(Per : HONOURABLE MR.JUSTICE P.B.MAJMUDAR) 1.0 ADMIT.
2.0 Mr. P.S. Chamapneri, learned Counsel, appears and waives service of notice of admission of these appeals on behalf of the Respondent -Regional Director.
3.0 Since, the common point is involved in all these appeals, they are taken up for final hearing, with the consent of the learned Counsel for the parties, today, itself.
4.0 The challenge in these appeals is to the order of the learned Single Judge, dated 16.02.2012, passed in Company Petition Nos.132 to 134 of 2012. The appellant companies preferred the aforesaid company petitions for getting approval of a scheme of arrangement, regarding amalgamation of Adishree Tradelinks Private Limited, Sanidhya Commodities Private Limited with Adani Agro Private Limited, under Section-391 to 394 of the Companies Act, 1956.
5.0 On behalf of the appellant companies, learned Counsel, Mr. Soparkar, argued that the commercial activities of all the three companies are similar in nature and they are engaged in the trade of various agricultural commodities/products. A public notice was advertised regarding amalgamation and, since, nobody came forward with an objection in this behalf, the scheme was approved unanimously. The learned Single Judge, accordingly, gave sanction to the said Scheme. However, while doing so and while interpreting Clause-10.5 of the Scheme, the learned Single Judge held that the amalgamation reserve fund shall not be used for declaring dividend. The learned Single Judge sanctioned the said Scheme, accordingly, subject to the aforesaid direction. The appellant-companies, after following the said procedure, have implemented the Scheme, but, have challenged the aforesaid direction of the learned Single Judge on various grounds, raised in these appeals.
5.1 Mr. Soparkar, learned Counsel, has submitted that as per the order of the learned Single Judge, since, the Scheme was required to be implemented without delay, appropriate modification was made in the Scheme. He, further, submitted that if the appellant is permitted to utilize the amalgamation reserve for the purpose of declaring dividend, then, they will be able to utilize the same in future, at the time of declaring dividend. It is also submitted that there was no reason for the learned Single Judge to give such a direction, especially, when no such objection was taken either by the respondent- Regional Director or by any objector in any manner. It is submitted that even such a point was not put to the appellant, otherwise, the appellant could have produced various case laws on the subject before the learned Single Judge. It is submitted that the appellant came to know about the said condition, only when the judgment was made available to him, as it was a CAV judgment.
5.2 Mr. Soparkar has placed reliance on various decisions in support of his arguments.
5.3 It is, further, submitted by Mr. Soparkar, learned Counsel for the appellant, that the companies have strictly followed the accounting standards. It is also submitted that various Courts have taken view that such reserve can be permitted to be utilized for declaring dividend. It is submitted that similar view is also taken by the learned Single Judge of this Court and had this aspect was brought to the learned Counsel for the appellants, he could have pointed out various case laws on the point, but, the appellants were taken by surprise, since, for the first time they found such directions in the judgment.
5.4 Mr. Soparkar, learned Counsel also argued the aspect of accounting standards(AS-14).
6.0 Mr. P.S. Champaneri, learned Counsel for the respondent-Regional Director, submitted that it is true that no specific objection was taken nor there is anything on the record to show that any argument was advanced in regard to the said condition, at the time of hearing. He, further, submitted that the learned Single Judge might have, on his own, keeping in mind the provisions of Sections-391 to 394 of the Companies Act, put such a condition, at the time of giving sanction to the Scheme. It is, further, argued that while giving sanction to a Scheme under Section-391 to 394 of the Companies Act, it is the duty of the Court to consider the relevant provisions of law.
6.1 In support of his submissions, Mr. Champaneri has placed reliance on Section-205 of the Companies Act, which deals with the aspect as to when dividend be made available, which provided that the dividend should be made available only out of profit.
7.0 We have heard learned Counsel for the parties. At this stage, reference is required to be made to Clause-10.5 of the original Scheme, which reads as under:
“10.5 Any excess of the amount of the consideration over the value of the net assets of the Transferor Companies acquired by the Transferee Company shall be recognized in the Transferee Company's financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference shall be tread as the Amalgamation Reserve.”
7.1 In this behalf reference is required to be made to a decision of the Hon'ble Apex Court in the case of “BHAGWATI DEVELOPERS VS. PEERLESS GENERAL FINANCE & INVESTMENT CO.”, reported in [2005] 62 SCL 574(SC). In the said case, the Supreme Court has considered the aspect of utilization of reserve arising out of revaluation of assets for the purpose of issuing fully paid-up bonus shares, therein, it was found that Article-
182 authorized the company to issue bonus shares out of reserve, arising from revaluation of capital assets. Therefore, in the said case, it was held that the company was entitled to issue bonus shares out of revaluation reserve.
