The court's decision emphasizes the importance of compliance with statutory procedures, absence of violation of laws or public policy, and considerations of tax and stamp duty liabilities in sanctioning a scheme of arrangement under the Companies Act, 1956.

This is a petition filed by a Private Limited Company, seeking sanction of a Scheme of arrangement under Sections 391 and 394 of the Companies Act, 1956.

2. Heard Mr.V.Venkadasalam, learned counsel for the petitioner, Mr.M.Jayakumar, learned Deputy Official Liquidator and Mr.V.Parivallal, learned Senior Central Government Standing Counsel.

3. The petitioner is a Private Limited Company, having an authorised share capital of Rs.1 crore divided into 1 lakh shares of Rs.100/-each and a paid up capital of Rs.84 lakhs divided into 84,000 equity shares of Rs.100/- each. There are only 4 shareholders and the company has no secured creditors. There has been no activity in the company for the past 7 years. Therefore, they proposed a scheme of arrangement, by which it was decided to dissolve the company without winding up and to have the only immovable property owned by the company divided among the 4 shareholders.

4. The Memorandum and Articles of Association of the Company, the balance sheet as on 33. 2008, the proposed scheme of arrangement, the Board Resolution, the list of shareholders as certified by the Auditors, Certificate of the Auditor confirming that there are no secured creditors and the consent affidavits of the shareholders, are filed as Annexures A, B, C, D, E, F and G.

5. On 30.1.2009, notices were ordered by this Court and a Chartered Accountant was appointed to scrutinise the books and to file a report. Accordingly, notices were issued and published and the Chartered Accountant carried out the scrutiny. Thereafter, the Official Liquidator filed a report, enclosing the report of the Auditor, certifying that they did not come across any act of misfeasance on the part of the Directors and that the affairs of the Company were not conducted in a manner prejudicial to the interest of its members or to public interest. Based upon the said report, the Official Liquidator has stated that there is no other material to come to any adverse conclusion.

6. However, the Regional Director, Ministry of Corporate Affairs, filed a report to the effect that the proposal contained in the scheme to have the immovable property of the Company divided among the shareholders, would virtually amount to return of capital and that such return of capital is not possible except when a voluntary liquidation procedure is followed. The Regional Director has also expressed a view that the sanction to the scheme would result in the shareholders avoiding capital gains tax, which the company would have otherwise become obliged to pay, on account of appreciation in the value of the assets. Such division, according to the Regional Director, would also result in the reduction of share capital. The Regional Director has further stated that the object of the scheme between the company and its shareholders is to transfer the immovable property to the respective shareholders in proportion to their shareholding and to dissolve the company under the orders of the Court without winding up and that since it is not a case of Amalgamation, the dissolution is not possible under Section 391/394 of the Companies Act.

7. I have carefully considered the remarks made by the Regional Director. The first remark, relates to the avoidance of the incidence of capital gains tax. But the learned counsel for the petitioner relied upon a decision, in which an identical objection was overruled by the Calcutta High Court in A.W.Figgis & Co. Pvt. Ltd In re and Queens Park Property Co. Pvt. Ltd In re, {(1980) 50 Comp. Cases 95}. It was contended on behalf of the Regional Director in that case that the scheme was propounded solely for the purpose of evading capital gains tax and stamp duty, by circumventing the process of execution of a regular deed of conveyance. Citing the decisions of the Supreme Court in CIT vs. A.Raman & Co. {AIR 1968 SC 49} and CIT vs. Calcutta Discount Co. Ltd {1974 (3) SCC 260}, the Calcutta High Court observed that a person is entitled to so a