JHS Svendgaard Brands Limited Vs

Subrata Kumar Dash, Member (Technical)

CA (CAA) No. 15/Chd/Hry/2022

This is a joint First Motion Application filed by Applicant Companies namely; JHS Svendgaard Retail Ventures Private Limited (for short hereinafter referred to as Applicant Company No.1/Resulting Company) and JHS Svendgaard Brands Limited (for short hereinafter referred to as Applicant Company No.2/Transferor Company) and JHS Svendgaard Laboratories Limited (for short hereinafter referred to as Applicant Company No.3/Transferee Company) under Section 230-232 of the Companies Act, 2013 (the Act) read with Rule 3 & 5 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (the Rules) and Rule 11 of the National Company Law Tribunal Rules, 2016 in relation to the Composite Scheme of Arrangement between the Applicant Companies. The said Scheme is attached as Annexure A-1 of the Application.

The Applicant Companies have prayed requirement for convening the meetings of the Equity Shareholders and Unsecured Creditors of all the Applicant Companies and of Secured Creditors of Applicant Company No. 2 & 3. It is further prayed by the learned counsel for applicant companies to direct the meetings through physical mode at the registered office of the Applicant Company No. 3.

As per Composite Scheme of Arrangement and Amalgamation, the first part of the scheme is the Demerger of “Retail Investment Division” (Demerged Undertaking) of JHS Svendgaard Laboratories Limited (Demerged Company/Applicant Company 3) into JHS Svendgaard Retail Ventures Private Limited (Resulting Company/Applicant Company 1) and the second part of the composite of Scheme envisages the amalgamation of JHS Svendgaard Brands Limited (Transferor Company/Applicant Company 2) with JHS Svendgaard Laboratories Limited (Transferee Company/Applicant Company 3)

The Applicant Company No.1/Resulting Company and Applicant Company No.2/Transferor Company are presently engaged in the business of acquire, setup, establish, maintain, run, operate, take on lease, hire, franchise and manage off-line, on line shopping, stores, hyper markets, departmental stores, supermarkets, shopping malls, discount stores, speciality stores, shopping outlets, convenience stores and to deal in trade import , export, market, distribute, process, pack, repack, move, preserve, repair, wholesalers, retailers, representatives, commissions agents, franchisers and dealers of all commercial, industrial scientific, household, domestic agricultural, floricultural, sericulture, aqua culture and forest produce and products and by necessities of every kind, make and sorts on ready or forward basis, including foods and beverages of all kinds of groceries, spices and condiments, fruits & vegetables, cookeries, bakery, confectionery, dairy accessories of all kinds, tea, coffee and jute, apparels, garments, textiles, finished/grey fabrics knitted, hosiery, linens, furnishing fabrics, fabrics of all kinds, readymade garments and clothing, leather, rubber and plastic and all types of general goods, consumables, materials, accessories, commodities and equipment or services of every nature and other similar products.

The Applicant Company No.3 is engaged in the business of manufacturer, exporters, importers, traders, buyers and sellers of Oral Hygiene products (including toothbrushes & toothpaste) whether raw, semi-finished and finished.

It is submitted that the registered offices of Applicant Company No 1 & 2 are situated in the State of Haryana and of Applicant Company No. 3 is situated in the State of Himachal Pradesh, therefore, all applicant companies are under the territorial jurisdiction of this Bench.

The rationale of the Scheme is given below:-

i. Creation of a separate, distinct and focussed entity housing the Retail Business leading to greater operational efficiencies for the Retail Business;

ii. Independent setup of each of the undertaking of the Demerged Company and the Resulting Company will ensure required depth and focus on each of the companies and adoption of strategies necessary for the growth of the respective companies. The structure shall provide Independence to the management in decisions regarding the use of their respective cash flows for dividends, capital expenditure or other reinvestment in their respective business;

iii. Unlocking of value for shareholders of the Demerged Company by transfer of the Retail Business, which would enable optimal exploitation, monetization and development of joint venture partners and strategic partners having the necessary ability, experience and interests in this sector and by allowing pursuit of inorganic and organic growth opportunities in such businesses; and;

iv. Enabling the business and activities to be pursued and carried on with greater focus and attention through two separate companies each having its own separate administrative set-up and dedicated management.

