Bombay High Court Hears SEBI's Application to Recall Sanction of Composite Scheme in Fertilizers Merger Case. Securities Regulator Alleges Material Non-Disclosure and Accounting Violations in Scheme Involving Listed and Unlisted Companies Under Companies Act, 1956.

Company applications by Securities and Exchange Board of India seeking recall/review of court orders sanctioning a composite scheme of arrangement and amalgamation.

SEBI sought recall/review and setting aside of the orders dated 17th June 2011 and 22nd July 2011 sanctioning the composite scheme.

SEBI discovered that the financial statements of Ikisan Limited contained unjustified valuation of intangible assets (trademarks and customer contracts) violating Accounting Standards 10, 14, and 26, leading to disproportionate benefit to promoters, and that material facts were suppressed from the court.

The court had sanctioned the initial scheme on 17.06.2011 and ordered amendments on 22.07.2011. Previously, on 27.08.2010, the court sanctioned a merger between Ikisan Limited and City Pulse Properties Limited.

Whether the orders dated 17.06.2011 and 22.07.2011 sanctioning the composite scheme should be recalled/reviewed due to suppression of material facts and violation of accounting standards. Whether the valuation of intangible assets of Ikisan Limited was in compliance with Accounting Standards 10, 14 and 26.

The financial statements of Ikisan Limited post-merger with City Pulse Properties Limited contained inflated valuation of trademarks and customer contracts, violating Accounting Standards 10, 14, 26 and thereby the scheme was based on inaccurate financials. The share swap ratio disproportionately benefited the promoters of Ikisan by allotting them shares worth approximately Rs. 236.8 crores for assets of much lower value. The petitioners suppressed material facts from the court regarding the financial position of KFL and the valuation of intangibles, which if disclosed would have affected the sanction of the scheme.

The above Company Applications are filed on 21st February, 2013, by the Applicant – Securities and Exchange Board of India (“SEBI”), inter alia, for the following relief: “(a) That this Hon'ble Court be pleased to recall/review and/or set aside the order dated 17th June 2011 (sanctioning the Scheme of Arrangement and Amalgamation) and order dated 22nd July 2011 (sanctioning amendments to the scheme)” On 27th August, 2010, this Court sanctioned a Scheme whereunder Ikisan Limited (Unlisted Transferor Company) was merged into City Pulse Properties Limited (Unlisted Transferee Company). the accounting methods adopted for incorporating the assets and liabilities of Ikisan Limited are not consistent with the mandatory Accounting Standards (“AS”) and the accounts prepared consequently are not in accordance with law the turnover of Ikisan Ltd. was only Rs. 1.55 crores for the year ended March 31, 2009. However, the value ascribed to Trademarks is Rs. 36.4 crores, a multiple of 23.52 times the turnover of IKisan Ltd. SEBI has in paragraph 23 of the Application alleged that the Petitioners have suppressed from this Court, inter alia, the following facts...

On 27.08.2010, the Bombay High Court sanctioned a scheme merging Ikisan Limited into City Pulse Properties Limited, which became effective on 08.09.2010. City Pulse was renamed Ikisan Limited. On 17.06.2011, the Court sanctioned a composite scheme involving KFL, NFCL, Ikisan, and NORL. Amendments were sanctioned on 22.07.2011. The composite scheme was implemented, shares were allotted and listed. On 13.12.2011, BSE applied to SEBI for exemption under Rule 19(2)(b) of SCRA, leading SEBI to examine the financials. SEBI discovered irregularities and appointed M/s Bansi S. Mehta & Co. as independent valuer, who submitted a report on 27.09.2012. On 21.02.2013, SEBI filed the present Company Applications seeking recall of the sanction orders. The matters were heard and judgment reserved on 08.05.2015 and pronounced on 10.09.2015. (The text of the judgment is incomplete and does not include the final decision.)

• Companies Act, 1956:
• Securities Contract Regulation Act, 1956: Rule 19(2)(b)