* IN THE HIGH COURT OF DELHI AT NEW DELHI COMPANY JURISDICTION + CP No. 173 of 2007 % DATED 29.01.2008 In the matter of the Companies Act, 1956: Scheme of Arrangement of: Piccadily Hotels Pvt Ltd ... De-merged Company/Petitioner no.1 Company And Piccadily Holiday Resorts Ltd. ... Resulting Company/Petitioner Company no.2 Through : Mr. Anil K Aggarwal Advocate for the Petitioner companies Ms. Manisha Tyagi for the O.L. Mr. R.D. Kashyap,Dy.ROC. VIPIN SANGHI, J. (ORAL) 1. This is a joint petition under Sections 391 to 394 of the Companies Act, 1956 seeking sanction of the Scheme of Arrangement for De-merger of Piccadily Hotels Pvt. Ltd.(de-merged company) and Piccadily Holiday Resorts Ltd( resulting company). 2. The registered office of the de-merged and resulting company are situated at Delhi within the jurisdiction of this Court. 3. The petitioner companies had filed Company Application (M) No. 62 of 2007 which was allowed by order dated 2.04.2007. By the aforesaid order, the requirement of conducting CP Nos.173 of 2007 Page 1 of 9 statutory meetings of equity shareholders and unsecured creditors of both the companies was dispensed with on account of consent given by all of the above-mentioned concerned persons/entities. However, it was directed that meetings of secured creditors of both the companies be held. 4. Both the companies were directed to convene the meeting of their secured creditors at 275, Captain Gaur Marg, Srinivaspuri, New Delhi on 19th May, 2007 for the purpose of considering and, if thought fit, approving the said Scheme of Arrangement. Mr. Manish Sharma Advocate,D-6 2nd floor ,Hauz Khas , New Delhi -110016, was appointed as the Chairperson and Ms. Mansi Chaddha Advocate ,459 Lawyers' Chamber, Delhi High Court, Delhi- 110003 as an Alternate Chairperson of the said meeting of secured creditors of both the companies. 5. The report of the appointed Chairperson of the meeting of the secured creditors of the resulting/ petitioner no2 company , Mr. Manish Sharma , was filed with this Hon'ble Court on 30th may 2007. From report the following aspects emerge: a) The requisite quorum of 1 secured creditor present personally or through proxy representing 15% of the total value of the secured debts, as required by the above- mentioned order, was present. b) The meeting was attended by 1 secured creditor through its authorized representative (i.e. Punjab National Bank), the said company entitled to a sum of Rs.4,29,13,870/-, constituting 98.98% value of total secured CP Nos.173 of 2007 Page 2 of 9 debt of the company. The secured creditors attended the meeting on the basis of the aforesaid advertisements in the newspapers. c) The said scheme of amalgamation was approved unanimously by the secured creditors, who were present and voting, in the meeting. The list of such secured creditors has been filed for record. 6. The report of the appointed Chairperson of the meeting of the secured creditors of the de-merged/ petitioner no 2 company, Mr. Manish Sharma, was filed with this Hon'ble Court on 30th may 2007. From that report, the following aspects emerge: a) The requisite quorum of 1 secured creditor present personally or through proxy representing 15% of the total value of the secured debts, as required by the above- mentioned order, was present. b) The meeting was attended by 1 secured creditor through its authorised representative (i.e. Housing and Urban Development Corporation Limited), the said company entitled to a sum of Rs.18 crores, constituting 100% value of total secured debt of the company. The secured creditor attended the meeting on the basis of the aforesaid advertisements in the newspapers. c) The said scheme of amalgamation was approved unanimously by the secured creditor, who was present and voting, in the meeting. The list of such secured creditor has been filed for record. 7. After the present petition was filed , citations were directed to be published vide order dated 02.04.2007 in “The Statesman” (English edition) and “Jansatta” (Hindi edition), in terms of Companies (Court) Rules, 1959. A report dated 30.05.2007 has been filed by the Chairperson appointed for the meeting about the CP Nos.173 of 2007 Page 3 of 9 publication of the citations in “The Statesman” (English) and “Jansatta” (Hindi) . The said publication containing the said citations were also produced along with the report. 8. The resulting company was incorporated on 04.02.1982. The registered office of the company is situated at M-10 ,2nd floor, Greater Kailash,Part -1, New Delhi . The registered office of the company is situated within the jurisdiction of this Court. 9. The authorised share capital of the resulting company as on 31st March, 2006 was Rs.6 crores divided into 60 lacs equity shares of Rs. 10/- each. The issued, subscribed and paid up equity share capital of the resulting company as on 31st March 2006 was Rs. 6 crores divided into 60 lacs equity shares of Rs. 10/- each. 10. The de-merged company was incorporated on 20.09.1973. The registered office of the company is situated at 275, Sriniwaspuri, Capt. Gaur Marg, New Delhi. The registered office of the company is situated within the jurisdiction of this Court. 11. The authorised share capital of the demerged company as on 31st March, 2006 is Rs. 15 crores divided into 15 lacs equity shares of Rs. 100/- each. The issued, subscribed and paid-up equity share capital of the demerged company as on 31st March 2006 was Rs. 13.2 crores divided into 13,20,000 equity shares of Re. 100/- each. 12. Notices were issued to the OL and the Regional CP Nos.173 of 2007 Page 4 of 9 Director (Northern Region) on 23rd July 2007. 