Per: Ms. Lakshmi Gurung, Member (Judicial)

1. The sanction of this Tribunal is sought under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder for sanction of the Scheme of Arrangement between Khanna Hotels Private Limited (‘Demerged Company’ or ‘First Petitioner Company’) and Upper West Advisors Pvt Ltd (‘Resulting Company’ or ‘Second Petitioner Company’) and their respective shareholders (‘the Scheme”).

2. The Boards of the Petitioner Companies approved the said Scheme of Amalgamation by passing their respective Resolutions on 16.12.2022 which are annexed to the Joint Company Scheme Petition (“Petition”).

3. The Appointed Date means the Effective Date.

4. Learned Counsel submits that the Company Scheme Petition No. C.P. (CAA) No. 134/MB/2023 has been filed in consonance with the Order of the Tribunal dated 09.01.2023 passed in the Company Scheme Application No. C.A. (CAA) No. 1/MB/2023.

5. Learned Counsel further states that the Petitioner Companies have complied with all the requirements as per the directions of this Tribunal and that they have filed necessary affidavits of compliance with the Tribunal.

6. Nature of Business

It is submitted that the Demerged Company is engaged in the business of hotels and clubs. The Resulting Company is engaged in the business of hotels.

7. The registered offices of the Petitioner Companies are situated in Mumbai, Maharashtra and hence the subject matter of the Petition is within the jurisdiction of this Bench.

8. The shares of the Petitioner Companies are not listed on any stock exchange.

9. The Learned Counsel submitted the Rationale for the Scheme as under:

(a) The Demerger of the Investment Division of the Demerged Company and vesting of the same in the Resulting Company will enhance efficiencies and operational synergies, simplification, focused management attention, administrative efficiency, organisational 3 Page 3 of 15 A R efficiency, provide greater financial independence and financial investment.

(b) The transfer of the Investment Division by the Demerged Company will enable the Demerged Company to focus on its Hotel/Club and other business undertakings and allow improved allocation of capital, operational efficiency, optimized cash flow and thus contribute to the overall growth prospects of the Demerged Company.

(c) For the purpose of further expansion of Hotel Business and Investments, management is exploring options to attract willing investors, strategic partners, financial institution and bankers. Therefore, both the businesses shall not have any linkages with each other. Further, management can utilize the funds availed by securing the assets for that particular business activities.

(d) The Scheme shall facilitate the running of Investment Division with a more focused approach.

(e) The Scheme is indispensable to provide focused management attention and leadership required by the business, which is to be segregated and demerged as by the residual business.

(f) The proposed segregation will create enhanced value for the shareholders and allow a focused strategy in operations, which would be in the best interest of both the companies, their respective shareholders, creditors and employees.

10. Consideration:

“1 (one) fully paid up equity shares of Rs.10/- each of the Resulting Company shall be issued and allotted as fully paid up for every 100 (Hundred) fully paid equity shares of Rs.10/- each held by such shareholder or his/her/ its heirs, executors, administrators or successors in the Demerged Company (‘Share Entitlement Ratio’)”

11. The Valuation Report dated 07.12.2022 of Mr. Vishal R. Laheri, Registered Valuer, stated that as of the Valuation Date, the equity shares of both Companies are held by identical shareholders and are in a similar proportion, therefore, pursuant to the Scheme, no assets are moving outside the Group. The Report further affirms that the above Share Entitlement Ratio is fair and not prejudicial to the shareholders of Demerged Company.

12. On perusal of the Scheme, it is observed that upon the Scheme being effective, the Authorized Share Capital of the Resulting Company shall be increased from Rs. 1,00,000 (Rupees One Lakh) divided into 10,000 (ten thousand) equity shares of Rs. 10 (Rupees ten) each to Rs. 2,00,000 (rupees Two Lakhs) divided into 20,000 (Twenty Thousand) equity shares of Rs. 10 (rupees ten) each.

13. The Tribunal vide Order dated 16.02.2023 admitted the Company Scheme Application bearing no. CA(CAA)/24/MB/2023 and interalia, gave the following directions:

a) convening the meetings of equity shareholders of the Petitioner Companies;

b) convening the meeting of secured creditors of the Demerged Company;

c) convening the meetings of unsecured creditors of the Petitioner Companies.

Accordingly, meetings were convened and held as per the directions of the Tribunal, and the Scheme was approved by the Shareholders and Creditors of both the Petitioner Companies at their respective meetings. The reports declaring the results of the meetings by the respective Chairpersons and Scrutinizers appointed for the meetings are annexed to the Company Scheme Petition.

14. There are no secured creditors in the Resulting Company. Therefore, the question of convening and holding the meeting of secured creditors of the Resulting Company did not arise.

