Two company petitions for approval of a demerger scheme were allowed. The court held that Income Tax Act violations are beyond its purview and confirmed creditor consents, approving the scheme conditional on DGCA clearance.
The proposed scheme of demerger was approved and made functional upon obtaining required permissions from statutory authorities.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY COMPANY PETITION Nos.86 & 87 of 2014
Date:09.07.2014
COMPANY PETITION No.86 of 2014
Between: M/s LEPL Projects Limited, Vijayawada, reptd by its Company Secretary-Ms. Kiranmayi
……Petitioner/ Transferor Company
AND
COMPANY PETITION No.87 of 2014
Between: M/s LEPL Airlines Private Limited, Vijayawada, reptd by its Authorized Signatory-Mr.Fahim Aslam Khan
……Petitioner/ Transferee Company
Counsel for the petitioner: Sri S.Ravi Senior counsel For Sri Ch.Pushyam Kiran
The Court made the following:
HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY COMPANY PETITION Nos.86 and 87 of 2014
COMMON ORDER:
Company Petition No.86 of 2014 is filed by M/s LEPL Projects Limited (transferor company), whereby it
has sought for approval of the proposed scheme of demerger of its airline business into M/s LEPL Airlines Private Limited (transferee company).
Company Petition No.87 of 2014 is filed by the transferee company for approval of the proposed scheme of demerger.
In Company Petition No.86 of 2014, the transferor company averred that it was incorporated under the Companies Act, 1956 (for short ‘the Act’) on 21.03.1996; that its authorized share capital is Rs.20 crores divided into 2 crores equity shares of Rs.10/each; that its issued, subscribed and paid up capital is Rs.18,00,40,000/- divided into 1,80,04,000 equity shares of Rs.10/- each; that its main objects are to carry on the business of builders, designers, real estate, all types of construction and development work, etc., in all its branches; and that by resolution, dated 10.03.2014, its Board of Directors has approved the proposed scheme of demerger of the petitioner into M/s LEPL Airlines Private Limited (transferee company), which is filed as Annexure P6.
The transferor company further averred that it has eleven shareholders and all of them have given their individual consent affidavits, filed as Annexure-P10 (page Nos.170 to 192); that it has 4 secured creditors who have given their No objection, filed as AnnexureP8; and that it has 13 unsecured creditors, who have also given No Objection, filed as Annexure P9 (page Nos.146 to 169), to the proposed scheme of demerger.
In Company Petition No.87 of 2014, the transferee company averred that it was incorporated under the Act on 12.08.2013; that its authorized share capital is Rs.1 lakh divided into 10,000 equity shares of Rs.10/- each; that its issued, subscribed and paid up capital is Rs.1 lakh divided into 10,000 equity shares of
Rs.10/- each; that its main objects are to operate air transport services including scheduled, non-scheduled, charter, domestic and international services by aeroplanes in India and abroad for the carriage of passengers, baggage, mail and freight, etc; and that by resolution, dated 10.03.2014, its Board of Directors has approved the proposed scheme of demerger of M/s LEPL Projects Limited into it, which is filed as AnnexureP6. The transferee company further averred that it has two shareholders and both of them have given their individual consent affidavits, filed as Annexure-P8 (page Nos.141 to 146), to the proposed scheme of demerger and that it has no secured and unsecured creditors.
The transferor company has filed Company Application No.463 of 2014 for dispensing with the holding of the meetings of its shareholders, secured and unsecured creditors for considering the proposed scheme of demerger.
The transferee company has filed Company Application No.464 of 2014 for dispensing with the holding of the meeting of its shareholders for considering the proposed scheme of demerger. This Court by separate orders, dated 02.04.2014, has allowed the said Company Applications. Both the transferor and the transferee companies have filed the present Company Petitions for approving the proposed scheme of demerger.
In both the Company Petitions, this Court by separate orders, dated 23.04.2014, ordered notice to the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad. Advertisement was also ordered to be published in two daily newspapers, viz., Indian Express (English) and Andhra Prabha (Telugu) of
Vijayawada editions. The petitioners have filed proof of publication through two memos, dated 02.06.2014, vide USR.Nos.1578 and 1579 of 2014, and no objections are stated to have been received.
