Edelweiss Finvest Limited vs EDEL Finance Company Limited

The sanction of the Tribunal is sought under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 (the Act) and the Rules framed thereunder for the Scheme of Merger by Absorption (the Scheme) of Edelweiss Finvest Limited (Formerly known as Edelweiss Finvest Private Limited) with Edel Finance Company Limited and their respective shareholders.

We have heard the learned counsel for the Petitioner Companies and the representative of the Regional Director (Western Region), MCA, Mumbai. No objector has come before this Tribunal to oppose the Scheme and nor has any party controverted any averments made in the Petition to the said Scheme.

The Petitioner Company No.1 is engaged in the business of lending and investments. The Petitioner Company No.2 is a Core Investment Company and is engaged in the business of investment and financing the group companies.

The Board of Directors of the Petitioner Companies have approved the Scheme in their respective Board meetings held on 12th February, 2020. Consequent upon the change of name of the Transferor Company and pursuant to the Fresh Certificate of Incorporation, the Petitioner Companies approved the Amended Scheme in their Board meetings held on 28th October, 2020 and 29th October, 2020 respectively. The Appointed Date in the Scheme is 1st April, 2019.

The Petitioner Companies submit that it is proposed to amalgamate the Transferor Company into the Transferee Company and the proposed merger by absorption is founded on leveraging of the significant complementarities that exist between the Transferor Company and Transferee Company and the said merger by absorption would create meaningful value to stakeholders and reduce the cost of managing separate companies and manage the business operations of the companies more effectively. Also, to Garner the benefits arising out of economies of large scale and lower operating costs by avoiding duplication of administrative functions, reduction in cost of compliances. The proposed corporate restructuring mechanism by way of a Scheme of Merger by Absorption under the provisions of the Act will be beneficial, advantageous and not prejudicial to the interests of the shareholders, debenture holders, creditors and other stakeholders of Transferor Company and Transferee Company.

The Company Petition is filed in consonance with sections 230 to 232 of the Act along with the Order dated 1st June, 2020 passed in C.A. (CAA) 991/MB-I/2020 by this Tribunal.

The learned counsel for the Petitioner Companies stated that the Petitioner Companies have complied with all the requirements as per directions of this Tribunal, and they have filed necessary Compliance Report/Affidavit of Service before this Tribunal. Moreover, the Petitioner Companies undertake to comply with all statutory/regulatory requirements, if any, as required under the Act and the Rules made thereunder. The undertaking given by the Petitioners is accepted.

The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, has filed his Report dated 12th February, 2021 inter alia stating therein the observations on the Scheme as stated in paragraph IV (a) to (g) of the report. In response to the observations made by the Regional Director, the Petitioner Companies have given necessary clarifications and undertakings. The observations made by the Regional Director and the clarifications and undertakings given by the Petitioner Companies are summarized in the table below:

Sr.

No. Para

(IV)

RD Report /Observations dated 12th February, 2021

Response of the Petitioner Companies

(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 the observation in paragraph IV (a) of the Report of the Regional Director is concerned, the Petitioner Companies undertake that in addition to compliance of AS-14 (IND AS- 103), the Transferee Company will 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 the Definition of the Scheme,

"Appointed Date" for the purpose of the Scheme shall means 1st April, 2019 or such other date as may be approved by the Hon'ble National Company Law Tribunal, Bench at Mumbai.

"Effective Date" means the last of the dates on which all conditions and matters referred in Clause 17 have been fulfilled, obtained or waived.

"Record Date" means the date on which the list of shareholders shall be determined by the Board of the respective companies for issuance of shares as consideration to the shareholders pursuant to this Scheme.

Further, 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.

As far as the observation in paragraph IV (b) of the Report of the Regional Director is concerned, the Petitioner Companies state that the Appointed Date is 1st April, 2019. Further, the Petitioner Companies undertake to comply with the requirements as clarified vide Circular No. F No. 7/12/2019/CL-I 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, 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 the provisions of the Section.

As far as the observation in paragraph IV (c) of the Report of the Regional Director is concerned, the Petitioner Companies undertake that the fee, if any, paid by the Transferor Company on its Authorized Capital will be set- off against any fees payable by the Transferee Company on its Authorized Capital subsequent to the Merger by Absorption in accordance with the provisions of section 232(3)(i) of Companies Act, 2013 and affirms that it will comply with the provisions of the section.

(d)

As per Clause 12 of the Scheme, the surplus/deficit, if any arising after taking the effect of Clause 12.1, 12.2 and Clause 12.4, after giving the effect of the adjustments referred to in Clause 12.3, shall be adjusted in "Capital Reserve Account" in the financial statements of the Transferee Company.

In this regards, Petitioner Companies have to undertake that the surplus shall be credited to Capital Reserve Account arising out of the amalgamation and deficit shall be debited to Goodwill Account.

