1.This joint petition filed by the companies above named has come up finally before us on 24.03.2017 for the purpose of the approval of the Scheme of Arrangement, as at Annexure A-1 of the joint Petition for (a) demerger of respective investments business of Transferor Companies into transferee company and b) de-merger of investments business of transferee Company into Transferor Company No. 1 and other connected matters. A perusal of the petition discloses that initially application seeking the directions for dispensing with the meetings of equity shareholders, secured and unsecured creditors of both the transferor companies and the transferee company was filed before the Honble High Court of Delhi in CA No. 51/2016. The Honble High Court of Delhi vide its order dated 30.05.2016 dispensed with the requirement of convening of the meetings of the equity shareholders, equity shareholders with differential rights and Unsecured Creditors of the transferor company No. 1; equity shareholders of the transferor company No. 2; equity shareholders and Unsecured creditors of the Transferee company. The transferor company No. 2 did not have any Secured Creditor or Unsecured Creditor. Honble High Court further directed for convening of separate meetings of Secured Creditors of the Transferor Company No. 1 and the Transferee Company under its supervision for the purpose of considering and if thought tit, approving, with or without moditication(s), the proposed Scheme of Arrangement.

2.In compliance of the order of Honble High Court separate meetings of Secured Creditors of the Transferor Company No. 1 and the transferee company were duly convened and held on Saturday, 2ndJuly, 2016, in which the Scheme of Arrangement was unanimously approved and adopted in each of these meetings by creditors present and voting.

3.Under the circumstances, the petitioners have filed their joint petitions for sanction of the Scheme of Arrangement before the Honble High Court of Delhi on 11.7.2016 under the erstwhile provisions, subsequent to the order of dispensation of certain meetings and convening some ordered by the Honble High Court of Delhi on 30.05.2016.

4.On 15.07.2016 the Honble High Court of Delhi ordered Notice in the Second Motion petition in C.P. No. 572/2016 moved by the petitioners under Sections 391 to 394 of the Companies Act, 1956 read with relevant Rules of the Companies (Court) Rules, 1959 in connection with the scheme of amalgamation, to the Regional Director and the Official Liquidator. The Petitioners were also directed vide the said order to carry out publication in the newspapers Business Standard in English as well as in its Hindi editions returnable on 12.12.2016.

5.While the joint petition in C.P. No. 572 of 2016 was pending disposal since the provisions relating to compromises, arrangements and amalgamation as contemplated under Sections 230-232 had been notified w.e.f. 15.12.2016 wherein the power to consider such schemes have now been vested with the National Company Law Tribunal, the Honble High Court of Delhi pursuant to the notification bearing No. DL.33004/99 dated 7.12.2016 issued by the Ministry of Corporate Affairs has transferred/transmitted the records of the above petition to this Tribunal vide order dated 23.01.2017, for our consideration.

6.In view of the above, the petition of Second Motion as above filed by the joint petitioners before the Honble High Court and subsequently transferred is taken up finally for consideration by us. The joint petitioners it is seen from the records have filed an affidavit dated 06.08.2016 in relation to the compliance of the orders passed by the Honble High Court of Delhi dated 15.07.2016 and a perusal of the same discloses that the petitioners have effected the paper publication as directed by the Honble High Court of Delhi in one issue of Business Standard on 29.07.2016 in English Edition and in the Hindi Edition of Business Standard again on 29.07.2016 in relation to the date of hearing of the petition on 12.12.2016. Further, the affidavit also discloses that notices have been issued to the Regional Director, Northern Region and Registrar of Companies. Delhi & Haryana, in compliance with the order dated 15.07.2016 and in proof of the same acknowledgement made by the respective offices have also been enclosed.

7.Additionally, the petitioners have also filed an affidavit before the Honble High Court of Delhi dated 07.12.2016, that the petitioners herein nor their Legal Counsels had received any objection/representation against the proposed scheme of Arrangement till the date of such affidavit. The representation/affidavit of the Regional Director, NR, MCA dated 21.02.2017 has been placed before us.

8.We have heard the counsels for the petitioners and also considered the representation made by the Regional Director, Northern Region vide representation dated 21.02.2017.

