Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
OJA/81/2010 1/91 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
O.J.APPEAL No. 81 of 2010In
COMPANY PETITION No. 183 of 2009In COMPANY APPLICATION No. 254 of 2009
For Approval and Signature:
HONOURABLE MR.JUSTICE P.B.MAJMUDAR
HONOURABLE MR.JUSTICE MOHINDER PAL
================================================
1Whether Reporters of Local Papers may be allowed to see the judgment ?
2To be referred to the Reporter or not ?
3Whether their Lordships wish to see the fair copy of the judgment ?
4
Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5Whether it is to be circulated to the civil judge ?
================================================ VODAFONE ESSAR GUJARAT LIMITED Appellant(s)
VersusDEPARTMENT OF INCOME TAX Opponent(s)
================================================
1 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 2/91 JUDGMENT
Appearance :MR MIHIR H JOSHI, SR ADVOCATE WITH MR SAURABH N SOPARKAR, SR ADVOCATE WITH MR AMIT M PANCHAL, ADVOCATE for the Appellant with Ms Niti Dixit, Advocate with Mr Sandeep Singhi, Advocate with Ms Shivani S Rajpurohit, Advocate MR MIHIR J THAKORE, SR ADVOCATE with MR NITIN K MEHTA for the Respondent No.1 – Income Tax Department
MR PANKAJ S CHAMPANERI, ASST. SOLICITOR GENERAL OF INDIA for REGIONAL DIRECTOR================================================
CORAM : HONOURABLE MR.JUSTICE P.B.MAJMUDARandHONOURABLE MR.JUSTICE MOHINDER PAL
Date : /08/2012
CAV JUDGMENT
(Per : HONOURABLE MR.JUSTICE P.B.MAJMUDAR)
1 This appeal is directed against the judgment
and order dated 9th December 2010 passed in
Company Petition No.183 of 2009 whereby the
learned Company Judge did not accord
sanction to the Scheme of Arrangement under
Sections 391 to 394 and other applicable
provisions of the Companies Act, 1956
whereby Passive Infrastructure Assets of the
appellant Company together with the Passive
Infrastructure Assets of other Companies,
transferor companies, shall vest in and
become the right, property and assets of
Vodafone Essar Infrastructure Limited, the
transferee Company.
2 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 3/91 JUDGMENT
2 The transferee company was originally
incorporated under the Companies Act, 1956
on 19th January, 2007 with the Registrar of
Companies, Maharashtra, Mumbai under the
name and style of Perfect Tribute Impex
Private Limited. The company changed its
name to Vodafone Essar Infrastructure
Private Limited after passing the necessary
resolution to this effect and obtained fresh
certificate of incorporation on 18th
October, 2007. The company again changed its
name to Vodafone Essar Infrastructure
Limited and obtained fresh certificate of
incorporation on 17th January, 2008.
Thereafter, the company shifted its
registered office from the State of
Maharashtra to NCT of Delhi and obtained a
certificate in this regard from the
Registrar of Companies, NCT of Delhi &
Haryana at New Delhi on 28th June, 2008.
3. The authorized share capital of the
transferee company, as on 31st March, 2009,
is Rs.5,00,000/ divided into 50,000 equity
shares of Rs.10/ each. The issued,
subscribed and paid up capital of the
company is Rs.5,00,000/ divided into 50,000
equity shares of Rs.10/ each.
3 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 4/91 JUDGMENT
4 It is the case of the appellant Company
that the Board of Directors of the appellant
Company has approved the Scheme by
Resolution passed in the meeting held on 21st
September 2007 and further modified by a
Resolution dated 30.4.2008. The Board of
Directors of the transferee Company has also
approved the Scheme by a Resolution dated
21.9.2007.
5 The Scheme envisages the demerger of the
Passive Infrastructure Assets of each of the
transferor Companies. Upon sanction of the
Scheme, the Passive Infrastructure Assets of
the transferor Companies will be transferred
from each of the transferor Companies and
shall vest in the transferee Company. By
an order dated 8th July 2009 passed in
Company Application No.254 of 2009 this
Court has dispensed with the requirement of
holding meetings of the shareholders,
Secured Creditors and the Unsecured
Creditors of the petitioner Company, for the
purpose of considering and approving the
Scheme. The registered office of the
appellant company is situated at Ahmedabad.
Along with the Company Petition a copy of
4 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 5/91 JUDGMENT
the Scheme of Arrangement has been filed on
the record and salient features of the
Scheme have been incorporated and detailed
in the Company Petition. Under the said
Scheme it is proposed to demerge passive
infrastructure assets of eight transferor
companies and transfer them to the
transferee company. The transferee company
is the wholly owned subsidiary of the
transferee company. The said scheme has
already been sanctioned by the High Courts
of Bombay, Calcutta, Madras and Delhi. The
Scheme envisages that on the appointed day,
inter alia, the passive infrastructure
assets of all the transferor companies shall
stand transferred to it and vested in the
transferee company. As per the Scheme, the
segregation of the passive infrastructure
assets, business and the telecommunications
services business is to enable further
growth and maximise value in each of the
businesses. It is also claimed that it will
improve the quality of services to customers
by establishing a high service standard and
delivering services in an environment
friendly manner and will also increase the
speed of rollout and efficiency through the
sharing of infrastructure. This initiative
of the petitioners is stated to be in line
5 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 6/91 JUDGMENT
with global trends, as well as the policy of
the Government of India, as reflected in the
Report of the Working Group on the Telecom
Sector for the Eleventh Five Year Plan
(20072012) issued by the Department of
Tele Communications, Ministry of
Communications and Information Technology,
Government of India. The Department of
Telecommunications has recommended, inter
alia, to promote sharing of infrastructure
so that costs can be kept down, which is
essential for rural penetration, and to
incentivize such sharing.
6 So far as share exchange ratio is concerned,
the Scheme provides that the Scheme is
intended to restructure, within the Vodafone
Essar Limited Group, the holding of the
assets constituting the Passive
Infrastructure Assets in a more efficient
manner consistent with the diverse needs of
business, and does not involve any movement
of assets or liabilities to any company
outside the Vodafone Essar Limited Group.
The said transfer is without consideration
as the transfer of the Passive
Infrastructure Assets is within the Vodafone
Essar Limited Group and according to the
6 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 7/91 JUDGMENT
appellant company, the transferee company
shall not be required to issue any shares or
pay any consideration to any of the
transferor companies or their shareholders
for acquiring the Passive Infrastructure
Assets. As pointed out earlier, the Board
of Directors of the transferor and
transferee companies, in their respective
meetings, have unanimously approved and
proposed the scheme of arrangements. The
Scheme was accordingly placed before the
learned Company Judge for according his
sanction.
7 The learned Company Judge admitted the
petition on 11th August 2009 and notice was
issued to the Central Government to be
served through the Regional Director,
Ministry of Corporate Affairs, Mumbai.
Notice was also issued to the Official
Liquidator for examination of the affairs of
the petitioning Company. The Official
Liquidator was given liberty to engage
Chartered Accountant for such purpose at the
cost of the appellant Company. The learned
Company Judge also directed to issue public
advertisement in Times of India, English
daily, Ahmedabad edition and Gujarat
7 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 8/91 JUDGMENT
Samachar, Gujarati daily, Ahmedabad edition,
in terms of the Companies (Court) Rules,
1959. Pursuant to the notice, public
advertisements were issued and affidavit to
this effect was filed before the learned
Company Judge.
8 In response to the notice served on the
Regional Director an affidavit was filed by
Shri Rakesh Chandra, Regional Director,
Western Region, Ministry of Corporate
Affairs, Mumbai on 27th November 2009
stating that the appellant Company may be
directed to furnish the latest financial
statement before this Court at the time of
hearing and that the petitioner Company may
also be directed to obtain necessary
approval of the concerned regulatory
authorities of the Ministry of the
Telecommunications in respect of the present
scheme of arrangement if applicable and that
the Regional Director had received letter
dated 7.9.2009 from Assistant Commissioner
of Income Tax, Ahmedabad on tax aspects in
respect of the appellant Company wherein it
is stated that they are going to represent
the same before the learned Company Judge.
8 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 9/91 JUDGMENT
9 In response to these objections and
observations, an affidavit was filed on
behalf of the petitioner Company and it was
submitted that the latest audited financial
statement of the petitioner Company for the
financial year ended on 31.3.2009 were filed
along with the Company Petition. The latest
unaudited financial statements of the
petitioner Company as on 31.9.2009 were
placed on record along with this affidavit.
With regard to the second issue raised by
the Regional Director, it was submitted that
the petitioner Company is a mobile
telecommunication service provider and holds
a Unified Access Services License for the
Gujarat Service Area, with effect from
20.10.2008 issued by the Department of
Telecommunications. The appellant Company is
not transferring the license to the
transferee Company pursuant to the Scheme
and hence condition No.6.3 of the license is
not applicable. It was further stated that
the appellant Company shall continue to hold
its license and to provide the licensed
telecommunications services even after the
completion of the demerger and therefore
there was no requirement for the appellant
Company to seek approval of the Department
of Telecommunications for the Scheme. It
9 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 10/91 JUDGMENT
was also submitted that the transferee
Company is registered as an Infrastructure
Provider Category–1 by the Department of
Telecommunications which permits the
transferee Company to establish and maintain
Passive Infrastructure Assets to lease, rent
or sell such assets to licensees of Telecom
Services licensed under Section4 of the
Indian Telegraph Act, 1885.
10 The learned Company Judge having considered
the objections raised on behalf of the
Income Tax Department and having heard
learned counsel for the parties came to the
conclusion that the sole object of the
Scheme is to avoid tax. The learned Company
Judge observed that the transaction is void
under Section 281 of Income Tax Act and
therefore the court will not exercise its
jurisdiction to sanction a transaction which
is pointed out to be void. The learned
Company Judge observed that the Scheme
appeared to be a camouflage to circumvent
the mandatory provisions of Income Tax Act.
The learned Company Judge has also observed
that since no liabilities are transferred
including the employees relating to the
Passive Infrastructure assets, the expenses
will continue to be borne by the Transferor
10 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 11/91 JUDGMENT
companies which would artificially deplete
the taxable profit and will not give a true
and fair view of the accounts, thus
adversely affecting the taxable profits.
He has further observed that the entire tax
payable on the market value of assets to be
transferred to Indus is sought to be evaded
by present scheme and had the transaction
been done directly with Indus, the same
would not have been exempted, and it would
have been at market value for exchange of
consideration. He further observed that
since the liabilities are not taken over, it
would not tantamount to a demerger u/s
2(19AA) nor gift u/s 47(iii). He further
observed that since the liabilities are not
to be taken over nor any shares are supposed
to be issued, it could not satisfy the
condition of demerger and therefore the only
option was to transfer it as a gift as a tax
planning devise. The learned Company Judge
was of the opinion that by doing so it is
creating a conduit avoiding the capital gain
tax at this stage and further in the next
stage the transferee is sought to be merged
with Indus which transaction will again be
exempt u/s 47 and thus would be avoiding
capital gain tax at that stage as well. The
learned Company Judge therefore came to the
11 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 12/91 JUDGMENT
conclusion that income tax amounting to the
tune in excess of Rs.3,500 crore as alleged
by the Incometax Department is sought to be
evaded if the present scheme is sanctioned
by the Company Court.