15. The Regional Director has filed Report dated 03.07.2023. In response to the observations of the Regional Director, the Petitioner Companies have submitted/undertaken that:

i) The interest of creditors will be protected

ii) The Petitioner Companies undertake that in addition to compliance of AS-14 for accounting treatment, the Petitioner Company shall pass such accounting entries as may be necessary in connection with the Scheme to comply with other applicable accounting standards such as AS-5 as applicable.

iii) The Scheme enclosed to Company Application & Company Petition, are one and same and there are no discrepancy / any change / changes are made.

iv) The Petitioner Companies confirm that notices have been served to the concerned authorities which are likely to be affected by Demerger.

v) The Petitioner Companies submit that the Appointed Date is Effective Date. Further, the Petitioner Companies will comply with the requirements as to Appointed Date and clarified vide circular no. F. No. 7/12/2019/CL-1 dated 21.08.2019 issued by the Ministry.

vi) The Petitioner Companies shall ensure compliance of all the provisions of Income Tax Act and Rules thereunder.

vii) There are no sectoral regulatory authorities and if there are any sectoral authorities, the Petitioner Companies would comply with the direction

viii) A. The Regional Director observed the following: “It is observed from financial statements as on 31.03.2022 of Petitioner Company has issued shares at Security Premium and collected total premium as follows: -

The company may clarify the status of filling of return of allotment. Further, the Petitioner Companies shall also satisfy the Hon'ble Bench about assessment of share capital u/s. 68 of the Income Tax Act, 1961 for issue of shares at fair value in order to compliance of the scheme on the merit and payment of taxes by Transferee’s shareholder, if the shares of original allottees were transferred at lower price then issued Price.”

B. The Petitioner Companies responded that:

“The Petitioner Companies have issued Shares at Security Premium in the year 1995 for which no Assessment or notice were received or pending against the Petitioner Companies and till this time the company had filed the Income Tax Returns till 31.03.2022. The Details of shares issued at premium and details of transfer of shares were furnished with the office to Regional Director, Western Region.”

ix) A. The Regional Director asked the Petitioner to furnish statement of Assets and Liabilities of the Demerged Undertaking to enable this Directorate to comment on the same

B. The Petitioner Companies have filed the Assets and Liability Statement pertaining to the Demerged Business Undertaking which is given below:

16. Mr. Tushar Wagh, representing the Regional Director’s Office, submitted that the explanations and undertakings given by the Petitioner Companies are found satisfactory and that the Regional Director has no objections to the Scheme. However, it is made clear that mere sanctioning of this Scheme will not prevent the Registrar of Companies from taking any action against the Petitioner Companies, in accordance with applicable law.

17. No objections have been received by the Tribunal opposing the Company Scheme Petition nor has any party controverted any averments made in the Company Scheme Petition.

18. It has been submitted that no investigation under the Companies Act or reference before the NCLT is made or pending against the Petitioner Companies.

19. The Statutory Auditors of the Petitioner Companies have examined the Scheme in terms of provisions of Sections 230-232 and certified that the accounting treatment specified in the Scheme is in compliance with the applicable accounting standards specified under section 133 of the Companies Act, 2013, and other generally accepted accounting principles.

20. The shareholders and Creditors of the Petitioner Companies are the best judges of their interest. Their decision should not be ordinarily interfered with by the Tribunal as per the decision of Hon’ble Supreme Court in Miheer H. Mafatlal vs. Mafatlal Industries Ltd [JT 1996 (8) 205 [LQ/SC/1996/1478] ] wherein it was held as follows:

“It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the usefulness and propriety of the scheme by supporting it by the requisite majority vote.”

21. From the material on record, the Scheme to the Company Scheme Petition appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy.

22. In view of the foregoing, upon considering the approval accorded by the members and creditors of the Petitioner Companies to the proposed Scheme, and the affidavit filed by the Regional Director, and the rejoinder and undertakings of the Petitioner Companies, there appears to be no impediment in sanctioning the present Scheme.

23. Consequently, sanction is hereby granted to the Scheme under Sections 230 to 232 of the Companies Act, 2013 with the following directions:

a) While approving the Scheme, we clarify that this Order should not, in any way, be construed as an Order granting exemption from payment of stamp duty, taxes or other charges, if any, and payment in accordance with law or in respect of any permission or compliance with other requirements which may be specifically required under any law.

b) All the employees in service of the Demerged Company, engaged in relation to the Demerged Undertaking, on the date immediately preceding the date on which the Scheme takes effect i.e. the Effective Date, shall become the employees of the Resulting Company on such date, without any break or interruption in service and upon terms and conditions not less favourable than those subsisting in the concerned Demerged Company on the said date.

c) Any proceedings relating to the Demerged Undertaking now pending by or against the Demerged Company be continued by or against the Resulting Company.

d) All the properties, rights, liabilities, duties and powers of the Demerged Company relating to the Demerged Undertaking, be transferred without further act or deed, to the Resulting Company and accordingly the same shall, pursuant to Section 232 of the Companies Act, 2013, be transferred to and vest in the Resulting Company.

e) The Income Tax Department will be at liberty to examine the aspect of any tax payable because of this scheme and it shall be open to the income tax authorities to take necessary action as permissible under the Income Tax Law.

f) The Petitioner Companies are directed to file a copy of this Order along with a copy of the Scheme of Arrangement with the concerned Registrar of Companies, electronically, along with EForm INC-28, in addition to physical copy, within 30 days from the date of receipt of the Certified copy of the Order from the Registry.

g) Certified copy of this Order be also submitted to all statutory authorities.

h) The Petitioner Companies to lodge a copy of this Order and the Scheme duly authenticated by the Deputy Registrar or Assistant Registrar, National Company Law Tribunal, Mumbai Bench, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, within 60 days from the date of receipt of the Certified copy of the Order from the Registry.

i) All authorities concerned to act on a copy of this Order along with Scheme duly authenticated by the Deputy Director or Assistant Registrar, National Company Law Tribunal, Mumbai.

24. Ordered Accordingly.