Emcure PharmaceuticalsLimited v. N/A

Per: Suchitra Kanuparthi, Member (Judicial)

1. This Court is convened via video conferencing. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 2 of 23

2. Heard Learned Counsel for Petitioner Companies. No objector has come before the Tri- bunal to oppose the petition and nor has any party controverted any averments made in the petition.

3. This Petition seeks the sanction of the Tribunal under section 230 to 232 read with sec- tion 52 and section 66 of the Companies Act, 2013 (the Act) for the Composite Scheme of Arrangement (the Scheme) between Emcure Pharmaceuticals Limited (Demerged Company/First Petitioner Company) and Avet Lifesciences Limited (Resulting Company/ Second Petitioner Company) and their respective shareholders.

4. The Learned Counsel for the Petitioner Companies submits that the First Petitioner Com- pany is engaged in the business of research and developing, manufacturing and marketing a broad range of pharmaceutical products globally. The Second Petitioner Company is in- corporated with the object of research and developing, manufacturing and marketing a broad range of pharmaceutical products globally.

5. The Learned Counsel for the Petitioner Companies submits that the rationale and benefits of the Scheme are as under: The United States of America is a vast and attractive market but has different charac- teristics and risk reward ratio than the Remaining Businesses of the Demerged Com- pany. Consequently, growth and expansion of the US Market Business requires a dif- ferentiated strategy which is aligned to the market dynamics, regulatory considerations and product portfolio. This will help enhance shareholder value. Further, growth of the US Market Business will require focused investments in research and development vis- -vis other markets. Given these, it is considered desirable and expedient to demerge the US Market Business of the Demerged Company to the Resulting Company in the manner and on the terms and conditions stated in this Scheme. The demerger of the US Market Business of the Demerged Company into the Resulting Company will, inter alia, result in the following benefits:

a) Segregation of the Demerged Undertaking to the Resulting Company will unlock the true potential of each business vertical, which require focused management bandwidth and attention to execute each market segments respective vision;

b) Strengthening customer service, distribution network, overall economies of scale for both the businesses; and

c) Provide higher degree of flexibility to evaluate independent business opportunities as well as attract the right set of investors, strategic partners, lenders and other stakeholders. As stated above, the nature of the two businesses are different and accordingly, the Demerged Company and the Resulting Company have different characteristics and risk IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 3 of 23 profile. Accordingly, it has been decided that the Identified Shareholders will be pro- vided an exit from the Resulting Company by way of a capital reduction undertaken in the manner as set out in Part IV of the Scheme immediately after they are issued equity shares of the Resulting Company under Clause 16 of Part III of the Scheme. The capital reduction of the issued, subscribed and paid-up equity share capital of the Resulting Company, held by Identified Shareholders, would improve the earnings per share and enhance the shareholders value for all remaining shareholders.

6. The Petitioner Companies have approved the Composite Scheme of Arrangement by passing Board Resolutions dated 9th November 2020, annexed to the present Company Petition. The Appointed Date fixed under the Scheme is April 1, 2021. The relevant part of the said Resolution is extracted below: a. The demerger of the Demerged Undertaking (as defined in the Scheme) of Emcure Pharmaceuticals Limited (Demerged Company or the company, and vesting of the same into Avet Lifesciences Limited (Resulting Company), as wholly owned subsidi- ary of the Company, with effect from the Appointed Date (as defined in the Scheme), in compliance with the provisions of the Section 2(19AA) of the Income Tax Act, 1961 and the provisions of the Act, and as per the terms and conditions mentioned in the scheme; b. Reduction of:

(i) The entire equity share capital of the Resulting Company held by BC Investments IV Ltd. (i.e. 23,67,354 equity shares); and

(ii) Up to 3,45,425 equity shares of the Resulting Company held by the other Identified Shareholders, in consideration of a payment by the Resulting Company of a sum of Rs. 561.81 per equity share.

7. Learned Counsel for the Petitioner Companies states that the Joint Company Petition has been filed in consonance with the order dated 17th December 2020 passed by this Tribu- nal in the Company Application bearing C.A. (CAA) 1154/MB/2020.