11 As regards stamp duty and VAT, the learned
Company Judge observed that stamp duty is
sought to be evaded to the tune to Rs.600
crores and if the sale is directly made to
Indus, the stamp duty payable would have
been @ 6%. If the court sanctions the
present scheme in the guise of demerger u/s
391, the stamp duty shall be paid @ 1% and
thus avoiding legitimate payment of stamp
duty to the extent of 5% (6%1%) on the
amount of Rs.15,000 crores being the
conservative estimate of the market value of
Passive Infrastructure assets being
transferred. He further observed that no
VAT shall be payable on the movable assets
transferred under the scheme if the same is
sanctioned under Section 391 which otherwise
would have been payable.
12 The learned Company Judge thus observed that
it is a foregone conclusion that if the
present scheme is sanctioned by him, it
would result into avoidance of tax and that
12 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 13/91 JUDGMENT
the transferee company is nothing but a
paper company was being used only as an
intermediary for transferring Passive
Infrastructure assets from transferor
companies to Indus for the purpose of tax
evasion. The learned Company Judge has
relied on the decision of Wood Polymer Ltd.:
(1977) 47 Co. Cases 597 (Guj) for coming to
the conclusion that the scheme is nothing
but a device and a conduit having the sole
purpose of avoiding and evading taxes
including income tax, stamp duty,
registration charges and VAT. The purpose
being tax avoidance is explicit from the
facts that different accounting treatments
are accorded to transferor companies having
a positive net worth in comparison to ones
which have negative net worth with an
intention to maximize tax avoidance and
therefore the Scheme is unreasonable, unfair
and unjust.
13 The aforesaid order passed by the learned
Company Judge in not granting sanction to
the Scheme in question has given rise to
this appeal at the instance of the appellant
– Vodafone Essar Gujarat Limited.
14 Mr Mihir Joshi, learned Senior Counsel,
13 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 14/91 JUDGMENT
assisted by Mr Amit Panchal, learned counsel
for the appellant, has vehemently argued
that the learned Company Judge has merely
recorded the submissions of both the sides,
but has not considered the submissions made
on behalf of the appellantcompany and by
merely recording the arguments of the
incometax Department passed the impugned
order without giving his own independent
reasoning in this behalf. Mr Joshi has
argued that the learned Company Judge should
have given his own independent reasons
instead of merely recording the arguments of
both the sides and ultimately in dismissing
the company petition on the basis of the
submissions of the incometax Department.
It is argued by Mr Joshi that the incometax
Department has no locus standi to raise
objections to the Scheme especially when no
objections have been raised by anyone else.
It is argued by Mr Joshi that the learned
Company Judge has committed a grave error in
coming to the conclusion that the sole
object in formulating the Scheme is tax
avoidance. He has submitted that without
there being any basis in this behalf the
learned Company Judge has come to the said
conclusion.
14 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 15/91 JUDGMENT
15 Mr Mihir Joshi next contended that it is a
case of reconstruction of business in line
with the Government policy and even other
telecom companies have also formulated such
policy. It is submitted that in the matter
of reconstruction of business, Section 25 of
the Contract Act has no role to play and the
said provisions are not attracted. It is
submitted that by the instant scheme the
passive assets will become revenue
generating assets. It is further submitted
by him that no rights of the incometax
Department are being affected by the present
Scheme and the appellant would continue to
be profitable after the demerger of Passive
Infrastructure (PI) assets and that its net
worth after giving effect to the Scheme
would be Rs.3592 crores as on March 31,
2012. On the other hand the outstanding
demand of the Income Tax Department as on
July 1, 2012 is Rs.29.3 crores
approximately. In the circumstances, the
rights of the Income Tax Department to
recover the alleged demand would in no
manner be affected by the sanctioning of the
present Scheme. It is further submitted
that sanctioning the scheme ipso facto would
not grant any immunity to the Appellant qua
any liability that may be imposed on it
15 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 16/91 JUDGMENT
under the relevant provisions of the Income
Tax Act, in accordance with law. Similar
statement has also been made before the
Delhi High Court in the case of Vodafone
Essar Limited & ors. v/s. Vodafone Essar
Infrastructure Limited, reported in (2011) 2
Comp LJ 317. It is submitted that once
the dues of Income Tax Department are taken
care of, it has no further locus standi to
challenge the Scheme. It is further
submitted that under Sections 391394 of the
Companies Act, 1956 only the Central
Government, through the Regional Director
has the powers to study the Scheme and raise
such objections as it thinks fit. Thus,
besides the shareholders and creditors of
the company to whom an arrangement and/or
compromise is offered by the company, only
the Regional Director has locus standi in
respect of the proceedings under sections
391394 of the Companies Act. The Income Tax
Department, which is a revenue collecting
arm of the Central Government, cannot object
to the proposed Scheme. He submitted that
it is only the Central Government through
Regional Director which is vested with the
powers to raise the objections qua the
Scheme but, when the Regional Director has
not raised any objection to the Scheme,
16 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 17/91 JUDGMENT
which is sought to be raised by the Income
Tax Department the Incometax Department has
no locus to raise such objections. It is
further submitted that when the Central
Government through the Regional Director
has not raised any objection to the Scheme,
it is surprising as to how the Incometax
Department is fighting tooth and nail in
opposing the Scheme as if it is an adverse
litigation between the appellant and the
Incometax Department.
16 Mr Joshi has further submitted that the
objection taken by the Incometax Department
to the effect that the sole object of the
Scheme of Arrangement is tax evasion is not
sustainable at all. It is submitted that
the ratio of the judgment of the learned
Single Judge in the case of Wood Polymer
Ltd. (supra) has no application to the facts
of the present case as the Scheme seeks to
achieve a commercial purpose and object
inter alia being segregating the PI business
and the telecommunications service business
to enable further growth and maximize value
in each of the business; improved quality of
services to customers by establishing high
service standards and delivering services in
an environment friendly manner; increase in
17 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 18/91 JUDGMENT
the speed of role out and efficiency through
sharing of infrastructure, converting the PI
assets from nonrevenue generating assets;
improved network quality and greater
coverage etc. He further submitted that the
segregation of telecommunications services
and telecommunications infrastructure
business reflects the global trend and has
been adopted by telecommunication companies
in India without objection. In fact the
Working Group under the Planning Commission
has recommended sharing of infrastructure,
which is presently under contemplation by
Vodafone and the present Scheme reserves
flexibility to it for easing such process
when required. The Central Government has
not raised any objection to the Scheme and
even the Department has not contended that
the aforesaid objectives are imaginary.
Therefore it cannot be said that the Scheme
has no purpose or object and that it is a
mere device/subterfuge with the sole
intention to evade taxes, particularly when
even the incidence of tax purportedly sought
to be evaded is not established on facts.
He has next contended that similar scheme
of arrangement proposed by other
telecommunication companies to achieve the
aforesaid objectives has been sanctioned by
18 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 19/91 JUDGMENT
different High Courts.
17 Mr Joshi has further contended that the
Scheme of Arrangement was necessitated for
reasons set out in clause 1.4 thereof. Mr
Joshi has relied upon various clauses in the
Scheme. It is further argued that under the
Income Tax Act, there is no liability for
payment of tax on capital gains since there
would be a transfer of capital assets under
a gift as envisaged under section 47(iii),
which excludes application of section 45.
It is also submitted that there is a clear
rationale for nil monetary consideration
since the Appellant and the transferee com
pany are both wholly owned subsidiaries of
Vodafone Essar Limited as per Clause 3.1 of
the scheme and even a transfer at book value
would not have resulted in capital gains.
Therefore the scheme in any case is not for
the purpose of avoiding capital gains.
18 Mr Joshi has further contended that the plea
of the Income Tax Department that had there
been a direct transfer of PI assets to Indus
Towers Limited, there would have been a li
ability for capital gains is misconceived.
He submitted that the Income Tax Department
is purposefully seeking to overlook the fact
19 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 20/91 JUDGMENT
that Indus Towers Limited is already a joint
venture company of Vodafone, Bharti and
Idea. Further, Vodafone, Bharti and Idea are
already holding equity shares in Indus in
the ratio of 42:42:16 and therefore even if
there would have been a direct transfer
either at nil monetary consideration or at
book value, there would have been no liabil
ity for payment of tax on capital gains.
It is submitted that even if the Scheme in
question had not been proposed and if Voda
fone transferor companies had transferred
the PI assets by way of gift to one of its
group companies, still there would have been
no liability of tax on capital gains in view
of section 47(iii) of the Incometax Act.
It is submitted that the entire plea of the
Income Tax Department is hypothetical and
without any basis and no evidence is placed
to such hypothetical claim made by the In
come Tax Department. According to him,
such a contention in respect of proposed
transfer to Indus cannot be said to be part
of the same transaction since it is a separ
ate and independent proposed scheme subject
to sanction of jurisdictional court and in
any case beyond the scope of the present
proceedings.
20 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 21/91 JUDGMENT
19 It is further submitted that it can never be
said that the Scheme is nothing but a
camouflage and in substance it is a transfer
by the transferor companies in favour of
Indus with a view to avoid tax liability and
with the sole object of avoidance of tax
liability arising from the capital gains
that the present scheme has been formulated.
It is further submitted so far as aspect
about transfer to Indus Towers Limited is
concerned, it cannot be said it is a part of
same transaction since it is a separate and
independent proposed scheme subject to
sanction of jurisdictional court and in any
case beyond the scope of the present
proceedings and therefore that aspect cannot
be considered while considering the present
scheme. It is submitted that in any case
when the appellant was not required to
follow a particular pattern and every tax
payer is entitled to arrange its affairs
legitimately so that its taxes shall be as
low as possible and that it is not bound to
choose that pattern which will replenish the
treasury. Further, where there are several
legitimate alternatives, means and procedure
for attaining the same object there is no
bar in choosing any one of them. It is
respectfully submitted that while
21 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 22/91 JUDGMENT
sanctioning the scheme the Court does not
sit in appeal over the decision taken by the
shareholders who have, in their commercial
wisdom, given their approval to the scheme.
Even if there are various ways to carry out
a particular transaction, if one of the
modes is chosen by the Vodafone group
entities, the complexity of direct transfer
by seven separate Vodafone group entities to
Indus; the number of Vodafone group entities
as shareholders in Indus compared to one
Vodafone entity as shareholder in Indus; the
issues pertaining to the success of Bharti
and Idea to transfer their respective PI
assets to Indus; the successful completion
of transfer of PI assets by all the three
joint venture partners into Indus; the
option for Vodafone to accomplish the object
of the Working Group in case the joint
venture partners are not successful in
transferring the PI assets to Indus. It is
submitted by Mr Joshi that on the basis of
the relevant consideration as pointed above
if the Scheme is floated, it cannot be said
that the same is floated with the sole
object of avoiding tax. Even incidentally
in a given case it may result into tax
saving or evading of tax, then also, it can
never be said that the sole object of the
22 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 23/91 JUDGMENT
Scheme is avoidance of tax. It is further
submitted that the reliance placed by the
Incometax Department in the case of Wood
Polymer Limited (1977) 47 CC 597 and
comparing the present Scheme with the said
Scheme is misconceived and not justified as,
in that case, the parties were seeking the
assistance of the court to reduce the tax
liability and this Court has held that the
court should be the last instrument to grant
such assistance of judicial process to
defeat a tax liability. It is submitted
that even if there is a consideration of one
rupee, then also it can be held that it is
valid consideration and in support of his
submission he has relied upon the
observations of the Delhi High Court in
sanctioning scheme.
