Scheme of arrangement sanction upheld with modifications, substantial compliance, commercial fairness, and current financial disclosure accepted.

A scheme of arrangement may be sanctioned with textual modifications where uncertain appointed and effective dates, and an overbroad board power to modify the scheme, are corrected to preserve the court's sanctioning control. Rule 78 of the Company Court Rules does not require the Chairman's report to list all joint holders' names, provided the voting details are accurately stated and substantial compliance is shown. Adjustment of goodwill against the securities premium account was treated as a commercial decision absent fraud, mala fides or absurdity, and was supported by undertakings. The company also satisfied the requirement to place reasonably current financial information before the court for sanction under section 391(2).

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Issues: (i) whether the scheme of arrangement required modification because the appointed date and effective date were left uncertain and the Board was given an open-ended power to modify the scheme; (ii) whether Rule 78 of the Company Court Rules, 1959 required the Chairman's report to mention all joint holders' names; (iii) whether the proposed adjustment of goodwill against the securities premium account was unfair or unjust; and (iv) whether the company had complied with the requirement of placing before the Court the latest financial position for sanction under section 391(2) of the Companies Act, 1956.

Issue (i): whether the scheme of arrangement required modification because the appointed date and effective date were left uncertain and the Board was given an open-ended power to modify the scheme.

Analysis: The scheme made the appointed date dependent on later Board resolution and also contained a clause enabling each part of the scheme to become effective on dates to be resolved by the Boards. The open-ended drafting left uncertainty as to the operative date and also permitted modification beyond the sanctioning court's control. The Court held that these defects could be cured by deleting the offending words and restricting modification to the High Court's sanctioning jurisdiction.

Conclusion: The objection was accepted in part and the scheme was modified to remove the uncertainty and the overbroad power of modification.

Issue (ii): whether Rule 78 of the Company Court Rules, 1959 required the Chairman's report to mention all joint holders' names.

Analysis: Rule 78 requires the Chairman to state accurately the number of members present and voting, their individual values and the way they voted, in Form No. 39. The Rule and the form do not require the names of all joint holders to be separately stated. The apprehension of repeated voting by joint holders was found to be addressed by the scrutineers and, if necessary, by the Court in an appropriate case. Substantial compliance was sufficient.

Conclusion: The objection failed and was rejected.

Issue (iii): whether the proposed adjustment of goodwill against the securities premium account was unfair or unjust.

Analysis: The Court held that, absent impropriety, mala fides, fraud or absurdity, the manner in which the company chooses to write off goodwill is a commercial decision best left to the members. The adjustment did not affect the company's net worth, and the apprehension that it would necessarily prejudice future bonus share entitlement was speculative. The company also gave undertakings to obtain an independent valuation and to use the special resolution only for the scheme-linked adjustment, which adequately safeguarded member interests.

Conclusion: The objection was rejected.

Issue (iv): whether the company had complied with the requirement of placing before the Court the latest financial position for sanction under section 391(2) of the Companies Act, 1956.

Analysis: The Court reconciled earlier authorities and held that the company must disclose the latest financial position reasonably proximate to the time when the scheme is heard, the exact date depending on the facts of each case. The requirement is not that the balance sheet must be updated on the very day of hearing, but that the Court must be satisfied that the disclosure is sufficiently current unless there is reason to think a further update is necessary. Here, audited financial results for the year ended 31-3-2010 were tendered and nothing adverse was shown.

Conclusion: The objection failed and the statutory requirement was treated as complied with.

Final Conclusion: The scheme was sanctioned with the necessary textual modifications, the objections were disposed of as above, and the company petition was made absolute with costs to the Regional Director.

Ratio Decidendi: In proceedings for sanction of a scheme of arrangement, the Court may approve the scheme if statutory requirements are substantially complied with, the company places before the Court financial information reasonably proximate to the hearing, and the scheme is commercially fair; procedural defects and overbroad clauses may be cured by modification rather than refusal of sanction.

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