The Hon’ble Delhi High Court vide its judgment dated July 23, 2012, in the case of Indo Rama Textile Ltd held that in a demerger, transfer of all common assets and/or liabilities relatable to undertaking being demerged is not required so long as the assets and liabilities transferred, by themselves, constitutes a running business and the business can be carried on uninterruptedly with such assets and liabilities alone.
The Court further held that compliance of Section 2(19AA) of the Income-tax Act, 1961 (“IT Act”) is relevant only for determining whether the demerger is tax neutral or not as per the IT Act and non-compliance of the same does not in any manner result in the arrangement not being regarded as a ‘demerger’ under Section 391 to 394 of the Companies Act, 1956 (“Companies Act”). This M&A Alert by Nishith Desai Associates analyses this judgment by the Bombay HC. Click on the accompanying attachment for more..Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