20 It is submitted that the Scheme is an
arrangement between the Company and its
shareholders since it involves bifurcation
of the business carried out by the company
and arrangement of its assets and the way
the business is carried in the future. The
term of arrangement is wide enough in view
of definition of Section 390(b) of the
Companies Act. There is an element of give
and take since a substantial business is
23 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 24/91 JUDGMENT
being taken out by the company but
substantially the same persons would be
carrying it on in the future. The
shareholders of the Appellant are giving up
the PI assets of the Appellant so as to
take/reap the benefits of the income/benefit
to be derived inter alia by putting the idle
PI assets to use. It is further submitted
that in the present case the right of the
Incometax Department in assessing, levying
and collecting the tax of the appellant are
not confiscated or expropriated so as to
extinguish such rights. It is further
submitted that the Scheme is for
reconstruction of the Company and it
contemplates the carrying on of the business
in an altered form, by dividing the
telecommunications services business and the
telecommunications infrastructure business
being carried on by the Appellant, in a
manner that the telecommunications
infrastructure business would be carried on
by the transferee company. The said business
will be continued and carried on by
substantially the same persons who are
presently carrying on the consolidated
business since both the transferor and the
transferee companies are wholly owned
subsidiaries of Vodafone Essar Limited which
24 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 25/91 JUDGMENT
will continue to carry on the businesses.
It is submitted that both reconstruction and
amalgamation are statutorily recognized as
an arrangement and/or compromise under
Section 391. It necessarily implies that
once a scheme is in the nature of
reconstruction, which in the facts of the
present case it is, the same is bound to be
recognized as an arrangement and/or
compromise under section 391 of the
Companies Act. He submitted that once there
is a Scheme of reconstruction, the same is
bound to be recognized as a
compromise/agreement under Section 391 of
the Companies Act. It is further argued
that it can never be said that in the
present Scheme there is only transfer of
assets and not transfer of undertaking and
that it cannot be said that unless there is
a transfer of undertaking, it cannot be said
that it is a demerger. It is submitted
that it is nobody’s case that the present
Scheme is a demerger under the Incometax
Act and simply because it is not under
section 2(19AA), it does not mean that the
present scheme is not a reconstruction under
sections 391394 of the Companies Act, 1956.
Even if no liabilities are transferred, the
same would still be a reconstruction under
25 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 26/91 JUDGMENT
the Companies Act, 1956. It is also
submitted that in the present case the
Scheme has been approved by the members in
requisite majority.
21 It is submitted that the Scheme of
Arrangement cannot be equated with an
agreement between the parties. The Scheme
does not result into an agreement between
the parties as contemplated under the
Contract Act, 1872 and it remains to be a
Scheme, which is to be approved by the
statutory majority and it is required to be
sanctioned by the Court. Therefore, it
cannot be said that the Scheme is in the
nature of agreement and the same is void
under Section 25 of the Contract Act. On
the aforesaid premises it has been argued by
Mr Joshi that the impugned order of the
learned Company Judge is required to be set
aside especially when the learned Company
Judge has not given reasons while refusing
to sanction the Scheme of the Arrangement
proposed by the appellant.
22 Mr Joshi, in support of his submissions has
relied upon the following judgments:
i. Vodafone Essar Limited & ors. v/s. Vodafone
26 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 27/91 JUDGMENT
Essar Infrastructure Limited, reported in
(2011) 2 Comp LJ 317, para 29, 49 & 69 on
the point of locus of the Income Tax
Department to raise objection against
sanctioning of the Scheme.
ii. J indal Iron & Steel Co. Ltd. v/s. Asst.
Commissioner of Income Tax on the point of
locus of the Income Tax Department to raise
objection against sanctioning of the Scheme.
iii SREI Infrastructure Finance Ltd. Calcutta
High Court, (2008) 4 Comp LJ 196, for the
proposition that consideration per se cannot
invalidate the Scheme as avoidance by the
Appellant Company of its tax liabilities
will attract the provisions of the Income
Tax Act and the Company cannot escape from
its liability.
iv Nirmay Properties Private Limited, (2009)
150 CC 538 for the observation that simply
because the Court has granted the sanction
to the Scheme it does not absolve the
Company from any future liability qua
violation of any statutory provisions.
v Vodafone International Holdings vs. Union of
India (2012) 1 Comp LJ 225, for the
proposition that every tax payer is entitled
27 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 28/91 JUDGMENT
to arrange his affairs so that his taxes
shall be as low as possible and that he is
not bound to choose that pattern which will
replenish the treasury.
vi Banyan & Berry v Commissioner of Income Tax,
Gujarat High Court, 222 ITR 831 for the
proposition that every act which results in
tax reduction or exemption of tax cannot be
treated as a device of tax avoidance and the
real question to be asked is whether the act
of the assessee falls in the category of
colourable device.
vii Azadi Bachao Andolan, (2004) 10 SCC 1, for
the proposition that McDowell cannot be read
as laying down that every transaction or
arrangement perfectly permissible under law,
which has the effect of reducing the tax
burden of the assessee must be looked upon
with disfavour.
viiiUnited Bank of India Ltd. vs. United India
Credit & Development Co. Ltd. Of Calcutta
High Court, (1977) 47 CC 689 for the
proposition that where there are several
legitimate alternatives, means and procedure
for attaining the same object, there is no
bar in choosing any one of them.
28 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 29/91 JUDGMENT
ix Larsen & Toubro Ltd. (2004) 121 CC 523, for
the proposition that though the word
'amalgamation' is not defined specifically,
it has a wide range and ambit and is a term
of wider connotation.
x Re T&N Ltd. – Chancery Division , (2007) 1
All ER 851 for the proposition that it is
not a necessary element of an arrangement
for the purposes of Section 425 or that it
should alter the rights existing between the
company and the Creditors or the members.
xi Judgment of Gujarat High Court in the case
of Idea Cellular Ltd. (Company Petition No.167 of 2009 dated 31.8.2009) sanctioning
similar Scheme of Arrangement.
xii Judgment of Delhi High Court in the case of Bharti Airtel Ltd. (Company Petition No.233
of 2007 dated 26.11.2007) sanctioning similar Scheme of Arrangement.
xiiiJudgment of Bombay High Court in the case of
Reliance Telecom Infrastructure Ltd. (Company Petition No.68 of 2007 dated 16.3.2007)
sanctioning similar Scheme of Arrangement.
xiv Judgment of Calcutta High Court in the case of Vodafone Essar East Ltd. (Company Peti
tion No.273 of 2009 dated 5.4.2010) sanctioning the present Scheme of Arrangement.
29 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 30/91 JUDGMENT
xv Judgment of Bombay High Court in the case of
Vodafone Essar Ltd. (Company Petition No.712 of 2009 dated 17.12.2009) sanctioning the
present Scheme of Arrangement.
xvi Judgment of Madras High Court in the case of Vodafone Essar Cellular Ltd. (Company Peti
tion No.203 of 2009 dated 17.11.2009) sanctioning the present Scheme of Arrangement.
xviiJudgment of Delhi High Court in the case of Vodafone Essar Ltd., reported in (2011) 2
Comp LJ 317, sanctioning the present Scheme of Arrangement.
xviiMysore Minerals Ltd. vs. Commissioners of
Income Tax, Karnataka, reported in (1999) 7
SCC 106(para 14) for the proposition that
there is no bar which restrains a transac
tion falling differently or being dealt with
separately under different Acts.
xviii Chidambara Iyer & Ors. v. P.S. Renga Iyer, AIR 1966 SC 193 for the proposition
that the present Scheme of Arrangement is not without consideration.
xix His Holiness Kesavananda Bharti v. State of
Kerala, (1973) 4 SCC 225 for the proposition that even most trifle benefit can be con
sidered as consideration so as to avoid the impact of Section 25.
30 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 31/91 JUDGMENT
xx Ledhingham & Ors. v. Bermejo Estancia Co. Ltd., All ER 749 for the proposition that
there is no requirement of monetary consideration and even a promise to induce the
company to carry on its business has been treated as sufficient consideration.
23 Mr Mihir Thakor, learned Senior Advocate ap
pearing for the Incometax Department, on
the other hand, argued that the Incometax
Department has locus standi to object the
Scheme and, for that reason, anyone can ob
ject to the Scheme if the same is floated
with the ulterior purpose. It is submitted
by Mr Thakor that the learned Company Judge
has considered the arguments of both the
sides and simply because the judgment might
not have been happily worded this Court can
examine the aspect involved in the matter on
its own. It is submitted that it is
ultimately for the Court to consider as to
whether the Scheme is required to be sanc
tioned and the Court is required to be sat
isfied itself, even if there is no objection
by anyone, to find out whether the Scheme is
required to be sanctioned or whether it vi
olates any law or whether it is contrary to
the public policy. It is submitted by Mr
Thakor that in view of the decision of this
Court in the case of Wood Polymer Private
31 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 32/91 JUDGMENT
Limited (supra) the present Scheme is
floated with the sole purpose of avoiding
the tax as the transaction in the present
case and Wood Polymer Private Limited
(supra) can be said to be of a similar
nature. It is submitted that the Scheme is
nothing but camouflage and the object of the
Scheme is nothing but avoidance of capital
gains tax. It is submitted by Mr Thakor
that looking to the Scheme it is evident
that it is not a Scheme for reconstruction
nor it is a Scheme of Arrangement. It is
submitted that the Scheme in question is an
agreement and the same is without considera
tion and therefore the same is violative of
Section 25 of the Contract Act. It is sub
mitted by Mr Thakor that motive or purpose
or reason of a transaction is different from
its consideration and for any transaction
there will be a reason or motive or purpose
or an object. It is submitted that there
may be any motive or object for transferring
the assets, but the same cannot be said to
be a consideration for transfer in the eye
of law. In order to substantiate his say,
he has relied upon Clause 1.4.6, which uses
the word reasons and not consideration. It
is further submitted that Clause 1.4 which
relates to ‘Rationale for the Scheme’, but
32 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 33/91 JUDGMENT
the same can be said to be reason or modi
fication or justification prohibiting the
scheme, but the same cannot be treated as a
consideration.
24 It is submitted that consideration being
different from the object of the
transaction, if there is no consideration,
then, the transaction is void. He has
submitted that there is no consideration as
defined under Section 2(d) of the Contract
Act. It is submitted that consideration has
to be valuable consideration in the eye of
law and since there is no consideration,
much less valuable consideration, the Scheme
ought not to have been sanctioned by the
learned Company Judge. It is submitted that
the Scheme represents a contract sanctified
by the Court’s approval between the company
and the creditors and/or members of the
company. It is submitted that the word
‘gift’ is not defined under the Income Tax
Act and with the Gift Tax Act being
repealed, the only definition which could
possibly be resorted to is under Section 122
of the Transfer of Property Act.