It is stated that the Board of Directors of all the Applicant Companies in their meeting held on 09.10.2020 have considered and unanimously approved the Composite Scheme of Arrangement subject to sanctioning of the same by this Tribunal. The copies of the Board Resolutions of all the Applicant Companies are attached as Annexure A-2, Annexure A-8 & A-14 respectively of the application.

The appointed date of the Scheme is 01.04.2020 as mentioned in Chapter 1 Clause 1.3 of Composite Scheme of Arrangement which is attached as Annexure A-1 of the application.

It is stated that the Applicant Companies have filed the audited financial statements and Profit & Loss Statement as on 31.03.2021 and also filed supplementary/provisional financial statements for the period ended 31.12.2021 which are attached as Annexure A-7, Annexure A-13 and Annexure A-19, respectively of the application.

It is further submitted that in pursuance of the proviso to Sec. 230 (7) and Section 232 (3) of the Act, the Applicant Company No.1/Resulting Company and Applicant Company No.2/Transferor Company have filed the certificates dated

10.2020 and Applicant Company No. 3/Transferee Company has filed their certificate dated 19.10.2020 issued by statutory auditors certifying that the Scheme is in compliance with the Accounting Standards under Section 133 of the Act and the same are attached as Annexure A-24 of the application.

It is further submitted by the counsel for applicant companies that as per Valuation Report/Share Exchange Ratio Report dated 22.02.2022 submitted by Mr. Ajay Kumar Siwach, Registered Valuer (S&FA) bearing registration No.IBBI/RV/05/2019/11412 is attached as Annexure A-22. The Share Exchange Ratio is given below:-

“1 (One) Equity Share of Face value of Rs.10(Rupees Ten) each at par in the Resulting Company for every 10(Ten) Equity Shares of Face value of Rs.10 (Rupees Ten) each held by them in the Demerged Company pursuant to this Scheme.

137 ( One Hundred and Thirty Seven) Equity shares of face value of Rs.10/- (Rupees Ten) each in Transferee Company for every 100 ( Hundred) Equity shares of face value of Rs.10/-(Rupees Ten) each held by them in “Transferor Company”.”

It is submitted by the learned counsel that the Scheme (Annexure A-1) also takes care of the interests of the staff/workers and employees of the Applicant Companies by virtue of Chapter 2 Clause 5 and Chapter 3 Clause 6 of the scheme.

It is mentioned that the Transferee Company is the listed company and its shares are listed on Bombay Stock Exchange Limited (“BSE”) and National Stock Exchange Limited in accordance with Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and SEBI Master Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated 22.12.2020 vide which the Applicant Company No.3/Transferee Company has applied before the aforesaid stock exchanges for their No Objection to the proposed Scheme of Arrangement. It is further submitted that BSE Limited and NSE Limited had issued a letter dated 8. 12.2021 to the proposed Composite Scheme of Arrangement which is attached as Annexure A-20 of the application.

It is also deposed by the applicant companies that there are no enquiry proceedings, pending inquiry or investigation, litigation in respect of the Applicant Companies are pending under Section 207,210,213,216,219, 220 to 228 of the Companies Act, 2013. Furthermore, no adjudication, recovery proceedings or prosecution has been initiated and no other enforcement action taken against the Applicant Company No.3, its promoter and directors.

It is further stated that the Composite Scheme of Arrangement does not involve any corporate debt restructuring as per Section 230(2)(c) of the Companies Act, 2013.

It is submitted by the authorized representatives of the Applicant Companies through undertaking that there are no material events occurred in the Applicant Companies post the date of the revised valuation report dated 01.09.2021 which might have effect on valuation. The aforesaid undertaking is attached as Annexure A-23 of the application.

