In Re: Magna Warehousing and Distribution Private Limited

B.V. Nagarathna, J.—Petitioner company has presented this petition under Sections 391 to 394 of the Companies Act, 1956, seeking sanction of the Scheme of Arrangement including reduction of share capital under Sections 100 to 105 of the Companies (''Act'' for short) Act, 1956. The said arrangement is sought between the petitioner company and Genext Hardware and Parks Private Limited so as to effect the demerger of the Hotel and Retail undertakings (herein after collectively known as ''the Demerged Undertaking'' of the petitioner to Genext Hardware and Parks Private Limited (hereinafter referred to as ''Resulting Company'').

The petitioner (''the Demerged Company'') was incorporated as a private limited company on 16.9.2005 in the name and style of ''Magna Warehousing and Distribution Private Limited,'' which is a registered company situated earlier at Plot No. C-30, Block-G, Opp. SIDBI, Bandra Kurla Complex, Bandra (East), Mumbai 40005. By a special resolution dated 9.3.2010, the Demerged Company changed its registered office to No. 75, EPIP Area, Next to Satya Sai Hospital, Whitefield, Bengaluru-560 066 and pursuant to order dated 11.6.2010 passed by the Company Law Board, Mumbai Bench.

The main objects of the petitioners company as set out in its Memorandum and Articles of Association read as under:-

"To carry on the business of warehousing, logistic, supply chain, packers, distribution, clearing and forwarding agents, customs house agents, cargo movers, cargo agents, freight brokers, freight contractors, carrier of goods, multimodal transport operators, freight forwarding transporters, containerization and couriers by any conveyance or conveyances in respect of any assets, goods, containers, luggage freight, documents and parcels, whether commercial or otherwise, to and from any part of the world."

Some of the other objects, as specified in the Memorandum of Association, are as follows:

Clauses related to hotel business:

"To own, purchase, erect, acquire, equip, operate, manage or in any other manner and in all its aspects deal in hotels, lodging houses, resorts, motels, service apartments and dwelling units of every kind and sort, restaurants, cafes, refreshment rooms, clubs, casinos, kitchens, canteens and food and beverage of every kind and sort and all conveniences, amenities and facilities adjunct thereto, either provided with the dwelling units or independently thereof, in India or abroad and to carry on the business of establishing and or running of hotels, restaurants, cafes, motels, holiday camps and resorts, owned by the Company or by others."

"To manage and to provide consultancy services and other services and facilities of every kind and sort for the management of hotels, lodging houses, resorts, motels and dwelling units, restaurants, cafes, refreshment room, clubs, casinos, kitchens, canteens and for the sale of food and beverages of every kind and to manage and to provide consultancy services for all manners of entertainment, amusement and recreation for the public in India and any part of the world."

Clauses related to real-estate business:

"To carry on the business of builders, real estate developers, contractors, erectors, constructors of buildings, houses, apartments and structures being residential, office, industrial, institutional or commercial, hotel, shopping mall, and in particular preparing of building sites, constructing reconstructing, erecting, altering, improving, enlarging, developing, decorating, furnishing and maintaining of structures, flats, houses, factories, shops, hotels, shopping malls, hospitals, nursing homes, clinics, godowns, information technology enabled services user buildings, parks, complex, and other commercial, educational purposes and conveniences and to purchase for development, investment or for resale lands, houses, buildings, structures and other properties of any tenure and any interest therein and purchase, sell, lease, rent out, give on leave and license, hire exchange or otherwise deal in land and house property and other property whether real or personal."

"To carry on business as developers of land, buildings, immovable properties and real estates by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining industrial parks, growth centers, offices, flats, houses, factories, warehouses, hotels, shopping malls, buildings, with a view to establish and provide office space, infrastructure and other facilities for Information Technology and Information Technology Enabled Service entities and other business, trade, manufacture or process."

"To own, construct, take on lease or in any other manner any land or building and to conceptualise, plan, design, construct and market a mall (shopping centre) for the purpose of operating, franchising and licensing of retail space therein for all kinds of goods, materials and items in India or any other part of the world."

"To carry on the business of leasing, renting out or giving on leave and licence basis any lands, houses, offices, buildings, structures and other properties of any tenure or description and buildings or parts of buildings or any interest in and rights over or connected with any such lands, buildings, structures."

"To carry on business of building, erecting and constructing structures, buildings, houses or sheds including RCC works and other fixtures on lands and or building and to convert squares, gardens and other conveniences and to make, build or construct surface metal or otherwise repair roads and carry on business of builders, constructors, contractors and road repairs of all kinds of dams, bunds, canals, bridges and irrigation works including construction of power house or power stations."

"To render technical advice and provide know-how and expertise for constructing, furnishing, running, marketing and management of a mall, provide trained manpower for services in a mall and conduct events and promotions for malls for the purpose of marketing."

"To own, construct, take on lease or in any other manner and to run, render technical advice in constructing, furnishing, running and management of retail business including departmental stores direct to home and mail order catalogue for all category of products and services dealing in all kinds of goods, materials and items in India or any other part of the world."

