Hema Dyechem Private Limited vs Unknown

1. The present petitions are filed under the provisions of Sections 391 to 394 of the Companies Act, 1956, seeking the sanction of this Court, for the Scheme of Amalgamation of Amitech Chemicals Private Limited and Fine Hydrochem Private Limited with Hema Dyechem Private Limited.

2. Hema Dyechem Private Limited, the Transferee Page 1 of 22 HC-NIC Page 1 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER Company, filed Company Application No. 143 of 2015, seeking dispensation of the meeting of the Equity Shareholders. The Petitioner submitted that this being the Transferee Company, the meeting of the Creditors is not required to be held. By an order dated 28.4.2015, passed in Company Application No. 143 of 2015, this Court ordered the dispensation of the meeting of the Equity Shareholders and further ordered that this being the Transferee Company, the meeting of the Creditors is not required to be held.

3. Fine Hydrochem Private Limited, one of the Transferor Companies, filed Company Application No. 144 of 2015, seeking dispensation of the meetings of the Equity Shareholders and Unsecured Creditors of the petitioner company. By an order dated 28.4.2015, passed in Company Application No. 144 of 2015, this Court ordered the dispensation of the meetings of the Equity Shareholders and Unsecured Creditors. It is reported that there are no Secured Creditors of the petitioner company.

4. Amitech Chemicals Private Limited, another Transferor Company, filed Company Application No. 145 Page 2 of 22 HC-NIC Page 2 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER of 2015, seeking dispensation of the meetings of the Equity Shareholders and Unsecured Creditors of the petitioner company. By an order dated 28.4.2015, passed in Company Application No. 145 of 2015, this Court ordered the dispensation of the meetings of the Equity Shareholders and Unsecured Creditors. It is reported that there are no secured creditors of the petitioner company.

5. The petitioners, thereafter, filed Company Petition Nos. 260, 261 and 262 of 2015, seeking sanction of the Scheme of Amalgamation.

6. By separate orders dated 7.8.2015, this Court admitted the petitions and directed the issuance of notice to the Regional Director in case of all the three companies and notice to the Official Liquidator in case of the Transferor Companies. This Court also directed the publication of the notice of the petition in the English Daily newspaper 'Indian Express' and the Vernacular daily newspaper 'Sandesh', having circulation in Vapi.

7. It is submitted that pursuant to the order dated Page 3 of 22 HC-NIC Page 3 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER 7.8.2015, the petitioners have published the notice of the petitions in the Gujarati Daily newspaper "Sandesh" and the English Daily newspaper 'Indian Express,' having circulation in Vapi, on 22.08.2015. The Authorised Signatory of all three companies has filed affidavits dated 07.09.2015, respectively, in support of the publication of the advertisements.

8. In response to the notice issued, the Regional Director has filed a common affidavit dated 18.02.2016, and thereafter has also filed further reply affidavit dated 12.04.2016, making some observations. The petitioner Transferee company has filed its response to both the affidavits by filing two separate affidavits dated 18.03.2016 and 20.04.2016.

9. It is submitted by learned Counsel that, the Regional Director has made comments with regard to certain typographical errors and some other errors which, in fact, do not exist. Without prejudice and assuming, without admitting, that there are some typographical or other errors, the report of the Regional Director apparently is not in consonance with Page 4 of 22 HC-NIC Page 4 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER the requirements of the provision contained in the first proviso to Section 394(1) of the Act. The Learned counsel for the petitioner has relied upon the proviso to Section 394(1) of the Act. It is submitted that the observations made by the Regional Director are, in fact, beyond the scope and ambit of the powers conferred on him under the proviso to Section 394(1) of the Act, in the matter pertaining to the sanction of the Scheme of Arrangement. It is further submitted that as the report does not contain any observation or remark to the effect that the affairs of the Company have been conducted in a manner prejudicial to the interest of its members or to public interest, therefore, this Court may grant sanction to the Scheme.

10. Without prejudice to the above referred contention, the learned Counsel for the petitioner has invited the attention of the Court to the observations of the Regional Director and the response, as submitted in the affidavit. The observations with regard to Amitech Chemicals Private Limited, the Transferor Company are dealt with as under :­

(a) With regard to the observation contained in Para Page 5 of 22 HC-NIC Page 5 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER 2(A)(1) of the first affidavit read with the contents of the further affidavit, it is submitted that this Company is engaged in carrying out the processing activity on job work basis. The scale of operations is small and therefore, this company is classified as MSME under Micro Small and Medium Enterprises Act, 2006. The non­reporting of these operations do not impact materially the reporting under the Directors' report and there is no impact thereof on the financial statements as well as to the stake holders.

