Electronictender Com (India) Private Limited Vs

Rahul Bhatnagar, Member- Technical

An application bearing IA 140/ND/2023 was moved by the Applicant Company for rectify certain typographical errors crept into the order dated 31.11.2022. Upon hearing the submissions made by the counsel and also on a reading of the contents of the application and prayers made therein, this Adjudicating Authority vide order dated 22.05.2022 has passed the following order: -

“Heard the submissions made by Ld. Counsel for the Applicant. Ld. Counsel for the Applicant pointed out the typographical error occurred in the order dated 31.11.2022. Ld. Counsel is directed to deposit the original order of this Tribunal to make necessary typographical corrections in the order. The present application is allowed. The modified order will be issued on receipt of earlier order. List the matter on 06.06.2023”.

In the light of the above, the following order is made to meet the ends of justice & fair play and also to ensure that the applicant/petitioner will not face any hurdles in implementation of the scheme as approved by this Adjudicating Authority.

This Petition is preferred by the Transferee Company under Section 230 to 232 of Companies Act, 2013 read with the Companies (Compromise, Arrangements and Amalgamations) Rules, 2016 for the purpose of the approval of the Scheme of Amalgamation (hereinafter referred to as ‘Scheme’ for brevity), as contemplated between the Companies, its Shareholders and Creditors. The copy of the Scheme has been placed on record. The Appointed date as fixed for the Proposed Scheme of Amalgamation is 30.12.2018. The details of the Companies proposed to be amalgamated, as placed on record, are given in the following paragraphs.

Electronic Tender Private Limited, (hereinafter referred to as “Transferor Company-1”) was incorporated on the 15.03.2000 under the provisions of the erstwhile Companies Act, (No. 57 of 1984) of the Republic of Mauritius (replaced by the Companies Act 2001) as a private company having its registered office at Level 3, GFin Tower, 42, Hotel Street, Cybercity, Ebene 72201, Mauritius. The Equity Share Capital is USD 772 divided into 7,723,317 ordinary shares of USD 0.0001 each which is fully paid up.

ElectronicTender.Com (India) Private Limited, (hereinafter referred to as Applicant/“Transferee Company”) was incorporated on the 28.03.2000 under the provisions of the erstwhile Companies Act, 1956 as a private limited company having its registered office at 6, Jn Mandir Road New Delhi-110001. The Equity Share Capital of Rs. 100,00,000 consisting 100,00,000 Equity Shares of Rs. 1 each. Issued, Subscribed and Paid-up Capital 104200 equity shares of Rs.1 each amounting to Rs. 1,04,200/-.

The present Petition has been filed by the Transferee Company. Since the Registered office of the Transferee Company is situated in Delhi, the jurisdiction lies with this Bench.

From the records, it is seen that the First Motion petition was filed by the Applicant Company for seeking directions for dispensing with the meeting of Equity Shareholders, Secured Creditors and Unsecured Creditors of the Applicant Company. This Tribunal, in the First Motion Application bearing No. CA (CAA) No. 165(ND) 2019, vide Order dated 22.01.2020 dispensed with the requirement of convening the meetings of the equity shareholders, secured creditors and unsecured creditors of Transferee Company.

Subsequent to the order of dispensation of meetings in relation to the Transferee Company, the Second Motion petition was moved by the Applicant Company in connection with the Scheme of Amalgamation for issuance of notices to the Central Government, Registrar of Companies NCT of Delhi & Haryana, Regional Director (Northern Region) MCA, Income Tax Authorities, Official Liquidator, Reserve Bank of India other sectorial regulators who will be affected by the proposed Scheme and to such other Objector(s), if any, and also for publication of notice in respect of the said Scheme. The said petition was admitted and directions were issued, vide Order dated 18.03.2020 of this Tribunal, requiring the Applicant Companies to serve notices to the Central Government, Registrar of Companies NCT of Delhi & Haryana, Regional Director (Northern Region) MCA, Income Tax Authorities, Official Liquidator and other sectoral regulators likely to be affected by the said proposed Scheme and also to carry out necessary publication in English and Hindi newspapers with respect to the said Scheme.

It is submitted by the Petitioners that in compliance of the above stated directions, the Petitioners duly filed an Affidavit of Service by confirming that the aforesaid Notices of the present Company Petition were published on 06.05.2020 in Business Standard (English) and (Hindi) newspapers Delhi edition. It is further submitted that the Petitioner Companies also served the Notices of the present Company Petition to all the statutory authorities.

