In order to consolidate its subsidiaries Sun Pharmaceutical Industries, had approached the Ahmedabad bench of NCLT for an approval to transfer investment undertakings from Sun Pharma to its Netherlands based wholly-owned subsidiary. However, NCLT has rejected the proposal.

Brief Facts of the Case:

  • Petition is filed by Sun Pharmaceutical Industries Limited for demerger and transfer of “Specified Investment Undertakings” to its direct or indirect wholly-owned subsidiaries viz Sun Pharma (Netherlands) B.V. and Sun Pharmaceutical Holdings USA Inc. under section 234 of the Companies Act, 2013.
  • Appointed date was 1stApril 2017.
  • Sun Pharmaceuticals has an investment in several overseas companies, by virtue of this Scheme the said investment will be integrated into its Subsidiary company.
  • The Said demerger and subsequent transfer were without any consideration.
  • The Company has obtained prior approval of SEBI through the relevant stock exchanges and the requisite corporate consents of its shareholders and creditors.
  • The RBI also granted deemed approval by stating that the demerged company need to abide by the applicable rules and regulations, which the Company undertaken that it would.

The Scheme is disallowed on 19thDecember 2019 by NCLT-Ahmedabad on following grounds.

Section 234 of Companies Act, 2013

The Order states that, the provisions of Section 234 which relates to cross border mergers of Indian Companies with foreign companies and vice versa, mention only about the words “merger” and/or “amalgamation” and do not seems to contain the words “compromise” and/or “arrangement” and/or “demerger” and hence it may be construed that the provisions of Section 234 of the Companies Act, 2013 do not permit the “compromise” and/or “arrangement” and or “demerger” of the Indian Companies with foreign Companies and vice versa. In other words, the provisions of Section 234 of the Companies Act, 2013, do not provide for or rather restrict the demerger of the Indian Companies with foreign Companies.

Provisions of Section 234 of the Companies Act, 2013:

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