According to him, the meaning of the word
‘gift’ as understood under the Companies Act
and the Income Tax Act is the same, which is
33 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 34/91 JUDGMENT
defined under Section 122 of the Transfer of
Property Act. He further submitted that the
fact that the appellant was required to
amend Memorandum of Association under the
Companies Act to align the same with the
meaning of Gift under the Income Tax
confirms and supports this interpretation.
25 It is further submitted by Mr Thakor that in
the present case statutory majority was not
achieved. He submitted that the assets are
sought to be transferred free from any
charges and encumbrances and that too
without consideration and therefore meeting
of Secured Creditors was necessary and not
that of the shareholders, who retain their
control over the assets and are not the
class of person with whom any arrangement or
compromise is entered into, as sought to be
claimed.
26 It is also submitted by Mr Thakor that the
Scheme is ultra vires Companies Act as
admittedly, there was no power to gift under
the Memorandum of Association of the
petitioner company and it was by in an
Extraordinary General Meeting of
Shareholders that a Resolution was passed on
21st September 2007 wherein Memorandum of
34 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 35/91 JUDGMENT
Association is amended to incorporate the
power of gift. He further submitted that
the proposed scheme being based on an ultra
vires resolution of Board of Directors is
void and it cannot be ratified even if all
the shareholders have given their consent.
He has also contended that jurisdiction
under Section 391 of the Companies Act is
not available for want of authority to the
Company to gift and thus the Scheme is void.
Mr Thakor, therefore, submitted that if
Scheme before the Court is void, abinitio
it cannot be ratified even if all the
shareholders agree and the Court cannot
sanction such a Scheme. Mr Thakor has also
tried to elaborate his argument as to how
the sole object of the Scheme is avoidance
of tax. He has next contended that the he
Appellant has failed to show even a single
clause or provision from the working
committee recommendations requiring or
mandating the Appellant to transfer its
assets in the manner and mode in which it is
sought to be done i.e. gifting it at stage 1
and merging it at stage 2 and that also
under the guise of a scheme u/s 391. He
has also submitted that no authority or
committee has or can recommend/ mandated
divesting/ sale of assets, much less in the
35 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 36/91 JUDGMENT
manner it is sought to be done. The mode and
manner adopted is solely for avoiding taxes.
27 Mr Thakor submitted that the three groups
providing mobile telephony services,
Vodafone, Bharti and Idea formed a company
called Indus Towers Ltd with an equity
structure of 42:42:16 respectively, around
2007. It was agreed between the shareholders
of Indus as to the terms on which the
existing infrastructure of towers (called
"Passive Infrastructure Assets") in
different circles/ states (including state
of Gujarat) shall be contributed to Indus.
In order to comply with their agreement to
contribute assets to Indus, the simplest and
the legally correct way to transfer the
assets were to execute a deed of conveyance
and transfer the PIA from the respective
owners to Indus. However to avoid and evade
the taxes payable to both Central and State
Government like Income Tax, stamp duty, VAT
etc. an entire tax avoidance subterfuge was
created and dubious method was adopted by
the aforesaid three groups based on their
individual structures of the ownership of
PIA viz. Stage 1: Introducing a pre
ordained devise/ conduit in the form of a
new Company (the present Transferee Company)
36 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 37/91 JUDGMENT
and transferring by way of Gift to this new
Company and Stage 2: Amalgamating this new
Company into Indus. According to him, both
the stages are done under the guise of
scheme u/s 391 to legitimise the same by
obtaining the seal of the Hon'ble Court and
evade payment of Income Tax, stamp duty and
VAT.
28 Mr Thakor next contended that it is clear
that the only purpose of the Scheme is to
acquire the assets of the Appellant (the
original owner) through the intermediary of
the Vodafone Infrastructure Ltd. (present
Transferee) which was created for that very
purpose to meet the requirement of law, and
in the process to defeat tax liability that
would otherwise arise. It is submitted that
the Supreme Court in case of Miheer Mafatlal
vs. Mafatlal Industries Ltd. 1997 (1) SCC
579, has held that for ascertaining the real
purpose underlying; the Scheme with a view
to be satisfied on this aspect, the Court,
if necessary, can pierce the veil of
apparent corporate purpose underlying the
scheme and can judiciously Xray the same.
He submitted that applying this mandate of
Miheer Mafatlal (supra) this Court can
pierce the veil of apparent corporate
37 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 38/91 JUDGMENT
purpose underlying the scheme and look at
the schemes of both the Stage 1 & 2, which
would reveal the real purpose that is the
transfer of assets to Indus without payment
of taxes. Once the Court ascertains the real
purpose, after piercing the veil by
considering the composite transaction, it
would not lend any assistance by permitting
the completion of even Stage 1, even
assuming if the same is found to be meeting
the requirements of law, as this would
perpetuate and lend a helping hand in the
process to achieve the ultimate purpose of
defeating the tax, which, as held is
contrary, to public policy and public
interest. It is the cardinal principle of
law and judicial discipline and part of the
public policy that the court shall not
become party to any part of the process
whose ultimate object is to achieve fraud or
illegality or anything contrary to public
policy. It is also submitted that the
claim of the Appellant that no capital gain
tax is payable if the transfer was on book
value is legally untenable. If the exemption
u/s 47 is not available then the capital
gain is payable on sale of assets. It is
submitted that the ultimate objective of
transferring the assets to Indus without
38 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 39/91 JUDGMENT
payment of capital gain tax cannot be
achieved except by using the present modus
operandi, as already demonstrated above read
with para 58 of the impugned judgment, which
the Appellant has failed to dislodge.
29 Mr Thakor further submitted that if it is
found that the Scheme is opposed to public
policy or defeating the tax and contrary to
the public interest, the Court may not
sanction the Scheme by way of approving the
same. It is submitted that the argument of
revenue neutrality is exfacie untenable and
runs contrary to the very purpose of
introduction of the provisions MAT u/s
115JB, which was to remove the effect of
such entries made in Books of Accounts, on
the tax liability for that year as it would
give a distorted tax effect. MAT provision
is not evoked or introduced to create a
fresh charge over a new source of Income but
perse are concerned to prepone the tax
payment which otherwise was postponed due to
accounting entries in the books of accounts.
Thus revenue neutral argument is untenable.
This attempt of the Appellant to affect MAT
liability by way of differential accounting
treatment further highlights the purpose of
the scheme, which is to use it as a conduit
39 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 40/91 JUDGMENT
to avoid and evade tax.
30 Mr Thakore has also submitted that the
Incometax Department has huge demand of
revenue pending against the appellant
Company. The Incometax Department had
raised a demand of Rs.70,11,06,474/ for
assessment years 200506 out of which
Rs.28,65,92,370/ is pending recovery. The
part of the said demand to the extent it was
confirmed by the first appellate authority
being Commissioner of Income Tax (Appeals)
has been confirmed by the Incometax
Appellate Tribunal vide its order of January
2009 which has been challenged by the
petitioner before this Court. For the part
of the demand deleted by CIT(A) the objector
had preferred the appeal before ITAT which
has been dismissed by its common order dated
9.1.2009. Against the said common order of
ITAT, to the extent of dismissal of its
Appeal, the objector has challenged the same
before this Court. Similarly a demand of
Rs.118,99,33,185/ was raised for assessment
years 200607 out of which Rs.87,99,42,566/
is pending recovery. To the extent of the
said demand raised and confirmed by CIT(A),
the appellant has preferred an appeal before
ITAT, in which stay has been granted against
40 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 41/91 JUDGMENT
recovery on the condition of the petitioner
depositing Rs.30 crores. Further the
Department has raised a penalty demand of
Rs.210,33,19,341/ for the year 200506
which entirely is pending recovery.
Accordingly, sum of around
Rs.326,98,54,277/ is pending recovery from
the petitioner. The aforesaid claim shall
further be increased on addition of interest
recoverable on the aforesaid amount.
Mr.Thakore further submitted that for
assessment years 200708 and 200809 the
assessments are pending finalization and the
objector apprehends demand amounting to
hundred of crores, pursuant to issues
similar to previous assessment year.
31 Mr Thakore further submitted that under
Section 391 of the Act, the jurisdiction of
this Court can be invoked only for sanction
of the Scheme of Compromise or Arrangement.
The present Scheme is neither arrangement
nor a compromise as contemplated under
Section 391. He has further submitted that
under the present Scheme the Passive
Infrastructure Assets are sought to be
transferred without any corresponding
liabilities and free from all encumbrances
to the transferee Company without any
41 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 42/91 JUDGMENT
consideration. There is also no provision
under the Scheme of any allotment of shares
to the members of the petitioner Company.
Post the demerger, the transferee Company
is sought to be amalgamated/merged to Indus
Towers Ltd. However, it is further
contemplated that the transferee Company
before the proposed merger shall be made a
substantially owned company of a new company
to be formed by all or some of the
shareholders of transferee Company. He has
further submitted that underlined
transaction in the Scheme is the transfer of
the said assets without any consideration to
the transferee Company. Since no
consideration is involved, the same is
ultravires the Company and Companies Act and
is not a valid contract. Even otherwise, the
same cannot be approved by this Court under
Section 391 of the Act. He has further
submitted that even if it is assumed that
the transaction embodied in the scheme is a
arrangement or a compromise, the same is not
between the Company and its shareholders or
between the Company and its creditors or
between any of their class. The onus to
prove that the scheme is such which the
Court has the jurisdiction to sanction under
Section 391 of the said Act, is on the
42 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 43/91 JUDGMENT
petitioner and the same is not discharged by
it. He has further submitted that the scheme
is nothing but a garb to legitimize a simple
transaction of transfer between two separate
commercial legal entities in order to evade
the legitimate taxes which would be payable,
if the transaction would have been effected
by way of simplicitor transfer. It would
have attracted Central Sales Tax or Gujarat
Value Added Tax, capital gains tax, other
provision of Income Tax Act, 1961 and stamp
duty if the same were by way of transfer.
Thus, by way of the said scheme these taxes
are sought to be evaded, which is clearly
against public interest.
32 Mr Thakore further submitted that there
exists substantial liabilities in the books
of the petitioner Company, part of which are
relatable to the assets under transfer.
Since liabilities of the said assets would
remain with the petitioner Company there
would be a continuous charge of interest and
other liabilities with respect to the said
assets in its hands. This would reduce the
taxable profit in the hands of the
petitioner Company in the succeeding years.
On the other hand, the books of the
transferee Company would show exorbitant and
43 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 44/91 JUDGMENT
inflated income and since the same is
infrastructure Company, it may ultimately
claim deductions under various provisions of
Chapter VIA of the Income Tax Act on its
inflated profits, leading to great loss of
revenue to the exchequer. Moreover, pursuant
to the scheme the petitioner Company will be
required to pay access charges or some other
charges to the transferee Company for using
the said assets, which it is not paying
before the scheme. This would further reduce
the taxable profit of the petitioner
Company. By transferring the said assets at
the book value the petitioner Company is
trying to evade capital gain which otherwise
would be payable at the market value. He has
further submitted that the sanction of the
scheme is sought to be taken by
misrepresenting the same to be a scheme of
demerger with the ulterior motive to foist
the same on the Income tax Department and
claim the benefit under the Income Tax Act.
For the purpose of Income Tax Act, the
present scheme is not a scheme of demerger.