(b) With regard to the observation contained in Para 2(A)(2) of the first affidavit read with the contents of the further affidavit, it is submitted that the error in the note as mentioned in the report, is a typographical error. It is submitted that, without prejudice, this error does not have any impact on the true and fair view of the financial statements of the Company.

(c) With regard to the observation contained in Para 2(A)(3) of the first affidavit read with the contents of the further affidavit, it is Page 6 of 22 HC-NIC Page 6 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER submitted that the Company has issued a single class of equity shares which do not carry any special rights/ preferences/ restrictions. Accordingly, the question of mentioning any special qualifications does not arise. The Company, even otherwise, is a closely held private company. It has no public exposure. Accordingly, this observation is misconceived.

(d) With regard to the observation contained in Para 2(A)(4) of the first affidavit read with the contents of the further affidavit, it is submitted that the interest expenses shown in the balance sheet for the financial year 2012­13 and 2013­14, is on account of the interest cost on obtaining the bank guarantee and towards miscellaneous bank charges. The statements are thus rightly recorded.

(e) With regard to the observation contained in Para 2(A)(5) of the first affidavit read with the contents of the further affidavit, It is submitted that it appears that reference is being made by the Regional Director to Note no.21 and not Schedule­21. The profit and loss account Page 7 of 22 HC-NIC Page 7 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER rightly describes the phrase "Earning per Share". However, in Note no.21, through inadvertence, the phrase "No. of Shares" is mentioned. This error otherwise would have no bearing on the true and fair view of the financial statements of the Company.

(f) With regard to the observation contained in Para 2(A)(6) of the first affidavit read with the contents of the further affidavit, It is submitted that AS­15 has no application to the Small Medium Companies (SMC) to the extent of recognition and measurement principles. As far as the accrual of liability is concerned, the Company has adopted the policy of accounting the gratuity on "pay as you go" basis as reported in Note no.22(A)(l).

(g) With regard to the observation contained in Para 2(A)(7) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has made necessary disclosures in Note no.22(e) forming part of the Financial Statements.

(h) With regard to the observation contained in Para Page 8 of 22 HC-NIC Page 8 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER 2(A)(8) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has not made provisions for deferred tax assets as there is no reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. As per AS­22, deferred tax assets should be recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

(i) With regard to the observation contained in Para 2(A)(9) and 2(A)(10) of the first affidavit read with the contents of the further affidavit, I say and reiterate that the Company has complied with the requirements of AS­15, AS­18 and AS­22. The observation made by the Regional Director is thus not correct.

11. The observations with regard to Fine Hydrochem Private Limited, another Transferor Company are dealt with as under :­ Page 9 of 22 HC-NIC Page 9 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER

(a) With regard to the observation contained in Para 2(B)(1) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has made necessary disclosures in Note no.5. Even otherwise, it is stated that during the year, the Company has been engaged only in the business of providing services and therefore, question of any reporting under the Conservation of Energy and Technology Absorption as per Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 does not arise. The petitioner company has also placed on record the copy of Director's Report of the company presenting the accounts for the year ending 31.03.2014.

(b) With regard to the observation contained in Para 2(B)(2) and 2(B)(3) of the first affidavit read with the contents of the further affidavit, It is submitted that a perusal of these two observations would disclose that there is only mistake in recording the Note meant for the balance sheet under the Statement of Profit and Loss Account and vise­versa. This error is purely Page 10 of 22 HC-NIC Page 10 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER through inadvertence and would have no impact on the true and fair view of the financial statements of the Company.

(c) With regard to the observation contained in Para 2(B)(4) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has issued a single class of equity shares which do not carry any special rights/ preferences/ restrictions. Accordingly, the question of mentioning any special qualifications does not arise. The Company even otherwise is a closely held private company. It has no public exposure. Accordingly, this observation is misconceived.