A copy of the certificate of incorporation of the petitioner company issued by the Registrar of Companies, Karnataka, along with a copy of Memorandum and Articles of Association of the Demerged Company is annexed hereto and marked as Annexure-A.

The details of the authorized, issued, subscribed and paid up share capital of the Demerged Company is as follows:-

The shareholding pattern of the Demerged Company is as under:

Details of Equity Shares of Rs. 10/- (Rupees Ten only) each as follows:-

Details of Non-Cumulative Redeemable Preference Shares of Rs. 1,00,000/- each are as follows:-

The audited balance sheet and profit and loss account of the petitioner company as on 31.3.2013 and Unaudited Segmental Balance Sheet and Profit and Loss Account as on 28.2.2014 are annexed to the petition and marked as Annexures-B and C respectively.

For the purpose of restructuring, the Board of Directors of the Demerged Company held a meeting on 26.10.2013 when the proposal for demerger of the Hotel and Retail Undertakings the petitioner company to Genext Hardware and Parks Private Limited was approved and thereafter a draft scheme of the arrangement was approved on 20.3.2014, subject to the approval to be given by the shareholders and creditors and confirmation by this Court.

Genext Hardware and Parks Private Limited (''Resulting Company'') was incorporated as a Private Limited Company on 3.3.2006 with the Registrar of Companies at Mumbai. The registered office of the Resulting Company is situated at Plot No. C-30, Block ''G'', Opposite to SIDBI, Bandra Kurla Complex, Bandra (E), Mumbai 400051. The main objects of the Resulting Company as set out in the Memorandum and Articles of Association read as under:-

"To carry on business of manufacturing of printed circuit board assemblies with or without enclosures for all types of electronic products, memory modules, set top boxes, switch mode power supplies and its sub assemblies and magnetic."

"To carry on the business of builders of hardware parks, industrial parks, parks for IT and ITES industries and act as real estate developers, contractors, erectors, constructors of buildings, houses, apartments and structures and in particular preparing of building sites, constructing, reconstructing, erecting, altering, improving, enlarging, developing, decorating furnishing and maintaining of structures and to purchase for development, investment or for resale lands, buildings, structures and other properties of any tenure and any interest therein and purchase, well lease, rent out, give on leave and license, hire, exchange or otherwise deal in land and house property and other property for IT parks."

Some of the ancillary objects related to the attainment of the main objects, as specified in the Memorandum of Association, are as follows:-

Clauses related to retail business:

"To own, construct, take on lease or in any other manner, land or building belonging to the Company and to conceptualise, plan, design, construct and market a mall (shopping Centre) for the purpose of operating, franchising and licensing of retail space therein for all kinds of goods, materials and items in India or abroad."

Clauses related to hotel business

"To carry on the business of hotel, restaurant, caf�, tavern, refreshment rooms, boarding and lodging, house keepers, club, departmental stores in India and abroad."

"To provide lodging and boarding, restaurants, eating houses, bar, swimming pool and other facilities to the public including tourists, visitors and other delegates coming to India from foreign countries and to members of delegations and missions from foreign countries and to encourage and carry on and facilitate tourist trade in India."

A copy of the Certificate of Incorporation along with a copy of the Memorandum and Articles of Association of the Resulting Company is annexed as Annexure-F to the petition.

The authorized, issued, subscribed and paid share capital of the Resulting Company is as under:-

The shareholding pattern of the Resulting Company is as under:

Details of Equity Shares of Rs. 10/- (Rupees Ten only) each:-

It is stated that the Resulting Company commenced real estate business in the year 2006 and one of the group companies of the M/s. K. Raheja Group. The audited balance sheet and profit and loss account of the Resulting Company as on 31.3.2013 and unedited balance sheet and profit and loss account as on 28.2.2014 are annexed as Annexures - G and H respectively to the petition.

It is averred that the Board of Directors of the Resulting Company met on 26.10.2013 on receipt of the proposal from the petitioner company with regard to Hotel and Retail undertakings to be merged with the Resulting Company and they approved the scheme at their meeting on 19.3.2014, subject to consent to be given by the shareholders and creditors and confirmation by the Mumbai High Court. Copies of the resolutions dated 26.10.2013 and 19.3.2014 are annexed as Annexures - J and K respectively to the petition.

It is stated that in the recent past, the petitioner company had incurred loss in the Hotel and Retail undertakings and the funds are insufficient to service the current borrowings. One of the reasons for the arrangement is to enable the Resulting Company to infuse funds into the loss making Hotel and Retail undertakings of the petitioner''s company and to enable growth and development of the two individual undertakings and interests of the petitioner company. A copy of the Scheme of Arrangement is filed as Annexure-L to the petition and the salient features of scheme are referred to in the petition.

