Tech Mahindra Business Services Private Limited Vs

Kishore Vemulapalli, Member (Judicial)

The Court is convened through video conferencing today.

Heard the learned Counsel for the Petitioner and the representative of the Regional Director Western Region, Ministry of Corporate Affairs, Mumbai. 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 the Tribunal is sought under Sections 230 to 232 and other applicable provisions of the Company Act, 2013 read with the Company (Compromises, Arrangements and Amalgamations) Rules, 2016, to the Scheme of Merger by Absorption of Tech Mahindra Business Services Limited (‘TMBSL’ or ‘Transferor Company 1’) and Born Commerce Private Limited (‘Born’ or ‘Transferor Company 2’) with Tech Mahindra Limited (‘TML’ or ‘Transferee Company’) and their respective Shareholders.

The Counsel for the Petitioner Companies further submits that the First Petitioner Company is a leading Business Process Outsourcing (‘BPO’) Company which provides voice-based call centre services to its clients for their specific customer activities and provides a number of customer related functions like customer care, billing related queries, Mobile Number Portability (MNP), hand set related queries, network related queries, price plan related queries, channel support, collection and value added services.

The Counsel for the Petitioner Companies further submits that the Second Petitioner Company, part of the Mahindra Group, is an Indian multinational, offering a full range of Information Technology (IT) services and Industry Specific Solutions to help clients to take advantage of opportunities which includes convergence, digital, design, experience, innovation platform, telecom services, consulting, application outsourcing, infrastructure outsourcing, engineering and Business Process Outsourcing (BPO).

The Petitioner Companies have approved the said Scheme by passing the resolution in their respective Board Meetings held on 29th day of January 2021, which is annexed to the Company Scheme Petition with Appointed date as 1st day of April, 2021.

The Counsel appearing on behalf of the Petitioner Companies states that the Petition has been filed in consonance with the order dated 16th day of August, 2021, passed by this Tribunal in the connected Company Scheme Application bearing CA (CAA)/97/MB/2021.

The Learned Counsel appearing on behalf of the Petitioner Companies states that the Petitioner Companies have complied with all the requirements as per directions of this Tribunal and have filed necessary Affidavits of compliance with this Tribunal. Moreover, the Petitioner Companies undertake to comply with all the statutory requirements, if any, as may be required under the Companies Act, 2013 and the Rules made there under. The said undertaking is accepted by the Petitioner Companies.

The Learned Counsel for the Petitioner Companies states that, the Rationale for the proposed Scheme of Merger by Absorption is as under:

In order to consolidate and effectively manage the business of the Transferor Companies and Transferee Company in a single entity, which will provide several benefits including synergy, economies of scale, attain efficiencies and cost competitiveness, it is intended that the Transferor Companies be merged with Transferee Company, which would interalia have following benefits:

a. The Transferor Companies are wholly-owned subsidiaries of the Transferee Company, so merger will help to consolidate the entities.

b. The merger will lead to greater efficiency in the overall combined business including economies of scale, efficiency of operations, operational rationalization, organizational efficiency, cash flow management and unfettered access to cash flow generated by the combined business which can be deployed more effectively for the purpose of development of businesses of combined entity and their growth opportunities, eliminate inter corporate dependencies, minimize administrative compliances and to maximise shareholder value.

c. The merger will result in reduction in overheads including administrative, managerial and other expenditure, and optimal utilization of resources by elimination if unnecessary duplication of activities and related costs. It will also result in a reduction in the multiplicity of legal and regulatory compliances required at present to be separately carried out by the Transferor Companies and the Transferee Company.

d. The merger would motivate employees of the Transferor Companies by providing better opportunities to scale up their performance with a larger corporate entity having large revenue base, resources, assets base etc. which will boost employee morale and provide to better corporate performance ultimately enhancing shareholder value.

The Counsel for the Petitioner Companies states that the Transferor Company 1 and Transferor Company 2 are wholly-owned subsidiaries of the Transferee Company, no consideration shall be payable pursuant to the Merger by Absorption of the Transferor Company 1 and Transferor Company 2 with the Transferee Company, and the shares held by the Transferee Company in the Transferor Company 1 and Transferor Company 2 shall stand cancelled without any further act, application or deed.

The  Regional  Director  (Western  Region),  Ministry  of  Corporate  Affairs, Mumbai has filed its Report dated 18th day of May, 2022 inter alia stating that, save and except the observations as stated in paragraph IV (a) to (i) of the report, this Tribunal may pass such order or orders as deemed fit and proper in the facts and circumstance of the case. The observations made by the Regional Director and the clarifications/undertakings given by the Petitioner Companies are summarized in the table below:

Sr.

RD Report/Observations

Response    of    the    Petitioner

No.

Companies

Para

(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.

