AMALGAMATION SCHEME DEVISED TO BENEFIT FEW SHAREHOLDER AND TO HUGE AVOID TAX CANNOT BE APPROVED: NCLT

In re Gabs Investments Pvt. Limited Vs Ajanta Pharma Limited (NCLT Mumbai)

Conclusion: Scheme of Amalgamation and Arrangement between G Pvt. Ltd. (‘Transferor Company’) and A Limited (`Transferee Company’) and their respective shareholders appeared to be unfair, unreasonable and was not in the public interest as the scheme was devised mainly to benefit the four share holders of G who were also the promoters of A (common promoters) and by this scheme, huge tax liability was being avoided, therefore, the Bench denied to sanction the scheme.

Held: In the instant case, there was a scheme of Amalgamation and Arrangement between G Pvt. Ltd. (Transferor Company’) and A Limited (Transferee Company’) and their respective shareholders. Transferor was a private Ltd. company which was a separate legal entity and any transfer of shares to other entity including individuals from the legal entity would attract applicable tax liability. Therefore, the Bench could sanction/approve the scheme only if it complied with all applicable provisions of the Act, Rules and if the scheme was in the interest of public, shareholder etc. However, assessee-companies did not provide details with regard to compliance of tax liability raised by the Income Tax Department, their undertaking to pay the huge tax liability as pointed out by the income department etc. It was noted by the Bench that the scheme was devised mainly to benefit the four share holders of G who were also the promoters of A (common promoters). By this scheme, huge tax liability was being avoided, the scheme did not provide for complying with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011. No benefit was accruing to the thousands of shareholders of A especially the retail shares holders of the transferee company, (the shareholders of A as on 31.03.2017 was 38075) therefore, the scheme appeared to be unfair, unreasonable and was not in the public interest and as such the Bench was of the considered view not to sanction the scheme as proposed.

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