(d) With regard to the observation contained in Para 2(A)(5) of the first affidavit read with the contents of the further affidavit, It is submitted that the provision for tax for the year is made on the estimated basis. Any excess/ shortfall in the provision is adjusted at the time of final determination. The shortfall is reduced from the surplus in the profit and loss account of the previous year. There is thus no Page 11 of 22 HC-NIC Page 11 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER reduction from the current year profit and loss account. This method and the method suggested by the Regional Director are different methods which are equally accepted as valid.

(e) With regard to the observation contained in Para 2(B)(6) of the first affidavit read with the contents of the further affidavit, It is submitted that AS­15 has no application to the Small Medium Companies (SMC) to the extent of recognition and measurement principles. As far as the accrual of liability is concerned, the Company has adopted the policy of accounting the gratuity on "pay as you go" basis as reported in Note no.22(A)(l).

(f) With regard to the observation contained in Para 2(B)(7) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has not made provisions for deferred tax assets as there is no reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. As per AS­22, deferred tax assets should be recognized Page 12 of 22 HC-NIC Page 12 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

(g) With regard to the observation contained in Para 2(B)(8), 2(B)(9) and 2(B)(10) of the first affidavit read with the contents of the further affidavit, I say and reiterate that the Company has complied with the requirements of AS­15, AS­ 18 and AS­22. The observation made by the Regional Director is not correct.

12. The observations with regard to Hema Dyechem Private Limited, the Transferee Company are dealt with as under :­

(a) With regard to the observation contained in Para 2(C)(1) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company is engaged in manufacturing of intermediates. The scale of operations are small and therefore, the Company is classified as MSME as MSME under Micro Small and Medium Enterprises Act, 2006. The Company is Page 13 of 22 HC-NIC Page 13 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER engaged in serving the export markets and earn about 70% of revenue through foreign exchange. As such, the non­reporting of the above operations do not impact materially the reporting under the Directors' Report and there is no impact thereof on the financial statements as well as to the stake holders. Without prejudice, I state that the Note no.5 of the Director's Report does contain the factual disclosures in compliance with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988.

(b) With regard to the observation contained in Para 2(C)(2) of the first affidavit read with the contents of the further affidavit, It is submitted that the error in the note as mentioned in the report, is a typographical error. Without prejudice, this error does not have any impact on the true and fair view of the financial statements of the Company.

(c) With regard to the observation contained in Para 2(C)(3) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company has issued a single Page 14 of 22 HC-NIC Page 14 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER class of equity shares which do not carry any special rights/ preferences/ restrictions. Accordingly, the question of mentioning any special qualifications does not arise. The Company even otherwise is a closely held private company. It has no public exposure. Accordingly, this observation is misconceived.

(d) With regard to the observation contained in Para 2(C)(4) of the first affidavit read with the contents of the further affidavit, It is submitted that the Company is not required to charge depreciation on revaluation portion to the profit and loss account of the Company. The depreciation is thus disclosed "net of depreciation" on the revalued portion which is charged to revaluation reserve. This treatment is in accordance with the accounting principles. Without prejudice, the Note no.24 of the Profit and Loss Account does refer to the depreciation on revaluation portion. The Company has thus made the requisite disclosures.

(e) With regard to the observation contained in Para 2(C)(5) of the first affidavit read with the Page 15 of 22 HC-NIC Page 15 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER contents of the further affidavit, It is submitted that the loans are in respect of the car loan and the office premises. The Company is a closely held Company and the disclosures suggested in the observation are neither necessary nor would that have any material impact on the stake holders.

(f) With regard to the observation contained in Para 2(C)(6) of the first affidavit read with the contents of the further affidavit, It is submitted that AS­15 has no application to the Small Medium Companies (SMC) to the extent of recognition and measurement principles. As far as the accrual of liability is concerned, the Company has adopted the policy of accounting the gratuity on "pay as you go" basis as reported in Note no.22(A)(l).

(g) With regard to the observation contained in Para 2(C)(7) of the first affidavit read with the contents of the further affidavit, It is submitted that AS­17 has no application to this Company as this Company does not fall in any of the categories to which AS­17 apply.

(h) With regard to the observation contained in Para 2(C)(8) of the first affidavit read with the contents of the further affidavit, It is submitted that the amount shown in Note 22(e)(B) is concerning the amount of remuneration which include the last year outstanding remuneration which is paid in the current year also.

(i) With regard to the observation contained in Para 2(C)(9) and 2(C)(10) of the first affidavit read with the contents of the further affidavit, I say and reiterate that AS­15 and AS­17 do not apply in the case of this Company.