8. The Petitioner Companies are engaged in the pharmaceuticals business. The First Peti- tioner Company is exploring various avenues to raise funds, including an intention to do initial public offer (IPO) for its Remaining Business (as defined under the Scheme), which includes manufacturing of the Covid-19 vaccine (directly or through its subsidiary Gennova Biopharmaceuticals Limited in collaboration with HDT Biotech Corporation, (US). The Petitioner through its subsidiary has already received permission from Drug Controller General of India to conduct Phase 1 & 2 trial Covid-19 Vaccine on human be- ings. Accordingly, as a part of the business requirement / commercial understanding, the Scheme needs to be given effect prior to such raising so that the Demerged Undertaking (as defined under the Scheme) no longer is a part of the First Petitioner company. Con- sidering the ongoing pandemic and required funding for the vaccine manufacturing which the First Petitioner will undertake through its subsidiary the First Petitioner Company in- IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 4 of 23 tends to go for the fund raising in the next couple of months for manufacturing of the Covid-19 vaccine through its subsidiary as quickly as possible to help the nation battle the pandemic. Attached herewith as Annexure 1 are the articles published in several newspapers and the extract of the subsidiarys website regarding the manufacturing of the Covid-19 vaccine by the Subsidiary of the First Petitioner Company.

9. The Learned Counsel for the Petitioner Companies states that the Petitioner Companies have complied with all requirements as per directions of the Honble Tribunal and they have filed necessary affidavits of compliance with Honble Tribunal. Moreover, Petition- er Companies undertake to comply with all statutory requirements, if any, as required un- der the Companies Act, 2013 and the Rules made there under. The said undertaking is ac- cepted.

10. The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai, has filed Report dated 6th May 2021 interalia stating in paragraphs IV (a) to (p) and in re- sponse to the observations of the Regional Director, the Petitioner Companies have filed an Affidavit in Rejoinder dated 6 May 2021 and have clarified as follows: Para Regional Director Report / Ob- servation Dated 6th May 2021 Response from the Petitioner Com- panies IV (a) In addition to compliance of AS-14 (IND AS-103) the Transferee Company shall pass such account- ing entries which are necessary in connection with the scheme to comply with other applicable Ac- counting Standards such as AS- 5(IND AS-8) etc. In so far as observations made in par- agraph IV (a) of the Report of Region- al Director is concerned, the Second Petitioner Company, through its Counsel, undertakes that in addition to compliance of Ind AS 103, it shall pass such accounting entries which are necessary in connection with the Scheme to comply with other applica- ble Accounting Standards such as AS-

