Wadhwa And Associates Realtors Private Limited vs Raghuleela Estates Private Limited

This Court is convened via videoconference today.

Heard Learned Counsel for Petitioner Companies. No objector has come before the Tribunal to oppose the petition and nor has any party con- troverted 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 ("Act") and in the matter of Scheme of Amalgamation between Wadhwa And Associ- ates Realtors Private Limited ('Petitioner Company 1') and Raghuleela Estates Private Limited ('Petitioner Company 2') and their respective shareholders ('Scheme'). Petitioner Company 1 and Petitioner Company 2 are collectively referred to as 'Petitioner Companies'.

The Learned Counsel for the Petitioner Companies submits that Peti- tioner Company 1 is engaged in the business of construction, development and operation of residential and commercial properties, either di- rectly or through group / associated companies which undertake these activities. Petitioner Company 2 is similarly engaged, directly and indi- rectly, in the business of construction, development and operation of residential and commercial properties.

The Learned Counsel for the Petitioner Companies submits that the ra- tionale mentioned in the Scheme is as under:

(i) Consolidation of the business activities of construction, develop- ment, and operation of residential and commercial properties, carried out directly or indirectly, in the Transferee Company;

(ii) Rationalization and simplification of the overall group corporate structure considering the Transferor Company and the Transferee Company have common shareholders; and

(iii) Simplification of decision making, reduction in duplication of ad- ministrative responsibilities and regulatory compliances and sav- ing of administrative and other costs associated with managing separate entities.

Both the Petitioner Companies have approved the Scheme by passing their respective Board Resolutions dated May 23, 2020 and have ap- proached the Tribunal for sanction of the Scheme.

Learned Counsel for the Petitioner Companies submits that the Petition has been filed in consonance with the order dated July 24, 2020 passed by this Tribunal in CA(CAA)/1027/MB V/2020.

The Regional Director has filed its report dated January 13, 2021 ("Re- port") praying that this Tribunal may pass such orders as it thinks fit, save and except as stated in paragraphs IV (a) to (h). In para IV of the Report, Regional Director has stated:

(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.

(b) As per Definition of the Scheme,

"Appointed Date" shall mean October 1, 2019 or such other date as the NCLT may direct.

"Effective Date" means the date on which the certified copy of the order of NCLT sanctioning the Scheme is filed with the Registrar of Companies, Mumbai. Any references in this Scheme to the "date of coming into effect of this Scheme" or "effectiveness of the Scheme" or "Scheme taking effect" or "upon this Scheme coming into effect" shall mean the Effective Date.

Further, the Petitioners may be asked to comply with the requirements and clarified vide 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 the Companies Act, 2013, where the transferor com- pany is dissolved, the fee, if any, paid by the 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 amalgamation and therefore, petitioners to affirm that they comply with the provisions of the section.

(d) ROC, Mumbai Report dated 23.12.2020 has interalia mentioned that there are no prosecution, no technical scrutiny, no inquiry, no in- spection, no complaint are pending.

Further mentioned that:-

a) Paid up share capital of Transferee Company does not match with the Scheme.

b) There is variation in the paid up share capital of the Transferee Company in reference to master data at MCA portal and in the balance sheet and scheme.

c) There are huge liabilities in terms of secured loan amounting to Rs 1158.91 crores as at 31.03.2020 in the Transferor Company is incurring huge losses.

d) Interest of the creditors should be protected.

The above observations may be considered, and the matter may be decided on merit.

(e) As per auditors report dated 02.09.2019 attached to financial year 2018-19, of the company WADHWA & ASSOCIATES REALTORS PRIVATE LIMIITED, applicant no. 1, it is observed that the statu- tory auditor has made qualified remark under para (iii) (b) of CARO report as follows- "there are no written terms and conditions and written stipulation as to recovery of the principal amount and inter- est as such, hence we are unable to comment on para 3 (iii) (a) (b) and (c) of the order.

However, board of director in its report dated 02.09.2019 attached to financial year 2018-19 failed to give explanation, comments on qualified remark by the statutory auditor. Resulting into violation of section 134 (3) (f) of the Companies Act, 2013. Applicant Com- pany to undertake to get this violation compounded.

(f) As per balance sheet as on 31.03.2019 of applicant company no. 1, the company has shown an amount of Rs 14,38,99,259/- and Rs 684,04,44,606/- as on long term loans and advances and short term loans and advances respectively.

