Johnson & Johnson Private Limited Vs

Kishore Vemulapalli, Member (Judicial)

This Bench is convened through video conferencing today.

Heard the learned Counsel for the Petitioners and the representative of the Regional Director Western Region, Ministry of Corporate Affairs, Mumbai. No objector has come before this Tribunal to oppose the Scheme and nor has any party controverted any averments made in the Petition.

The sanction of the Tribunal is sought under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 (“the Act”) and in terms of Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, to the Scheme of Arrangement and Demerger between Johnson & Johnson Private Limited (“Petitioner Company 1” / “Demerged Company”) and JNTL Consumer Health (India) Private Limited (“Petitioner Company 2” / “Resulting Company 1”) and JNTL (APAC) Holdco Pte. Ltd. ( “Resulting Company 2”), and respective shareholders (“Scheme”), (Petitioner Company 1 and Petitioner Company 2 are collectively referred to as “Petitioner Companies”).

The Boards of Directors of the Petitioner Companies have approved the Scheme in their respective Board meetings, both held on 25th February, 2022 and Boards of Directors of the Resulting Company 2 in its Board meeting on 1st March, 2022, thereafter the Petitioner Companies have approached this Tribunal for sanction of the Scheme. The Appointed Date in the Scheme is January 2, 2023 or such other date as may be mutually agreed by the Board of the Demerged Company and the Resulting Company 1 and conveyed to this Tribunal, in writing.

The Company Petition is filed in consonance with Sections 230 to 232 of the Act along with the order dated 12th May, 2022 passed in CA(CAA) 74/MB-IV/2022 by this Tribunal.

Learned Senior Advocate for the Petitioner Companies submits that:

a) The Petitioner Company 1 is engaged in the business, which comprises of three business segments viz. Consumer Health Business, Medical Devices Business and the Pharmaceutical Business (the said businesses as defined in the Scheme).

b) That Petitioner Company 2 has been incorporated to be engaged inter alia in the business of Consumer Health Business which means and includes the business of manufacturing / trading and distribution of various categories of consumer health products including baby care, beauty, ear buds, food products/electrolyte drinks, oral care, prescription and non-prescription drugs, skin care, toothbrushes, women’s health and hygiene/sanitary napkins, providing services including research and development services, analytics and others.

The Learned Senior Advocate for the Petitioner Companies submits that the rationale and benefits of the Scheme is as under:

a) Globally, the Johnson & Johnson Group has three segments of business: (i) consumer health; (ii) medical devices; (iii) pharmaceuticals. On 12th November 2021, Johnson & Johnson Group announced its plan to separate its Consumer Health Business, across all geographical markets (“Global Restructuring”). This Global Restructuring is to create two global leaders that are better positioned to deliver improved health outcomes for patients and consumers through innovation, pursue more targeted business strategies and accelerate growth.

b) In India, the three business segments of the Demerged Company corresponding to the aforesaid three businesses of the Johnson & Johnson Group are: (a) “Consumer Health Business” which means and include business of manufacturing / trading and distribution of various categorizes of consumer health products including baby care, beauty, ear buds, food products/electrolyte drinks, oral care, prescription and non-prescription drugs, skin care, toothbrushes, women’s health and hygiene/sanitary napkins, providing services including research and development services, analytics and others; (b) “Medical Devices Business” which means and includes business of manufacturing / trading and distribution of disposable eye lenses, hospital products, orthopedic products, surgical sutures, various surgical and surgeon related equipment, products for needs in arrhythmias, bariatric and metabolic surgery, cancer surgery, cardiovascular disease, coronary artery disease, general surgery, hernia, medical education and training services, neurovascular disease, peripheral vascular and obstructive disease, urologic surgery and vision care (c) “Pharmaceutical Business” which means and include business of manufacturing / trading and distribution of products in the categories of prescribed drugs including products for needs in dermatology, immunology, infectious diseases and metabolic diseases, neuroscience and analgesia, oncology, research and development and other services.

c) Pursuant to the Global Restructuring, this Scheme proposes to transfer the Consumer Health Business to the Petitioner Company 2 by way of a demerger of the Demerged Company with a view to create two businesses that are each leader in their respective industries with increased management focus, resources, agility, and speed to effectively address differing industry trends and to better meet the needs of the patients and consumers of both the businesses. Pursuant to the Scheme the Petitioner Companies would have corporate and operational structures better able to create compelling financial profiles that more accurately reflects the strengths and opportunities of each business and, as a result, offers investors a more targeted investment opportunity, drives growth and furthers value creation, operational optimization and unlocking of significant value in the Petitioner Companies.

