Court approves company's arrangement scheme under Companies Act with modifications, compliance undertakings

The court sanctioned the scheme of arrangement proposed by the petitioner-company under sections 391 to 394 of the Companies Act, 1956, subject to modifications and undertakings provided by the company. The Registrar of Companies' objections regarding accounting standards and compliance with section 211 of the Act were addressed through the company's undertakings and disclosures. The court emphasized the scheme's fairness, legality, and compliance with public policy, referencing relevant case law. Ultimately, the court approved the scheme with the specified modifications and directed the petitioner-company to serve the order on the Registrar of Companies within 30 days.

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Issues Involved:
1. Sanction of the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956.
2. Objections by the Registrar of Companies regarding compliance with accounting standards and section 211 of the Act.
3. Examination of the scheme's fairness, legality, and compliance with public policy.

Detailed Analysis:

Sanction of the Scheme of Arrangement:
The petitioner-company filed a petition under sections 391 to 394 of the Companies Act, 1956, seeking sanction of a scheme of arrangement. The scheme involved creating a business restructuring reserve from the securities premium account to cover restructuring expenses. The scheme proposed several accounting treatments, including crediting 50% of the securities premium account to the business restructuring reserve account and debiting restructuring expenses to this account instead of the profit and loss account.

Objections by the Registrar of Companies:
The Registrar of Companies opposed the scheme, arguing that it violated various accounting standards and section 211 of the Act. In response, the petitioner-company filed an undertaking affidavit, agreeing to restrict restructuring expenses to specific items and to make necessary disclosures as required by section 211(3B) of the Companies Act, 1956. The company further undertook to make disclosures similar to those made by Hindalco Industries Ltd. and Geometric Ltd. in their financial statements for 2008-09.

Examination of the Scheme's Fairness, Legality, and Compliance with Public Policy:
The court referred to the Supreme Court's decision in Miheer H. Mafatlal v. Mafatlal Industries Ltd. and the Bombay High Court's decisions in Reliance Communications Ltd., In re and Hindalco Industries Ltd., In re. The Supreme Court emphasized that the court must ensure the scheme is fair, just, and reasonable, and not contrary to any provisions of law or public policy. The Bombay High Court held that potential violations of accounting standards should not automatically disqualify a scheme if necessary disclosures are made under section 211 of the Act.

Court's Decision:
The court concluded that with the modifications and undertakings provided by the petitioner-company, the scheme was fair and reasonable. The court sanctioned the scheme subject to the modifications as per the company's affidavits dated February 22, 2010, and February 25, 2010. The court directed the petitioner-company to serve a copy of the order on the Registrar of Companies, State of Karnataka, within 30 days and instructed the registry to draw up a decree in Form No. 42.

Order:
1. The scheme of arrangement proposed by the petitioner-company is sanctioned, subject to modifications based on the company's affidavits.
2. The petitioner-company must serve a copy of this order on the Registrar of Companies, State of Karnataka, within 30 days.
3. The registry is directed to draw up a decree in Form No. 42.
4. Ordered accordingly.

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