Further an amount of Rs 369,08,99,576/- and Rs 17,03,080/- are shown as non-current and current investment respectively as on 31.03.2019. However, board of Directors in its report dated 02.09.2019 reported that the company has not given any loan or provided any security u/s. 186 of the Companies Act, 2013.

The Petitioner Company to clarify in this regards and put up all facts before the Tribunal.

(g) Regarding employees of Transferor Company, as per para 6 of the scheme, effective date is taken into consideration for transferring employees of transferor company to transferee company. Hon'ble Tribunal may satisfy itself as regards to protection of Transferor Company till effective date.

(h) As per financial statement of Applicant Company no. 1 and Applicant Company no. 2 for year 2018-19, no employee benefits expenses is recorded. Indicating there are no employees working in both com- panies. Applicants to clarify how business of companies is being carried out without employees.

In response to the above observations of the Regional Director, the Pe- titioner Companies have filed an affidavit in rejoinder dated January 22, 2021 and have clarified as follows:

(a) In so far as the observation made in paragraph IV (a) of the Report is concerned, Petitioner Company 2 has clarified that it will pass the necessary accounting entries in its books of account to give effect to the Scheme. The accounting entries will comply with the re- quirements of Accounting Standard 14 - Accounting for Amalgam- ation as well as other applicable Accounting Standards. Reference was also invited to Clause 11 of the Scheme which lays down the accounting treatment to be followed for the merger.

(b) In so far as the observation made in paragraph IV (b) of the Report is concerned, the relevant paragraph 6(c) of the Circular applicable to the Petitioner Companies is reproduced below:

''Where the 'appointed date' is chosen as a specific calendar date, it may precede the date of filing of the application for scheme of merger/amalgamation in NCLT. However, if the 'appointed date' is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest.'

The Petitioner Companies have clarified that the Company Application CA (CAA)/ 1027/ MB/ 2020 was filed by the Petitioner Companies on June 24, 2020, whereas the Appointed Date mentioned in the Scheme is October 1, 2019. Although the Appointed Date precedes the date of filing of the application, the Appointed Date is not ante-dated beyond a year, and, therefore, the Scheme is in compliance with the Circular.

(c) In so far as the observation made in paragraph IV (c) of the Report is concerned, the Petitioner Companies clarify that clause 13.3 of the Scheme provides that the filing fees and stamp duty already paid by Petitioner Company 1 on its authorized share capital, which is being transferred to Petitioner Company 2 shall be deemed to have been so paid by Petitioner Company 2 on the combined au- thorized share capital and accordingly, Petitioner Company 2 shall not be required to pay any fee/ stamp duty on the authorized share capital so increased. Accordingly, the Petitioner Companies will be in compliance with the provisions of section 232(3)(i) of the Com- panies Act, 2013.

(d) In so far as the observations made in paragraphs IV (d) (a) and IV (d) (b) of the Report are concerned, Petitioner Company 2 clarifies that the difference in the paid-up share capital of Rs 10, ie of one share, between the records of Petitioner Company 2 and the rec- ords of the ROC is on account of one preference share which was issued by Petitioner Company 2008-09 but was inadvertently missed to be recorded in the books of account. Petitioner Com- pany 2 has realized this omission only now and it has undertaken to rectify it in the financial statements for the year ended March 31, 2021.

Petitioner Company 2 also submitted that the difference of Rs 10 is not material and in any event, it does not pertain to Petitioner Com- pany 1. Petitioner Company 2, therefore, submitted that it will have no impact on the swap ratio, or any other aspect provided in the Scheme.