It is submitted by the Applicant Company that the compliance with respect to accounting treatment has been made as certified by the Independent Auditor’s Certificate dated 17.10.2019, certifying that the proposed accounting treatment included in the Scheme of Amalgamation of the petitioner companies is in compliance with the applicable Accounting Standards specified under the Section 133 of the Act.

The Income Tax Department vide their Ld. Counsel made oral submission before the bench of this Tribunal via virtual hearing held on 07.08.2020 stated therein that they have no objection with respect to the present Scheme of arrangement herein subject to protection of statutory rights as per the Supreme Court Judgement in Vodafone V. Department of Income Tax.

The Regional Director vide his report dated 03.09.2020 has not objected to the proposed scheme but has made certain observations. The petitioner companies had filed reply dated 26.08.2020 in response to the observations made by the Regional Director, wherein the petitioner companies gave undertaking to appropriately comply with the observations made by the Regional Director. The details are given below:

Observations, of the Regional Director

Reply of the Petitioner Companies

As    per    petition    and    annexures thereto,  the  Hon’ble  Supreme  Court of  Mauritius  has  given  its  approval for this amalgamation vide Case No. SC/COM/MOT/00122/2019  DATED 28.03.2019,  however,  the  board  of directors  of  the  transferee  company has  approved  the  proposed  Scheme of   Amalgamation   in   their   meeting held  on  01.10.2019.  Moreover,  the valuation   report   for   the   proposed swap   ratio   dates   is   14.10.2019. Therefore, it is not understood as to how   the   swap   ratio   which   was prepared on the succeeding date can be  approve  ahead  of  its  preparation in terms of the provisions of Section 232(2) (c) of the Companies Act, 2013 offer       your       comments       with justification  and  documentary  proof thereof  along  with  and  the  order  of the Supreme Court of Mauritius.

The    Board    of    Directors    of    the Transferee   Company   approved   the draft scheme of amalgamation in May 11,  2018.  Copy  of  the  certified  true copy of the extract of the Minutes is enclosed   herewith   and   marked   as Annexure-A.  Accordingly,  the  swap ratio of shareholdings including SOP of  the  transferor  company  being  an inward overseas merger in India, was computed   by   the   Auditors   of   the Transferee     Company     and     the proposed   Scheme   of   merger   was conveyed  to  the  transferor  company in  Mauritius.  Accordingly  after  the order   of   the   Supreme   Court   of Mauritius,  the  board  of  Directors  of the Transferee Company in the board meeting  held  on  1st  Oct,  2019  acted according  to  the  earlier  decision  of 11th  May, 2018 of the board, as well as,   the   decision   of   the   Supreme Court of Mauritius.

Initial   valuation   was   done   by   the statutory  auditors  of  the  transferee company,  who  are  the  independent charted     accountants,     and     this valuation  was  obtained  considering the position of the Company on 31st March     2017     and     the     special circumstances       of the   joint developments  and  sharing  ratio  of revenue. This valuation was accepted by   the   Transferor   Company   and subsequently  by  the  Supreme  Court of       Mauritius.  However,       the application before the NCLT required valuation by Registered valuers also.

Hence,     registered     valuers,     Mr. Mukesh  Singla  was  appointed.  After understanding    the circumstances and  facts  of  the  case,  the  registered valuers after due consideration, gave his  valuation  report  endorsing  the earlier    valuation    as    appropriate under  the  special  circumstances  of merger.  Accordingly,  we  submit  the chronology of the event, including the valuation report followed the natural progression     of     the     events     as

explained above.

In 2011-12, the Transferee Company has allotted 420 equity shares of Rs. 10/-  each  to  AKM  Systems  Private Limited  at  a  premium  price  of  Rs. 47,550/-    per    share.    The    share premium  amounted  to  a  total of  Rs. 1,99,71,000/-   Please   enclose   the Share  Valuation  Report  prepared  by a  registered  valuer  since  the  shares are issued at exorbitant price The  Transferor  Company  is  a  non- applicant  foreign  entity  registered  in Mauritius.  Post-  allotment  financial statements      of      the      Transferee Company  show  continuous  increase in outstanding receivables from such foreign    entity.    The    accumulated overdue   receivables   from   the   said entity     as     31.03.2019     is     Rs. 190,74,904/-    and    simultaneously debit entry of the Bad debts account by  the  amount  (Rs  1,94,77,039/-) being  written  off.  Please  state  the feasibility  of  the  Scheme  since  the present petition is silent about it.

