Hydel Constructions Private Limited vs Hydel Infraprojects Private Limited

This Joint application has been filed by the Applicant Companies under sections 230 and 232 of the Companies Act, 2013 read with the Company (Compromises, Arrangements and Amalgamations) Rules, 2016 and the National Company Law Tribunal Rules, 2016, for the purpose of approving the Scheme of Arrangement, as contemplated between the Demerged Company with Resulting Company.

Both the Demerged Company and the Resulting Company have their registered offices which lie within the jurisdiction of this Tribunal.

A perusal of the petition discloses that initially the Demerged Company and Resulting Company had jointly filed the first motion application bearing CA (CAA)/111/ND/2019 which had been disposed off by this Tribunal vide its order dated 28.08.2019 directing: -

A.) In respect to the Demerged Company:

i. The requirement of convening a meeting of the shareholders was dispensed with, in view of the consent affidavits of its 2 equity shareholders.

ii. The requirement of convening a meeting of the 18 unsecured creditors was dispensed with, in view of consent affidavits in favor of the scheme.

iii. As the company has no secured creditors, the requirement of convening a meeting does not arise.

B.) In respect to the Resulting Company:

i. The requirement of convening a meeting of the shareholders was dispensed with, in view of the consent affidavits of its 2 equity ghareholders.

ii. As the company has no unsecured creditors, the requirement of convening a meeting does not arise.

iii. As the company also has no secured creditors, the requirement of convening a meeting does not arise.

The Demerged Company is currently engaged in pursuing its main objects which are as following

a.) To carry on the businesses of contractors for construction of roads, buildings, flats, factories, offices, dams, canals, tanks, reservoirs, cyphones, bridges, hydel projects, and all sorts of contracts for procurement and supply for local, municipal., state, central authorities, or for any other person or companies.

b.) To undertake the construction of every description and to erect, rebuild, enlarge, alter, pull down, improve, re- model, existing works and to convert and appropriate land for roads, streets, squares and other conveniences,

c.) To buy purchase, or otherwise acquire or construct multistory flats, house buildings, factories and other properties lease hold or free hold either on rent, lease or for any other consideration and to sell.

d.) To act as consultant, advisers, architects, civil engineers, designers, town planners, valuers, surveyors and supervisors for all sorts of building activities and allied jobs and works which may be usefully or conveniently combined by research and development.

The Scheme is sought to be justified on the grounds:

(i) That the employees of both these activities can be incentivized based on the performance of such business activities provided they do have separate entity taking care of expansion and growth requirement.

(ii) Certain investments into incidental business activities can be utilized to their maximum scale and potential provided a focused environment and resource allocation is created through separate entity. Considering this object in mind, it is essential that the Demerged Undertaking comprising of various incidental business activities be transferred through process of the demerger to the Resulting Company.

(iii) The demerger of the Demerged Undertaking of Hydel Constructions Private Limited is proposed whereby the Demerged Undertaking will be transferred to Hydel Infraprojects Private limited. Demerged Undertaking means all the movable and immovable properties including investments and cash and cash bank balance and liabilities, of whatsoever nature and kind and wherever situated of the Demerged Company, which pertain to its incidental businesses and Investment Undertaking, all the movable and immovable properties, vehicles, investments, employees and other assets related to activities of the Demerged Undertaking.

Copies of the Memorandum and Articles of Association along with the audited Balance Sheets as on 28.02.2019 and reports of the Statutory Auditor of both the Applicant Companies have been filed. The Articles of Association provide for the applicants to consider and act upon the Scheme as proposed herein.

The applicant company has now initiated the Second Motion. An affidavit dated 16.11.2019 discloses that the applicant had effected publication in daily newspapers in "Business Standard" (English) and in "Business standard" (Hindi) both dated 06.11.2019 (Delhi Edition).

Further, in compliance with the directions issued by this Tribunal, a notice of the petition has also been served on the following authorities/ sectoral regulators:

i. Office of the Regional Director, Ministry of Corporate Affairs, New Delhi, (Northern Region);

ii. Office of the Registrar of Companies, Ministry of Corporate Affairs, NCT of Delhi and Haryana;

iii. Income Tax Department, New Delhi

A copy of each of the acknowledgements of receipt obtained from each of the aforementioned authorities is attached with the affidavit.

That the Regional Director, Northern Region, New Delhi, to whom notice was issued has filed an Affidavit before the New Delhi Bench of the Tribunal and upon perusal of the same it is observed that the Regional Director reiterates certain observations made in the ROC Report and does not have any adverse observation/ remark against the 'Scheme' amongst the petitioner companies.