As  far  as  observations  made  in paragraph  IV  (a)  of  the  Report of       Regional       Director       is concerned,       the       Transferee Company    undertakes    that,    it shall  pass  necessary  accounting entries  in  connection  with  the Scheme as per AS -14 (IND AS-103)   as   well   as   comply   with other     applicable     Accounting Standards       to       the       extent applicable.

b)

As per Definition of the Scheme, ‘Appointed  Date’  means  the  1st day of April, 2021 or such other date    as    may    be   directed    or approved      by      the      National Company  Law  Tribunal  or  any other appropriate authority.

‘Effective Date’ means the last of the    dates    on    which    certified copies    of    the    orders    of    the Hon’ble     National      Company Law    Tribunal,    Mumbai    and Chennai    are    filed    with    the Registrar  of  Companies  (RoC), Mumbai           and           Chennai respectively.

In this regard, it is submitted that Section 232(6) of the Companies Act, 2013 states that the scheme under  this  section  shall  clearly indicate  an  appointed  date  from which  it  shall  be  effective  and the  scheme  shall  be  deemed  to be  effective  from  such  date  and not  at  a  date  subsequent  to  the appointed   date.   However,   this aspect  may  be  decided  by  the Hon’ble    Tribunal    taking    into account its inherent powers.

Further,  the  Petitioners  may  be asked     to     comply     with     the requirements   as   clarified   vide circular          no.          F.          No. 7/12/2019/CL-1                  dated 21.08.2019      issued      by      the Ministry of Corporate Affairs.

As  far  as  observations  made  in paragraph  IV  (b)  of  the  Report of       Regional       Director       is concerned,        the        Petitioner Companies    clarifies    that,    the Scheme        of        Merger        by Absorption   (Scheme)   shall   be effective   from   the    Appointed Date which is a specific date i.e., 01 April, 2021. Accordingly, the Scheme   is   in   conformity   with the          circular          no.          F. No.7/12/2019/CL-1           dated 21.08.2019      issued      by      the Ministry of Corporate Affairs.

c)

Petitioner    Company    have    to undertake     to     comply     with section  232(3)(i)  of  Companies Act,  2013,  where  the  transferor Company   is   dissolved,   the   fee and   stamp   duty   paid   by   the transferor     company     on     its authorised capital shall be set-off against    fees    and   stamp   duty payable      by      the      transferee company     on     its     authorised capital      subsequent      to      the amalgamation     and     therefore, petitioners   to   affirm   that   the transferee company shall pay the difference   of   fees   and   stamp duty.

As  far  as  observations  made  in paragraph IV (c) of the Report of Regional  Director  is  concerned, the        Petitioner        Companies undertakes     to     comply     with section       232(3)(i)       of       the Companies  Act,  2013,  wherein pursuant   to   the   dissolution   of the  Transferor  Companies,  the fees,     if     any,    paid     by     the respective  Transferor  Company on  its  Authorized  Capital  shall be    set-off    against    any    fees payable     by     the     Transferee Company    on    its    Authorized Capital     subsequent      to      the Scheme of Merger.

d)

The     hon’ble     Tribunal     may kindly  seek  the  undertaking  that this  Scheme  is  approved  by  the requisite   majority   of   members and    creditors    as    per    Section 230(6)   of   the   Act   in   meetings duly   held   in   terms   of   Section 230(1)  read  with  subsection  (3) to  (5)  of  Section  230  of  the  Act and the Minutes thereof are duly placed before the Tribunal.

As  far  as  observations  made  in paragraph  IV  (d)  of  the  Report of       Regional       Director       is concerned,        the        Petitioner Companies    clarifies    that,    the Scheme  is  a  Merger  of  wholly owned     subsidiaries     with     its holding  Company.  Further,  the Transferor      Companies      have obtained   consent   from   all   its shareholders  for  the  approval  of the    Scheme    in    the    form    of Affidavit.      There      were      no Secured  Creditors  in  any  of  the Transferor    Companies    as    on 31st December 2020 while filing of    Application.    Further,    the

meeting  of  unsecured  creditors of   the   Transferor   Companies were  dispensed  with  based  on the  issue  of  individual  notice  to all  of  its  unsecured  Creditors  of the Transferor Company 1.

Also,  since  no  reconstruction  or arrangement   is   proposed   with the  shareholders  or  creditors  of the  Transferee  Company,  it  is not    required    to    hold    either shareholder’s        meeting        or creditor’s     meeting     or     send notices  to  its  shareholders  and creditors   for   approval   of   the proposed     Scheme     and     the Transferee       Company       was further    directed    to    place    on record      Affidavit      confirming percentage        of        Unsecured Creditors      owed      to      group companies  /  subsidiaries  as  per the  list  attached  to  Application and  the  same  was  submitted  as Exhibit G to the Petition.

