Trans Continental E-Services Private Limited Vs

Prabhat Kumar, Member (Technical)

Heard the Ld. Authorised Representative for the Petitioner Companies.

The sanction of the Tribunal is sought under section 232 read with section 230 and other applicable provisions of the Company Act, 2013 read with the Company (Compromises, Arrangements and Amalgamations) Rules, 2016, to the Scheme of Amalgamation between Trans Continental e-Services Private Limited (“TCeS” or “Amalgamating Company”) and Jet Enterprises Private Limited (“JEPL” or “Amalgamated Company”) and their respective Shareholders.

That the First Petitioner Company is engaged in the business to provide business and knowledge process outsourcing services through internet, leased communication lines, private and public networks including satellite, communications links to airlines and other customers and corporates in India as well as abroad and to provide electronic processing and Customer care services through internet, email and telephone for airline and other mode of transportation. The Second Petitioner Company is engaged in the business to develop apply for, purchase, assign, License or otherwise enter into limited right to use of trademark, trade name, patent, patent rights, logo, copyright, design and to register and acquire and protect, prolong, renew in India and in any part of the world any trademark, trade name, Patents, patent rights, logo brevets invention, designs, licenses, protections, concessions, monopolies and the like conferring any exclusive or non- exclusive or limited right to their use or any secret or other information as to any invention, process or privilege which may be seen capable of being used for any of the purposes of the company or the acquisition of which may be seen calculated directly or indirectly to benefit the company and to use, exercise, develop or the grant, licenses or privileges in respect of or to turn to account, the property, rights and Information so acquired and to carry on any business in any way connected therewith.

The Petitioner Companies have approved the said Scheme by passing the resolution in their respective Board Meetings held on 19th July, 2021. The Appointed Date is fixed on 1st April, 2021.

That the Petition has been filed in consonance with the Order dated 17th August, 2021, passed by this Tribunal in the connected Company Scheme Application bearing C.A.(CAA)/181/MB/2021. The Petitioner Companies have complied with all the requirements as per directions of this Tribunal and have filed necessary Affidavits of compliance with this Tribunal. Moreover, the Petitioner Companies shall comply with all the statutory requirements, if any, as may be required under the Companies Act, 2013 and the Rules made there under. The said undertaking is accepted by the Petitioner Companies.

The Learned Counsel for the Petitioner Companies states that pursuant to the order dated 17th day of August, 2021 passed by this Tribunal in C.A.(CAA)/181/MB/2021, the meetings of the Equity Shareholders of the Petitioner Companies, for the purpose of considering and, if thought fit, approving the proposed Scheme with or without modification(s) were dispensed with, in view of the consent Affidavits filed by all the Equity Shareholders of the Petitioner Companies.

a. The Learned Counsel for the Petitioner Companies states that pursuant to the order dated 17th day of August, 2021 passed by this Tribunal in C.A.(CAA)/181/MB/2021 the meetings of the Secured Creditors of the Petitioner Companies were dispensed with as there were no Secured Creditors in the Petitioner Companies and the meetings of the Unsecured Creditors of the Petitioner Companies were dispensed with as the present Scheme is an amalgamation between the Petitioner Companies and its shareholders as contemplated under Section 230(1) (b) and not in accordance with the provisions of Section 230(1) (a) of the Companies Act, 2013 and there is no compromise or arrangement with any of the Unsecured Creditors as their rights are not affected.

The Learned Counsel for the Petitioner Companies states that, by sanction of this Scheme of Amalgamation, the Petitioner Companies will be able to achieve the following rationale:

i. The Amalgamating Company is a wholly owned subsidiary of the Amalgamated Company. In order to consolidate and simplify the group structure and effectively manage the Amalgamating Company and Amalgamated Company as a single entity, which will provide several benefits including streamlined group structure by reducing the number of legal entities, reducing the multiplicity of legal and regulatory compliances, rationalising costs, it is intended that the Amalgamating Company be amalgamated with the Amalgamated Company.

ii. The amalgamation of the two companies would inter alia have the following benefits:

a. The merger will result in economies of scale, reduction in overheads including administrative, managerial and other expenditure, operational rationalization, organizational efficiency and optimal utilization of resources;

b. The merger will result in a significant reduction in the multiplicity of legal and regulatory compliances required at present to be carried out by both the Amalgamating Company and the Amalgamated Company;

c. Consolidating and improving the internal control systems and procedures which will bring greater management and operational efficiency due to integration of various similar functions being carried out by the entities such as human resources, finance, legal, management etc;

d. Simplification of group structure.