The Learned Senior Advocate for the Petitioner Companies submits that the Company Petition was admitted by this Tribunal vide its order dated 24th August, 2022 (“Petition Admission Order”).

The Learned Senior Advocate for the Petitioner Companies submits that the Petitioner Companies have complied with the directions given in the Petition Admission Order and filed their respective Affidavits of Compliance. The Learned Senior Advocate further submits that as directed, the Compliances envisage

i. submission of Audited Financial statements for financial year 2020-2021 and Audited/Unaudited Financial Statements for financial year 2021-2022;

ii. statement that there are no IBC cases pending against both the Petitioner Companies and providing a list of pending litigations/proceedings against Petitioner Company 1;

iii. statement that there are no Letters of Credit availed or Margin Money for any Letter of Credit of Petitioner Companies with any bank;

iv. service of notice of date of hearing of the Petition on the statutory authorities as directed and publication in the newspapers as directed and on the website (only in case of Petitioner Company 1);

v. that there is no corporate guarantee issued by or in favor of Petitioner Companies and a list of bank guarantees of Petitioner Company 1 as issued in the normal course of business has been submitted; and

vi. Petitioner Company 1 has also provided a list of contingent liability disclosures.

The Learned Senior Advocate further clarified that the Affidavit of Compliance of the Petitioner Company 1 categorically mentions that Petitioner Company 1 would comply with the terms of and honor the Performance Guarantees or Bank Guarantees as issued in the normal course of business. It has also been submitted that the Petitioner Company 1 is the Demerged Company and will remain in existence post the sanction to the Scheme and would comply with the terms of and honor the Performance Guarantees or Bank Guarantees in its normal course of business.

The Learned Senior Advocate for the Petitioner Companies has stated that the Petitioner Companies have complied with all requirements as per directions of this Tribunal and they have made requisite filings to demonstrate compliance with this Tribunal. Moreover, the Petitioner Companies undertake to comply with all the statutory requirements, if and to the extent applicable, as may be required under the Act and the rules made thereunder. The said undertaking is accepted.

The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai has filed a Report dated 29th September, 2022 (“Report”). In response to the observations made by the Regional Director, the Petitioner Companies have also given necessary clarifications and undertaking vide their Affidavit in Reply dated 30th September, 2022. 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.

RD Observations in Report

Petitioner                 Companies’

Affidavit  in  Reply   dated  30th September, 2022

1.

That   the   observations   of   the Central    Government    on    the scheme are submitted as under:

2(a)     That  on  examination  of the   report   of   the   Registrar   of Companies,     Mumbai     dated 29.06.2022       for       Petitioner Companies        (Annexed        as Annexure A-l) that the Petitioner Company     falls     within     the jurisdiction of ROC, Mumbai. It is  submitted  that  no  complaint and/or  representation  regarding the      proposed      scheme      of Amalgamation has been received against          the          Petitioner Companies.        Further,        the Demerged   Company   has   filed Financial    Statements    up    to 31.03.2021,  and  the  Resultant Company   is   incorporated   on 03.02.2022

So  far  as  the  observation  of  the Registrar        of        Companies, Mumbai  (“ROC”)  in  paragraph 2(a) of the Report is concerned, the  contents  thereof  are  factual observations.       Further,       the Petitioner      Company      1      / Demerged   Company   has   also duly filed  its financial Accounts and    Annual    Return    for    the financial  year  2021-22.  Hereto annexed      and      marked      as ANNEXURE    A    (colly)    are copies of the AOC-4 and MGT-

7  for  the  said  year  along  with payment challans.

2.