(e) In so far as the observations made in paragraphs IV (d) (c) and IV (d) (d) of the Report are concerned, Petitioner Company 1 submit- ted that the amount of secured loans outstanding as on March 31, 2020 was Rs 1,186.32 crores obtained from two lenders, namely, HDFC Ltd ("HDFC") and sum of Rs 115.24 crores from Piramal Cap- ital & Housing Finance Ltd. ("Piramal"). Petitioner Company 1 had availed loans aggregating to Rs 1,100 crores from HDFC. These loans are secured against (i) the commercial property "Platina" which is located in BKC and owned by Petitioner Company 1 and (ii) future lease rentals receivable by Petitioner Company 1 from lessees who have rented space in Platina. It has been submitted that the "Platina" property and income from that property represent adequate security for the loans obtained from HDFC. Petitioner Company 1 had also availed loans of Rs 125 crores from Piramal. These loans were secured against a residential project in Mumbai. Occupation Certificate for the project has been received. Thus, it has been submitted that the loan from Piramal is also adequately secured as there is no dilution in the security provided to the se- cured lenders who will continue have the same charge over the respective assets post sanctioning of the Scheme. Petitioner Com- pany 1 has clarified that it has been regular in paying its monthly installments to both HDFC and Piramal. Apart from the adequate security available with HDFC and Piramal, Petitioner Company 1 has also clarified that this Scheme is not an arrangement with the cred- itors and does not require any sacrifice from the creditors, secured or unsecured. Thus, interests of the secured creditors are not prej- udicially affected by the Scheme. Both the lenders have also granted their 'No Objection Certificate' for the Scheme which are annexed and Annexures A & B to the rejoinder.

(f) In so far as the observation made in paragraph IV (e) of the Report is concerned, Petitioner Company 1 has clarified that it has given loans to its group companies which are generally on call / short notice and repayable on demand. These loans have been given by Petitioner Company 1 in furtherance of its own business interests. Petitioner Company 1 further clarified that it is engaged in the busi- ness of providing infrastructure facilities as specified in section 186 (11) read with Schedule VI of the Companies Act, 2013. Accord- ingly, the provisions of section 186 of the Companies Act, 2013 are not applicable to Petitioner Company 1 on the loans given by it.

Accordingly, it has been submitted that there has been no violation of section 134(3) of the Companies Act, 2013.

(g) In so far as the observation made in paragraph IV (f) of the Report is concerned, Petitioner Company 1 clarified the following:

Loans and Advances

Petitioner Company 1 clarified that the provisions of section 186 of the Companies Act, 2013 are not applicable to it by virtue of sub- section (11) of section 186 of the Companies Act, 2013. Petitioner Company 1 has not given any loan which is not exempted from the provisions of section 186 of the Companies Act, 2013. Accordingly, the board of directors in their report for FY 2018 - 19 have reported that the Company has not given any loan or provided any security under section 186 of the Companies Act, 2013. Petitioner Company 1 further clarified that the long-term loans and advances of Rs 14,38,99,259 denote advance tax (net of provision for tax) to which the provisions of section 186 of the Companies Act, 2013 should not apply.

Investments

Petitioner Company 1 clarified that the non-current investments primarily comprise of its investments in "Platina". This investment (Rs. 317,27,88,916 as on March 31, 2020) is reflected as part of its non-current investments in the financial statement. Further, investment in Transferable Development Rights (Rs 1,70,30,801 as on March 31, 2020) is reflected under Current Investment. Thus, these investments are not in the nature of investment in securities to which section 186 applies.

(h) In so far as the observation made in paragraph IV (g) of the Report is concerned, Petitioner Company 1 submitted that, the Scheme provides that the employees of Petitioner Company 1 shall become employees of Petitioner Company 2 on the Scheme becoming ef- fective in order to take into consideration any change or movement (e.g. resignation of employees or hiring of new employees) that may occur between the Appointed Date and the Effective Date. The Scheme provides that all employees of Petitioner Company 1 shall become employees of Petitioner Company 2 with continuity of ser- vice and on terms that are not less favourable than the terms which are offered by Petitioner Company 1.

In any case, Petitioner Company 1 submitted that it does not have any employees. Paragraph 6 of the Scheme provided for transfer of employees out of abundant precaution to provide for a scenario where Petitioner Company 1 undertakes employment after the date of filing of the Scheme and before the Effective Date.

(i) In so far as the observation made in paragraph IV (h) of the Report is concerned, the Petitioner Companies submitted that they are en- gaged in the business of renting commercial real estate properties and they have engaged Jones Lang LaSalle ('JLL') to provide prop- erty management and maintenance services at their commercial properties. As JLL provides end-to-end property management ser- vices to the Petitioner Companies, there is no requirement to have any employees in the Petitioner Companies. Similarly, other ser- vice providers are engaged as and when required. Administrative services are availed from group companies. The directors of the Petitioner Companies co-ordinate and supervise the activities of JLL and other service providers, thereby obviating the need for the Pe- titioner Companies to hire employees.

