   be   approved   by   the Hon'ble National Company Law Tribunal ('NCLT').

"Effective Date" means the last of the  dates  on  which  the  certified copies  of  the  Order  of  NCLT, Mumbai  bench  under  Sections 230 & 232 of the Act sanctioning the   Scheme   is   filed   with   the Registrar of Companies, Pune, at Maharashtra  by  the  Transferor Company        and        Transferee Company;

Hence,  the  Petitioners  may  be asked    to    comply    with     the requirements  and  clarified  vide circular         no.         F.         No.

7/12/2019/CL-I      dated 21.08.2019      issued      by      the Ministry of Corporate Affairs.

The Appointed Date is 1.10.2020 which  is  antedated   more  than one   year   which   needs   to   be amend.

In so far as observations made in   paragraph   IV   (d)   of   the Report of Regional Director is concerned,     the     Petitioner Companies   clarify   that   the scheme shall be effective from the Appointed  Date  which  is a  specific  date  of  1st  Day  of October    2020    and    falling within 1 year from the date of filing   application   in   NCLT i.e., 9th June 2021. Hence the Appointed    Date    being    in compliance  with  the  circular no.  F.  No.  7/12/2019/CL-1

dated   21.08.2019   issued   by the   Ministry   of   Corporate Affairs,  is  not  required  to  be amended.

IV(e)

Clause 7 of the Scheme Accounting Treatment

a.        The Amalgamation of the Transferor   Company   with   the Transferee   Company   shall   be accounted  for  in  the  books  of account     of     the     Transferee Company   in   accordance   with ‘Pooling  of  Interest  Method’  of accounting      as      per      Indian Accounting  Standard  (Ind  AS)

103     (Business     Combination) prescribed  under  Section  133  of the Companies Act, 2013, which is   applicable   to   the   Company since  this  is  a  common  control business combination as follows:

b.        All   the   assets,   liabilities and  reserves  in  the  books of  the Transferor Company shall stand transferred  to  and  vested  in  the Transferee Company pursuant to the scheme and shall be recorded by  the  Transferee  Company  at their     carrying     amounts     as appearing    in    the    books    of Transferor    Company,    on    the Appointed Date.

In so far as observations made in   paragraph   IV   (e)   of   the Report of Regional Director is concerned,       the       Second Petitioner      Company undertakes   that   the   surplus

/deficit  as  mentioned  in  the Accounting Treatment clause of   the   Scheme   is   already stated    to    be    adjusted    in "Capital Reserve Account" in the financial statements of the Transferee Company and the Second  Petitioner  Company undertakes     that     the     said Capital Reserve arising out of amalgamation   shall   not   be available   for   distribution   of dividend.

c.        The  Transferee  Company shall  credit  to  its  share  capital account, the aggregate face value of  the  new  shares  issued  by  it pursuant   to   Clause   6   of   this Scheme.

d.        The   carrying   amount   of investments  in  the  equity  shares of  the  Transferor  Company  to the   extent   held   by   Transferee Company,  shall  stand  cancelled and   there   shall   be   no   further obligation in that behalf.

e.        Upon  the scheme coming into effect, the surplus /deficit, if any  of  the  net  value  of  assets, liabilities   and   reserves   of   the Transferor   Company   acquired and  recorded  by  the  Transferee Company in  terms  of  clause 7.2 over the sum of (a) the face value of      the      new      shares       on Amalgamation       issued       and allotted pursuant to clause 6; and

(b)   the   value   of   investments cancelled pursuant to Clause 7.4, shall   be   adjusted   in   "Capital Reserve      Account"      in      the financial     statements     of     the Transferee Company.

f.         Any inter-company balance(s)    and    inter-company investments,   debts,   borrowings (secured   or   unsecured),   if   any between          the          Transferor Company   and   the   Transferee Company  shall  stand  cancelled and corresponding effect shall be given in the books of account and the      records      of      Transferee Company  for  the  reduction  of any  assets  or  liabilities,  as  the case may be. There would be no accrual    of    interest    or    other charges  and  there  shall  be  no obligation/outstanding   in   that behalf   in   respect   of   any   such intercompany       loans,       debt, securities or balances with effect from the Appointed Date.

g.        In case of any difference in any  of  the  accounting  policies between          the          Transferor Company   and   the   Transferee Company,   the   impact   of   the same in the merger by absorption will be quantified and adjusted in the    Capital    Reserves    of    the Transferee  Company  to  ensure that  the  financial  statements  of the  Transferee  Company  reflect the true financial position on the basis   of   consistent   accounting policies.

h.        Upon the Scheme coming into  effect,  the  accounts  of  the Transferee  Company,  as  on  the Appointed      Date      shall      be reconstructed  with  the  terms  of this Scheme.

i.         The      balance      of      the retained   earnings   appearing   in the  financial  statements  of  the Transferor   Company   shall   be aggregated with the corresponding balance appearing in the financial statements of the Transferee Company.

j.         The      identity      of      the reserves  shall  be  preserved  and shall   appear   in   the   financial statements    of    the    Transferee Company  in  the  same  form  in which    they    appeared    in    the financial     statements     of     the Transferor Company.

Petitioner   Companies   have   to undertake   that   the   surplus   / deficit    shall    be    adjusted    to Capital Reserve Account arising out of amalgamation.

Further    Petitioner    Companies have  to  undertake  that  reserves shall     not     be     available     for distribution of dividend.