The    ROC    has    further

submitted that in his report dated 29.06.2022 which are as under:-

So  far  as  the  observation  of  the

ROC in paragraph 2(a)(i) of the Report      is      concerned,      the

That  the  ROC  Mumbai  in  his report dated 29.06.2022 has also stated      that      no      Inquiry, Inspection,             Investigation, Technical          Scrutiny          & Prosecution  is  pending  against the  subject  applicant  companies and interest of the creditors shall

be protected

contents    thereof    are    correct factual observations and thus do not require any response.

3.

2(c)In compliance of Accounting Standard-14 or IND-AS 103, as may  be  applicable,  the  resultant company     shall     pass     such accounting   entries   which   are necessary in connection with the scheme   to   comply   with   other applicable Accounting Standards including AS-5 or IND AS-8 etc.

So   far   as   the   observation   in paragraph  2(c)  of  the  Report  is concerned,        the        Petitioner Companies   undertake   that   in compliance      of      Accounting Standard  14/  IND  AS-103,  as applicable,   it   shall   pass   such accounting   entries   which   are necessary in connection with the Scheme  to  comply  with  other applicable                   Accounting Standards, as applicable.

4.

2(d)     The    Hon'ble    Tribunal may  kindly  direct  the  Petitioner Companies to file an affidavit to the    extent    that    the    Scheme enclosed     to     the     Company Application      and      Company Petition  are  one  and  same  and there  is  no  discrepancy,  or  no change is made

So   far   as   the   observation   in paragraph  2(d)  of  the  Report  is concerned,        the        Petitioner Companies  undertake  that  the Scheme      enclosed      to      the Company      Application      and Company  Petition  are  one  and the same and further, there is no discrepancy    or    change   made therein.

5.

affected by the Amalgamation or arrangement.      Further,      the approval  of  the  scheme  by  the Hon'ble Tribunal may not deter such authorities to deal with any of  the  issues  arising  after  giving effect to the scheme. The decision of    such    authorities    shall    be binding     on     the     petitioner companies concerned.

So far as the observation in paragraph 2(e) of the Report is concerned, the Petitioner Companies submit that they have served notices under the provisions  of  Section  230(5)  of the Companies Act, 2013 to the concerned authorities as directed by  this  Hon’ble  Tribunal  which are  likely  to  be  affected  by  the Scheme.  Further,  the  Petitioner Companies    submit    that    the approval  of  the  Scheme  by  this Hon’ble    Tribunal    would    not deter   such   authorities   to   deal with  any  of  the  issues  arising after giving effect to the Scheme. The  Petitioner  Companies  also submit  that  the  issues,  if  any, arising out of the Scheme shall in any event, be subject to the final decision  of  such authorities  and the  final  orders,  if  any,  in  any appeals  that  may  be  preferred therein.          The          Petitioner Companies   undertakes   to   this Hon’ble     Tribunal     that     the decision    of    such    authorities would     be     binding     on     the Petitioner Companies  subject  to the   outcome   of   the   necessary remedies      available      to      the Petitioner        Companies,        in accordance with law.

6.

2(f)   As   per   Definition   of   the Scheme,

“Appointed       Date”       means opening of business on January 2, 2023 or such other date as may be

mutually agreed by the Board of the   Demerged   Company   and Resulting        Company        and conveyed     to     the     National Company       Law       Tribunal (NCLT) in writing.

“Effective      Date”      =      Not Mentioned in the scheme Petitioner       Companies       are instructed    to    define    Effective Date.

The date of Appointed is January 2,   2023   which   is   upcoming, hence,  the  Petitioner  Company may be directed to amend the date of the appointment.

Circular    No.    09/2019    dated August 21, 2019 for a scheme to identify or mention a date  as the “Effective Date”. Section 232(6) of the Companies Act 2013 only requires  that the  scheme should identify  an  “Appointed  Date”. This  has  been  clearly  stipulated in  Clause  5.1.3  of  the  Scheme. Further    the    Scheme    clearly describes  in  clause 20.2 when  it will   become   effective.   Clause

20.2   of   the   Scheme   reads   as follows:

“20.2       As   soon   as   reasonably practicable  after  the  satisfaction  of the CPs, the Boards of the Demerged Company     and     the     Resulting Company  1  shall  confirm  that  the CPs have been satisfied. By the same, or a separate resolution, the Boards of the Demerged Company and the Resulting  Company  1  shall  declare the date (being not earlier than the Appointed   Date)   on   which   the Scheme  will  be  made  effective.  All references in this Scheme to the date of effectiveness of this Scheme shall be a  reference  to  this  date,  but  once made effective by such resolution of the   boards,   the   Scheme   shall   be deemed    to    be    effective    on    the Appointed     Date.”      (Emphasis supplied).