5 (Ind AS-8), etc. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 5 of 23 IV (b) As per Part-II-Definitions Clause 1(1.2), 1(1.10), 1(1.11) & 1(1.15) of the Scheme Appointed Date for Part III of the Scheme means April 01, 2021 or any other date as may be decid- ed by the NCLT; Effective Date 1 means the last of the dates on which all the condi- tions and matters referred to in Clause 23.1 of this Scheme occur or have been fulfilled, obtained or waived, as applicable, in accord- ance with this Scheme. References in this Scheme to coming into ef- fect of Part III of this Scheme or effectiveness of Part III of the Scheme or upon Part III of the Scheme becoming effective shall mean the Effective Date 1. Effective Date 2 the business day after the date on which the Re- sulting Company has issued the New Equity Shares to the Identi- fied Shareholders in accordance with Part III of the Scheme and filed necessary forms with the ROC, which are mandated under Applicable Laws (if any). Refer- ences in this Scheme to coming into effect of Part IV of this Scheme or effectiveness of Part IV of the Scheme or upon Part IV of the Scheme becoming effec- tive shall mean the Effective Date In so far as observations made in par- agraph IV (b) of the Report of Region- al Director is concerned, the Petition- er Companies, through its Counsel submit that as per Clause 1.4 of the Scheme, "Appointed Date" means 1st day of April, 2021, or such other date as may be fixed or approved by the National Company Law Tribunal or any competent authority may other- wise direct. Further, as per clause 1.10, "Effective Date 1" means the last of the dates on which all the conditions and matters referred to in Clause 23.1 of this Scheme occur or have been fulfilled, obtained or waived, as applicable, in accordance with this Scheme. Refer- ences in this Scheme to coming into effect of Part III of this Scheme or ef- fectiveness of Part III of the Scheme or upon Part III of the Scheme becoming effective shall mean the Effective Date As per clause 1.11, Effective Date 2 means the business day after the date on which the Resulting Company has issued the New Equity Shares to the Identified Shareholders in accordance with Part III of the Scheme and filed necessary forms with the ROC, which are mandated under Applicable Laws (if any). References in this Scheme to coming into effect of Part IV of this Scheme or effectiveness of Part IV of the Scheme or upon Part IV of the Scheme becoming effective shall mean IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 6 of 23 Record Date in relation to Part III of the Scheme means the date to be fixed by the Board of Directors of the Demerged Company for the purpose of determining the share- holders of the Demerged Company to whom the New Equity Shares will be issued and allotted by the Resulting Company, pursuant to the Scheme. In this regard, it is submitted that Section 232 (6) of the Companies Act, 2013 states that the scheme under this section shall clearly in- dicate an appointed date from which it shall be effective and the scheme shall be deemed to be ef- fective from such date and not at a date subsequent to the appointed date. However, this aspect may be decided by the Honble Tribunal taking into account its inherent powers. Further, the Petitioners may be asked to comply with the require- ments and clarified vide circular no. F. No. 7/12/2019/CL-1 dated 21.08.2019 issued by the Ministry of Corporate Affairs. the Effective Date 2. The Petitioner Companies undertakes to comply with requirements vide cir- cular no. F. No. 7/12/2019/CL-1 dated 21-08-2019 issued by the Ministry of Corporate Affairs. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 7 of 23 IV (c) The Honble Tribunal may kindly seek the undertaking that this Scheme is approved by the requi- site majority of members and cred- itors as per Section 230(6) of the Act in meetings duly held in terms of Section 230(1) read with sub- section (3) to (5) of Section 230 of the Act and the Minutes thereof are duly placed before the Tribunal In so far as observations made in par- agraph IV (c) of the Report of Region- al Director is concerned, the Petition- er Companies through its Counsel submit that in pursuance of the order dated 17th December, 2020 passed by this Tribunal in C.A. (CAA) No. 1154/MB/2020, the requirement to convene meeting of the Equity Share- holders of the Petitioner Companies was dispensed with in view of consent affidavits provided by all the equity shareholders of the Petitioner Compa- nies and accordingly the requirement of taking approval of shareholders by a meeting is not applicable. Further, pursuant to the directions contained in the said order, the meeting of the Se- cured Creditors and Unsecured Credi- tors of Petitioner Companies, was not required to be held and the Petitioner Companies were required to issue no- tices to the unsecured creditors. Also, the First Petitioner Company was di- rected to obtain consent letters from its secured creditors before the final hearing. The Learned Counsel for the First Petitioner Company submits the same was complied by the Petitioner No. 1 by filing the Affidavit of Service on 28th April 2021. The Second Peti- tioner Company does not have any se- cured creditors. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 8 of 23 IV (d) Honble NCLT may kindly direct the petitioners to file an affidavit to the extent that the Scheme en- closed to Company Application & Company Petition, are one and same and there is no discrepan- cy/any change/changes are made, for changes if any, liberty be given to Central Government to file fur- ther report if any required; In so far as observations made in par- agraph IV (d) of the Report of Region- al Director is concerned, the Petition- er Companies submit that the Scheme enclosed to Company Application and Company Petition, are one and same and there is no discrepancy/ any change/ changes are made to the Scheme. IV (e) The Petitioners under provisions of section 230(5) of the Companies Act, 2013 have to serve notices to concerned authorities which are likely to be affected by Amalgama- tion. Further, the approval of the scheme by this Honble Tribunal may not deter such authorities to deal with any of the issues arising after giving effect to the scheme. The decision of such Authorities is binding on the Petitioner Compa- ny(s). In so far as the observations made in paragraph IV (e) of the Report of Re- gional Director is concerned, the Peti- tioner Companies submit that notices under Section 230(5) has been served upon the Concerned Income Tax Au- thority, Regional Director and Regis- trar of Companies by the Petitioner Companies. The Petitioner Companies further undertakes that the sanction of the Scheme by this Tribunal will not deter any authorities to deal with any of the issues arising after giving effect to the Scheme and that such issues arising out of the Scheme will be met and answered in accordance with law. The Decision of the authorities will be binding on the Petitioner Companies. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 9 of 23 IV (f) The Petitioner Companies be di- rected to place on record of this Tribunal the list of assets to be demerged with complete details and its respective valuation. In so far as the observations made in paragraph IV (f) of the Report of Re- gional Director is concerned, the Peti- tioner Companies submit that as per Part III of the Scheme, all the assets and liabilities of the First Petitioner Company as on the Appointed Date relating to the Demerged Undertaking (as defined in the Scheme) shall be demerged into the Second Petitioner Company. The indicative list of assets and liabilities relating to the De- merged Undertaking (as defined in the Scheme) along with their respective book values as on March 31, 2021 is Particulars Amounts in crores Assets Non-current assets Property, plant and equipment 0.22 Investments 330.68 Loans 248.70 Other financial assets 3.07 Current assets Trade receivables 178.51 Bank balances 205.00 Other financial assets 66.84 Total assets 1,033.02 Liabilities Current liabilities Trade payables 11.56 Total liabilities 11.56 IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 10 of 23 IV (g) As regards Part-I-Clause (C) of the Scheme, (Treatment of the Scheme for the purpose of the In- come Tax Act, 1961), Upon the Scheme coming into effect, the de- merger of the Demerged Undertak- ing from the Demerged Company to the Resulting Company shall take place with effect from the Ap- pointed Date and shall be in ac- cordance with the provisions of Section 2(19AA) of the Income-tax Act, 1961. If any of the term(s) or provision(s) of this Scheme is/are found or interpreted to be in con- sistent with the provisions of Sec- tion 2(19AA) of the Income-tax Act, 1961 at a later date including resulting from an amendment of law or for any other reason what- soever, the provisions of Section 2(19AA) of the Income-tax Act, 1961 shall prevail and the Scheme shall stand modified to the extent determined necessary to comply with the provisions of Section 2(19AA) of the Income-tax Act, 1961. Such modifications will, however, not affect the other parts of the Scheme. The Petitioner Companies be directed to place on record full facts in this matter. The Honble Tribunal may consider the same and decide matter on merits. In so far as the observations made in paragraph IV (g) of the Report of Re- gional Director is concerned, the Peti- tioner Companies submit that the Peti- tioner Companies have complied with the provisions of section 2(19AA) of the Income-tax Act, 1961 in relation to demerger for Part III of the Scheme. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 11 of 23 IV (h) As per Part III Clause 6(6.2)(a to

