AVM CAPITAL SERVICES PRIVATE LIMITED Vs. STATE

JUDGEMENT

(1.) By the above Company Scheme Petitions, sanction of this Court is sought under Sections 391 to 394 read with Sections 80, 100 to 103 of the Companies Act, 1956, to the scheme of arrangement whereunder the five Companies 'AVM Capital Services Private Limited (ACPL); Chevy Capital Services Private Limited (CCSPL); PM Capital Services Private Limited (PCSPL); Pranit Trading Private Limited (PTPL); and Viramrut Trading Private Limited (VTPL) (the Transferor Companies) are sought to be merged with Unichem Laboratories Limited (ULL) (the Transferee Company). Pursuant to the Scheme, the entire undertaking of the Transferor Companies would stand vested with the Transferee Company.

(2.) The shareholders of the Transferor Companies and the Transferee Company have approved the Scheme. A meeting of the share holders of the Transferee Company was held on November 3, 2011. At this meeting, all the share holders present at the meeting, voted in favour of the Scheme, except Mr. Shailesh Mehta the Objector, who holds 750 shares of the Transferee Company, constituting 0.001% of the total share capital of the Transferee Company. Out of the total 158 ballots received, one ballot was invalid. Out of the 157 valid ballots, 156 share holders representing 98.74% in number and 99.99% in value, voted in favour of the Scheme and only the Objector, representing 0.63% in number and 0.001% in value, voted against the Scheme. Further, the share holders voting in favour of the Scheme, comprised of 46 individual share holders, 31 financial institutional investors ('FII's') and 3 Insurance Companies. Thus, the Scheme was approved by an overwhelming majority of 99.99% in value of the shareholders present and voted. The Objector was the only share holder who opposed the Scheme.

(3.) The first, and the main objection of the Objector is that the Scheme is propounded to avoid capital gains tax that would have arisen if the Transferor Companies would have directly transferred their shares to the Promoters. It is alleged that the object of the Scheme is not to help the Transferee Company, but to transfer these shares to the Promoter Dr. Prakash Modi. According to the Objector, it is not shown how long term stability would be achieved if the shares are transferred in the name of Dr. Mody. According to the Objector, the Scheme is a colourable device to evade tax, since such a transfer could well have been effected through the stock market. The Scheme in question involves pure transfer of shares without any benefit to the Transferee Company. The Objector has submitted that the decision of the Hon'ble Supreme Court in the case of McDowell and Company Limited V/s. Commercial Tax Officer,1977 154 ITR 148) (SC) squarely applies to the present case. He has relied upon the separate, but concurring Judgment of Justice Chinnappa Reddy, J. , delivered in the aforesaid case, in which it is held that "avoidance of tax was unethical and if a transaction is a device to avoid tax, it should not be permitted". The Objector has pointed out that the learned Judge in this context, also referred to the decision of the Gujarat High Court in the case of Wood Polymer Limited, 1977 47 CompCas 597 (Guj) in which case, the learned Single Judge of the Gujarat High Court refused to sanction a scheme which was found to be a device to evade tax. The Objector has also submitted that the decision of the Hon'ble Supreme Court in the case of Union of India and Anr. , V/s. Azadi Bachao Andolan and Anr., 2004 10 SCC 1 (SC) is per in curium as it is contrary to the decision of the Constitutional Bench in McDowell's case .