The Counsel for the Petitioner Companies states that the Amalgamating Companies are wholly-owned subsidiaries of Amalgamated Company hence, in consideration; Amalgamated Company will not issue any shares under the scheme of Amalgamation. The existing holding of Amalgamated Company in Amalgamating Companies shall be cancelled pursuant to this Scheme.

The Regional Director has filed his Report dated 13th September, 2022 making certain observations and the Petitioner Companies have undertaken/made following submission that :-

b. the Petitioner Companies shall comply with the provisions of Section 232(3)(i) of the Companies Act, 2013 and pursuant to the dissolution of the Amalgamating Company, the fees, if any, paid by the Amalgamating Company on its Authorized Capital shall be set-off against any fees to be payable by the Amalgamated Company on its Authorized Capital subsequent to the amalgamation and shall comply to the provisions of that Section.

c. they shall pass necessary accounting entries in connection with the Scheme as per AS -14 (IND AS-103) as well as comply with the applicable Accounting Standards. Further, the Transferee Company shall pass such accounting entries as may be necessary in connection with the scheme to comply with the applicable Accounting Standards such as AS-5 (IND AS-8).

d. the Appointed Date is not based on the occurrence of a trigger event as per the proposed scheme nor does the Appointed date is ante dated i.e. beyond a year from the date of filing of Application as the application was filed on July 27, 2021. Accordingly, the present Scheme of Amalgamation is in compliance with the circular no. F. No. 7/12/2019/CL-1 dated 21.08.2019 issued by the Ministry of Corporate Affairs.

e. the Petitioner Companies shall comply with the directions of the concerned sectoral regulatory, as and when required.

f. the Amalgamation has no impact on the ability of SFIO or Central Government to proceed against the Transferee Company if they choose to do so. Further, as per Section 212(14A) of the Companies Act, 2013, if and as and when it is established that a fraud has occurred on perusal of the report of the Investigating Officer (SFIO in present case), the Central government can make an application for disgorgement, to the Appropriate Authority. In the present case, no such report has been submitted on part of SFIO and if the same is submitted anytime in future, the Central Government will be at liberty to file a case for disgorgement against the Amalgamated Company and the present Scheme will bear no hindrance to such proceedings. It is also to be noted that no report to the effect that the present Scheme will prejudicially affect the public interest/disgorgement proceeding has been produced.

Further, in support of the judgements are hereby reproduced:

in the matter of “Brooke Bond Lipton India Ltd. V. State of Assam”, before the Hon'ble High Court of Gauhati (MANU /GH/0578/2004:2004(3) GLT 444); the Hon'ble Gujarat High Court in Re: “C.M. Smith and Sons Ltd., 2008 SCC Online Guj 249: (2008) 146Comp Case 359: (2009)88 CLA 137”,.

Thus, the above pendency of any proceedings or investigation shall not be a bar to grant approval of the scheme which otherwise satisfies all legal requirements and the legal proceedings, if any can continue to be impleaded against the Transferee company. The contentions are mere apprehensions and are not backed by any conclusive findings on part of the SFIO. The Petitioner Companies cannot be expected to stall the present Scheme or any such transactions on a pendency of an investigation which guarantees no specified period as to when the said investigation may conclude. Further, the Company has submitted all the information as required by SFIO on 6th and 13th September,2019 and has received no further observations or intimations till date.

The Regional Director appeared through its representative and submitted that their observations/ objections have been satisfactorily explained by the Petitioner Company and are acceptable to them. Hence, the Regional Director does not have any further objection to the proposed Scheme Company Petition.

The Official Liquidator has filed his report on 21st day of December, 2021 inter alia stating therein that the affairs of the Amalgamating Company have been conducted in a proper manner and the Scheme is not prejudicial to the interest of public and the Shareholders of the Amalgamating Company.