Mr Thakor has relied upon the following
judgments:
44 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 45/91 JUDGMENT
(i) South African Supply and Cold Storage
Co., (1904) 2 Ch 268, in support of his
contention that the Scheme is not
covered under Section 391 of the
Companies Act.
(ii) Re NFU Development Trust Ltd., 1972 1 WLR
1548 (Ch.D) in support of his contention
in the present case there is no element
of give and take in the Scheme and if
there is no taking but only giving,
there cannot be arrangement and further
it becomes unreasonable on that affected
class and therefore the Scheme cannot be
sanctioned.
(iii) Indian Flour Mills Ltd., AIR 1934 Sind 54
in support of his contention that since
the transfer being without
consideration, it is not an arrangement
under Section 391 of the Companies Act
and thus is not a reconstruction capable
of being sanctioned under Section 391 of
the Act.
(iv) A Lakshmanaswami Mudaliar (Dr) v. LIC of
India, (1963) Supp 2 SCR in support of
his contention that the consideration
contemplated under Section 122 of the
45 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 46/91 JUDGMENT
Transfer of Property Act and under
Section 25 of the Contract Act must be
valuable to be a valid consideration in
the eyes of law.
(v) Mcdowell and Company Ltd. V. CTO (1985) 3
SCC 230 (para 45)to contend that tax
planning has to be within the framework
of law and colourable devices cannot be
part of tax planning.
(vi) Miheer Mafatlal v Mafatlal Industries
Ltd., (1997) 1 SCC 579, in support of
his contention that this Court is
required to pierce the veil of apparent
corporate purpose underlying the scheme
which is the transfer of assets to Indus
without payment of taxes.
33 We have heard both the learned advocates at
great length and have gone through the
relevant documents forming part of this
appeal proceedings. We have gone through
the order of the learned Single Judge and we
have also gone through the case law cited by
the respective counsel. We have also gone
through the written submissions filed by
both the sides.
46 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 47/91 JUDGMENT
34 The question which requires consideration is
whether the Scheme in question is floated
with the sole object of avoiding the tax
liability and to avoid taxes liable to be
paid under various statutes like Incometax,
Stamp Act, etc. The Court is also required
to consider whether the Scheme in question
is in violation of public policy and whether
the Incometax Department has locus standi
to raise the objections in connections with
sanctioning the scheme in question. This
Court is also required to consider whether
the learned Company Judge has committed an
error in refusing to accord sanction to the
Scheme in question.
LOCUS STANDI
35 So far as the preliminary contention raised
by the learned counsel for the appellant
about the locus standi is concerned, except
the Incometax Department, no one else has
raised any objection before the learned
Company Judge in response to the public
advertisement. It is required to be noted
that the proceedings between the appellant –
transferor company and the Incometax
Department are going on before the Tribunal
regarding the liability of payment of tax by
47 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 48/91 JUDGMENT
the transferor company in past transactions.
Some interim orders are also passed in the
said proceedings.
It is the case of the Income Tax Department
that they being the Creditors of the
appellant, they have locus to raise
objections. It is submitted by Mr Joshi
that the powers to raise objections is only
vested on a shareholder and/or creditor
provided a shareholder and/or creditor are
able to show that any arrangement and/or
compromise is offered to them by which their
rights are being affected and in the present
Scheme no compromise and/or arrangement is
being offered to the Income Tax Department
and therefore the Income Tax Department has
no locus.
It is also argued that as per Sections
391394 of the Companies Act, 1956 it is
only the Central Government, through the
Regional Director, which has been vested
with the powers to study the Scheme and
raise such objections as it thinks fit.
Therefore, beside the shareholders and
creditors of the company to whom an
arrangement and/or compromise is offered by
the company, only the Regional Director has
48 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 49/91 JUDGMENT
locus standi in respect of the proceedings
under sections 391 to 394. Further, the
Appellant has clearly outlined its stand at
the beginning of the present proceedings, to
the effect that the sanctioning of the
Scheme would not ipso facto grant any
immunity to the Appellant qua any liability
that may be imposed on it under the relevant
provisions of the Income Tax Act, in
accordance with law. Similar statement has
also been made before the Hon'ble Delhi High
Court [Vodafone Essar Limited & ors. v/s.
Vodafone Essar Infrastructure Limited,
reported in (2011) 2 Comp LJ 317.
36. In the case of SREI Infrastructure Finance
Limited, (2008) 4 Comp LJ 196 (Cal) the
Scheme of Arrangement was placed for sanc
tion before the High Court by the transferor
and transferee company wherein it is ob
served by the Calcutta High Court that the
consideration per se cannot invalidate the
scheme as avoidance by the company of its
tax liabilities will attract the provisions
of the Income Tax Act and the companies can
not escape from their respective liabilit
ies.
In our view, if any amount is required to be
49 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 50/91 JUDGMENT
payable to the Incometax Department by the
transferor company, the Incometax
Department can be said to be a creditor so
far as its claim against the transferor
company is concerned. Considering the same,
it cannot be said that the Incometax
Department has no locus to put forward its
objections in this behalf. In other words,
even if there are no objections, which are
received against the Scheme pursuant to the
public advertisement, yet the Court is
required to examine the Scheme while giving
its approval. In our view, the learned
Company Judge has rightly allowed the
Incometax Department to have its say by
raising objections in connection with the
Scheme in question. Even a similar
objection had been raised by the Incometax
Department before Delhi High Court and the
Delhi High Court has considered the
objections raised by the Incometax
Department on its own merits. Considering
the same, in our view, in cannot be said
that the Incometax Department has no right
to lodge its objections as the Incometax
Department raised a substantial demand
towards tax from the transferor company.
The aforesaid point raised by Mr Joshi is
therefore negative by holding that the
50 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 51/91 JUDGMENT
Incometax Department has the right to place
its objections against sanctioning of the
Scheme in question. The Income Tax
Department will be free to examine the
aspect of any tax payable as a result of the
Scheme.
IS OBJECT OF THE SCHEME AVOIDANCE OF TAX
LIABILITY?
37. The next crucial question, which is required
to be considered is whether the Scheme in
question is floated with the sole object of
avoiding the tax liability such as Income
tax, Stamp Duty, VAT, etc. and that the sole
object is only to avoid capital gains tax,
which otherwise, was required to be payable
by the appellantcompany if there is simple
transfer of assets by the transferor company
to Indus Towers Limited. It is also
required to be considered as to whether in
case if it is found that the sole object of
the Scheme is not to evade tax liability,
then also, whether the Scheme in question is
a Scheme for reconstruction and the Scheme
of Arrangement or that the Scheme being an
agreement is void as it is without
consideration and that whether it is ultra
vires the provisions of the Companies Act,
51 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 52/91 JUDGMENT
1956.
38 It is required to be noted that the
appellantcompany has moved this Court under
Sections 391 to 394 of the Companies Act,
1956 seeking sanction of the Scheme of
Arrangement between M/s. Vodafone Essar
Limited; M/s. Vodafone Essar Mobile Services
Limited; M/s. Vodafone Essar East Limited;
M/s. Vodafone Essar Gujarat Limited; M/s.
Vodafone Essar South Limited; M/s. Vodafone
Essar Digilink Limited; M/s. Vodafone Essar
Cellular Limited and M/s. Vodafone Essar
Infrastructure Limited (hereinafter referred
to as the transferee company). In all
there are seven transferor companies and the
transferee company being M/s Vodafone Essar
Infrastructure Limited and its respective
shareholders. As per Clause 5.4 of the
Scheme, in the even this Scheme is not
sanctioned by all the Company Courts or
other competent authorities referred to in
Clause 5.3.1 before which this Scheme is
presented for approval, the Scheme shall
stand implemented without the demerged of
the Passive Infrastructure Assets of the
relevant Transfer Company/ies. The
provisions in the Scheme relate to such
transferor companies in respect of which the
52 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 53/91 JUDGMENT
Scheme has not been sanctioned shall stand
invalidated and such invalidity shall attach
only to such part dealing with such
Transferor Companies. The remaining portion
of the Scheme shall continue in full force
and effect. In such an event, the relevant
transferor company in respect of which the
Scheme has not been sanctioned shall bear
and pay its costs, charges and expenses for
and/or in connection with the Scheme.
39 The objection is raised only by the Income
Tax Department. On behalf of the Regional
Director a stand is taken that the Regional
Director has no objection to the Scheme
except by pointing out that the Assistant
Commissioner of Income Tax, Ahmedabad has
raised objections in connection with the tax
liability of the appellant Company. On
behalf of the Regional Director, a stand was
taken before various High Courts before
which the company petitions were filed for
giving sanction to the Scheme by various
other transferor companies to the effect
that it has no objection if the Scheme is
sanctioned because the Scheme does not
appear to be prejudicial to the interests
of the shareholders and the public. It is
required to be noted that except before this
53 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 54/91 JUDGMENT
Court and the Delhi High Court, the Income
Tax Department has not raised similar such
type of objections before any other Court.
The Regional Director had not raised any
objections qua sanctioning the Scheme on the
ground that there is no consideration
involved in the transfer or that it is not a
Scheme of Arrangement and that Section 391
and 394 of the Companies Act are not
attracted, etc. Such objections were not
taken by the Income Tax Department before
various High Courts for sanctioning the
Scheme. It is no doubt true that while
giving approval to the Scheme the Court is
required to consider as to whether the
Scheme is question is against the public
policy or is floated with an object to
defeat provisions of law. In a given case,
even though there may not be any objection,
the Court may, on its own, try to find out
the same. It is not in dispute that the
Transferee Company is fully owned subsidiary
of the petitionercompany, the shareholders
are also common. It cannot be disputed that
the Scheme does not contemplate either a
change in the Transferor Companies or the
Transferee Company. The petitioner company
is a mobile telecommunication service
provider and holds a Unified Access Services
54 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 55/91 JUDGMENT
License for the Gujarat Service Area, with
effect from 20.10.2008 issued by the
Department of Telecommunications. As per the
conditions of the licence, the appellant –
transferor company may transfer or assign
with the prior written agreement of the
licensor subject to various conditions
provided therein. It also provides that
whenever amalgamation or reconstruction,
merger or demerger takes place, the same has
to be approved by the High Court or Tribunal
as per law in force in accordance with the
provisions Sections 391 and 394 of the
Companies Act.
40 It is pointed out to the Court that the
appellant is not transferring the licence to
the transferee company pursuant to the
Scheme and the appellant transferor company
shall continue to hold the license even
after completion of the demerger. It is
pointed out to the Court that the transferee
company is registered as an infrastructure
provider category by the Department of
Telecommunication which permits the company
to establish and maintain Passive
Infrastructure Assets to lease, rent or sell
such assets to licensees of Telecom Services
licensed under Section 4 of the Indian
55 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 56/91 JUDGMENT
Telegraph Act, 1885. As per the Scheme of
Arrangement, the Scheme of Arrangement is
arrived at between M/s. Vodafone Essar
Limited; M/s. Vodafone Essar Mobile Services
Limited; M/s. Vodafone Essar East Limited;
M/s. Vodafone Essar Gujarat Limited; M/s.