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

As far as the observation in paragraph IV (d) of the Report of the Regional Director is concerned, the Petitioner Companies undertake that the surplus, if any, arising out of amalgamation will be credited to Capital Reserve Account and the said Reserves will not be available for distribution of dividend. Further, Petitioner Companies undertake in accordance with the accounting treatment prescribed for 'common control business combinations' under the applicable IND-AS 103, the difference (surplus/deficit), if any, arising out of amalgamation will be transferred to Capital Reserve, which may reflect a negative balance in case of deficit.

(e)

ROC, Mumbai Report dated 10.11.2020 has inter alia mentioned that there are no prosecution, no technical scrutiny, no inquiry, no inspection, no complaint are pending.

Further mentioned that:-

EFPL is registered with the Reserve Bank of India i.e. RBI as a systematically important Non Deposit taking Non-Banking Financial Company (NBFC-ND-SI). EFPL is engaged in the business of lending and Investments.

EFPL has issued Non- Convertible Redeemable Debentures which are listed on BSE Limited.

As far as the observation in paragraph IV (e) of the Report of the Regional Director is concerned, the observation of the ROC is informative and self- explanatory. Further, the Petitioner Companies have served notice to RBI to which no response has been received till date from RBI. Further, the First Petitioner Company has been granted in-principle approval to the Scheme from BSE. Also, the Petitioner Companies undertake that in case any response/notice is received from RBI and/or BSE, the Second Petitioner Company i.e. Transferee Company will deal with the same accordingly.

(f)

Further, Petitioner Companies has submitted in principle approval valid for 6 months from BSE vide their letter no. DCS/COMP/BM/IP/83/20-21 dated 22.01.2021 for Debentures of the EFPL i.e. First Petitioner Company are listed on BSE.

Hence, Hon'ble Tribunal may consider the same and decide the matter on merit.

As far as the observation in paragraph IV (f) of the Report of the Regional Director is concerned, the Petitioner Companies undertake to comply with all the relevant directions of the BSE and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(g)

The Petitioner Companies filed Miscellaneous Application vide No. 1186 of 2020 for amending name of the Transferor Company from Edelweiss Finvest Private Limited to Edelweiss Finvest Limited in the entire scheme and amend the Capital Structure of the Transferee Company and consequential amendment thereof in said Company Application/Petition.

As per the records available at the Hon'ble NCLT, Mumbai Bench Portal, the aforesaid Miscellaneous Application No. 1186 of 2020 has been allowed and taken on record vide order dated 28.01.2021.

Further, the Petitioner Companies have to undertake to comply with the provisions laid down in clause 8(2)(8) of the Companies (Incorporation) Rules, 2014.

As far as the observation in paragraph IV (g) of the Report of the Regional Director is concerned, the Petitioner Companies state that the provisions laid down by Rule 8(2), Rule (8A)(1)(w) of the Companies (Incorporation) Rules, 2014 are not applicable in the present case.

The observations made by the Regional Director and clarifications & undertakings given by the Petitioner Companies have been verified and accepted.

The Official Liquidator has filed his report dated 1st February, 2021 inter alia, stating therein that the affairs of the Transferor Company have been conducted in a proper manner not prejudicial to the interest of the Shareholders of the Transferor Company.

From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy.

Since all requisite statutory compliances have been fulfilled, C.P. (CAA) 1060/MB-I/2020 is made absolute in terms of prayer made in the Petition. Hence ordered.

ORDER

The Petition be and the same is allowed subject to the following:

(i) The Scheme, with the Appointed Date fixed as 1st April, 2019 placed at Page Nos. 32 to 55 (Annexure - E) of the Company Petition is hereby sanctioned. It shall be binding on the Petitioner Companies and all concerned including their respective shareholders, secured creditors and unsecured creditors/trade creditors and employees.

(ii) The Transferor Company be dissolved without being wound up.

(iii) The Registrar of this Tribunal shall issue certified copy of this Order along with the Scheme forthwith. Petitioners are directed to file a copy of this Order along with a copy of the Scheme with the Registrar of Companies concerned, electronically in E-Form INC-28, within 30 days from the date of receipt of the Order from the Registry.

(iv) The Petitioner Companies shall lodge a copy of this Order and the Scheme duly authenticated by the Registrar of this Tribunal within 60 days from the date of receipt of the Order, with the Superintendent of Stamps concerned, for the purpose of adjudication of stamp duty, if any payable.

(v) The Petitioner Companies shall comply with the undertakings given by them.

(vi) The Petitioner Companies shall, within 15 days of receipt of this order, issue newspaper publications with respect to approval of the Scheme, in the same newspapers in which previous publications were issued.

(vii) The Petitioner Companies shall take all consequential and statutory steps required under the provisions of the Act in pursuance of the Scheme.

(viii) All concerned shall act on a copy of this Order along with the Scheme duly authenticated by the Registrar of this Tribunal.

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