9.Perusal of the above representation of the Regional Director as well as stressed at the time of oral hearing by the representative of the Regional Director, following points/observations predominantly come to the fore:

i. That the Pr. Commissioner of Income Tax, Delhi in relation to the letter dated 16.08.2016 of R.D. had responded vide letter dated 08.12.2016 through Income Tax Officer (Hqrs.), Pr. CIT-4, New Delhi enclosing a letter dated 02.12.2016 from Addl. Commissioner of Income Tax, Special Range-4, New Delhi which inter alia states as follows:

(i) That the details of returned income as indicated in the Income tax Returns filed by transferor companies for A.Y. 2015-2016 is as under:

a. Kashi Vishwanath Steels Pvt. Ltd.: Rs. 1,87,46,187/-

b. Kumaun Garhwal Infrastructural Industrial Corporation Pvt. Ltd.: Rs. 15,77,601/-

c. Galwalia Ispat Udyog Pvt. Ltd.: Rs. 1,11,84,040/-

(ii) that in case, this Tribunal approves the scheme, the Income Tax Department must be permitted to retain its recourse for recovery in respect of any existing or future tax liabilities of the transferor companies or the transferee company, in respect of the assets sought to be transferred under the proposed scheme, and that this protection must be made explicit by this tribunal in its final order and has to bind all the parties to the scheme, particularly the transferor and transferee companies. There should be no limitation on the power of the Income Tax Department for recovery, including imposition of penalties etc.

(iii) Further, without prejudice to the above the approval of the scheme should in no manner affect the tax treatments of the transactions under the Income Tax Act, 1961 or any other applicable taxing statute, nor would sanction of the Scheme or the effect thereof serve as a defense for the companies concerned against tax treatment under the aforementioned statutes. Copy of the said letter is placed on record as Exhibit-C of the report.

ii. It has also been submitted that the Registrar of Companies, Delhi & Haryana vide Para 31 of his report has stated that it has compiled factual report on the basis of the Scheme, records maintained and documents tiled by the concerned companies and has not made any adverse comment. Further in the last para it has been envisaged that they have no objection to the proposed scheme subject to the observation of Income Tax Department.

10.In relation to the above objections raised by the Regional Director, the petitioners represent that a detailed reply has been filed by the petitioners dated 21.03.2017 along with annexures. Petitioners jointly submitted that with regard to the above mentioned returned income as indicated in the respective Income tax Returns filed by the Petitioner Transferor and transferee Companies for Assessment year 2015-2016, it is hereby confirmed that the entire Income tax which was required to be paid with respect to the aforesaid returned income, has already been paid. The Petitioners also confirm that no Income tax is outstanding for payment for the Assessment year 2015-2016, as on the date of this affidavit in the Petitioner Transferor and Transferee Companies. Separate Certificates from the Chartered Accountants confirming that the Petitioner Transferor and transferee Companies have made full payment of the Income Tax for the Assessment Year 2015-2016, are placed on record along with the reply as Annexure-1.

11.The petitioners also confirm that there are no disputed tax liability, towards income tax, sales tax, or any government tax pending in relation to the Petitioner transferor Companies and transferee Company, except the cases which are under appeal/litigation, which it is represented will be paid as and when the same are decided by the concerned authorities. It is also represented that any pending cases which are part of the Demerged Undertakings, if any, will be de-merged without prejudice to any party to such appeal/litigation. The same will be paid by the concerned Company as per the applicable provisions of law. It has been submitted that the Scheme of Arrangement does not envisage or seek to limit the power of the Income tax Department or any other competent authority for recovery in respect of any existing and future tax liabilities of the Petitioner Transferor Companies or the Transferee Company.

12.Petitioners also confirm that the Scheme of Arrangement does not envisage for any differential treatment with regard to the payment of Income Tax or any other statutory payment which these Companies are or will be liable to pay in terms of the applicable provisions of the Income tax Act, 1961 or any other applicable taxing statute. Petitioners further confirm that any income tax demand will be paid on transfer of assets under the Scheme, if any, as per the applicable provisions of the relevant statutes. In the light of the above undertaking submitted by the Petitioners, the said objection is not considered as a factor in this proceeding.