Therefore,        the        Petitioner Companies   respectfully   submit that  the  Scheme  complies  with both the letter and the spirit of all applicable  laws  and  there  is  no further   need   for   it   to   have   a specific    definition    called    the “Effective   Date”.   Further,   in regard  to  the  suggestion  by  the Regional    Director,    that    the Appointed     Date     should     be amended     because     it     is     a prospective   date   is   concerned, the       Petitioner       Companies respectfully    submit    that    the provisions       of       both       the Companies  Act,  2013  and  the MCA    General    Circular    No. 09/2019 dated 21st August, 2019 allow the flexibility and  leave  it entirely     to     the     commercial wisdom  of  the  parties  whether the  Appointed  Date  should  be prospective  or  retrospective.  In fact, the MCA General Circular No. 09/2019 dated  21st August, 2019 only expresses any concern (and  therefore  a  safeguard)  for when   the   Appointed   Date   is “significantly   ante-dated”.   We quote paragraph 6(c) of the said MCA General Circular below: “However, if the ‘appointed date’ is significantly   ante-dated   beyond   a year  from  the  date  of  filing,  the justification for the same would have

to   be   specifically   brought   in   the scheme and it should not be against public interest.”

In the present facts, a prospective date  is  commercially  important for the parties given the rationale of the Scheme clearly explained in  clause  3  of  the  Scheme  viz., that the Scheme is pursuant to a Global       Restructuring.       The Appointed  Date  of  January  2, 2023        is        important        for coordinating global efforts and it would materially prejudice bona fide commercial interests for the Appointed  Date  to  be  modified on  a  country-by-country  basis. The       Petitioner       Companies therefore      submit      that      the provisions of law as stated above have  been  complied   with  and thus    the    observation    of    the Regional  Director  to  direct  the Petitioner  Company  to  amend the date of appointment has to be disregarded.

7.

2(g)     Petitioner        Companies shall  undertake  to  comply  with the  directions  of  the  concerned sectoral     Regulatory,     if     so required.

So   far   as   the   observation   in paragraph  2(g)  of  the  Report  is concerned,        the        Petitioner Companies undertake to comply with    the    directions    of    the concerned  sectoral  regulators,  if any, if so required, in accordance

with law.

8.

2(h)     Petitioner        Companies

shall  undertake  to  comply  with the   directions   of   Income   tax department, if any.

So   far   as   the   observation   in

paragraph  2(h)  of  the  Report  is concerned, the Scheme provides that  it  shall  be  in   accordance with   Section   2(19AA)   of   the Income Tax Act, 1961 and other provisions   of   applicable   law. Further,    both    the    Petitioner Companies  have  served  notice under   Section   230(5)   of   the Companies  Act,  2013  on  their respective    concerned    Income Tax          Departments.          The Petitioner Companies undertake to comply with the directions of the  Income  Tax  Department,  if any,   in   accordance   with   law subject  to  the  outcome  of  the necessary  remedies  available  to

the Petitioner Companies.

9.

2(i)      The Hon'ble NCLT may kindly    direct    the    Petitioner Companies to submit brief details about   what   will   remain   with Demerged Company after effect of this  scheme  of  Demerger  as  the Petitioner      Companies      have furnished the statement of Assets and  Liabilities  (Copy  Enclosed) which shows that the Assets of Rs. 62,79,52,188/- and Liabilities of Rs. 2,33,61,04,774/- and the Net worth of Resulting Company No. 1   is   Rs.   3,27,00,000/-   only. Therefore,  Petitioner  Companies shall satisfy to the Hon'ble NCLT as   to  how   the   interest  of   the creditors transferred to Resulting Company No.1 will be taken care off and it is also submitted that all Petitioner      Companies      shall undertake             to             serve debts/liabilities    transferred    to Resulting Company No. 1.

