1 csp764-10 vai IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY SCHEME PETITION NO.764 OF 2010 CONNECTED WITH COMPANY SUMMONS FOR DIRECTION NO. 811 OF 2010 RELIANCE INFRAPROJECTS LIMITED …………Petitioner / Transferor Company In the matter of Sections 391 to 394 of the Companies Act, 1956; AND In the matter of Scheme of Amalgamation of Reliance Infraprojects Limited (“the Transferor Company” or “RIPL”) WITH Reliance Infrastructure Limited (“the Transferee Company” or “RInfra”) AND their respective shareholders and creditors Mr. Janak Dwarkadas, Senior Counsel with Ms. Alpana Ghone i/b M/s. Rajesh Shah & Co., for the Petitioners. Dr. T. Pandian, Official Liquidator Ms. Soma Singh, i/b Mr. H.P. Chaturvedi for Regional Director. CORAM : S.J. VAZIFDAR, J. DATE : 30TH MARCH, 2011. P.C. :- 2 csp764-10 1. Heard learned counsels for the parties. 2. The sanction of the Court is sought under Sections 391 to 394 of the Companies Act, 1956, to the Scheme of Amalgamation of Reliance Infraprojects Limited, the Petitioner Company with Reliance Infrastructure Limited, the Transferee Company and their respective shareholders and creditors. 3. The learned counsel for Petitioner submits that the Petitioner is wholly owned subsidiary of the Transferee Company and that by an order passed by this Hon’ble Court on 10th December, 2010 in Company Summons for Direction No.811 of 2010, the filing of a separate Company Summons for Direction and Company Scheme Petition and a separate process in relation the Scheme by Reliance Infrastructure Limited, the Transferee Company, was dispensed with. 4. Learned counsel appearing on behalf of the Petitioner Company has stated that it has complied with all requirements as per directions of this Hon’ble Court and it has filed necessary affidavits of compliance in the Hon’ble Court. Moreover, Petitioner Company undertakes to comply with all statutory requirements, if any, as required under the Companies Act, 1956 and the Rules made there under. The said undertaking is accepted. 5. The Regional Director has filed an affidavit stating that save and except as stated in paragraph 6 of the said affidavit, it appears that Scheme is not prejudicial to the interest of shareholders and public. 6. The Counsel appearing for the Regional Director has drawn my 3 csp764-10 attention to paragraph 6(a) to (c) of the affidavit of the Regional Director in which it is stated that :- The present scheme is not only for merger of wholly owned subsidiary company with the transferee company, it also proposes for restructuring of the financial operation of the transferee company. The merger of the transferee company may not involve any change in the shareholding pattern of the transferee company, as it relates to merger of wholly owned subsidiary with its holding company. Further, exemption from filing petition by transferee company was granted by this Hon’ble High Court. In this regard, it is submitted that Para 2 of ‘Preamble’ of the scheme inter alia provides that “for various other matter consequential or otherwise connected therewith including in particular certain accounting policies to be followed by RInfra and to be applied on and from the appointed date”. Although the Preamble of the scheme is exclusive with reference to the transferor company alone it is brought to the notice of this Hon’ble High Court that the scheme also includes a proposal for adjustment of the general reserve for the purpose of restructuring financial statement of the transferee company. (b) Clause No. 2.3.6, 2.3.7, 2.3.8 of the scheme indicate that Rs. 3000 crores will be utilized for various purposes explained in the clauses from the existing General Reserves. In this connection the adjustment of extraordinary/exceptional items pursuant to clause 2.3.8 may be restricted to the financial year ending 31/03/2013 and thereafter any balance in the Extraordinary/exceptional items after the said adjustment if any, shall be carried back to General Reserve. 4 csp764-10 Accordingly, clause 2.3.8 of the scheme may be modified as under”: “An amount as may be determined by the Board of Directors of RInfra but not exceeding Rs. 3000 crores, out of the existing General Reserves including General Reserve arising pursuant to clause 2.3.2 may be reorganized and held as provision for Extraordinary and exceptional items to meet any extraordinary and exceptional items for financial years ending on or before 31/03/2013. Any balance in the provision for extraordinary and exceptional items after aforesaid adjustment shall be credited back to General Reserve”. (c) Clause 1.1.6(b) also deals with any of the subsidiaries of transferee company. In this connection it is suggested that the word “or any of its subsidiaries” appearing in clause 1.1.6(b) may be deleted.” 