The matter was earlier reserved on 27.05.2022 and it was relisted on 4. 07.2022 seeking clarifications on the valuation reports. It is submitted by the learned counsel that all the applicant Companies had approved the Composite Scheme of Arrangement for Demerger and Amalgamation between the applicant companies alongwith the “Share Entitlement and Valuation Report” dated 9th October, 2020 issued by Mr. Ajay Kumar Siwach, Registered Valuer in their respective board meetings held on 9th October, 2020. The Transferee Company in accordance with Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 and SEBI Master Circular No.SEBI/HO/CFD/DILI/CIR/P/2020/249 dated 22nd December, 2020, the Applicant Company-3 has applied to the aforesaid stock exchanges for their no objection to the proposed Composite Scheme of Arrangement. Pursuant to the observations of the designated stock exchange i.e. BSE Limited and in compliance with SEBI Circular No. CFD/DIL3/CIR/2017/21 dated 10th March, 2017, the valuation for a Scheme of arrangement has to be carried out by an Independent Chartered Accountant, another valuation for the proposed transaction was carried out by M/s Abhay Kaushik and Company, Chartered Accountants, and he issued the valuation report dated 31st December, 2020. Further, the valuation report of the Independent Chartered accountant suggested the same Share Exchange ratio as that of the Registered Valuer. The stock Exchanges has also granted their no objection in the form of an observation letter to the proposed Composite Scheme of Arrangement which are attached as Annexure-A-20 of the application. In compliance with the said observation letter, the Applicant Companies had submitted the revised valuation report issued by Mr. Ajay Kumar Siwach, Registered Valuer dated 22nd February, 2022 and the financials considered for valuation are well within the period of 6 months from the date of filing of First Motion Application. It is further stated by the learned counsel as recorded in the order dated 11.08.2022 that the applicant companies are ready to circulate both valuation reports in the meetings of shareholders/creditors.

It is further averred that the Board of Directors of all the Companies have approved the Composite Scheme of Arrangement on the basis of the valuation report dated 9th October, 2020 issued by the Registered Valuer and on the basis of this valuation report, Stock Exchange has issued its no objection in the form of observation letter. It is further mentioned that valuation report dated 22nd February, 2022 issued by the Registered valuer is only being submitted to comply the observation of the Stock Exchanges for disclosure purposes, so that when the Notices calling the NCT convened meetings and explanatory statement accompanying the said valuation reports will be sent to the respective shareholders and creditors of each the Applicant Companies, they may take informed decision on the Composite Scheme of Arrangement considering the Valuation report. The said Valuation Report which was issued by the Registered Valuer on 22nd February, 2022 was not considered by the Board of Directors of any of the Applicant Companies as they have already approved the Composite Scheme of Arrangement considering the valuation report dated 9th October, 2020 and Stock Exchanges had already issued the NOC on the application made by JHS Svendgaard Laboratories Limited.

The Applicant Companies has furnished the following documents:-

i. Proposed Composite Scheme of Arrangement (Annexure A-1 of the application).

ii. List of Equity Shareholders of Applicant Company No.1/Resulting Company as on 31.12.2021 duly certified by R. Khattar & Associates, Chartered Accountants (Annexure A-4 of the application).

iii. List of Equity Shareholders of Applicant Company No.2/Transferor Company as on 31.12.2021 (Annexure A-10 of the application).

iv. Copy of shareholding pattern of Equity Shareholders of Applicant Company No.3/Transferee Company/Demerged Company as on 31.12.2021 (Annexure A-16 of the application).

v. List of Secured Creditors of Applicant Company No.1/Resulting Company as on 31.12.2021 duly certified by R. Khattar & Associates, Chartered Accountants (Annexure A-5 of the application).

vi. List of Secured Creditors of Applicant Company No.2/Transferor Company as on 31.12.2021 duly certified by Ray & Ray, Chartered Accountants (Annexure A-11 of the application).

vii. List of Secured Creditors of Applicant Company No.3/Transferee Company/Demerged Company as on 31.12.2021 duly certified by S.N. Dhawan & Co. LLP, Chartered Accountants (Annexure A-17 of the application).

viii. List of Unsecured Creditors of Applicant Company No.1/Resulting Company as on 31.12.2021 duly certified by R. Khattar & Associates, Chartered Accountants (Annexure A-6 of the application).