IV(f)

Clause 24 of the Scheme COMMENTS             VIA OBSERVATION        LETTERS

DATED 25 MARCH 2021 & 26 MARCH    2021    ISSUED    BY STOCK EXCHANGES

Pursuant    to    the    observation letters   dated   25   March,   2021 issued    by    BSE    Limited    to Transferor    Company    and    25 March,  2021  &  26  March,  2021 issued    by    BSE    Limited    and National    Stock    Exchange    of India Limited, respectively to the Transferee  Company,  following information      and      facts      on methods      of      valuation      are provided below:

i.         In  case  of  ICIL  only  one method  of  valuation  i.e.  Market Approach has been used because its  shares  are  frequently  traded on Stock Exchanges, and market price reflects significant multiple of book value. Therefore, it was inappropriate   to   consider   cost and  income approach  in  case of ICIL.  Further,  ICIL  is  a  listed Company      and      information related  to  the  future  profit  and loss  account,  balance  sheet  and cash  flows  is  price  sensitive  and hence  was  not  provided  to  the valuer.

In so far as observations made in   paragraph   IV   (f)   of   the

Report of Regional Director is

concerned,     the     Petitioner Companies      undertake      to comply    with    directions   of BSE   and   NSE   vide   their observation letters dated 25th March,  2021  issued  by  BSE Limited      to      Pranavaditya Spinning       Mills       Limited ("PSML"      or      "Transferor Company")  and  Indo  Count Industries  Limited  and  dated 26th  March,  2021  issued  by National  Stock  Exchange  of India  Limited  respectively  to the   Indo   Count   Industries Limited           ("ICIL"           or "Transferee Company").

ii.        Two          Methods         of Valuation  i.e.  Cost  and  Market Approach   have   been   used   for

PSML   and   Income   approach method   has   not   been   used   as PSML  is  a  listed  Company  and information related to the future profit  and  loss  account,  balance sheet   and   cash   flows   is   price sensitive   and   hence   was   not provided  to  the  valuer.  Further, PSML’s production was stopped at the time of appointed date.”

Petitioner      Companies      shall undertake      to      comply      the directions of BSE and NSE vide their   observation   letters   dated 25th March, 2021 issued by BSE Limited        to        Pranavaditya Spinning Mills Limited ("PSML" or  "Transferor  Company")  and Indo  Count  Industries  Limited and 26th March, 2021 issued by National    Stock    Exchange    of India Limited respectively to the Indo  Count  Industries  Limited ("ICIL"          or          "Transferee Company").

IV(g)

Transferor  Company  is  a  public company, listed on BSE Limited. As on September 30, 2021, total 15,555 equity shares representing 0.08%    of    the    paid-up    share capital      of      the      Transferor Company    is    held    by    Non- Resident   Indian   (NRI)   under

public category.

Hence Petitioner Company shall undertake     to     comply     with guidelines of FEMA and FERA.

In so far as observations made in   paragraph   IV   (g)   of   the Report of Regional Director is concerned,     the     Petitioner Companies      undertake      to comply   with   guidelines   of FEMA and FERA, wherever applicable.

IV(h)

The    Petitioner    Company    viz Indo  Count  Industries  Limited be  directed  to  pay  difference  / balance of filling fees and stamp duty    on    its    increased    share capital, if any.

In so far as observations made in   paragraph   IV   (h)   of  the Report of Regional Director is concerned,       Indo       Count Industries Limited undertakes to pay difference / balance of filling fees and stamp duty on its   increased   paid-up share

capital

The observations made by the Regional Director have been explained by the Petitioner Companies in Para 12 above. The clarifications and undertakings given by the Petitioner Companies are accepted by this Tribunal.

The Official Liquidator has filed his report dated 8th March, 2022 inter-alia, stating therein that the affairs of the Transferor Company have been conducted in a proper manner.

From the material on record, 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.

As per clause 6 of the Scheme, the Transferee Company shall without any further application or deed, issue and allot equity shares as fully paid up to the shareholders of the Transferor Company as on the Effective Date, whose names appear in the Register of Members of the Transferor Company as on the Appointed date or to their successors-in-title, as the case may be, in the following manner:

“2 (Two) fully paid Equity Shares of face value of INR 2/- each of Transferee Company shall be issued and allotted for every 15 (Fifteen) Equity shares of face value of INR 10/- each held in Transferor Company.”

Since all the requisite statutory compliances have been fulfilled, Company Petition CP (CAA)/228/MB-IV/2021 connected with CA (CAA)/143/MB-IV/2021 is made absolute in terms of prayer in the Petition.

The Scheme is sanctioned hereby, and the Appointed Date of the Scheme is fixed as 1st October 2020.

The Petitioner Companies are directed to lodge a certified copy of this Order along with a copy of the Scheme with the concerned Registrar of Companies, electronically along with e-Form INC-28, within 30 days from the date of receipt of the order by the Registry, duly certified by the Joint/ Deputy Registrar of this Tribunal.

The Petitioner Companies are directed to lodge a certified copy of this Order and the Scheme duly authenticated by the Joint/ Deputy Registrar of this Tribunal, with the concerned Superintendent of Stamps for adjudication of stamp duty payable, if any, within 60 working days from the date of receipt of certified copy of the certified order from the Registry of this Tribunal.

All concerned regulatory authorities to act on a copy of this Order duly certified by the Joint/ Deputy Registrar of this Tribunal along with copy of the Scheme.

Any person interested is at liberty to apply to this Tribunal in the above matters for any directions that may be necessary.

Any concerned Authorities are at liberty to approach this Tribunal for any further clarification as may be necessary.

Ordered accordingly. Files to be consigned to the records.