13. The OL and regional director have considered the report of the Chairperson of the meeting of secured creditors of the both companies as well as the accounts of Petitioner Companies as on 31st March 2006. The only objection raised by the O.L. as well as the Regional Director to this petition under Section 391 to 394 of the Companies Act, 1956, seeking the sanction of the scheme of arrangement being de-merger of undertaking of petitioner No.1 Company namely M/s. Piccadily Hotels Pvt. Ltd. and its transfer to petitioner No.2 namely M/s. Piccadily Holiday Resorts Ltd is that the petitioner Company failed to submit valuation report/share entitlement ratio. 14. The learned counsel for the Petitioner has drawn my attention to section 2(19AA) of the Income Tax Act. He submits that the expression de-merger is defined in the said provision and the relevant extract thereof reads as follows: “(19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that- (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; CP Nos.173 of 2007 Page 5 of 9 (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger; (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of the undertaking is on a going concern basis; (vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. 15. Learned counsel submits that under the scheme the properties and liabilities of the undertaking being transferred by the petitioner No.1 company are proposed to be transferred at values appearing in its books of account immediately before the de-merger. This is also so stated in his objection by the Regional director and the O.L. Learned counsel submits that there is no necessity of having a CP Nos.173 of 2007 Page 6 of 9 valuation report and in respect of that contention he relies on the decision of the Bombay High Court in Advance Plastics P.Ltd., In re. (Bom), 2007 (138) Company Cases 1006 (Bom). In this case, the Bombay High Court has taken the following view: “The Regional Director has filed an affidavit and in paragraph 6 thereof raised an objection stating that as per Clause 12.1 of the scheme shares will be issued by the transferee company to the members of the transferor company. But no valuation report is submitted by the petitioner – company in respect of exchange ratio of 1 : 1 arrived at for such issue of shares by the transferee company to the members of the transferor company. Mr. Shah, learned counsel for the petitioner, submitted that except one shareholder, who held hardly 50 shares of the transferor company, all the shareholders in both these companies are the same. He further submitted that there were no secured and unsecured creditors and all the shareholders has given their consent for the scheme. Save and except the objection raised in paragraph 6, the Regional Director has stated that the scheme as proposed is not contrary to the public interest or prejudicial to the interest of the shareholders or creditors. The shares are the properties of the shareholders and they are the ultimate and the best judge of the value they would put on their charges. There is no requirement in the Companies Act that in such a case the ratio of exchange has to be determined on a valuation made by a chartered accountant and auditor. In the present case, no shareholder has challenged the amalgamation. In the circumstances, valuation report was not necessary.” 16. Learned counsel has further submitted that the reference made to the decision of the Supreme Court in Mihir H. Mafatlal vs. Mafatlal Industries Ltd., AIR 1997 SC 506 is also CP Nos.173 of 2007 Page 7 of 9 misplaced since the said decision, which broadly lays down the contours of the inquiry undertaken by the court, do not require the valuation report to be prepared by an independent agency to arrive at the exchange ratio of the shares in a scheme of arrangement. 17. I agree with these submissions of the petitioner and find myself in agreement with the view of the Bombay High Court. Since, in this case the scheme has been approved by the shareholders of the two companies which are both closely held, and even the secured and unsecured creditors have approved the scheme in question, I see no force in the objection of the Regional Director (NR) and the Official Liquidator. 18. There is no other legal impediment to sanction of the Scheme of Amalgamation which is annexed to the petition. Consequently, sanction is hereby granted to the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956. The resultant company will comply with the statutory requirements in accordance with law. Certified copies of this order be filed with the Registrar of Companies within five weeks. It is also clarified that this order will not be construed as an order granting exemption from payment of stamp duty that is payable in accordance to law. The sanction becomes effective and binding on the De-merged company, Resultant company , their share holders , creditors and all other concerned from the appointed date of de-merger, that is 1st April 2006. Costs of Rs.10,000/- shall be paid by the applicants jointly CP Nos.173 of 2007 Page 8 of 9 and severally in the Common Pool Fund within five weeks. 19. The petition is disposed of in terms of the above order. January 29, 2008 VIPIN SANGHI JUDGE P.K. BABBAR CP Nos.173 of 2007 Page 9 of 9