Scheme of arrangement upheld where disputed assignee voting did not defeat majority and the restructuring was found fair and bona fide.

In scheme of arrangement proceedings, an assignee bank's objection to voting rights was not treated as decisive while the assignment dispute remained pending, and the scheme was found to retain the requisite majority of secured creditors. The arrangement was also accepted as fair, reasonable and bona fide, and not contrary to public interest, because it had approval from shareholders and creditors and addressed the Central Government's objections as part of a revival and restructuring exercise. The scheme was therefore fit for sanction, and the related applications became unnecessary.

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Issues: (i) Whether the objection raised by the assignee bank could be taken into account for determining the statutory majority of secured creditors and, if ignored, whether the scheme lacked the requisite support. (ii) Whether the proposed scheme of arrangement was fair, reasonable, bona fide and not contrary to public interest so as to merit sanction, notwithstanding the objections raised by the Central Government.

Issue (i): Whether the objection raised by the assignee bank could be taken into account for determining the statutory majority of secured creditors and, if ignored, whether the scheme lacked the requisite support.

Analysis: The dispute regarding the assignment of debt was stated to be pending before the Division Bench. In that situation, the objection of the assignee bank was not treated as decisive for the purpose of counting the secured creditors for the scheme meeting. Once its vote was ignored, the scheme retained the support of the requisite majority of secured creditors. The challenge based on lack of statutory majority therefore did not succeed.

Conclusion: The objection based on the assignee bank's voting share was rejected, and the scheme could not be denied approval on the ground of want of statutory majority.

Issue (ii): Whether the proposed scheme of arrangement was fair, reasonable, bona fide and not contrary to public interest so as to merit sanction, notwithstanding the objections raised by the Central Government.

Analysis: The scheme had been approved by the shareholders, unsecured creditors and secured creditors, and the court accepted the company's explanation to the Central Government's objections. The arrangement was found to be part of a revival and restructuring exercise, and no ground was established to show that it was unfair, unreasonable or opposed to public interest. The court therefore found the scheme fit for sanction under the statutory framework governing compromises and arrangements.

Conclusion: The scheme was held to be fair, reasonable, bona fide and in the interest of the stakeholders, and the objections of the Central Government were overruled.

Final Conclusion: The company petition was sanctioned and the connected applications were rendered unnecessary and disposed of accordingly.

Ratio Decidendi: In sanction proceedings for a scheme of arrangement, a court is concerned with whether the scheme has the requisite statutory support and is fair, reasonable, bona fide and not contrary to public interest; a disputed assignee's objection need not defeat sanction where its entitlement is sub judice and the remaining valid votes support the scheme.

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