Petitioner Company filed C.A. No. 676/2014 before this Court seeking dispensation of holding of the meeting of the shareholders of the company which was dispensed with by order dated 25.4.2014. This Court directed the petitioner company to convene a meeting of the secured creditors and unsecured creditors on 30.5.2014 after issuance of notices to them by the petitioner company. The notices of the meeting were also advertised in English daily newspaper "The Hindu" and Kannada daily newspaper "Kannada Prabha" on 8.5.2014. The meeting of the secured credits was convened on 30.5.2014 at 10.00 a.m. There are two secured creditors, who attended the meeting and approved and gave their approval to the proposed arrangement. The meeting of the unsecured creditors of the petitioner company was convened on the same day at 11.00 a.m., and 24 unsecured creditors attended, approved and gave their consent to the proposed scheme.

The Chairman of the petitioner company filed his report of the secured and unsecured creditors before this Court on 10.6.2014. Thereafter, company petition was filed on 19.6.2014. This Court on 3.7.2014 issued notice to the Regional Director and also directed for advertisement of the petition. The petition was advertised in English daily newspaper "The Hindu" and Kannada daily newspaper "Kannada Prabha" on 9.7.2014.

Pursuant to the notice issued by this Court, Registrar of Companies has filed an affidavit on 18.11.2014 with the following observations:-

"The notice dated 17.7.2014 was issued to the Income-tax Department as required by Ministry of Corporate Affairs General Circular No. 1/2014 dated 15.1.2014 giving 15 days time. The Income-tax Officer (Tech), Office of the Commissioner of Income-Tax, Bangalore-1, Bangalore vide letter dated 25.6.2014 addressed to the Commissioner of Income Tax-X, Aayakar Bhawan, Mumbai, Maharashtra - 400020 has stated that the jurisdiction over the case vests with the CIT-X, Mumbai (DCIT, T-10 (1) (Mumbai) and forwarded the letter of the office of Regional Director dated 17.7.2014 for taking necessary action and endorsed a copy of the said letter to the office of the Regional Director, Hyderabad. But no comments/objections have been received so far."

I have heard learned senior counsel for petitioner and learned counsel appearing for the Registrar of Companies and perused the material on record.

The Scheme of Arrangement is at Annexure-L. The objects and reasons for having the Scheme of Arrangement including the scheme for reduction of capital under the provisions of Sections 100 to 104 of the Act has been stated in Clause-3 of the scheme. The proposed scheme is comprehensive dealing with all aspects of the arrangement. The Registrar of Companies has not expressed any legal infirmity in the proposed scheme except stating that no response has been received from the office of the Commissioner of Income-Tax, Bangalore - 1 pursuant to letter dated 25.6.2014 addressed by the Registrar of Companies.

Having regard to the objects and reasons as well as the salient features of the proposed Scheme of Arrangement and keeping in mind the objects of the petitioner company as well as the objects and area of operation of the Resulting Company, I do not find any legal impediment in granting approval to the proposed Scheme of Arrangement.

It is noted that all requisite statutory procedures for supporting such a scheme has been complied with in the instant case and there is requisite majority vote as required under sub-section (2) of Section 391. I find that the proposed scheme of arrangement is not violative of any provision of law nor is it contrary to public policy. The scheme as a whole is just, fair and reasonable and is a prudent commercial decision.

In this context, reliance could be placed on the decisions of the Hon''ble Supreme Court in the case of Miheer H. Mafatlal Vs. Mafatlal Industries Ltd., (1996) 7 AD 260 : AIR 1997 SC 506 : (1996) 87 CompCas 792 : (1996) 8 JT 205 : (1996) 6 SCALE 595 : (1997) 1 SCC 579 : (1996) 6 SCR 1 Supp : (1996) AIRSCW 3897 : (1996) 8 Supreme 700 and in the case of Hindustan Lever and Another Vs. State of Maharashtra and Another, AIR 2004 SC 326 : (2003) 117 CompCas 758 : (2004) 1 CompLJ 148 : (2003) 9 JT 67 : (2004) 9 SCC 438 : (2003) 5 SCR 685 Supp : (2004) 1 UJ 725 : (2003) AIRSCW 6238 : (2003) 8 Supreme 937 in which the scope and ambit of the jurisdiction of the Company Court has been enunciated.

In the circumstances, the Scheme of Arrangement including the scheme of reduction of share capital between the petitioner company and Genext Hardware and Parks Private Limited so as to effect demerger of the Hotel and Retail undertakings of the petitioner company to Genext Hardware and Parks Private Limited is approved and the same shall be binding on all the secured and unsecured creditors of the company as well as the petitioner company. This approval is however subject to the approval to be given by the Mumbai High Court on the petition filed by Genext Hardware and Parks Private Limited seeking a similar approval.

The petitioner company is directed to file a copy of this order before the Registrar of Companies, Karnataka, within a period of 30 days from the date of receipt of the same. All other compliances to be made pursuant to the sanction of the scheme by the petitioner company.

Petition is allowed in the aforesaid terms.

Office to draw up final decree in terms of Form - 42 subject to payment of requisite stamp duty.