d) of the Scheme (Accounting Treatment) (Accounting Treatment in the Books of the Resulting Com- pany), (a) All identifiable assets and the liabilities acquired, including re- serves, related to the Demerged Undertaking, shall be recorded at their respective carrying values as appearing in the books of accounts of the Demerged Company; (b) The identity of the reserves transferred by the Demerged Company relating to the Demerged Undertaking, as mentioned in (a) above, shall be preserved and shall appear in the books of accounts of the Resulting Company in the same manner and form, in which they appeared in the books of accounts of the Demerged Company; (c) Upon coming into effect of Part III of the Scheme, the pre- demerger shareholding of the De- merged Company in the Resulting Company shall be cancelled, by crediting the Capital Reserve Ac- count; (d) In respect of New Equity Shares to be issued by Resulting Company pursuant to Clause 16 of the Scheme as consideration, the Resulting Company shall credit its equity share capital account for the aggregate face value of these shares; (e) The balance, if any, after giving In so far as the observations made in paragraph IV (h) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company submits that the difference so credited to Capital Reserve arising out of Demerger shall not be available for distribution of dividend and other similar purpos- IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 12 of 23 effect to (a) to (d) above shall be adjusted to the capital reserve. In view of the above it is submitted that the difference so credited to Capital Reserve arising out of Amalgamation shall not be avail- able for distribution of dividend and other similar purposes. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 13 of 23 IV (i) As per Part III Clause 16(16.1 to 16.5) of the Scheme (Issue of new Equity Shares). In this regard it is submitted that the issue of New Equity Shares of the Resulting Company shall be deemed to be the due compliance of the provi- sions of Section 42, Section 62, of the Companies Act, 2013 and other relevant and applicable provisions of the Act and rules made thereun- der. In so far as the observations made in paragraph IV (i) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company through its Counsel submits that New Equity Shares of the Resulting Company shall be deemed to be in the due compliance of the provisions of Section 42, Section 62, of the Companies Act, 2013 and other relevant and applicable provi- sions of the Act and rules made there- under. IV (j) As per Part III Clause 17(17.1 to 17.4) of the Scheme (Increase in Authorized Share Capital of the Resulting company). Upon coming into effect of Part III of the Scheme, the authorized share capi- tal of Resulting Company Shall au- tomatically stand increased. In this regard it is submitted that Honble Tribunal may kindly direct the Pe- titioner to comply with provisions of Section 4, Section 13, Section 61 & Section 64 of the Companies Act, 2013 or any other applicable provision of the Act. In so far as the observations made in paragraph IV (j) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company submits it shall comply with provisions of Sec- tion 4, Section 13, Section 61 & Sec- tion 64 of the Companies Act, 2013 or any other applicable provision of the Act. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 14 of 23 IV (k) Since the Transferee / Resulting Company have foreign/non- resident shareholders, therefore, it is subject to the compliance of sec- tion 55 of the Companies Act, 2013 the FEMA Regulations/RBI Guide- lines by the Transferee / Resulting Company. In so far as the observations made in paragraph IV (k) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company through its Counsel submits that section 55 of the Companies Act, 2013 is not applicable since there is no issue or redemption of preference shares. Further, the Second Petitioner Company submits that it shall comply with the FEMA Regulations/RBI guidelines. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 15 of 23 IV (l) As per Part-IV- Clause 19(19.1 to 19.8) of the Scheme (Reduction of share Capital of the Resulting company). Upon Part IV of the Scheme becoming effective on Ef- fective Date 2, 26,35,556 New Eq- uity Shares of the Resulting Com- pany issued to the Identified Shareholders, amounting to 14.57% of the paid up share capi- tal of the Resulting Company on the Effective Date 2, (Identified Shareholder Shares), shall stand automatically cancelled without any further application, act, in- strument or deed. Subject to re- quirements under Applicable Law, on Effective Date 2, the Resulting Company shall pay to the Identi- fied Shareholders, an amount of Rs. 561.81/- (Rupees Five Hundred Sixty-One Rupees and Eighty-One Paise) for each Identified Share- holder Share held by the Identified Shareholders. The Identified Shareholders whose shareholding in the Resulting Company are cancelled in accord- ance with Clause 19.1 above shall cease to be members of the Result- ing Company. The Resulting Com- pany shall rectify the register of members deleting the names of the Identified Shareholders in respect of the New Equity Shares can- celled by the Resulting Company. The reduction of the paid-up equity share capital of the Resulting In so far as the observations made in paragraph IV (l) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company submits it shall comply with the provisions of section 52 and other relevant provi- sions of the Companies Act, 2013. The Second Petitioner Company submits that the Scheme is in accordance with the provisions of section 230-232 of the Companies Act, 2013 and as per the Explanation to section 230 of the Companies Act, 2013, the provisions of section 66 of the Companies Act, 2013 do not apply. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 16 of 23 Company as aforesaid would not involve any diminution of liability in respect of the unpaid share capital, if any. The reduction of the equity share capital of the Result- ing Company would not in any way adversely affect its operations or its ability to honour its commit- ments or to pay its debts in the or- dinary course of business. Further, no compromise or arrangement is contemplated to be made with the creditors of the Resulting Compa- The reduction of the equity share capital, as mentioned above, shall be effected as an integral part of this Scheme and in accordance with the Explanation to Section