In    view    of    the    above,    the

Tribunal              via              order C.A.(CAA)/97/MB/2021 dated 16th August 2021 had dispensed with the meeting of shareholders and  creditors  of  the  Petitioner

Companies.

e)

Clause-18(b)(i)    of    Accounting Treatment of the Scheme; stated that  the  Transferor  Companies and   Transferee   Company   both being   entities   under   common control,    the    merger    will    be accounted     by     applying     the principles as set out in Appendix C   of   IND   AS   103   ‘Business Combinations’.

In this regard it is submitted that as  per  Accounting  Standard  14 and      IND      AS      103,      such surplus/deficit  if  any  arising  out of the scheme should be adjusted to   the   Capital   Reserve   arising out    of    amalgamation    of    the Transferee      Company.      Such Capital  Reserve,  arising  out  of the  amalgamation  shall  not  be considered   as   free   reserve   and not  available  for  distribution  of

dividend.

As  far  as  observations  made  in paragraph IV (e) of the Report of Regional  Director  is  concerned, the        Petitioner        Companies undertakes    that,    pursuant    to approval   of   the   Scheme,   the surplus        arising        out        of amalgamation  shall  be  credited to  Capital Reserve  Account  and deficits if any shall be debited to Capital  Reserve  Account  as  set out  in  Appendix  C  of  IND  AS

Further          Petitioner Companies also undertakes that, such    reserves    shall    not    be considered  as  free  reserve  and will     not     be     available     for distribution of dividend.

f)

The  Petitioner  Company  states that   the   Transferee   Company shall    be    in    compliance    with provisions   of   Section   2(1B)   of the  Income  Tax  Act,  1961.  In this     regards,     the     petitioner company           shall           ensure compliance  of  all  the  provisions of  Income  Tax  Act  and  Rules thereunder.

As  far  as  observations  made  in paragraph IV (f) of the Report of Regional  Director  is  concerned, the        Petitioner        Companies clarifies  that  the  Scheme  is  in compliance   with   provisions   of Section 2(1B) of the Income Tax Act,  1961  and  undertakes  that all   the   relevant   provisions   of Income    Tax    Act    and    Rules thereunder    will    be    complied with.

g)

It is observed that the Transferee Company  is  a  listed  company, therefore,         the          petitioner company   may   be   directed   to place   on   record   whether   the prior  notice  was  served  to  NSE, BSE   and   SEBI   and   objection received thereon if any

As  far  as  observations  made  in paragraph  IV  (g)  of  the  Report of       Regional       Director       is concerned,        the        Petitioner Companies   Clarifies   that,   the Scheme   is   a   Merger   between wholly  owned  subsidiaries  into its Holding Company.

Further,  in  compliance  of  SEBI Circular CFD/DIL3/CIR/2017/21dated    10th    March    2017    as amended           by           Circular CFD/DIL3/CIR/2018/2  dated 3rd        January        2018,        the Transferee  Company  has  by  its letter  dated  5th  February  2021 forwarded  a  copy  of  Scheme  to BSE     Limited     and     National Stock      Exchange      of      India Limited.  Copies  of  said  letters are  attached  with  the  Company Application      and      Company Petition filed with this Tribunal.

h)

It is observed that the Transferee Company      is      having      non residential   Shareholders/foreign shareholders,                  therefore, petitioner    company     may    be directed    to    comply    with    the provision   of   FEMA   and   RBI guidelines.

As  far  as  observations  made  in paragraph  IV  (h)  of  the  Report of       Regional       Director       is concerned,       the       Transferee Company    clarifies    that,    the Scheme  is  a  Merger  of  wholly owned     subsidiaries     with     its Holding                         Company, Accordingly,  upon  the  Scheme becoming effective, no  shares of the   Transferee   Company   shall be allotted to the shareholders of the      Transferor      Companies. Further,          the          Transferee Company   states   that,   it   will comply     with     provisions     of FEMA  and  RBI  guidelines  as applicable.

i)

The     Hon'ble     Tribunal     may hereby kindly consider the report of   ROC   as   narrated   in   Para III(12)       above       and       pass appropriate order.

The  ROC  Mumbai  observations are-Transferee     Company     having Two number of open Charges.

Interest  of  Creditors  should  be protected.

May be decided in its merits

As  far  as  observations  made  in paragraph IV (i) of the Report of Regional  Director,  with  respect to observation raised by ROC is concerned,        the        Petitioner Companies clarifies that,

Any    open    charges    standing against the Transferee Company as per MCA index of charge will be  discharged  by  the  Transferee Company  in  the  due  course  of time.

