Process of revaluation of assets of a company unitarily does not require any approval of the Company Court
- The revaluation of assets simplicitor is not an arrangement falling within scope of section 391 of the Companies Act
- The scheme designed for reconstruction of the petitioner-company on the basis of estimated realizable values of its assets as on the appointed date does not fall within the scope of either section 391 nor revaluation of the assets requires permission of the Company Court in terms of section 211 of the Act
[2010] 7 46 (Punj. & Har.)
HIGH COURT OF PUNJAB AND HARYANA
VXL Technologies Ltd., In re
Company Petition No. 62 of 2010 (O&M)
September 17, 2010
RELEVANT EXTRACTS:
The petitioner-Company was initially incorporated as a Private Company limited by shares under the name of Eastern Electronics (Delhi) Private Limited on 28.12.1966. Subsequently, the name of the Company was changed to Unitron Limited and then to VXL Engineers Limited and thereafter to its present name i.e. VXL Technologies Limited when a fresh certificate of incorporation in the present name of the Company was issued on 16.7.2001.
The main object of the petitioner-Company is to manufacture, buy, sell, import, export, assemble, distribute, repair, exchange, alter or hire, buy or sell or to conduct, develop, enter into arrangements for setting up of all kinds of telecommunication equipments, like Rural Automatic Exchange, Private Automatic Branch Exchange, Transmission equipment modems, integrated digital network systems etc. as mentioned in Clause (3) of the Memorandum of Association. The petitioner is said to have authorized share capital of Rs.35,00,00,000/- divided into 3,50,00,000 equity shares of Rs.10/- each. The issued, subscribed and paid up share capital of the petitioner-Company is Rs.20,00,00,000/- divided into 2,00,00,000 equity shares of Rs.10/- each, fully paid up as per Balance Sheet as on 31st March 2009.
It is pointed out by the petitioner-Company that the assets of the petitioner carried in the books on historical basis do not adequately reflect true and fair view of the state of affairs of the petitioner-Company. The land and buildings of the petitioner- Company are over 40 years old and do not reflect their true net worth in the books of the petitioner-Company. Part of the long term investments made by the petitioner-Company have since also permanently diminished in value and are now unrealizable. The petitioner-Company has substantial carried forward losses in the form of debit balance in the profit and loss account as shown in the assets side of the balance sheet of the petitioner-Company, which has no value. Therefore, the scheme is designed for reconstruction of the petitioner-Company on the basis of estimated realizable values of its assets as on the appointed date.
The revaluation of assets is that of a Company and company alone, a separate and distinct judicial entity than its members. In terms of Section 49 of the Act, all investments made by the company on its own behalf is required to be made in its own name. The property of the company is neither of the creditors nor of its members. The Company by process of revaluation is increasing the net worth of its assets unilaterally. Therefore, it is neither a compromise nor arrangement, falling within Clauses (a) and (b) of Section 391 of the Act for which approval of the company court is required or contemplated. It is pure and simple accounting process permissible to be undertaken by the company in terms of Section 211 of the Act. Therefore, the revaluation of assets simplicitor is not an arrangement falling within the scope of Section 391 of the Act.
Section 211 of the Act, envisages the preparation of balance sheets and profit and loss in accordance with the accounting standards fixed by the Indian Institute of Chartered Accountants. Section 211 of the Act does not envisage any approval from the Company Court before revaluating its assets. Only in case of deviation from the accounting standards, the Company is to disclose the same in its profit and loss account and the balance sheets, the reasons for such deviation and the financial effect arising due to such deviation. Reference may be made to Clause (3B) of Section 211 of the Act. Therefore, the scheme as proposed by the Company does not fall within the scope of either Section 391 of the Act nor revaluation of the assets requires permission of this Court in terms of Section 211 of the Act.
The order in Blue Star’s case (supra) of the Bombay High Court passed in CP No. 233 of 2008 dated 11.4.2008 does not deal with the questions raised in the present petition. In the absence of any discussion on the issues arising for consideration in the present case, the said order is of no help to the petitioner-Company. Still further, the scheme of arrangement was in respect of reorganization of reserves and revaluation of assets, adjustment of goodwill or any intangible that may arise on account of the acquisition of the electrical contracting business of Naseer Electricals Private Limited against the general reserve of the Company as well as for adjustment of any consideration, fees, incentives etc. payable to any employee or consultants in accordance with the business purchase agreement and its annexures thereof. In the said case the scope of the scheme of arrangement was wider than the proposed scheme of arrangement to revalue the assets of the Company alone. Revaluation of assets was only one part of the Scheme. Thus, the said order does not answer the question raised that the process of revaluation of assets of the company unitarily does not require any approval of the company court.
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