230 of the Act and not under a separate procedure, in terms of Section 66 of the Act. Hence the procedure under section 66 of the Act is not required to be followed separately. The order of NCLT sanctioning the Scheme shall also be deemed to be an order under the Act for the purposes of con- firming the reduction of the equity share capital. The consent of the shareholders of Resulting Compa- ny to this Scheme shall be deemed to be the consent of its sharehold- ers for the purpose of effecting the reduction. The reduction of the Identified Shareholder Shares of the Result- ing Company as envisaged in Part IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 17 of 23 IV of the Scheme would not affect the employees and workmen of the Resulting Company in any manner. Part IV of the Scheme shall not af- fect any legal or other proceeding by or against the Resulting Com- pany, pending or arising, and that the proceedings may be continued, persecuted and enforced by or against the Resulting Company in the same manner and to the same extent as it would be or might have been continued, persecuted and enforced by or against the Result- ing Company prior to Part IV of the Scheme becoming effective on Effective Date 2. Upon effectiveness of Part IV of this Scheme from Effective Date 2, the provisions of Part IV of this Scheme shall take effect in their entirety without the requirement of any further act, matter or deed or approvals from any person so as to give effect to Part IV of this Scheme. Accordingly, upon effec- tiveness of Part IV of this Scheme from Effective Date 2, all relevant records shall be updated / amend- ed so as to give effect to Part IV of this Scheme without any further procedural requirements on the part of the Resulting Company. In this regard it is submitted that the Petitioner Company shall also comply the provisions of Section