Further, the Official Liquidator filed its Supplementary report on 16th September, 2022 objecting the present Scheme. The Petitioner Companies have submitted that the transactions between the Companies involved in the present merger have not yet been examined. Further, the investigation is stated to involve the Transferee Company which according to the present Scheme is to remain in existence. The concerned immovable property also relates to the Transferee Company and thus would remain intact for the purpose of further investigation. As far as the liabilities are concerned, the apprehension that the liabilities of the Transferor Company may affect the disgorgement proceedings, if any, are warranted and commenced will not stand as the Transferor Company has no other liability except for Rs. 67,952/- (Sixty- Seven Thousand Nine hundred and Fifty-Two Only) which would devolve on the Transferee Company pursuant to this Amalgamation. The conjecture about the existence of liabilities not recorded in the audited accounts of the Transferor deserves to be ignored as mere conjecture without any basis whatsoever. A certificate from the Chartered Accountant to the effect that the Transferor Company possesses no other liability other than the aforesaid liability, which would devolve on the Transferee Company, is placed on record by the Petitioner Company. It further submitted that the Net worth of the Transferee Company is positive and that post-merger the Net worth of the Combined entity shall remain positive. A certificate from the Chartered Accountant showcasing the Pre and Post Net worth of the Transferee Company is also annexed to the present Affidavit. The Amalgamation shall not negatively impact or add to the liabilities of the Transferee Company. Consequently, the Amalgamation has no impact on the ability of SFIO or Central Government to proceed against the Transferee Company if they choose to do so. Further, as per Section 212(14A) of the Companies Act, 2013, if and as and when it is established that a fraud has occurred on perusal of the report of the Investigating Officer (SFIO in present case), the Central government can make an application for disgorgement, to the Appropriate Authority. In the present case, no such report has been submitted on part of SFIO and if the same is submitted anytime in future, the Central Government will be at liberty to file a case for disgorgement against the Amalgamated Company and the present Scheme will bear no hindrance to such proceedings. It is also to be noted that no report to the effect that the present Scheme will prejudicially affect the public interest/disgorgement proceeding has been produced.

Further, in support of the aforesaid statements below judgements are hereby reproduced:

in the matter of “Brooke Bond Lipton India Ltd. V. State of Assam”, before Hon'ble High Court of Gauhati (MANU /GH/0578/2004:2004(3) GLT 444), it was held that:

(i) A criminal proceeding shall not abate ipso facto on merger or amalgamation of a company.

(ii) The question against whom the prosecution would continue shall depend upon the terms and conditions of merger/amalgamation.

(iii) A pending criminal prosecution cannot be thrown overboard by subsequent dissolution/ amalgamation or merger or merger of a firm. We, therefore, hold that the petitioner company is not entitled to the benefit of abatement of proceedings against it on the ground of the Amalgamation.

That Hon'ble Gujarat High Court in Re: “C.M. Smith and Sons Ltd., 2008 SCC Online Guj 249: (2008) 146Comp Case 359: (2009)88 CLA 137”, held that criminal prosecution / legal proceedings, if any are initiated against any of the transferee companies or the directors of any of the transferor companies, the order sanctioning the scheme of amalgamation of the companies with the transferee company shall not come in the way of such proceedings. The fact of amalgamation shall not give any immunity for such past deeds.

Thus, the above pendency of any proceedings or investigation shall not be a bar to grant approval of the scheme which otherwise satisfies all legal requirements and the legal proceedings, if any can continue to be impleaded against the Transferee company.

The contentions are mere apprehensions and are not backed by any conclusive findings on part of the SFIO. The Petitioner Companies cannot be expected to stall the present Scheme or any such transactions on a pendency of an investigation which guarantees no specified period as to when the said investigation may conclude. Further, the Company has submitted all the information as required by SFIO on 6th and 13th September, 2019 and has received no further observations or intimations till date.

The Official Liquidator submitted that their observations/ objections have been satisfactorily explained by the Petitioner Company and are acceptable to them. Hence, the Official Liquidator does not have any further objection to the proposed Scheme Company Petition.

The Income Tax Department will be at liberty to examine the aspect of any tax payable as a result of this scheme and, it shall be open to the income tax authorities to take necessary action as possible under the Income Tax Law.

From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy considering that no objection has so far been received from any authority or creditors or members or any other stakeholders.

All the assets and liabilities including taxes and charges, if any and duties of the Petitioner Companies, shall pursuant to section 232 of the Company Act, 2013, be transferred to and become the liabilities and duties of the Amalgamated Company.

Since all the requisite statutory compliances have been fulfilled, Company Petition bearing C.P.(CAA)/224/MB/2021 filed by the Petitioner Companies is made absolute in terms of prayers clause of the said Company Scheme Petition.

That the Amalgamating Company may be ordered to be dissolved without winding up.

The Petitioner Companies are directed to file a certified copy of this order along with a copy of the Scheme with the concerned Registrar of Company, electronically, along with e-Form INC-28 in addition to physical copy, within 30 days from the date of receipt of order, duly certified by the Deputy Registrar or the Assistant Registrar, as the case may be, of this Tribunal.

The Petitioner Companies to lodge a certified copy of this order and the Scheme duly authenticated by the Deputy Registrar or the Assistant Registrar, as the case may be, of this Tribunal, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of receipt of the certified copy of order.

All concerned regulatory authorities to act on a copy of this Order duly certified by the Registry of this Tribunal, along with a copy of the Scheme.

The Scheme of Amalgamation is hereby sanctioned, and the appointed date of the Scheme is fixed as 1st day of April, 2021.