ix. List of Unsecured Creditors of Applicant Company No.2/Transferor Company as on 31.12.2021 duly certified by Ray & Ray, Chartered Accountants (Annexure A-12 of the application).

x. List of Unsecured Creditors of Applicant Company No.3/Transferee Company/Demerged Company as on 31.12.2021 duly certified by S.N. Dhawan & Co. LLP, Chartered Accountants (Annexure A-18 of the application).

xi. Certificates of Statutory Auditors to the effect that Accounting treatment proposed in the Scheme is inconformity with Section 133 of Companies Act, 2013 (Annexure A-24 of the application).

xii. Proposed Share Exchange Ratio (Annexure A-22 of the application).

xiii. Audited Financial Statement & Profit & Los Statement as on 31.03.2021 along with supplementary Financial Statements as on 31.12.2021 of all the Applicant Companies (Annexure A-7, Annexure A-13 and Annexure A- 19 respectively of the application).

xiv. Copy of No Objection letter issued by BSE Limited and NSE Limited dated 08.12.2021 (Annexure A-20 of the application).

xv. Copy of Undertakings dated 01.09.2021 submitted by the Applicant Companies confirming no material event has occurred post the date of issuance of the revised valuation report (Annexure A-23 of the application).

The Applicant Company No.1/Resulting Company i.e. JHS Svendgaard Retail Ventures Private Limited CIN: U52100HR2007PTC093324 is an unlisted Private limited company incorporated under the Companies Act, 1956 on 15.02.2007. The Applicant Company No.2/Transferor Company i.e. JHS Svendgaard Brands Limited CIN: U52100HR2008PLC093836 is an unlisted public limited company incorporated under the Companies Act, 1956 on 03.04.2008. The Applicant Company No.3/Transferee Company/Demerged Company i.e. JHS Svendgaard Laboratories Limited CIN: L74110HP2004PLC027558 is a listed public limited company incorporated under the Companies Act, 1956 on 08.10.2004.

The Applicant Companies have furnished the details of the Shareholders, Secured Creditors and Unsecured Creditors as follows:

Name of the Applicant Companies

Shareholders along with their consent on affidavit

Creditors along with their consents on affidavit

Equity Shareholders

Consents submitted on affidavit

Secured Creditors

Consents submitted on affidavit

Unsecured Creditors

Consents submitted on affidavit

Applicant Company No.1

03

(Three)

Meetings to be convened

NIL

NA

12

(Twelve)

Meetings to be convened

Applicant Company No.2

16

(Sixteen)

Meetings to be convened

3

(Three)

Meetings to be convened

41

(Forty-One)

Meetings to be convened

Applicant Company No.3

25,155

(Twenty Five Thousand One Hundred Fifty-Five)

Meetings to be convened

8

(Eight)

Meetings to be convened

(204+06+10)

220

(Two Hundred and Twenty)

Meetings to be convened

It is noted that Applicant Companies are having large number of shareholders/creditors for the purpose of meetings and the applicant companies have prayed to conduct the meetings through physical mode. However, Keeping in view, the present prevailing situation of Covid-19 and the large number of members attending the meetings, this tribunal deems fit to direct that the meetings be conducted through Video Conferencing mode only.

Accordingly, the directions of this Bench in the present case are as under:-

I. In relation to Applicant Company No.1/Resulting Company:

i. The meeting of the Equity Shareholders of Applicant Company No.1/Resulting Company is to be convened as prayed for on 29.10.2022 at 10:00 AM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the equity shareholders shall be 2 in number or 40% in value of the Equity Shareholders;

ii. Since there is NIL secured creditor of Applicant Company No.1. Therefore, there is no scope for any meeting.

iii. The meeting of the Unsecured Creditors of Applicant Company No.1/Resulting Company is to be convened as prayed for on 29.10.2022 at 11:30 AM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the unsecured creditors shall be 5 in number or 40% in value of the unsecured creditors;