7.2 The learned Counsel for the appellants has next relied on a decision of the learned Single Judge of this Court rendered in Company Petition Nos.59 & 60 of 2009, dated 08.05.2009. In the aforesaid case, the learned Single Judge held that any profit arising out of capital transaction, such merger or demerger, which can be treated as capital profit, and hence, the same can be transferred to capital reserve and not to general reserve. In the aforesaid case, the learned Single Judge has considered the provision of Section-205 of the Companies Act and the aspect of issuing bonus shares out of credit standing in the reserve account. Relying upon the observations made in the case of “BHAGWATI DEVELOPERS VS. PEERLESS GENERAL FINANCE & INVESTMENT CO.”(Supra), the learned Single Judge, in Para-12 thereof, has held as under:
“12. The Court further derives support from the decision of Hon'ble Supreme Court in the case of Bhagwati Developers Vs. Peerless General Finance & Investment Co. and others, reported in (2005) 128 Comp Cas.968, wherein the Court was concerned with the question of bonus shares issued out of revaluation reserves. In this context, it was observed that Section 205 of the Companies Act, 1956 provides that dividend could only be paid out of profits. The proviso to Sub-section (3) of Section 205 permits capitalization of profits on reserve of a company for the purpose of issuing fully paid up shares or paying up any money for the time being unpaid on any shares held by the members of the Company. Thus, the Companies Act clearly and specifically permits utilisation of reserve arising out of revaluation of assets for purpose of issuing fully paid up bonus shares.”
7.3 Learned Counsel for the appellants has also relied upon another decision of the learned Single Judge of this Court reported in “PARAMOUNT CENTRISPUN CASTINGS (P.) LTD.”,[2010] 99 SCL 27 (Guj.), wherein in Para-19, it is held as under:
“19. With regard to the accounting standard – 14 as discussed above, the legal position is also very clear. The Allahabad High Court in the case of Jagran T.V. Private Limited reported in 2009 90 SCL 138 has taken the view that with regard to accounting Standard – 14, a Statement was given in Delhi High Court that since the Transferor company will merge into the Transferee company, the Accounting Standard – 14 will be followed. The Court further derived support from the decision of the Hon'ble Supreme Court in the case of Bhagwati Developers Vs. Peerless General Finance and Investment Co. and Others reported in 2005 5 CLJ 377 (SC) wherein the Court was concerned with the question of bonus shares issued out of revaluation reserves. In this context it was observed that Section 205 of the Companies Act, 1956 provides that dividend can be only paid out of the profits. Proviso to sub-section 3 of Section 205 permits capitalisation of profit of reserve of a company for the purpose of issuing fully paid up shares or paying up any money for the time being unpaid on any shares held by the members of the company. Thus, the Companies Act clearly and specifically permits utilisation of reserve arising out of revaluation of assets for the purpose of issuing fully paid up bonus shares.”
7.4 The learned Counsel for the appellants, then, relied on a decision of the High Court of Rajasthan in “SUTLEJ INDUSTRIES LTD.”, reported in [2009] 89 SCL 73 (Raj.), wherein the Rajasthan High Court has observed that the creditors and shareholders of both the companies approved the proposed Scheme, which was objected to by the Regional Director in regard to a clause laying down that in case any amalgamation/arrangement reserve arose, it would be treated as free reserve for distribution to shareholders and since, utilization of arrangement/amalgamation reserve for distribution to shareholders was not objected to by the shareholders and the scheme was approved unanimously in the meeting of the shareholders, there was no reason to exclude that clause from the proposed scheme. It was, therefore, held that since proposed scheme appeared to be fair, reasonable and in the interest of shareholders, scheme was to be sanctioned.
7.5 The learned Counsel for the appellant, next, relied upon a decision of the Punjab & Haryana High Court in “MOTOROLA INDIA (P.) LTD.”, reported in [2006] 71 SCL 444, “31. The objection that the surplus arising out of the scheme of amalgamation, i.e., 'amalgamation reserves' is of capital nature and cannot be considered as general reserve as the general reserve, is free for distribution to the shareholders of a company in the form of dividends, bonus shares, whereas amalgamation reserve cannot be utilized for distribution to the shareholders. In respect of the said objection of the Regional Director, it is pointed out that the accounting standard issued by the Council of Institute of Chartered Accountants of India specifically provides for a treatment in respect of such amalgamation reserves in terms of clause 23 of the Accounting Standard 14. therefore, in terms of the scheme, it is deemed to specify the user of amalgamation reserve.”
7.6 Considering the various case laws, it is clear that the reserve can be utilized for the purpose of declaring dividends. Since, aforesaid aspect was not pointed out to the learned Counsel for the appellant, either at the time of hearing of the petition or when the matter was kept for dictating the order, in our view, there was no justification in imposing such a condition, while sanctioning the Scheme in connection with non- utilization of amalgamation reserve for the purpose of declaring dividend. Here, it is required to be noted that no objection was taken by the Regional Director to the said clause and even the shareholders have unanimously approved the Scheme with the original Clause-10.5. Considering the same, it cannot be said that incorporation of the said clause is in violation of public policy and as held by various Courts, such amalgamation reserve can be utilized for the purpose of declaring dividends. Even, the learned Single Judge of this Court has, earlier, taken the similar view. In view of the same, the direction given by the learned Single Judge that such amalgamated reserve shall not be used, in any manner, for declaring dividend, requires to be set aside and the Scheme is held to have been sanctioned as a whole, including the original Clause-10.5 of the Scheme.
8.0 In view of the above discussion, all the appeals are ALLOWED. The Scheme is SANCTIONED as a whole, including the original CLAUSE-10.5 of the Scheme.
The appellants shall bear the costs of the respondent-Regional Director, which is quantified at Rs.7500/- qua each appeal. Appeals are DISPOSED OF, accordingly.
(P.B. MAJMUDAR, J.)
(MOHINDER PAL, J.)
Umesh/