The   valuation   report   which   was taken  from  a  Merchant  Banker  and the same was also enclosed for their reference.

As  per  the  agreement  between  the Transferor     and     the     Transferee

Company, the funding of development  and  the  ownership  of the software was with the Transferor Company,  and  shares  responsibility for  the  development  of  the  software was with the Transferee Company So the   part   of   cost   incurred   by   the Transferee    Company    up    to    the passing of order by Supreme Court of Mauritius was being debited as being receivables as per running agreement between   two   companies.   Also,   the revenue shares were recorded as per agreement  between  the  two  entities. Post-merger,  the  ownership  of  the software   shall   be   fully   with   the Transferee  Company,  and  hence  the cost  will  be  capitalized  to  the  extent of  entire  amount  outstanding  with the  Transferor  Company,  The  bad- debts of Rs 1,94,77,039/- mentioned in your query that has been written- off,  is  an  outstanding  from  different

Indian entity, a Govt. of India PSU.

In Para 2 of Notes to the Accounts to the    financial    statement    as    at 31.03.2019,  the  company  has  also disclosed   that   consequent   to   the order  of  the  Hon'ble  High  Court  of Delhi      dated      30.05.2019      and termination of agreement with one of the  parties,  the  amount  outstanding payables   as   per   order   has   been retained  as  receivables  and  balance amount   has   been   written   as   the party  concerned  has  not  furnished any  detail  as  envisaged  in  the  order as on date of the audit nor reconciled the actual out standings. Please offer a  brief  note  upon  this  transaction with   documentary   proof/order   of High    Court    in    support    of    the transaction.

The    Company    had    a    licensing agreement     (called     ASP     License Agreement)       with       M/s Telecommunications       Consultants India Lid (TCIL a Govt. of India PSU, wherein  TCIL  was  supposed  to  pay the     Transferee     Company,     i.e., ElectronicTendor.com    (India)    Pvt. Ltd. ( i.e. ETI) certain amount as per the licensing agreement between ETI and  TCIL  receipt  of  corresponding payments   by   TCIL   from   the   end- users/   clients.   The   Hon'ble   High Court    directed    TCIL    to    correct various     transgressions     including those  relating  to  payments  to  ETI. One  of  the  transgressions  of  TCIL was    that    TCIL    had    not    been informing  ETI  properly  of  its  stream of  receipts  (with  details),  nor  was  it properly remitting the dues to ETI in a     timely     manner.     Later,     with reference to para 5 of the Delhi High Court  order,  even  after  the  Court order   time   of   finalization   of   the statements of accounts of ETI for the FY   2018-2019,   huge   outstanding amount and details were informed to be still  due from TCIL. for which no information   was   forthcoming   from TCIL.   Hence,   ETI,   the   Transferee Company  decided  to  write-off  in  its books  of  accounts  the  outstanding amount for which no information was being  provided  by   TCIL,  and  also simultaneously   exercise   the   legal option    for    the    recovery    of    the amounts   due,   irrespective   of   the write-off.

State     the     names     of     common directors/shareholders   in   the   said foreign      entity      and      Transferee Company  with  date  of  acquisition  of

shares/membership.

List  of  the  Common  directors  and shareholders  was  enclosed  for  the reference.

The financial statements filed by the Transferee    Company    on    MCA21 Registry  from  time  to  time  reported its   main   source   of   revenue   from providing development service to the said foreign entity. Please furnish the details   of   transaction   taken   place

between  the  Transferor  entity  and

As explained in the Background, the Transferee  Company  has  to  recover the  developmental  cost  of  software incurred  by  it  from  the  Transferor Company,  and  hence  it  is  shown  as recoverable     apart     from     sundry expenditure incurred on behalf of the

Transferor   Company   The   revenue-

the  Transferee  Company  during  the last 8 (eight) years with ledger copies of transactions.

share  from  the  marketing/  licensing of  the  software  is  also  credited  to Transferor   Company   as   explained earlier  in  reply.  The  primary  source of   revenue   is   usage   and   licence charges from the customers and end- users,   and   not   amounts   of   cost recoverable    from    the    Transferor Company   which   is   only   a   cost recovery     as     explained     in     the background. In the Form AOC4 filed with      ROC      in      2019,      under "Description    of    the    product    or service,   it   is   stated-"Design   and development    services    of    software applications    including    customized

and packaged software development

The RBI Copy  of  Approval was sought received from

The same was annexed in the reply. Further  the  Applicant  Company  has placed     on     record     Affidavit     of Compliance    of    Foreign    Exchange Management  Act,  1999  by  Statutory Auditor  and  Managing  Director  as required for deemed approval by RBI in  terms  of  Regulation  9  of  Foreign Exchange Management (Cross Border

Merger) Regulations, 2018.