Vodafone Essar South Limited; M/s. Vodafone
Essar Digilink Limited; M/s. Vodafone Essar
Cellular Limited and M/s. Vodafone Essar
Infrastructure Limited. PartI of the
Scheme provides definitions of share capital
and the purpose of the Scheme. Part II
deals with demerger of the Passive
Infrastructure Assets of the Transferor
Companies into the Transferee Company.
PartIII of the Scheme deals with Accounting
Treatment in the Books of the Transferor
Companies. PartIV provides General
Clauses and Terms and Conditions. PartV
deals with other terms and conditions. We
have also gone through various clauses of
the Scheme of Arrangement. The Passive
Infrastructure Assets are defined as all
present and future wireless and broadcast
towers that host or assist in the operation
of the plant and equipment used for
transmitting telecommunication signals,
being towers owned and operated by the
Transferor Companies situated in India and
56 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 57/91 JUDGMENT
include any and all towers under
construction; all rights, title, deposits
and interests in, or over, the land or
property on which such towers have been
constructed or erected or installed; and all
plants and equipments customarily treated by
telecommunications operators worldwide as
forming part of the Passive Infrastructure
Assets.
41 As pointed out earlier, the appellant and
all other transferee company is wholly owned
subsidiary of the transferor company, that
is, Vodafone Essar Gujarat Limited. As per
Clause 5.4 of the Scheme, in case the Scheme
is not sanctioned by the concerned High
Court wherein an application is moved for
sanctioning by such transferor company, the
Scheme shall stand implemented with demerger
of the passive infrastructure of the
relevant transferor company in respect of
which the Scheme has been sanctioned. At
this stage, it is required to be
mentioned that out of seven transferor
companies, sanction has been given
to various transferor companies except the
present transferor company.
42 The main contention of the Income Tax
57 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 58/91 JUDGMENT
Department is that the Scheme is floated
with the sole object to avoid tax liability.
Except the Income Tax Department no
objections were raised by anyone against
sanctioning the Scheme. In this connection,
it is submitted by Mr Mihir Thakor, learned
Counsel for the Department that the
transaction in question is nothing, but a
transaction of assets of passive
infrastructure of the transferor company
into Indus, but the said transaction is
given colour by an artificial device and
with a view to save incometax liability two
stages are created by the appellant group
i.e. Vodafone i.e. introducing a pre
ordained devise/ conduit in the form of a
new Company (the present Transferee Company)
and transferring by way of Gift to this new
Company and thereafter amalgamating this new
Company into Indus. Both the stages are done
under the guise of scheme u/s 391 to
legitimise the same by obtaining the seal of
the Hon'ble Court and evade payment of
Income Tax, stamp duty and VAT and other
taxes. In this connection, it is required
to be noted that as per the Scheme the
Passive Infrastructure business and the
telecommunication service business was
sought to be segregated in order to achieve
58 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 59/91 JUDGMENT
a commercial purpose and object inter alia
being segregating the PI business and the
telecommunications service business to
enable further growth and maximize value in
each of the business; improved quality of
services to customers by establishing high
service standards and delivering services in
an environment friendly manner; increase in
the speed of role out and efficiency through
sharing of infrastructure, converting the PI
assets from nonrevenue generating assets;
improved network quality and greater
coverage etc. It is required to be noted
that various telecommunication companies in
this country have adopted the business
policy of segregation of telecommunication
services and telecommunication
infrastructure business as per the global
trends prevailing as on today. During the
course of hearing it has been pointed out
that the working group under the Planning
Commission has recommended sharing of
infrastructure. Keeping the said object in
mind if the Scheme has been framed and is
approved by the shareholders in their
wisdom, in our view, it cannot be said that
the Scheme itself is floated with the sole
criteria of tax avoidance simply because it
may have effect and result into avoidance
59 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 60/91 JUDGMENT
tax. If the Scheme is evolved by way of an
arrangement and with an object of converting
the PI assets from nonrevenue generating
assets; improved network quality and greater
coverage etc. Moreover the segregation of
telecommunications services and
telecommunications infrastructure business
reflects the global trend and has been
adopted by telecommunication companies in
India without objection. In fact, the
Working Group under the Planning Commission
has recommended sharing of infrastructure,
and the present Scheme reserves flexibility
to it for easing such process when required.
It may be relevant to note that even the
Central Government has not raised any
objection to the Scheme and even the
Department has not contended that the
aforesaid objectives are imaginary.
Therefore it cannot be said that the Scheme
has no purpose or object and that it is a
mere device/subterfuge with the sole
intention to evade taxes, particularly when
even the incidence of tax purportedly sought
to be evaded is not established on facts.
Further, similar scheme of arrangement
proposed by other telecommunication
companies to achieve the aforesaid
objectives have been sanctioned by different
60 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 61/91 JUDGMENT
High Courts. In our considered view, this
Court cannot refuse the sanction on the
aforesaid ground by coming to the conclusion
that the only object of the Scheme is to
avoid taxes.
43 It is, no doubt, true as argued by Mr Thakor
that in case the Scheme is sanctioned, it
may result into tax avoidance on the part of
the appellant, but it is required to be
noted that even if the ultimate effect of
the Scheme may result into some tax benefit
or even if it is framed with an object of
saving tax or it may result into tax
avoidance, it cannot be said that the only
object of the Scheme is tax avoidance.
Considering the various clauses of the
Scheme it is not possible for us to come to
a conclusion that the Scheme is floated with
the sole object of tax avoidance. In its
commercial wisdom if the Company has decided
to have a particular arrangement by which
there may be even benefit of saving income
tax or other taxes, that itself cannot be a
ground for coming to the conclusion that the
sole object of framing the Scheme is to
defraud the Income Tax Department or other
taxing authorities. It is also required to
be noted that identical Schemes have been
61 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 62/91 JUDGMENT
approved by various High Courts as pointed
out earlier. As per the Scheme, it proposed
to demerge the passive infrastructure assets
of seven transferor companies and transfer
them to the transferee company. The
transferor companies and the transferee
company are wholly owned and subsidiary of
transferee company viz. Vodafone Essar
Mobile Services Limited. One of the
objects for framing of the Scheme is
segregation of passive infrastructure
business and telecommunication services
business is to enable further growth and
maximize value in each of the businesses.
It is required to be noted that in the case
of Nirmay Properties P. Ltd. reported in
(2009) 150 Comp Cases 538 (Gujarat), this
Court was dealing with the Scheme for
amalgamation of five subsidiary companies
with the holding company. In the said case
also there were no secured creditors. No
objection was raised to the petitions even
after the publication. The Official
Liquidator in his report has stated that the
auditors appointed for the purpose of
scrutiny and investigation of the books of
account and affairs of the company had in
62 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 63/91 JUDGMENT
their report pointed out violation of the
provisions of the Companies Act, 1956 and
Accounting Standards and evasion of stamp
duty and incometax. The learned Company
Judge held that the objections raised by the
auditors would not affect the scheme and
that sanction to the scheme would not
absolve the companies from any liability
that may arise in future on violation of any
statutory provisions or that the Scheme
would not affect proceedings pending either
before the civil or criminal courts and the
liability that may be inflicted upon the
petitioners or their Directors, would not be
affected simply by virtue of the Scheme of
Amalgamation.
In the case of Vodafone International
Holdings B.V. v. Union of India and Another,
(2012) 1 Comp LJ 225 (SC), the Honourable
Supreme Court has considered the provisions
of Section 195 of the Income Tax Act. The
aforesaid matter concerned a tax dispute
involving the Vodafone group with the Indian
tax authorities in relation to the
acquisition by Vodafone International
Holdings BV (VIH), a company resident for
tax purposes in the Netherlands, of the
entire share capital of CGP Investments
63 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 64/91 JUDGMENT
(Holdings) Ltd. (CGP), a company resident
for tax purposes in the Cayman Islands (CI,
for short), vide transaction dated
11.02.2007, whose stated aim, according to
the Revenue, was acquisition of 67%
controlling interest in HEL being a company
resident for tax purposes in India which is
disputed by the appellant saying that VIH
agreed to acquire companies which in turn
controlled a 67% interest, but not
controlling interest, in Hutchison Essar
Limited (HEL). According to the appellant,
CGP held indirectly through other companies,
52% shareholding interest in HEL as well as
options to acquire a further 15%
shareholding interest in HEL, subject to
relaxation of FDI norms. The Revenue sought
to tax the capital gains arising from the
sale of the share capital of CGP on the
basis that CGP, whilst not a tax resident in
India, holds the underlying Indian assets.
The High Court upheld the jurisdiction of
the Indian tax authority to impose capital
gains tax on VIH as a representative assesse
after holding that the transaction between
the parties attracted capital gains in
India. Applying the ‘natural character of
the transaction’ test, the High Court came
to the conclusion that the transfer of CGP
64 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 65/91 JUDGMENT
share was not adequate in itself to achieve
the object of consummating the transaction
between HTIL (a group holding overseas
company of which HEL was a subsidiary) and
VIH. That, intrinsic to the transaction was
a transfer of other ‘rights and
entitlements’ which rights and entitlements
constituted in themselves ‘capital assets’
within the meaning of Section 2(14) of the
Income Tax Act, 1961. According to the High
Court, VIH acquired the CGP share with other
rights and entitlements whereas, according
to the appellant, whatever VIH obtained was
through the CGP share. The decision of the
High Court was called in question in SLP
before the Honourable Supreme Court. The
Honourable Supreme Court held that the
capital gains arising from the sale of the
share capital of CGP on the basis that CGP,
whilst not a tax resident in India, holds
the underlying Indian assets. The Revenue
cannot start with the question as to whether
the impugned transaction is a tax
deferment/saving device but that it should
apply the look at test to ascertain its true
legal nature. The corporate business
purpose of a transaction is evidence of the
fact that the impugned transaction is not
undertaken as a colourable or artificial
65 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 66/91 JUDGMENT
device. The stronger the evidence of a
device, the stronger the corporate business
purpose must exist to overcome the evidence
of a device. In para 45 it has been held
that the tax planning may be legitimate
provided it is within the framework of law.
In the latter part of para 45, it held that
colourable device cannot be a part of tax
planning and it is wrong to encourage the
belief that it is honourable to avoid
payment of tax by resorting to dubious
methods. It is the obligation of every
citizen to pay the taxes without resorting
to subterfuges. Thus, it cannot be said that
all tax planning is
illegal/illegitimate/impermissible.
The following observations of the Honourable
Supreme Court in the aforesaid case are
relevant for our purpose:
“64.Shareholders can enter into any agreement in the best interest of the company, but the only thing is that the provisions in Association. The essential purpose of the SHA is to make provisions for proper and effective internal management of the company. It can visualize the best interest of the company on diverse issues and can also find different ways not only for the
66 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 67/91 JUDGMENT
best interest of the shareholders, but also for the company as a whole. In S.P. Jain v. Kalinga Cables Ltd. : (1965) 2 SCR 720, this Court held that agreements between nonmembers and members of the Company will not bind the company, but there is nothing unlawful in entering into agreement for transferring of shares. of course, the manner in which such agreements are to be enforced in the case of breach is given in the general law between the company and the shareholders. A breach of SHA which does not breach the Articles of Association is a valid corporate action but, as we have already indicated, the parties aggrieved can get remedies under the general law of the land for any breach of that agreement.”
In the case of Union of India & Another v.