II. In relation to Applicant Company No.2/Transferor Company:

i. The meeting of the Equity Shareholders of Applicant Company No.2/Transferor Company is to be convened as prayed for on 29.10.2022 at 01:00 AM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the equity shareholders shall be 7 in number or 40% in value of the Equity Shareholders;

ii. The meeting of the Secured Creditors of Applicant Company No.2/Transferor Company is to be convened as prayed for on 29.10.2022 at 03:00 PM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the secured creditors shall be 2 in number or 40% in value of the secured creditors;

iii. The meeting of the Unsecured Creditors of Applicant Company No.2/Transferor Company is to be convened as prayed for on 29.10.2022 at 04:00 PM through video conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the Unsecured Creditors shall be 17 in number or 40 % in value of the Unsecured Creditors;

III. In relation to Applicant Company No.3/Transferee Company/Demerged Company:

i. The meeting of the Equity Shareholders of Applicant Company No.3/Transferee Company/Demerged Company is to be convened as prayed for on 30.10.2022 at 10:30 AM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the equity shareholders shall be 10,062 in number or 40% in value of the Equity Shareholders;

ii. The meeting of the Secured Creditors of Applicant Company No.3/Transferee Company/Demerged Company is to be convened as prayed for on 30.10.2022 at 02:00 PM through Video Conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the secured creditors shall be 4 in number or 40% in value of the secured creditors;

iii. The meeting of the Unsecured Creditors of the Applicant Company No.3/Transferee Company/Demerged Company is be convened as prayed for on 30.10.2022 at 03:00 PM through video conferencing with the facility of remote e-voting, subject to notice of the meeting being issued. The quorum of the meeting of the Unsecured Creditors shall be 88 in number or 40 % in value of the Unsecured Creditors;

IV. In case the required quorum as noted above for the meetings is not present at the commencement of the meeting, the meeting shall be adjourned by 30 minutes and thereafter the persons present and voting shall be deemed to constitute the quorum.

V. Mr. Pradeep R. Sethi, Former Member (Technical), National Company Law Tribunal, address: 154, The Mall, Ambala Cantt.-133001, Mobile  No.8901169101, email id: [email protected],  is appointed as the Chairperson for the meetings to be called under this order. An amount of ₹2,00,000/- (Rupees Two Lakhs Only) be paid for his services as the  Chairperson.

VI. Mr. Arav Gupta, Advocate, address: # 926, Sector 7-B, Chandigarh, Mobile  No. 9781127265, e-mail id: [email protected],  is appointed  as the Alternate Chairperson for the meetings to be called under this order. An amount of ₹1,50,000/- (Rupees One Lakh Fifty Thousand Only) be paid  for his services as the Alternate Chairperson.

VII. Mr. Manjeet S Dhillon, address: House No. 2147, Sector 47, Jal Vayu Vihar, Mohali, Mobile No. 9815311662, email id: [email protected], is appointed as the Scrutinizer for the above meetings to be called under this order. An amount of ₹1,00,000/- (Rupees One Lakh Only) be paid for  his services as the Scrutinizer.

VIII. The fee of the Chairperson, Alternate Chairperson and Scrutinizer and other out of pocket expenses for them shall be borne by the Applicant Companies  jointly.

IX. It is further directed that individual notices of the said meetings shall be sent by Applicant Companies through registered post or speed post or through courier or e-mail, 30 days in advance before the schedule date of meetings, indicating the day, date, the place and time as aforesaid, together with a copy of the Scheme, copy of explanatory statement with both Valuation Reports as discussed in para 12 & 18 of this order required to be sent under the Companies Act, 2013 and the applicable Rules and any other documents as may be prescribed under the Act shall also be duly sent with the notice.

X. It is further directed that along with the notices, Applicant Companies shall also send, statements explaining the effect of the scheme on the creditors, key managerial personnel, promoters and non-promoter members etc. along with effect of the scheme of arrangement on any material interests of the Directors of the Company or the debenture trustees, if any, as provided under sub-section (3) of Section 230 of the Act.

XI. It is also directed that the provisional accounting statement of Applicant Companies as on 31.03.2022 or as on a subsequent date be also circulated for the aforesaid meeting in terms of Section 232 (2) (e) of the Act.