Company         1 as         INR 1784,73,00,000/-      (Rupees

One       Thousand       Seven Hundred Eighty Four Crores and   Seventy   Three   Lakhs Only).   The   same   is   also reflected  in  the  Net  Worth Certificate    issued    by    the Independent           Chartered Accountant       dated       25th February,  2022  at  page  491 to    494    of    the    Company Application.

c.   “Retained       Business       of Demerged   Company”   has been defined in clause 5.1.33 of the Scheme.

d.  In any event, it may be noted that     the     assets     of     the respective                Petitioner Companies will be sufficient to  discharge  its  liabilities  in the     ordinary     course     of business   and   the   Scheme does      not      involve      any compromise or arrangement with   the   creditors   of   the Petitioner Companies.

The       Petitioner       Companies submit  to  this  Hon’ble  Tribunal that  in  view  of  the  above,  it  is amply   clear   that,   the   debts/ liabilities that shall be transferred to   the   Resulting   Company   1 shall    be    taken    care    of    and appropriately  discharged,  since the  net  assets  of  the  Resulting Company 1 shall be significantly higher  than  its  debts/liabilities. The     Resulting     Company     1 undertakes to discharge its debts /   liabilities   in   totality   and   in accordance   with   law,   as   and when they arise / become due.

10.

2(j)      The  Resulting  Company No. 2 (Foreign Body Corporate) is issuing shares to shareholders of Demerged  Company  being   the holding   company   of   Resulting Company No. 1, hence Petitioner companies  should  undertake  to comply  with  income  tax  laws, RBI    Regulations,    and    other

applicable laws, if any

So   far   as   the   observation   in paragraph  2(j)  of  the  Report  is concerned,        the        Petitioner Companies undertake to comply with  income  tax  laws  and  the Reserve       Bank       of       India regulations, as applicable and to the extent required.

11.

2(k)     Demerged  Company  is  a Private  Limited  Company,  and the entire issued share capital of Demerged Company is fully paid up  and  Johnson  and  Johnson holds     76.77%     shares     and indirectly  a  wholly  owned  step down subsidiary company Depuy Synthes Inc. holds 23.23% of the share     capital     in     Demerged Company.      Hence,      Hon'ble Tribunal make kindly direct the Petitioner  Companies  to  comply with        the        direction        of FEMA/FERA and RBI.

So   far   as   the   observation   in paragraph  2(k)  of  the  Report  is concerned,        the        Petitioner Companies undertake to comply with the applicable guidelines of Foreign Exchange Management Act,  1999  /  Foreign  Exchange Regulation  Act, 1973  / Reserve Bank of India Act, 1948. In this connection,       the       Petitioner Companies  humbly  submit  that the Scheme does not require any approval from the Reserve Bank of   India  under   any  applicable law. In any event, the Petitioner Companies have served notice of hearing  of  this  Petition  by  its respective notices both dated 29th August,   2022   to   the   Reserve Bank  of  India  pursuant  to  the directions     of     this     Hon’ble Tribunal.  There  have  been  no representation received from the Reserve Bank of India.

12.

2(l)      Resulting           company number   2   viz   JNTL   (APAC) HoldCo  Pte.  Ltd  is  a  Private Company Limited by Shares and incorporated  under  the  laws  of Singapore.

Therefore,  the Hon'ble  Tribunal may kindly direct the Demerged Company   and    the    Resulting Company  No.  2  to  obtain  the prior  approval  from  RBI  as  per the provision of section 234 of the companies Act 2013, if required, as consideration of demerger will be    paid    by    the    Resulting Company   No.   2   i.e.   JNTL (APAC)   HoldCo   Pte.   Ltd,   a foreign companies.”