13.It is further submitted by petitioners that following are the circumstances which justify/necessitate the proposed re-arrangement/reduction of post demerger capital of the Transferor Company No. 1 and the Transferee Company by way of transfer to the Securities Premium Account:

a. Further, to enable the Transferor Company No. 1 and the Transferee Company to service the capital in better way, management of these Companies have decided that the Transferor Company No. 1 and the transferee Company, after issue of equity shares pursuant to the Scheme of Arrangement, will re-arrange/reduce their post de-merger issued and paid up equity share capital to 50% and 20% respectively, by transferring 50% and 80% of their respective post de-merger issued and paid up equity capital to the Securities Premium Account.

b. The proposed reduction would not involve either the diminution of any liability in respect of un-paid share capital or the payment to any shareholder of any paid-up share capital, and accordingly, the provisions of section 101(2) of the Act will not be applicable.

c. No creditor of the Transferor Company No. 1 and the Transferee Company will be adversely affected by the proposed reduction of Share Capital. The transferor Company No. 1 and the transferee Company are merely proposing to re-arrange their share capital by converting part of post de-merger paid up equity share capital into securities premium account.

14.In relation to the above, three significant aspects come to the fore; namely:

i) The Scheme contemplates de-merger of the demerged undertakings and the continuation of the corporate entities;

ii) The Scheme in view of the demerger of the demerged undertakings contemplates reduction of capital of the concerned companies;

iii) The Scheme also envisages creation of share premium account arising out of demerger.

The accounting treatment contemplated under the Scheme is brought out in clause 4 of the Scheme which are reproduced hereunder:

ACOUNTING TREATMENT

4.1 Upon the Scheme becoming effective, De-merger of respective Investments Business (Demerged Business 1 & 2) of the Transferor Companies No. 1 & 2 into the Transferee Company, will be accounted in the following manner:

4.1.1 In the books of the Transferor Companies No. 1 & 2, respectively.

a. All the assets and liabilities pertaining to the Demerged Business 1 & 2 (difference between the assets and liabilities hereinafter referred to as Net Assets), which cease to be the assets and liabilities of the Transferor Companies No. 1 & 2, respectively, will be reduced from the books of accounts of the respective Transferor Companies at their respective book values, as on the Appointed Date.

b. Difference between the assets and liabilities pertaining to the Demerged Business 1 & 2 will be debited to goodwill account or credited to the Capital Reserve, as the case may be, by the Transferor Companies No. 1 & 2, respectively.

4.1.2 In the books of the Transferee Company

a. The Transferee Company shall record the assets and liabilities (difference between the assets and liabilities hereinafter referred to as Net Assets) pertaining to the respective Demerged Business 1 & 2 vested in it pursuant to this Scheme, at the respective book values as appearing in the books of the Transferor Companies No. 1 & 2, respectively, as on the Appointed Date.

b. The transferee Company shall credit to the Share Capital Account, in the books of accounts, the aggregate face value of the new Equity Shares and Equity Shares with differential rights issued by it to the Shareholders of the Transferor Companies No. 1 & 2, respectively, pursuant to clause 2.2.1 of this Scheme.

c. Any difference between the Net Assets and the aggregate face value of new Equity Shares issued, shall be credited to the Capital Reserves or debited to Goodwill Account, as the case may be, in the books of the Transferee Company.

4.2 Upon the Scheme becoming effective, De-merger of Investments Business (Demerged Business 3) of the Transferee Company into Transferor Company No. 1, will be accounted in the following manner:

4.2.1 In the books of the Transferee Company

a. All the assets and liabilities pertaining to the Demerged Business 3 difference between the assets and liabilities hereinafter referred to as Net Assets, which cease to be the assets and liabilities of the Transferee Company will be reduced from the books of accounts of the Transferee Company at their respective book values, as on the Appointed Date.

b. Difference between the assets and liabilities pertaining to the Demerged Business 3 will be debited to goodwill account or credited to the Capital Reserve, as the case may be, by the Transferee Company.

