Court approves scheme of arrangement under Companies Act despite objections by Central Government and Kotak Mahindra Bank Ltd.

The court sanctioned the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, despite objections raised by the Central Government and Kotak Mahindra Bank Ltd. The court found that the scheme had been approved by the requisite majority of secured creditors, disregarding the objections raised by Kotak Mahindra Bank Ltd. The objections by the Central Government were also dismissed as adequately addressed by the petitioner. Consequently, the court deemed the scheme beneficial to the members and not contrary to public interest, allowing the company petition and disposing of related applications.

---

---

Issues Involved:
1. Sanctioning the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956.
2. Objections raised by the Central Government.
3. Objections raised by Kotak Mahindra Bank Ltd.
4. Approval and voting process of the scheme by shareholders and creditors.

Issue-wise Detailed Analysis:

1. Sanctioning the Scheme of Arrangement:
The petitioner filed a petition under sections 391 to 394 of the Companies Act, 1956, seeking sanction for a scheme of arrangement involving compromise between Shree Narmada Aluminium Industries Ltd., its secured and unsecured creditors, and shareholders. The company, incorporated on April 15, 1981, faced financial difficulties and was registered with the Board for Industrial and Financial Reconstruction (BIFR). The BIFR recommended winding up the company, leading to multiple legal proceedings. The petitioner-company, aiming to revive its operations, proposed a scheme to settle dues with creditors and shareholders.

2. Objections Raised by the Central Government:
The Central Government, through an affidavit by the Assistant Registrar of Companies, raised several objections:
- The company, being listed on various stock exchanges, had not obtained No Objection Certificates (NoC) from these exchanges.
- The scheme proposed a reduction in paid-up capital without passing a special resolution under sections 100-105 of the Companies Act.
- The BIFR had previously recommended winding up the company in public interest.
- The board of directors had not presented a concrete revival scheme.

3. Objections Raised by Kotak Mahindra Bank Ltd.:
Kotak Mahindra Bank Ltd. objected to the scheme, highlighting that ICICI Bank Ltd. had assigned its debt to Kotak Mahindra Bank, and recovery proceedings were pending before the Debts Recovery Tribunal (DRT). The bank argued that the scheme did not have the statutory majority support as required under section 391(1) of the Act. Additionally, the bank contended that the scheme was based on outdated figures and that it was the sole secured creditor, thus holding a significant stake in the debt.

4. Approval and Voting Process of the Scheme by Shareholders and Creditors:
The court directed the petitioner to convene meetings of shareholders, secured creditors, and unsecured creditors to consider the scheme. The meetings were held, and the scheme was approved by the shareholders and unsecured creditors. However, the meeting of secured creditors faced issues due to procedural lapses, leading to a fresh meeting. In the subsequent meeting, amendments to the scheme were proposed and voted upon, with the majority of secured creditors approving the scheme.

Judgment:
The court considered the objections raised by Kotak Mahindra Bank Ltd. and the Central Government. It noted that Kotak Mahindra Bank Ltd. was an assignee of the debt, and the issue of assignment was pending before the Division Bench. Ignoring the votes of Kotak Mahindra Bank Ltd., the court found that the scheme had been approved by the requisite majority of secured creditors. The objections by the Central Government were also overruled as they had been adequately addressed by the petitioner. Consequently, the court sanctioned the scheme, finding it beneficial to the members and not contrary to public interest. The company petition was allowed, and related applications were disposed of.

---