52 read with Section 66 and other relevant provisions of the Act. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 18 of 23 The Resulting Company is newly incorporated and how the resulting Company will pay to shareholders whose shares are reduced. The Pe- titioner Companies be directed to place on records of this Tribunal to full facts as to availability of funds for the purpose of reduction of share capital. In so far as the observations made in paragraph IV (m) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company through its Counsel submits that the consideration for the capital reduction shall be paid out of the cash received by it as part of the Demerged Undertaking pursuant to the demerger. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 19 of 23 IV (n) As per Part-IV- Clause 20(20.1 & 20.3) of the Scheme (Accounting Treatment in the Books of the Re- sulting Company). Upon Part IV of the Scheme becoming effective, the Resulting Company shall account for the capital reduction in its books of accounts as per the appli- cable Indian Accounting Standards as notified under section 133 of the Act read with relevant rules issued thereunder and other generally ac- cepted accounting principles. The accounting treatment for the capital reduction based on the generally accepted accounting principles is as follows:

a) The Resulting Company will credit the amount payable to the Identified Shareholders pursuant to the reduction of the equity share capital as per Clause 19 of the Scheme to a separate account named Shareholders Control Ac- count;

b) The issued, subscribed and paid-up equity share capital of the Resulting Company shall be debit- ed by the face value of the equity shares cancelled; and

c) The difference between the face value of the equity shares so can- celled and the Shareholders Con- trol Account shall be adjusted first against the Capital Reserve Ac- count, then against the Securities Premium Account, and the balance In so far as the observations made in paragraph IV (n) of the Report of Re- gional Director is concerned, the Sec- ond Petitioner Company submits Re- sulting Company shall account for the capital reduction in its books of ac- count as per applicable accounting standards as notified under section

133 of the Act read with relevant rules issued thereunder. Further the reduc- tion is being done as an integral part of scheme and Explanation to Section

230 of the Companies Act 2013 envis- ages that provisions of section 66 of the Companies act 2013 shall not ap- ply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 20 of 23 against the Retained Earnings Ac- count. Upon payment to the Identified Shareholders for cancellation of the New Equity Shares i.e. upon issuance of account payee cheque or wire transfer or NEFT or RTGS, as the case may be, to the Identified Shareholders, the amount paid will be adjusted against the Shareholders Control Account. The utilization of the Securities Premium Account of the Resulting Company shall be effected as an integral part of this Scheme with- out having to follow the process under Section 52 read with Section

66 of the Act. In this regard it is submitted that the Petitioner Company shall also comply the provisions of Section

52 read with Section 66 and other relevant provisions of the Act. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 21 of 23 IV (o) As regards the complaints indicat- ed at para 14 above, under the head - Status of Complaint as per MCA-e Service Screen Shot, it is submitted that the petitioners be directed to mention all the facts in this regard about complaint and explain about the allegations made therein, before approval of the Scheme. In so far as the observations made in paragraph IV (o) of the Report of Re- gional Director is concerned, the First Petitioner Company submits that it was inspected under Section 207 of the Companies Act, 2013 in the month of August, 2016. Certain non- compliances were highlighted out of which, for 4 (four) matters, the First Petitioner Company has filed an ap- propriate reply with the Registrar of Company, Pune and the remaining (5) five matters have been compounded and the Demerged Company has paid total compounding fee of Rs. 17,00,000/-. Further, the Demerged Company also undertakes to comply with the directions issued by the Reg- istrar of Companies, Pune. IV (p) In view of the observation raised by the ROC Pune, mentioned at para 26 above Honble NCLT may pass appropriate orders/ orders as deem fit. In so far as the observations made in paragraph IV (p) of the Report of Re- gional Director is concerned, the Peti- tioner Companies undertake to follow the instructions/directions given by the ROC Pune.

11. The observations made by the Regional Director have been explained in Para 9 above. The clarifications and undertakings given by the Petitioner Companies have been ex- plained in Para 9 above. The clarifications and undertaking given by the Petitioner Com- panies are hereby accepted by the Tribunal.