XII. That the Applicant Companies shall publish advertisement with a gap of at least 30 clear days before the aforesaid meeting, indicating the day, date and place and the time of the meeting as aforesaid, to be published in “Financial Express” (English) and “Jansatta” (Hindi) both having wide circulation in Delhi NCR Edition (In case of Applicant Company No. 1 & 2) and “Financial Express” (English) and “Jansatta” (Hindi) both having wide circulation in Himachal Pradesh (In case of Applicant Company No. 3). The publication shall also indicate that the explanatory statement required to be furnished pursuant to Sections 230 & 232 read with Section 102 of the Companies Act, 2019 can be obtained free of charge at the registered office of the Applicant Companies. The Applicant Companies shall also publish the notices on its website, if any.

XIII. Voting shall be allowed on the “Scheme” through electronic means which will remain open for a period as mandated under Clause 8.3 of Secretarial Standards on General Meetings to the Applicant Companies under the Act and the Rules framed thereunder.

XIV. The Scrutinizer’s report will contain his/her findings on the compliance to the directions given in Para VIII to XIII above.

XV. The Chairperson shall be responsible for reporting the result of the meeting to the Tribunal in Form No. CAA-4, as per Rule 14 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 within 7 (seven) days of the conclusion of the meeting. The Chairperson would be fully assisted by the authorized representative/Company Secretary of the Applicant Companies and the Scrutinizer, who will assist the Hon’ble Chairperson and Alternate Chairperson in preparing and finalising the report.

XVI. The Applicant Companies shall individually and in compliance of sub-section (5) of Section 230 of the Act and Rule 8 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 send notices in Form No. CAA-3 along with a copy of the Scheme, Explanatory Statement and the disclosures mentioned in Rule 6 of the “Rules” to (i) Central Government through the Regional Director (Northern Region), Ministry of Corporate Affairs, New Delhi (ii) Concerned Registrar of Companies, (iii) Official Liquidator; and (iv) National Stock Exchange (NSE) (v) Bombay Stock Exchange (BSE) (vi) Stock Exchange Board of India (SEBI) (vii) Income Tax Department through the Nodal Officer – Principal Commissioner of Income Tax, NWR, Aayakar Bhawan, Sector 17-E, Chandigarh by mentioning the PAN number of the Applicant Companies; and to such other Sectoral Regulator(s) governing the business of the Applicant Companies, if any, stating that report on the same, if any, shall be sent to this Tribunal within a period of 30 days from the date of receipt of such notice and copy of such report shall be simultaneously sent to the applicant companies, failing which it shall be presumed that they have no objection to the proposed Scheme.

XVII. The Applicant Companies shall furnish a copy of the Scheme free of charge within one day of any requisition for the Scheme made by any creditor or member/shareholder entitled to attend the meeting as aforesaid.

XVIII. The authorized representative of the Applicant Companies shall furnish an affidavit of service of notice of meeting and publication of advertisement and compliance of all directions contained herein at least a week before the proposed meeting.

XIX. All the aforesaid directions are to be complied with strictly in accordance with the applicable laws including forms and formats contained in the Rules as well as the provisions of the Companies Act, 2013 by the Applicant Companies.

With the aforesaid directions, this First Motion Application stands disposed of. A copy of this order be supplied to the learned counsel for the Applicant Companies who in turn shall supply a copy of the same to the Chairperson, Alternate Chairperson and the Scrutinizer immediately. The applicant companies shall file affidavit(s) stating the sectoral regulators governing the applicant companies with second motion petition.

CA No. 190/2022

The present application has been filed by the applicant companies under Rule 11 & 13 of NCLT Rules, 2016 praying for urgent hearing of the present application and to pass directions as prayed for in the joint first motion application i.e. CA (CAA) No. 15/Chd/Hry/2022 and to hear the clarifications submitted in compliance of the order dated 30.06.2022 and 04.07.2022. In view of the order passed above in main application for first motion, CA No. 190/2022 is rendered infructuous and disposed of accordingly.