Azadi Bachao Andolan And Another, (2004) 10
SCC 1 the Supreme Court was considering the
question as to whether offshore companies
incorporated and operating from Mauritius
and liable to tax in that country were
entitled to benefits of IndoMauritius
Double Taxation Avoidance Convention, 1983
or not. The Honourable Supreme Court has
held as under:
114.The decision of the Chancery Division in Re F.G. Films Ltd. 53 (1) WLR 483 was pressed into service as an example of the mask of corporate entity being lifted and account be taken of what lies behind in order to prevent
67 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 68/91 JUDGMENT
fraud. This decision only emphasises the doctrine of piercing the veil of incorporation. There is no doubt that, where necessary, the courts are empowered to lift the veil of incorporation while applying the domestic law. In the situation where the terms of the DTAC have been made applicable by reason of section 90 of the Income Tax Act, 1961, even if they derogate from the provisions of the Income Tax Act, it is not possible to say that this principle of lifting the veil of incorporation should be applied by the court. As we have already emphasised, the whole purpose of the DTAC is to ensure that the benefits thereunder are available even if they are inconsistent with the provisions of the Indian Income Tax Act. In our view, therefore, the principle of piercing the veil of incorporation can hardly apply to a situation as the one before us.
164. If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as nonest based upon some hypothetical assessment of the real motive of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a willothewisp.
166. We are unable to agree with the submission that an act which is otherwise valid in law can be treated as nonest merely on the basis of some
68 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 69/91 JUDGMENT
underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents.
167.In the result, we are of the view that Delhi High Court erred on all counts in quashing the impugned circular. The judgment under appeal is set aside and it is held and declared that the Circular No.789 dated 1342000 is valid and efficacious.
In the case of United Bank of India Limited
v. United India Credit and Development
Company Limited, 1977 Company Cases 689
(Cal.), the Calcutta High Court has observed
that fairness or unfairness of the scheme is
not for the court's discretion in a
technical sense but is a matter to be
decided on evidence Test being whether it
is for the interest of future commercial
interest of the company, court cannot
substitute its own views for the directors
and experts. Unanimous opinion of directors
is a relevant factor. He rightly submitted
that predominant combined holdings of shares
by directors are irrelevant consideration
for the court. In paragraph 54 of the
said decision, it has been held as under:
“54.Regarding the question of the scheme
69 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 70/91 JUDGMENT
being unfair on merits, hypothetical, conditional, etc., I do not find any substance in the same save and except such contentions as have been raised relying on various decisions which are entirely on different background and different facts having no relevancy whatsoever in the facts and circumstances of the case. All of the said decisions relate to taking over or amalgamation of a company with an existing company, whereas, here, a new company has been incorporated for the purpose of the said amalgamation. As such, the principles relied on by the opposing group of shareholders cannot have any application whatsoever in the facts of the case, as, admittedly, the new company has not commenced its business but has only been incorporated for the purpose of taking over the petitionerbank. Further, the court cannot speculate at this stage as to the possibility, potentiality of the amalgamatedcompany in future and its working. It is true that the court is not a mere rubberstamp but, in sound exercise of its discretionary power to sanction a scheme, must consider the scheme as a whole having regard to the general conditions, background, and object of the scheme and the present day conditions, and atmosphere in the State where the companies are going to function. Court cannot take a pedantic and strict view of each and every clause in the scheme and speculate as to its future, feasibility and possibility at this stage. It is for the collective wisdom of the shareholders who are primarily businessmen and investors guided by the directors of a company to determine the course of business they
70 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 71/91 JUDGMENT
choose. The principles are so wellknown and even repeated by all the counsels appearing for both the parties that I need not discuss the same threadbare and it will be sufficient for me to hold that I accept the arguments and contentions of Mr. S. C. Sen, Mr. R. C. Nag and Mr. S. B. Mukherjee on this question which I have set out before. It is premature for the court to judge now whether the business envisaged by the scheme of amalgamation to be carried on in future would become profitable and a success. The court is only to see whether it is feasible having potentiality in the facts and circumstances of this case. In my view, prima facie, I am satisfied that in the present set up and conditions, particularly as it appears from the Report of the Banking Commission, the relevant articles of which I have quoted before, that there is nothing wrong or objectionable in the scheme of amalgamation being put through. In fact, the State of West Bengal appearing before me through Mr. D. P. Gupta is supporting the said scheme so also the Life Insurance Corporation of India and other statutory bodies. I have no hesitation in holding that the business of the amalgamated company is highly potential and conducive to the economy and development of the State of West Bengal in the present set up, when funds are urgently needed for the growth and development of existing and new enterprises. Further, the shareholders of the petitionerbank never complained of the management of their company by its directors so far and suddenly they cannot have any reasonable and bona fide grievances against the said management
71 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 72/91 JUDGMENT
and the scheme. It is true that names of eminent, wellknown industrialists and respectable persons of integrity and honesty have been referred as prospective directors of the amalgamated company and they have not yet signified their consent of acceptance of such office but that in my view is not required at this stage, being premature. But the suggestion and intention as shown by the petitioners to appoint respectable, reliable and honest persons of high reputation as directors is enough for me at this stage to take into consideration the bona fide intention and object of the petitionercompanies.”
(emphasis supplied)
45. It is also required to be noted that a
similar Scheme of arrangement involving
demerger of passive infrastructure assets of
the Company has been sanctioned by the Delhi
High Court in Re: Bharti Airtel Limited [CP
No. 233/2007, decided on 26th November,
2007] wherein a similar Scheme of
Arrangement involving demerger of Passive
Infrastructure Assets into a group company,
where no consideration was to be paid nor
were any shares to be issued by the
transferee company to the transferor
company, was sanctioned. In the aforesaid
case no consideration was to be paid nor
were any shares to be issued by the
72 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 73/91 JUDGMENT
transferor company to the transferee
company.
46. It is vehemently argued by Mr Thakor that
this can never be said to be an arrangement
since the transferor companies proposed to
transfer only assets of the transferor
company without transferring the liabilities
and the liabilities would remain with the
transferor companies after demerger. It is
also vehemently argued that the expression
“arrangement with members used in S. 391,‟
did not contemplate a gift from one party to
the Scheme to the other party for the reason
that the aforesaid expression contemplated
an arrangement in the nature of a contract
with a consideration involved, which is
missing in this case. The second submission
was that the Scheme is against public
interest. It is no doubt true that as
provided in the Scheme certain assets are to
be transferred without consideration and
without transfer of liability in respect
thereof. At this stage, it is required to
be noted that the proposition that so far as
expression of arrangement with members is
concerned, it is not defined in the
Companies Act. However, in the instant
case it cannot be said that the majority of
73 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 74/91 JUDGMENT
the shareholders wanted confiscate the
rights of the objecting minority
shareholders. In the instant case no
shareholder has raised any objection
regarding such an arrangement. There is no
question, therefore, of forcing the Scheme
on a class of members against their wish.
47. Mr Thakor has placed strong reliance upon
the decision of this Court in the case of
Wood Polymer (Supra). In the said case,
Company Petitions Nos. 10 and 12 of 1975 are
filed by Wood Polymer Limited and Bengal
Hotels Private Limited, respectively, under
sections 391(2) of the Companies Act,
praying for according sanction to a scheme
of amalgamation of the aforementioned two
companies. Wood Polymer Limited is public
limited company and it is the transferee
company. Bengal Hotels Private Limited is a
private limited company and is the
transferorcompany. The scheme submitted to
the court for sanction involves amalgamation
of the transferorcompany with the
transfereecompany and amongst others it
envisages dissolution of the transferor
company without winding up. The learned
Company Judge of this Court has while
rejecting the aforesaid company petitions
74 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 75/91 JUDGMENT
has observed that merely it is shown to the
Court that the requisite formalities in
relation to proposed scheme of amalgamation
having been carried out, the Court is not
bound to sanction the Scheme. The learned
Company Court has observed that the
transferorcompany appears to have been
merely created to facilitate transfer of a
building called 'Avenue House' once
belonging to DOC Pvt. Ltd. to the
transfereecompany so as not to be liable
for capital gains tax, which, if a
subterfuge of the transferorcompany was not
resorted to, would have become payable in
the amount of Rs.10,88,776. If the court
sanctions the scheme, the property 'Avenue
House' once belonging to DOC Pvt. Ltd. would
stand transferred to the transfereecompany
without any liability to pay capital gains
tax. Considering the nature of the
transaction, the Court found that the sole
object of the Scheme is to avoid capital
gains tax and there was no other purpose
worth the name.
48. Reference is also made to the case of
Navjivan Mills Co. Ltd., Kalol v. Kohinoor
Mills Co. Ltd., Bombay, (1972) 42 CompCas 265
(Gujarat High Court) wherein similar view is
75 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 76/91 JUDGMENT
taken by the learned Company Judge that
Scheme of Compromise must satisfy that the
provisions of the statute are complied with.
In the aforesaid case, the learned Judge of
this Court has sanctioned the Scheme with
modifications.
49. Both the learned counsel have relied upon
the decision of the Supreme Court in the
case of Miheer H Mafatlal v. Mafatlal
Industries Limited (1996) 87 CompCas 792
(SC). In the said case it has been held by
the Honourable Supreme Court that the
sanctioning court has to see to it that all
the requisite statutory procedure for
supporting such a scheme has been complied
with and that the requisite meetings as
contemplated by Section 391(1)(a) have been
held, whether the Scheme of compromise or
Arrangement is not found to be violative of
any law and not contrary to the public
policy. The Supreme Court has laid down
the following broad contours of such
jurisdiction:
“1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1)(a)have been held.
76 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 77/91 JUDGMENT
2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391 SubSection (2).
3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class.
4. That all necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391 Subsection (1).
5. That all the requisite material contemplated by the proviso of Subsection (2) of Section 391 of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously Xray the same.
77 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 78/91 JUDGMENT
7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of
78 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 79/91 JUDGMENT
the courts jurisdiction.”
49 So far as the submission of Mr Thakor that
the Scheme of arrangement is not an
arrangement and therefore the petition under
Sections 391 to 394 of the Companies Act is
not maintainable is concerned, the word
‘arrangement’ cannot be interpreted in a
narrow manner and the definition. As held
by the Bombay High Court in the case of
Larsen & Toubro Ltd. (2004) 121 CC 523 the
word ‘arrangement’, though not defined
specifically, has a wide range and ambit and
is a term of wider connotation (at pages
562564). There is nothing wrong if the
Company wants to reconstruct its business in
an alternative form by dividing
telecommunication business and
telecommunication infrastructure business in
the manner business being carried on by the
Appellant, in a manner that the
telecommunications infrastructure business
would be carried on by the transferee
company. The said business will be continued
and carried on by substantially the same
persons who are presently carrying on the
consolidated business since both the
transferor and the transferee companies are
wholly owned subsidiaries of Vodafone Essar
79 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 80/91 JUDGMENT
Limited which will continue to carry on the
businesses.
50 On perusal of section 394(1) and 394(1)(a)
it is evident that both reconstruction and
amalgamation are statutorily recognized as
an arrangement and/or compromise under
section 391. It necessarily implies that
once a scheme is a reconstruction, which in
the facts of the present case it is, the
same is bound to be recognized as an
arrangement and/or compromise under section
391. The Income Tax Department, by raising
such a contention, is unnecessarily putting
restrictions on the language of section
394(1) and section 394(1)(a) which the
legislature has not deemed it fit to impose.