4.2.2-In the books of the Transferor Company No. 1

c. The Transferor Company No. 1 shall record the assets and liabilities (difference between the assets and liabilities hereinafter referred to as Net Assets) pertaining to the Demerged Business 3 vested in it pursuant to this Scheme, at the respective book values as appearing in the books of the Transferee Company, as on the Appointed Date.

d. The Transferor Company No. 1 shall credit to the Share Capital Account, in the books of accounts, the aggregate face value of the new Equity Shares issued by it to be Shareholders of the Transferee Company, pursuant to clause 3.2.1 of this Scheme.

e. Any difference between the Net Assets and the aggregate face value of new Equity Shares issued, shall be credited to the Capital Reserves or debited to Goodwill Account, as the case may be, in the books of the Transferor Company No. 1.

15.Despite the elaborate Accounting Treatment contemplated as above and also taking into consideration the complexity of the Scheme, we do not, from the paper books filed before us are in a position to ascertain that the Certificate from Companys Auditor as contemplated under proviso to Section 230(7)/proviso to Section 232(3) regarding compliance with Accounting Standards have been produced.

16.The auditors who have certified the financial statements for the year ended 31.03.2015 it is seen are as follows:

i.

Kashi Vishwanath Steels Private Limited

S.C. Agarwal & Associates Chartered Accountants

ii.

Kumaun Garhwal Infrastructural Industrial Corporation Ltd.

KSGA & Company Chartered Accountants

iii.

Galwalia Ispat Udyog Private Limited

Sharda & Sharda LLP Chartered Accountants

The mandatory requirement of the Petitioner Companies to file the certificate of the Companys Auditor to the effect that the accounting treatment envisaged in the Scheme are in compliance with Accounting Standards prescribed by the Central Government under Section 133 of the Companies Act, 2013 or Generally Accepted Accounting Principles has already been stressed by the Honble Principal Bench in its order dated 09.05.2017 passed in C.P. No. 1139 of 2016In Re: Statcon Power Control Ltd.Thus it is incumbent on the part of the petitioners that the said certificate from the respective Companys Auditor is required to be annexed with the petition in view of the express provisions of Section 230 as well as under Section 232 of the Companies Act, 2013. In the absence of certificate as above, the statute expressly bars this Tribunal from granting the sanction and it is needless to state, for the reasons fully explained in earlier order dated 09.05.2017 of the Honble Principal Bench as to why the statute places such vital importance to the certificate of the Companys auditor as other than the management and staff of the Companies, it is the statutory auditor or Companys auditor who has access to the books and accounts and other financial aspects of the Companies. Further in view of their specialized knowledge with respect to accounting treatment of various financial aspects which have a bearing in relation to Companys Affairs as well as in relation to the different dimensions of the arrangement between/amongst the companies interse and its impact in relation to the past as well as contemplated accounting treatment, the Companys auditor as compared to others are therefore in a unique and privileged position to issue such a certificate which is appropriately recognized by the Companies Act, 2013 and seems to be the raison detre for the mandatory requirement of such a certificate to be obtained from the Companys Auditor, and not from any independent auditor in practice, to be produced before this Tribunal as a condition precedent for sanctioning the scheme. Further, in view of such importance being accorded to the certificate, it is needless to say that the respective Companys Auditor is required to issue the certificate with utmost care highlighting that the accounting treatment envisaged in the scheme is in compliance with the Accounting Standards prescribed or Generally Accepted Accounting Principles but also bringing to the attention in the certificate, where the accounting treatment deviates from the prescribed accounting standards and reasons therefore and where there is none or not applicable to, also highlight the same. Thus, the certificate of Companys Auditor is required not to be pedantic or mechanical and as already stated, to be given with utmost care and diligence, understanding the importance of it.

17.In light of the above and keeping in view the directions already given by the Honble Principal Bench in C.P. No. 1139 of 2016 and the Petitioners also being similarly placed, as the Company Petitions herein have also been transferred from Honble High Court of Delhi due to notification of the provisions of Section 230 to 232 of the Companies Act, 2013 on and from 15.12.2016, we grant two weeks time from the date of this order for the Petitioners to comply in terms of proviso to sub-section (7) of Section 230/proviso to sub-section (3) of Section 232 failing which the Petition shall stand rejected.