The    present    Scheme    is    an Arrangement       between       the Petitioner  Companies  and  their respective       shareholders       as contemplated     under     Section 230(1)(b)  and  not  in  accordance with  the  provisions  of  Section 230(1)(a) of the Companies Act, 2013       and       there       is       no Compromise                      and/or Arrangement  with  the  creditors and   no   sacrifice   is   called   for. Further,      pursuant      to      the Scheme,  all  assets  and  liabilities of   the   Transferor   Companies would    be    transferred    to    the Transferee  Company.  Also,  the net    worth    of    the    Transferee Company is highly positive. The assets       of       the       Transferee Company      are      more      than sufficient      to      discharge      its liabilities.     Accordingly,     post- merger,    the    creditors    of    the Transferee    Company    are   not likely   to   be   affected   by    the

Scheme being approved.

The Petitioner Companies have filed an Affidavit in Re-joinder to the report filed by the Regional Director with this Tribunal on 3rd June 2022 and a copy of the same is filed with the office of Regional Director on 6th June 2022, providing clarification/undertakings to the observations made by the Regional Director. Further, the Petitioner Companies have reproduced the said clarification/undertakings to the observations made by the Regional Director in Para 11 above. The clarifications and undertakings given by the Petitioner Companies are accepted.

The Official Liquidator has filed his report on 28th day of February, 2022 inter alia stating therein that the affairs of the Transferor Company 1 have been conducted in a proper manner and the Scheme is not prejudicial to the interest of public and the Shareholders of the Transferor Company 1. Accordingly, the Transferor Company 1 may be ordered to be dissolved without winding up.

The Learned Counsel for the Petitioner Companies states that pursuant to the order dated 16th day of August, 2021 passed by this Tribunal in CA (CAA)/97/MB/2021, the meeting of Equity Shareholders of the First Petitioner Company was dispensed with in view of the Consent Affidavits annexed to the Company Scheme Application, inter-alia stating therein that the consents of all the Equity Shareholders have been obtained. The meeting of Equity Shareholders of the Second Petitioner Company was dispensed with in view of ratio laid down by Tribunal in CSA No 243 of 2017 in the matter of Housing  Development  Finance  Corporation  Limited  and  by  the  Hon’ble NCLAT in Ambuja Cements Ltd.

The Learned Counsel for the Petitioner Companies states that pursuant to the order dated 16th day of August, 2021 passed by this Tribunal in CA(CAA)/97/MB/2021 meeting of the Secured Creditors of the Petitioner Companies was not required to be held as there were no Secured Creditors in the Petitioner Companies and the meeting of the Unsecured Creditors of the First Petitioner Company was dispensed with as the present Scheme is an arrangement between the Petitioner Companies and its shareholders as contemplated under Section 230(1) (b) and not in accordance with the provisions of Section 230(1) (a) of the Companies Act, 2013 and there is no compromise or arrangement with any of the Unsecured Creditors as their rights are not affected. Further, the meeting of unsecured creditors of the Second Petitioner Company was dispensed with in view of ratio laid down by Hon’ble Tribunal in CSA No 243 of 2017 in the matter of Housing Development Finance Corporation Limited and by the Hon’ble NCLAT in Ambuja Cements Ltd.

The Learned Counsel for the Petitioner Companies states that pursuant to the order dated 18th day of October, 2022 passed by this Tribunal in CP(CAA)/11/MB/2022, the Petitioner Companies were directed to submit the details of Corporate Guarantee, Performance Guarantee, Bank Guarantee and Contingent Liabilities; if any along with details of pending litigations against the Petitioner Companies and the details of all Letters of Credit sanctioned and utilized as well as Margin Money details; if any. The said directions have been duly complied with, by the Petitioner Companies through an Affidavit dated 17th November, 2022 filed with this Tribunal.

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.

Further, Ms. Rupa Sutar, Authorised representative of Regional Director, MCA (WR) Mumbai, was present and reported no objections for allowing the above Company Scheme Petition.

All the assets and liabilities including taxes and charges, if any and duties of the Transferor Companies, shall pursuant to Section 232 of the Company Act, 2013, be transferred to and become the liabilities and duties of the Transferee Company.

Since all the requisite statutory compliances have been fulfilled, Company Petition bearing CP (CAA)/11/MB/2022 filed by the Petitioner Companies is made absolute in terms of prayers clause of the said Company Scheme Petition.

The Petitioner Companies are directed to file a certified copy of this order along with a copy of the Scheme with the concerned Registrar of Company, electronically, along with e-Form INC-28 in addition to physical copy, within 30 days from the date of receipt of order, duly certified by the Deputy Registrar or the Assistant Registrar, as the case may be, of this Tribunal.

The Petitioner Companies to lodge a certified copy of this order and the Scheme duly authenticated by the Deputy Registrar or the Assistant Registrar, as the case may be, of this Tribunal, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of receipt of the certified copy of order.

All concerned regulatory authorities to act on a copy of this Order duly certified by the Registry of this Tribunal, along with a copy of the Scheme.

The Scheme of Merger by Absorption is hereby sanctioned, and the appointed date of the Scheme is fixed as 1st day of April, 2021.

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 records.