So   far   as   the   observation   in paragraph   2(l)   of   the   Report, which   requires   the   Petitioner Companies  to  obtain  the  prior approval  of  RBI  “if  required” under     section     234     of     the Companies      Act      2013,      is concerned,        the        Petitioner Companies   respectfully   submit that      section      234      of      the Companies   Act   2013   applies when  there  is  a  merger  of  an Indian  company  with  a  foreign company. It is amply clear from the  bare  text  of  the  said  section 234 of the Companies Act, 2013, it   has   no   applicability   to   the present     Scheme     where     the Petitioner  Companies  are  both Indian companies and neither is a  foreign  company.  While  the Resulting  Company  No.  2  is  a foreign    company,    no    Indian company   is   merging   into   the Resulting    Company    No.    2. Resulting   Company   No.   2   is only           discharging            the consideration  for  the  demerger between   Indian   companies   by issuing its shares. Neither section 234 of the Companies Act 2013 nor    any    other    Indian    law requires any approval from RBI for such a demerger.

The observations made by the Regional Director have been explained by the Petitioner Companies in paragraph 11 above. The Representative of the RD has not given objection to the Affidavit in Reply dated 30th September, 2022 submitted by the Petitioner Company. The Affidavit in Reply dated 30th September, 2022 filed by the Petitioner Companies setting out the clarifications and undertakings given by the Petitioner Companies are accepted by this Tribunal and the Petitioner Companies are directed to comply with the same.

From the material on record, the Scheme annexed to the Company Petition appears to be fair and reasonable and is not in violation of any provisions of law and is not contrary to public interest / policy.

As per clause 9.1 of the Scheme, in consideration of the Demerger of the Demerged Undertaking, the Resulting Company 2 shall issue and allot 81 (eighty one) Ordinary Shares of Resulting Company 2 each fully paid up for every 8 (eight) Equity Shares of Demerged Company of INR 100 (Indian Rupees Hundred) each fully paid-up to the Shareholders of Demerged Company in proportion to the Shares held by them in Demerged Company  (“Share  Entitlement  Ratio”)  in  accordance  with  Section 2(19AA) and Section 2(41A) of the Income Tax Act, 1961 and other provisions of the Applicable Law.

It is clarified that the Resulting Company 2 is a Private Company Limited by Shares Incorporated under the laws of Singapore. Resulting Company 2 is not before this Tribunal and is a party to the Scheme for the sole purpose of enabling Resulting Company 2 to discharge the consideration payable to the Petitioner Company 1 in accordance with the provisions of the Scheme. The Board of Directors of Resulting Company 2, being a shareholder of Petitioner Company 2 have passed a resolution dated March 1, 2022 approving the Scheme, including the Share Entitlement Ratio.

Since all the requisite statutory compliances have been fulfilled, this Company Petition CP(CAA) 143/MB/2022 connected with CA(CAA) 74/MB/2022 is made absolute in terms of prayer clauses (a) to (c).

The Scheme is sanctioned with the Appointed Date fixed as January 2, 2023 or such other date as may be mutually agreed by the Board of the Demerged Company and the Resulting Company 1 and conveyed to this Tribunal, in writing. It shall be binding on the Petitioner Companies involved in the Scheme and all concerned including their respective shareholders, creditors and employees. Since the Appointed Date is 1st April 2023, the Petitioner Companies are directed to file the Financial Statements of the Petitioner Companies upto 31st March 2022 and 31st December 2022 as and when available.

The Petitioner Companies are directed to file a certified copy of this Order along with the Scheme duly authenticated / certified by the Deputy Registrar or the Joint Registrar, this Tribunal, with the concerned Registrar of Companies, electronically in e-form INC-28 within 30 days from the date of receipt of the certified copy of this Order along with the Scheme. The RoC is directed to ensure compliance with the undertakings etc. given by the Petitioner Companies as discussed above.

The Petitioner Companies to lodge a certified copy of this Order along with the Scheme duly authenticated / certified by the Deputy Registrar or the Joint Registrar of this Tribunal, with the concerned Collector / Superintendent of Stamps for the purpose of adjudication of stamp duty payable, if any, within 60 days from the date of receipt of the certified copy of this Order along with the Scheme from the Registry of this Tribunal.

All concerned authorities to act on a copy of this Order along with Scheme duly certified by the Deputy Registrar or the Joint Registrar or the Assistant Registrar, National Company Law Tribunal, Mumbai Bench.

Any person interested is at liberty to apply to this Tribunal in the above matter for any direction that may be necessary.

Any concerned authorities are at liberty to approach this Tribunal for any further clarification as may be necessary.

Ordered accordingly. Files to be consigned to records.