In Larsen & Toubro Ltd, 2004 121 Company
Cases 523 (Bombay) wherein the learned
Company Judge of the Bombay High Court has
held that the word ‘arrangement’ though not
defined specifically has a wide range and
ambit and is a term of wider connotation.
It is held that the expression ‘arrange
ment’ includes a reorganization of the share
capital of the company by the consolidation
of shares of different classes.
80 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 81/91 JUDGMENT
In Re T & N Ltd., (2007) 1 All ER 851 (Chan
cery Division) it has been held that it is
not a necessary element of an arrangement
for the purposes of section 425 that it
should alter the rights existing between the
company and the creditors or members with
whom it is made provided that the context
and the content of the scheme are such as
properly to constitute an arrangement. It
is further held that it is neither necessary
nor desirable to attempt a definition of ar
rangement. The legislature has not done so.
To insist on an alteration of a right or a
termination of rights as in the case of
schemes to effect takeovers or mergers, is
to impose a restriction which is neither
warranted neither by the statutory language
nor justified by the courts’ approach over
the years to give the term its widest mean
ing.
In the case of Re NFU Development Trust
Limited 1 WLR 1548 (CD) a Scheme of Arrange
ment was proposed for reducing the adminis
trative expenses. The Chancery Division
Court has after considering the provisions
of the Companies Act and after considering
the Scheme. It has been observed by the
81 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 82/91 JUDGMENT
Court that the word ‘compromise’ implies
some element of accommodation on each side
and it is not an apt to describe total sur
render. The objection of the Income Tax De
partment that the scheme confiscates the
rights of the Income Tax Department and
therefore is not an arrangement, relying on
NFU Development Trust Ltd., overlooks the
fact that there is neither any arrangement
with the Income Tax Department nor confisca
tion of its rights. In the case referred to,
there was complete extinguishment of the
rights of the members, which was not accep
ted as being an arrangement. In the present
case the rights of the Income Tax Department
of assessing, levying and collecting tax
from the Appellant are not confiscated or
expropriated so as to extinguish such
rights. A contention that the recovery of
the outstanding tax may be affected by
transfer of PI assets, apart from being in
correct as it would be clear from the earli
er paragraph cannot be equated with expro
priation/confiscation/ extinguishment of
rights of the Income Tax Department.
51 So far as argument of the Revenue that the
transfer is void for want of consideration
is concerned, it is required to be noted
82 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 83/91 JUDGMENT
that the Income Tax Department is not a
party to the transaction. We agree with the
view taken by the Delhi High Court that even
if the consideration of one rupee can be
said to be a valid consideration. In our
view, while examining the Scheme each and
every objection of a third party cannot be
considered by carrying out microscopic exam
ination. It is also required to be noted
that it is not necessary that consideration
is always a monetary consideration. In such
type of cases wherein the reconstruction in
volves give and take and mutual/reciprocal
promises and obligations, which can be said
to be consideration for each other and it
cannot be said that there is absolutely no
consideration so far as Scheme of Arrange
ment is concerned. The Court is required to
see whether the Scheme in question is for
the benefit of shareholders and whether it
is framed with the sole object of avoidance
of the Scheme is avoidance of tax or it is
against the public policy. Even otherwise,
when various High Courts have sanctioned the
identical Schemes, even on the principles of
parity and judicial comity, in our view,
consent is required to be given to the
Scheme in question. It is also required
to be noted that identical points were
83 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 84/91 JUDGMENT
raised before the Delhi High Court and the
learned Judge of the Delhi High Court has
already sanctioned the Scheme and it is not
in dispute that till date that order of the
Delhi High Court holds the field. It is
pointed out by Mr Joshi that the Income Tax
Department has not even taken care to chal
lenge the said order within the period of
limitation and according to him the Scheme
has already been implemented pursuant to the
order of the Delhi High Court. Nonetheless,
during the course of hearing, it was pointed
out by Mr Thakor that against the order of
the Delhi High Court appeal has been filed
with a delay condonation application. He,
however, admits that the order of the
learned Single Judge of the Delhi High Court
is still holding the field and there is no
stay. He has also conceded that so far as
orders of other High Courts are concerned,
not only such objections, which are raised
herein, were not raised therein, but even no
further appeals have been filed against the
orders of different High Courts. Therefore,
on the basis of judicial comity and prin
ciples of parity, this Court would not like
to take a contrary view of the matter by re
jecting the Scheme of the arrangement.
84 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 85/91 JUDGMENT
52. Even otherwise, the word ‘Consideration’ is
defined under section 2(d) of the Contract
Act, as under:
"When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise."
In Chidambara Iyer & ors vs. P. S. Renga
Iyer & ors., reported in AIR 1966 SC 193 at
page 197 the Supreme Court was considering a
case wherein on August 22, 1934, a Trust was
created by the family in respect of a sum of
Rs.36,98898 for charitable purposes; on
September 3, 1939, the usufructuary mortgage
right of the family in Ex.A1, was given to
the charity in discharge of the obligation
undertaken under Ex.B1; and the dedication
of the said property was affirmed in the
regular partition deed. In short, under the
said documents the family transferred to the
charity their interest in the usufructuary
mortgage, Ex. A1, in discharge of their
obligation to pay the trust a sum of Rs.
36,98898. The High Court, on a
consideration of the said documents, arrived
85 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 86/91 JUDGMENT
at exactly the same finding. The learned
Judges of the High Court clearly held that
the mortgage interest in Ex. A1 was
transferred in discharge of the liability
undertaken under Ex. B1. When the matter
carried in appeal, while dismissing the
appeal the Honourable Supreme Court held as
under:
“So far as is relevant to the present enquiry, the content of the two definitions is practically the same, though the expression "valuable" is implied under S. 2(d) of the Contract Act, for consideration shall be "something which not only parties regard but the law can regard as having some value". From the definitions it is apparent that consideration may be negative or positive. In the present case the mortgage interest was transferred in trust to the charity. What was the consideration that passed from the charity to the family? The family was under an obligation to pay to the charity the amount set apart to it under Ex. B1. The mortgage interest was transferred in discharge of that obligation. That is to say, the charity agreed as a consideration for the transfer of the mortgage interest not to enforce its right to recover that amount from the family. The charity gave up that right in consideration of the mortgage interest acquired by it. We therefore, hold that the family transferred the mortgage interest in trust to the charity for valuable consideration within the meaning of S. 9A (10) (ii) (b) of the Act. It follows
86 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 87/91 JUDGMENT
that the mortgage, Ex. A1, was rightly held by the High Court not liable to be scaled down under the provisions of the Act.”
53. Even the most trifle benefit can be
consideration so as to avoid the impact of
section 25 in view of the decision in His
Holiness Kesavananda Bharati vs. State of
Kerala, reported in (1973) 4 SCC 225, at
para 1971). There is no requirement of
monetary consideration and even a promise to
induce the company to carry on its business
has been treated as sufficient consideration
as held in the case of Ledingham & ors. Vs.
Bermejo Estancia Co. Ltd., reported in 1947
(1) All ER 749). Even a letter for bringing
about peace for the family was a good
consideration and the letter brought about
an enforceable agreement between the parties
as held in The Commissioner of Wealth Tax,
Mysore vs. Vijayaba, Dowger Maharani Saheb,
Bhavnagar & ors., reported in AIR 1979 SCC
982. In the present case the reconstruction
involves give and take and mutual/reciprocal
promises and obligations which are
consideration for each other and it cannot
be said that the scheme of arrangement is
without consideration.
87 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 88/91 JUDGMENT
54. The objection raised by the Income Tax
Department that the Appellant should not be
permitted to argue that for the purpose of
Income Tax Act, the transfer is by way of a
gift and that for the purpose of the
Companies Act, the same is with
consideration is completely misplaced. There
is no bar which restrains a transaction
falling differently or being dealt with
separately under different Acts. Reliance is
placed on the judgment of Mysore Minerals
Ltd. vs. Commissioners of Income Tax,
Karnataka, reported in (1999) 7 SCC 106(para
14), for the aforesaid proposition.
55. In view of the approval accorded by the
equity shareholders, secured and unsecured
Creditors of the petitioner and the Regional
Director, Western Region to the proposed
Scheme of Arrangement, as well as the
submissions of the Income Tax Department,
there appear to be no further impediments to
the grant of sanction to the Scheme of
Arrangement. Consequently, sanction is
hereby granted to the Scheme of
Arrangement under Sections 391 and 394 of
the Companies Act, 1956 while protecting the
right of the Income Tax Department to
88 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 89/91 JUDGMENT
recover the dues in accordance with law
irrespective of the sanction of the Scheme.
However, while sanctioning the Scheme it is
observed that said sanction shall not defeat
the right of the Income Tax Department to
take appropriate recourse for recovering the
existing or previous liability of the
transferor company and the transferor
company is directed not to raise any issue
regarding maintainability of such
proceedings in respect of assets sought to
be transferred under the proposed Scheme and
the same shall bind to transferor and
transferee company. The pending
proceedings against the transferor company
shall not be affected in view of the
sanction given to the Scheme by this Court.
In short, the right of the Income Tax
Department is kept intact to take out
appropriate proceedings regarding recovery
of any tax from the transferor or transferee
company as the case may be and pending cases
before the Tribunal shall not be affected in
view of the sanction of the Scheme.
56. In the result, the appeal is allowed by
substituting the order of the learned
Company Judge and Scheme is sanctioned
subject to what is stated hereinabove.
89 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 90/91 JUDGMENT
(P.B.Majmudar, J.)
(Mohinder Pal, J.)
FURTHER ORDER
57. At this stage, Mr Nitin K Mehta, learned
counsel for the Income Tax Department
requested that the operation and
implementation of this judgment be stayed as
the respondent would like to approach the
Honourable Apex Court against this judgment.
The request is vehemently opposed by the
learned counsel for the appellantcompany
and it is submitted that so far as the
Schemes approved by the other High Courts
are concerned, as on today, no stay is
granted in any of those matters. It is also
pointed out that insofar as the matter
before the Delhi High Court is concerned,
though the appeal is filed, even delay in
filing the appeal is not condoned as yet.
It is, therefore, submitted that this is not
a case in which the Scheme is required to be
stayed. At this juncture, the learned
counsel for the appellantcompany, invited
the attention of the Court to Section 395(3)
of the Companies Act, 1956 which provides
90 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM
OJA/81/2010 91/91 JUDGMENT
that an order of the Company Court shall not
come into effect until certified copy of the
order of the Company Court is produced
before the Registrar of Companies. The
learned counsel for the appellantcompany
assured this Court that they shall not
produce the certified copy of this judgment
before the Registrar of Companies until 5th
September 2012.
In that view of the matter, the
appellantcompany is directed not to produce
the certified copy of this judgment before
the Registrar of Companies until 5th
September 2012. The request made by the
learned counsel for the Income Tax
Department is not required to be entertained
in view of the aforesaid statement made by
the learned counsel for the appellant
company.
(P.B.Majmudar, J.)
(Mohinder Pal, J.)
*mohd
91 of 91
O.J.APPEAL/81/2010 10/12/2012 07:24:49 PM