12. In response to the Affidavit-in-Rejoinder dated 6 May 2021, the Regional director has filed its Supplementary Report 31 May 2021 stating that the matter may be decided on merits.

13. The Learned Counsel for the Petitioner Companies submits that the investment in the First Petitioner Company is under the automatic route, and accordingly the shares pro- posed to be issued to the non-resident shareholders shall be under the automatic route and IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 22 of 23 hence no approval under the FEMA Regulations is required. Further, in accordance with Regulation 4 of Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, the Second Petitioner Company undertakes to file Form FC-GPR within 30 days from the date of issue of the equity shares. Further, for the consideration to paid for capital reduction as per Part IV of the Scheme, the Second Petitioner Company has complied with the pricing guidelines under the FEMA Regula- tions and has obtained a valuation report to that effect. The Second Petitioner Company undertakes to file Form FC-TRS within 60 days from the date of cancellation of the equi- ty shares in accordance with Regulation 4 of Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

14. Upon Part III of this Scheme becoming effective and in consideration of the demerger of the Demerged Undertaking from the Demerged Company and vesting of the Demerged Undertaking into the Resulting Company in accordance with this Scheme, the Resulting Company , without any further act or deed and without receipt of any cash, issue and allot to the shareholders of the Demerged Company as on the Record Date, 1 (one) Equity Share of Rs. 10 (Indian Rupees Ten) each of the Resulting Company for every 10 (ten) Equity Share of Rs. 10 (Indian Rupees Ten) each of the Demerged Company (Demerger Share Entitlement Ratio).

15. Upon Part IV of the Scheme becoming effective on Effective Date, 2,26,35,556 New Eq- uity Shares of the Resulting Company issued to the Identified Shareholders, amounting to 14.57% of the paid up share capital of the Resulting Company on the Effective Date 2, (Identified Shareholder Shares) shall stand automatically cancelled without any further application, act, instrument or deed. Subject to requirements under Applicable Law, on Effective Date, the Resulting Company shall pay to the Identified Shareholders, an amount of Rs. 561.81/- for each Identified Shareholder Share held by the Identified Shareholders.

16. The Reduction of the paid-up equity share capital of the Resulting Company as aforesaid would not involve any diminution of liability in respect of the unpaid share capital, if any. The reduction of the equity share capital of the Resulting Company would not in anyway adversely affect its operations or its ability to honor its commitments or to pay its debts in the ordinary course of business. Further, no compromise or arrangement is contemplated to be made with the creditors of the Resulting Company.

17. Since all the requisite statutory compliances have been fulfilled, C.P. (CAA)22/MB/2021 is made absolute in terms of prayer clause (a) of the Company Pe- tition. Hence ordered.

18. The Scheme is hereby sanctioned with the Appointed Date of April 1, 2021. IN THE NATIONAL COMPANY LAW TRIBUNAL COURT NO. V, MUMBAI BENCH CP (CAA) 22/MB/2021 in CA (CAA) 1154/MB/2020 Page 23 of 23

19. The Petitioner Companies are directed to file a copy of this order along with a copy of the Scheme with the concerned Registrar of Companies, electronically, along with e-Form INC-28, in addition to physical copy, within 30 days from the date of receipt of the Order duly certified by the Deputy Director or Assistant Registrar, of the National Company Law Tribunal, Mumbai Bench.

20. The Resulting Company to lodge a copy of this order and the Scheme duly certified by the Deputy Director or the Assistant Registrar, of the National Company Law Tribunal, Mumbai Bench, with the concerned Superintendent of Stamps, for the purpose of adjudi- cation of stamp duty payable, if any, on the same within a period of 60 days from the date of receipt of the Order.

21. All concerned regulatory authorities to act on a copy of this Order along with Scheme du- ly certified by the Deputy Director or the Assistant Registrar, National Company Law Tribunal, Mumbai Bench.

22. Any person interested is at liberty to apply to this Tribunal in the above matters for any directions that may be necessary.

23. Any concerned Authorities are at liberty to approach this Tribunal for any further clarifi- cation as may be necessary.

24. Ordered Accordingly. Sd/- Sd/- Chandra Bhan Singh Suchitra Kanuparthi Member Technical Member Judicial