In view of the foregoing facts and discussion and upon considering the approval accorded by the Members and Creditors of both the Companies to the proposed Scheme and also in the view of the fact that no sustainable objections have been raised by the Office of the Regional Director, Income Tax Department or any other interested party, there does not appear to be any impediment in granting sanction to the Scheme proposed of amalgamation.

Accordingly, as a sequel to the above facts and circumstances, sanction is hereby granted to the Scheme of Amalgamation proposed by the Applicant Company under Section 230 to 232 of the Companies Act, 2013.

The  sanctioned  Scheme  of  Amalgamation  shall  be  binding  on  the  Transferor Company and Transferee Company and their Shareholders and Creditors. The Petitioner Companies shall remain bound to comply with the statutory requirements in accordance with law.

Notwithstanding the above, if at any stage any deficiency is found or violation committed qua any enactment, statutory rule or regulation is found to be committed, the sanction granted by this Tribunal to the Scheme will not come in the way of action to be taken, albeit, in accordance with law, against the concerned persons, Directors and Officials of the Applicant Company.

While approving the Scheme as above, it is clarified that this Order should not be construed as an order in any way granting exemption from payment of Stamp Duty, Taxes or other statutory dues, if any, and payment in accordance with law or in respect to any permission/compliance with any other requirement, which may be specifically required under any law will be made. Further the approval of the Scheme would in no manner affect the tax treatment of the transactions under the Income Tax Act, 1961 or serve as any exemption or defense for the Applicant Company against tax treatment in accordance with the provisions of Income Tax Act, 1961.

This tribunal further directs with respect to Transferor companies and Transferee company, that:

(i) All  benefits,  entitlements,  incentives  and concessions under incentive schemes and policies that the Transferor Company is entitled to including under Customs, Excise, Service Tax, VAT, Sales Tax, GST and Entry Tax and Income Tax laws, subsidy receivables from Government, grant from any governmental authorities, direct tax benefit/exemptions/deductions, shall, to the extent statutorily available and along with associated obligations, stand transferred to and be available to the Transferee Company as if the Transferee Company was originally entitled to all such benefits, entitlements, incentives and concessions;

(ii) All  contracts  of  the  Transferor  Company, which are subsisting or having effect immediately before the Effective Date, shall stand transferred to and vested in the Transferee Company and be in full force and effect in favor of the Transferee Company and may be enforced by or against it as fully and effectually as if, instead of the Transferor Company, the Transferee Company had been a party or beneficiary or obliged thereto;

(iii) All the employees of the Transferor Company shall be deemed to have become the employees and the staff of the Transferee Company with effect from the Appointed Date, and shall stand transferred to the Transferee Company without any interruption of service and on the terms and conditions no less favorable than those on which they are engaged by the Transferor Company, as on the Effective Date, including in relation to the level of remuneration and contractual and statutory benefits, incentive plans, terminal benefits, gratuity plans, provident plans and any other retirement benefits;

(iv) All liabilities of the Transferor Company, shall, pursuant to the provisions of section 232(4) and other applicable provisions of the Companies Act, 2013, to the extent they are outstanding as on the Appointed Date, without any further act, instrument or deed stand transferred to and be deemed to be the debts, liabilities, contingent liabilities, duties and obligations etc. as the case may be, of the Transferee Company and shall be exercised by or against the Transferee Company, as if it had incurred such liabilities.

(v) All proceedings now pending by or against the Transferor Company be continued by or against the Transferee Company.

(vi) Any person interested or effected shall be at liberty to apply to this Tribunal in the above matter for any directions that may be necessary.

Further, the Applicant Company shall within thirty days of the date of the receipt of this Order, cause a Certified Copy of this Order to be delivered to the Registrar of Companies for registration. The Transferor Company has already been dissolved by the Registrar of Companies, Mauritius.

In compliance with the requirement of Section 230(1) of the Act, the transferee company shall until the full implementation of the Scheme of Amalgamation filed stated in the Form CAA 8 along with the requirement fee as prescribed in the Companies (Registration offices and fees) Rules 2014 within 210 days from the end of each financial year.

The Company Petition bearing (CAA) 33 (ND)/2020 is allowed on the above terms. This order supersedes earlier order dated 31.11.2022, where the typographical errors have been noticed which are now stands rectified by this order.