The Regional Director has filed his Supplementary Report dated 5 Feb- ruary 2021 and in relation to the observation made by the Regional Director in Para IV (d) and IV (e) the Petitioner Companies vide Affidavit dated 8 February 2021 have undertaken to compound the offence in connection with omission of recording Rs 10 to the Share Capital Ac- count and also in relation to offence under Section 134(3) of the Act committed by Petitioner Company 1.

The Official Liquidator, High Court, Bombay, has filed his report dated November 18, 2020, inter alia, stating therein that the affairs of Peti- tioner Company 1 have been conducted in a proper manner, not preju- dicial to the interest of the shareholders of Petitioner Company 1 and that Petitioner Company 1 may be ordered to be dissolved without wind- ing up by this Tribunal.

From the material on record, the Scheme appears to be fair and rea- sonable and is not violative of any provisions of law and is not contrary to public policy. All the assets and properties comprised in the business and undertaking of Petitioner Company 1 of whatsoever nature and wheresoever situated, shall, under the provisions of Sections 230 to 232 and all other applicable provisions, if any, of the Act, without any further act or deed, be and stand transferred to and vested in the Petitioner Company 2 or be deemed to be transferred to and vested in Petitioner Company 2 as a going concern so as to become the assets and proper- ties of Petitioner Company 2. Further, upon the coming into effect of this Scheme and with effect from the Appointed Date, all liabilities re- lating to and comprised in the business and undertaking of Petitioner Company 1 including all secured and unsecured debts (whether in In- dian rupees or foreign currency), sundry creditors, liabilities (including contingent liabilities), duties and obligations and undertakings of Peti- tioner Company 1 of every kind, nature and description whatsoever and howsoever arising, raised or incurred or utilized for its business activi- ties and operations shall, pursuant to the sanction of this Scheme by the Tribunal under and in accordance with the provisions of Sections 230 to 232 and other applicable provisions, if any, of the Act, without any further act, instrument, deed, matter or thing, be transferred to and vested in or be deemed to have been transferred to and vested in Peti- tioner Company 2, along with any charge, encumbrance, lien or security thereon, and the same shall be assumed by Petitioner Company 2 to the extent they are outstanding as on the Effective Date so as to become as and from the Appointed Date the liabilities of Petitioner Company 2 on the same terms and conditions as were applicable to Petitioner Com- pany 1, and Petitioner Company 2 shall meet, discharge and satisfy the same and further it shall not be necessary to obtain the consent of any third party or other person who is a party to any contract or arrange- ment by virtue of which such liabilities have arisen in order to give effect to the provisions of this Clause.

As consideration under the Scheme, Petitioner Company 2 shall issue and allot in exchange of the equity shares of Petitioner Company 1, aggregate of 10,000 Redeemable Preference Shares ('RPS') of Rs 10/- (Rupees Ten only) each to all the equity shareholders of Petitioner Com- pany 1 whose names are appearing in the Register of Members of Peti- tioner Company 1 as on the record date in the ratio of 1:1, i.e., for every one equity share in Petitioner Company 1, the equity shareholders of Petitioner Company 1 to be issued one preference share in Petitioner Company 2.

On the Scheme becoming effective, RPS issued by Petitioner Company 1 and held by Petitioner Company 2 shall stand cancelled.

Since all the requisite statutory compliances have been fulfilled, CP(CAA)/1041/MB/2020 is made absolute in terms of the prayer clauses of the said Company Scheme Petition.

The Scheme is hereby sanctioned with the Appointed Date of October 1, 2019.

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 e-form INC-28 within 30 days from the date of receipt of the certified copy of Order by the Petitioner Companies.

On filing of this Order with the Registrar of Companies as instructed in paragraph 18 above, the Petitioner Company 1 shall stand dissolved.

Petitioner Company 2 to lodge a copy of this Order along with the Scheme duly authenticated/certified by the Deputy Director or the As- sistant Registrar, National Company Law Tribunal, Mumbai Bench, with the concerned Superintendent of Stamps for the purpose of adjudication of stamp duty payable, if any, within 60 days from the date of receipt of the certified Order from the Registry of this Tribunal.

All concerned regulatory authorities to act on a copy of this Order along with Scheme duly certified by the Deputy Director or the Assistant Reg- istrar, National Company Law Tribunal, Mumbai Bench.

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.