The counsel for the Income Tax Department have filed an affidavit on 05.12.2019 placing on record the observations of the Income Tax Department. It is submitted that the Income Tax Officer, vide its letter dated 11.11.2019 raised following objections to the Scheme of Demerger:

i. That the main objective of this demerger is to effect the transfer of land situated at SCO 141-142, Sector- 9C,Chandigarh- 160009 from Hydel Construction Private Limited (demerged Company) to the Resulting company i.e. Hydel Infraprojects Private Limited and for this transfer only nominal amount of shares will be paid to the M/s Hydel Constructions Private Limited (Demerged Company).

ii. That the Income Tax Department finds that such proposed scheme of Arrangement has no commercial exigency or purpose and the same is being done under the garb of scheme of Arrangement (De-merger) to circumvent Capital Gains u/s 45 and income from other sources u/s 56 of the Income Tax Act, 1961 as such scheme would be sanctioned by Hon'ble NCLT under section 2(19AA) of the I.T. Act and this transfer of Capital Assets would not deemed to be a transfer u/s 45 as per section 47of the I.T. Act, 1961. Hence, the department objects to this scheme of arrangement as the transfer of capital assets could be affected through regular sale between both the parties involved at market price.

That the petitioner has filed a Rejoinder affidavit on 03.01.2020 replying to the Income Tax Departments observations, which was sent through E-mail to the Income Tax Department's Counsel stating the following:

I. That the Transfer of undertaking situated at SCO-141-142, Sector 9-C, Chandigarh- 160009 from M/s Hydel Constructions Private Limited to the Resulting Company M/s Hydel Infraprojects Private Limited is not tax avoidance arrangement but it is part of tax Planning.

II. That demerged and resulting companies are the closely held family companies.

III. That the cost of acquisition of undertaking situated at SCO 141-142, Sector 9-C, Chandigarh- 160009 by the resulting company shall be deemed to be the cost for which the demerged company had acquired in the event of disposal of said unit and taxes shall be paid to the Income Tax Department as per the applicable market rates at the relevant date.

That on dated 13.02.2020. the counsel appearing on behalf of Income Tax Department in the Hon'ble Tribunal seek time and at the request of the counsel the time was granted. But, no reply to the applicant's rejoinder affidavit was filed by the Income Tax Department.

That the Income Tax Department in their report affidavit dated 05.12.2019 vehemently stated that the transfer of capital assets including land situated at SCO 141-142, Sector-9C, Chandigarh- 160009 should be done at the market value and the consideration given to the demerged company should be to the market value of the assets transferred. Whereas, in applicant's Rejoinder affidavit the applicant stated that the cost of acquisition of undertaking situated at SCO 141-142, Sector 9-C, Chandigarh- 160009 by the resulting company shall be deemed to be the cost for which the demerged company had acquired in the event of disposal of said unit and taxes shall be paid to the Income Tax Department as per the applicable market rates at the relevant date.

Hence, the Hon'ble Tribunal on perusal of the Income tax Departments Report Affidavit and applicant's Rejoinder Affidavit is of the view that the applicant has satisfactorily answered all the objection raised by the Income Tax Department. Whereas, the Income Tax Department even after grant of time has not filed any reply to the applicant's rejoinder affidavit.

In view of the foregoing, upon considering the approval accorded by the members and creditors of the Petitioner Companies to the proposed Scheme and the affidavits filed by the Regional Director, Northern region, and the Income Tax Department, whereby no objections have been raised to the proposed Scheme or if raised has been met by filing undertaking, there anne2rs no impediment to grant sanction to the Scheme. However, the Companies shall remain bound by the undertaking filed by either of them. Consequently, sanction is hereby granted under Sections 230-232 of the Companies Act, 2013. The Petitioners shall however remain bound to comply with the statutory requirements in accordance with law.

In view of absence of any other objections having been placed on record before this Tribunal and since all the requisite statutory compliances having been fulfilled, this Tribunal sanctions the Scheme of Arrangement annexed with the Company Petition as well as the prayer made therein.

Notwithstanding the above, if there is any deficiency found or, violation committed qua any enactment, statutory rule or regulation, the sanction granted by this court will not come in the way of action being taken, albeit, in accordance with law, against the concerned persons, directors and officials of the petitioners.

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 any other charges, if any payment in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law.

THIS TRIBUNAL DO FURTHER ORDER:

That in terms of the Scheme:

A. All the property, rights and powers of the Demerged Undertaking of the Demerged Company be transferred without further act or deed to the Resulting company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and vest in the Resulting company for all the estate and interest of the Demerged Undertaking of the Demerged Company therein but subject nevertheless to all charges now affecting the same;

B. All the liabilities and duties of the Demerged Undertaking of the Demerged Company be transferred without further act or deed to the Resulting company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and become the liabilities and duties of the Resulting company;

C. All proceedings now pending by or against the Demerged Undertaking of the Demerged Company be continued by or against the Resulting company;

D. All the employees of the Demerged Undertaking of the Demerged Company in service on date immediately preceding the date on which the scheme finally take effect shall become the employees of the Resulting company without any break or interruption in their service;

E. Any person interested shall be at liberty to apply to the Tribunal in the above matter for any directions that may be necessary.

The Petition stands allowed on the above terms.