7. In response to above observations of the Regional Director, the Transferor Company has filed / tendered its affidavit in reply which are taken on record. So far as paragraph 6(a) to (c) of the Affidavit of Regional Director is concerned, the counsel for the Transferor Company states that the rights of members of the Transferee Company are not affected since there will be no issue of shares pursuant to the Scheme and there would be absolutely no reorganisation / change in the share capital of the Transferee Company. The rights of the Unsecured creditors of the Transferee Company are not affected since there will be no reduction in their claims pursuant to the Scheme and the assets of the Transferee 5 csp764-10 Company, post amalgamation, will be more than sufficient to discharge their claims. Further, the utilisation of General Reserve as envisaged under the Scheme is only with a view to present true & fair view of state of affairs of the Company and does not in any way adversely affect the rights of members or creditors of the Transferee Company. The adjustments for utilising general reserve under a scheme of arrangement / amalgamation have been approved in the past in case of Hikal Limited and Morarjee Textiles Limited. The submissions made by the Petitioner are accepted. 8. In response to the concern raised by the Regional Director in paragraph 6(b) and 6(c) of his affidavit, the Counsel further seeks leave of this Court to modify Clauses 2.3.8 and 1.1.6(b) of the Scheme in terms of the Schedule handed which is taken on record and is marked 'X' for identification. Leave to amend is granted. Amendment to be carried out within two weeks from today. 9. The Regional Director has expressed concern about the scheme permitting the transferee company utilizing the amount as may be determined by the Board of Directors of the transferee company not exceeding Rs.3000 crores out of the existing general reserves for extraordinary and exceptional items. This is provided for in clause 2.3.2 of the scheme. To consider this aspect, I had adjourned the matter to today. My attention has not been invited to any bar in law against the company utilizing the general reserves in the manner provided for in clause 2 and in particular clause 2.3. Nor was my attention invited to any accounting practice that prevents or controls the same. Extraordinary and/or exceptional items are defined in clause 1.1.6 in the scheme. As my 6 csp764-10 attention has not been invited to any bar in law against the operation of such a provision, I do not intend rejecting the application. Further none of the creditors or shareholders have objected to the scheme in any manner. The entire procedure has been followed. Moreover, in the event of there being any irregularity or unacceptable accounting practice or adjustment pursuant to the scheme and in particular clause 2.3 thereof, the auditors can always take care of the same. They shall not be prevented from discharging their duties in this regard merely by virtue of this order. Further as noted above, pursuant to the affidavit of the Regional Director, the Petitioners have modified clauses 1.1.6(b) and 2.3.8 of the scheme in terms of the draft amendment referred to earlier, which was taken on record and marked “X”. 10. The Official Liquidator has filed his report in Company Scheme Petition No. 764 of 2010 stating therein that the affairs of the Transferor Company have been conducted in a proper manner and that the Transferor Company may be ordered to be dissolved. 11. 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. None of the parties concerned has come forward to oppose the Scheme. 12. Since all the requisite statutory compliances have been fulfilled, Company Scheme Petition No. 764 of 2010 filed by the Transferor Company is made absolute in terms of prayer clauses (a) to (d). 13. The Petitioner Companies to lodge a copy of this order and the Scheme, duly authenticated by the Company Registrar, High Court (O.S.), 7 csp764-10 Bombay 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 this Order. 14. The Petitioner to pay costs of Rs.10,000/- each to the Regional Director, Western Region, Mumbai and to the Official Liquidator, High Court, Bombay. Costs to be paid within four weeks from today. 15. Filing and issuance of the drawn up order is dispensed with. 16. All concerned authorities to act on a copy of this order along with Scheme duly authenticated by the Company Registrar, High Court, Bombay.