In response to the said notices, the Regional Director, South Eastern Region, Ministry of Corporate Affairs, Hyderabad, has filed his common report, dated 26.06.2014, wherein he has mainly raised three objections, viz., (1) that as per General Circular No.53 of 2011, issued by the Ministry of Corporate Affairs, New Delhi, No Objection Certificate from the Directorate General of Civil Aviation (DGCA) needs to be obtained by both the Companies and that the petitioners have not obtained such certificate; (2) that though this Court by order, dated 02.04.2014, has directed the transferor company to file the consent letters of its secured creditors, no such consent letters have been filed; and (3) that as per the definition of “demerger” under Section 2(19AA) of the Income Tax Act, 1961, the Resulting Company, in consideration of the demerger, shall issue its shares to the shareholders of the demerged company on a proportionate basis and that the said condition is not complied with. It is further stated that as the proposed scheme is in the nature of sale and purchase of undertaking, the same does not require the approval of this Court.
With respect to objection No.1, Sri S.Ravi, learned senior counsel appearing for the petitioners, submitted that as per Clause-15.3 of the proposed scheme of demerger, the scheme is conditional upon and subject to obtaining the no-objection, sanction or approval under any law of the Central Government or any other agency, department or authority concerned, if any, required; and that as obtaining of approval from
the DGCA is a time consuming process, the present Company Petitions are filed for approval of the proposed scheme of demerger, which will come into force only upon obtaining the sanction/approval from the statutory authorities such as the DGCA.
With respect to objection No.2, the learned senior counsel has invited this Court’s attention to Annexure-P8 (page Nos.141 to 145) in Company Petition No.86 of 2014 and submitted that the Regional Director has raised the said objection without noticing the consent letters given by the secured creditors of the transferor company.
In Company Petition No.86 of 2014, the transferor company has filed Annexure-P8, which contains the details of its secured creditors, as per which, it has four secured creditors, viz., Central Bank of India, Indian Overseas Bank, HDFC Bank and ICICI Bank. All these banks have given their separate consent letters to the proposed scheme of demerger.
On a perusal of these letters, this Court is satisfied that all the secured creditors of the transferorcompany have given their consent to the proposed scheme of demerger.
With regard to objection No.3, as rightly pointed out by the learned senior counsel, it is beyond the function of the Regional Director to raise the alleged violation of the Income Tax Act, 1961. Learned senior counsel submitted that in appropriate proceedings, if need be, the petitioners will satisfy that the demerger is in conformity with the provisions of Section 2(19AA) of the Income Tax Act, 1961.
I find merit in this submission of the learned senior counsel. While considering the grant of approval
of the proposed scheme of demerger, this Court is only concerned as to whether the proposed scheme is in consonance with the provisions of the Companies Act, 1956 and whether the proposed scheme of demerger affects the interests of the shareholders, creditors or any other stake holders.
The question whether the petitioners have violated the provisions of the Income Tax Act, 1961 is not germane for consideration in the present Company Petitions.
In the light of the above facts and circumstances of the case, I do not find any legally sustainable objection for refusing the proposed scheme of demerger.
Accordingly, the proposed scheme of demerger is approved. However, the said scheme will be functional from the date of the petitioners obtaining required permissions from all the statutory authorities including the DGCA. The petitioners shall, within 30 days from the date of receipt of a copy of this order, cause a certified copy of the same to be delivered to the Registrar of Companies, Andhra Pradesh, Hyderabad and take all other consequential actions in pursuance of the approval of the scheme of demerger.
The Company Petitions are, accordingly,
allowed.
____________________________ JUSTICE C.V.NAGARJUNA REDDY 09th July, 2014 DR
3 issues framed by the court
Whether the proposed scheme of demerger requires court approval under the Companies Act, 1956.
Whether objections regarding DGCA permissions and Income Tax Act provisions bar the scheme approval.
Whether the scheme satisfies requirements regarding shareholder and creditor consent.
1 provisions across 1 enactments
M/s LEPL Projects Limited
M/s LEPL Airlines Private Limited
C. V. Nagarjuna Reddy
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
