Shareholders' commercial wisdom supreme, non-allotment of transferee co. shares can't invalidate de-merger
HC approves composite scheme of arrangement between Sterling Holiday Resorts (India) Ltd, Thomas Cook Insurance Services (India) Ltd ('TCISIL') and Thomas Cook (India) Ltd ('TCIL'), rejects Regional Director's objections under Cos Act, 1956 and Income Tax Act; The scheme proposed demerger of resort business of Sterling Holiday to TCISIL and amalgamation of its residual undertaking with TCIL, resulting in dissolution of Sterling Holiday; As consideration for Sterling Holiday-TCISIL demerger, scheme proposed allotment of shares in TCIL & not TCISIL, the resulting company; HC rejects Regional Director's objection that only a transferee company could allot shares towards consideration of transfer, and not any other person u/s 394 and in instant case, for demerger TCIL was alloting shares to Sterling Holiday, which was a parent co.of transferee co. - TCISIL; Holds that clauses (i) to (vi) of Sec 394 (1) are "merely enabling provisions.. not in the nature of conditions for exercise of power of the company court under Section 394. These enabling provisions, therefore, cannot be construed as compulsory in any sense"; Relies on landmark SC ruling in Miheer Mafatlal vs Mafatlal Industries Ltd., observes "It is not that in every case the consideration for transfer of an undertaking as part of scheme of an arrangement must come in the form of allotment of shares of a transferee company or for that matter allotment of any shares..... Acceptance of any particular consideration is part of the commercial wisdom to be exercised by the shareholders of the transferor company. " ; Further rejects Regional Director's tax objection that demerger proposed in instant scheme was not as defined u/s 2(19AA) of Income Tax Act, holds that, "The scheme at the same time makes it clear that if any terms or provisions of the scheme are inconsistent with the provisions of Section 2(19AA) of the Income-tax Act 1961, the provisions of Section 2(19AA) of the Income-tax Act shall prevail and the scheme shall stand modified to the extent"; Relies on co-ordinate bench rulings in Pantaloon Retail (India) Limited and Keva Aromatics Private Ltd:Bombay HC
The ruling was delivered by Justice SC Gupte.
Senior Advocate Janak Dwarkadas and Advocate Rohan Rajadhyaksha represented the Petitioners. Senior Advocate Shyam Mehta along with Mr S.I. Shah represented the Regional Director. Mr. Arvind Pinto represented the Income-tax Department / Revenue.
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