(j) With regard to the observation contained in Para 2(C)(11) of the first affidavit read with the contents of the further affidavit, It is submitted that the letter dated 1.12.2015, through inadvertence, contained the old address. As stated by the Regional Director, in response to the report of the Regional Director, the Company has already responded and clarified the position about the change of address of its registered office.

(k) With regard to the observation contained in Para Page 17 of 22 HC-NIC Page 17 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER 2(E) of the first affidavit read with the contents of the further affidavit, it is submitted by the Ld Counsel on behalf of the petitioner that the report of the Regional Director, itself, shows that pursuant to the letter of the Regional Director, no adverse remarks, within the stipulated period of time, are received from the Income Tax Department. As per the circular dated 15.1.2014 of the Ministry of Corporate Affairs, it is stipulated if no response is received from the income Tax Department within a period of fifteen days from the receipt of the notice by the Regional Director, it may be presumed that the Income Tax Department has no objection to the action proposed under section 391 to 394 of the Companies Act, 1956. In any case and without prejudice to the above, it is stated by the Ld. Counsel for the petitioner, under the instructions, that the petitioner company would undertake compliance of the Income Tax Act and the Rules made thereunder.

(l) With regard to the observations contained in para Page 18 of 22 HC-NIC Page 18 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER 2(C) of the first affidavit read with further affidavit, it is submitted the appointed date proposed is 01.04.2014 and not 01.04.2013. Amitech Chemicals Private Limited has passed a Special Resolution in the Extraordinary General Meeting held on 25.03.2015, approving alteration of the Object Clause to enable the object providing for amalgamation. A copy of the Special Resolution is placed on record with the affidavit dated 20.04.2016.

13. The Official Liquidator has filed his report dated 16.2.2016. The report confirms that the affairs of the Transferor Companies are not conducted in a manner prejudicial to the interest of their members or to the public interest. The Official Liquidator, however, has requested this Court to direct the petitioners to preserve their books of accounts, papers and records and not to dispose of the records without the prior permission of Central Government under Section 396­A of the Companies Act, 1956.

14. Having heard Mr. Navin K. Pahwa, learned Counsel for the petitioner companies, Mr. Kshitij Amin, Page 19 of 22 HC-NIC Page 19 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER Learned Central Government Standing Counsel on behalf of Mr. Devang Vyas, Learned Assistant Solicitor General of India for the Regional Director and upon perusal of the reports of the Official Liquidator and the Regional Director, the replies filed on behalf of the petitioner Transferee company and having considered the Scheme of Amalgamation together with the relevant documents on record, the Court considers it appropriate to grant sanction to the present Scheme of Amalgamation.

15. In view of the above, the Scheme of Amalgamation is sanctioned. It is, however, directed that the Transferor Companies shall preserve their books of accounts, papers and record and shall not dispose of the records without the prior permission of the Central Government under Section 396 A of the Companies Act, 1956.

16. The costs of all three petitions are determined at Rs.7,500/­ each, payable to Shri Devang Vyas, Learned Assistant Solicitor General of India. The Transferor Companies are directed to pay an amount of Rs.7,500/­ each to the office of the Official Page 20 of 22 HC-NIC Page 20 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER Liquidator.

17. The petitioner companies shall lodge a copy of this order, the schedule of immovable assets of the Transferor Companies as on the date of this order and the Scheme duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty, if any, on the same within 60 days from the date of the order.

18. The petitioners are directed to file a copy of this order along with a copy of the Scheme with the Registrar of Companies, electronically, along with requisite Form in addition to physical copy as per relevant provisions of the Act.

19. Filing and issuance of drawn up order is hereby dispensed with and all the authorities to act on a copy of this order along with the Scheme duly authenticated by the Registrar, High Court of Gujarat. The Registrar shall issue the authenticated copy of this order along with the Scheme as expeditiously as possible.

Page 21 of 22 HC-NIC Page 21 of 22 Created On Sat May 07 02:11:47 IST 2016 O/COMP/260/2015 ORDER

20. The present petitions are disposed of, accordingly.

(SMT. ABHILASHA KUMARI, J.) Gaurav+ Page 22 of 22 HC-NIC Page 22 of 22 Created On Sat May 07 02:11:47 IST 2016