Composite scheme of arrangement permits dispensation with capital reduction procedure when reduction is integral and consequential to the restructuring.

A composite scheme of arrangement involving demerger and consequential restructuring of share capital was treated as a single integrated proposal. Because the reduction of capital was incidental to the scheme and did not involve diminution of liability on unpaid share capital or payment out of paid-up capital, the court treated approval by the equity shareholders at the convened meeting as the special resolution required for the capital reduction aspect. It also dispensed with the procedural requirements under Section 101(2) of the Companies Act, 1956 and the related meeting rules, while directing separate meetings of equity shareholders, secured creditors and unsecured creditors for consideration of the scheme.

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Issues: Whether directions should be issued for convening separate meetings of the equity shareholders, secured creditors and unsecured creditors for consideration of the composite scheme of arrangement and whether the procedural requirement under Section 101(2) of the Companies Act, 1956 and Rules 48 to 65 of the Companies (Court) Rules, 1959 should be dispensed with.

Analysis: The proposed arrangement was a composite scheme involving demerger of the ceramic division and a consequential restructuring of share capital through utilisation of the securities premium account. The reduction of capital was stated to be integral to the scheme, consequential in nature, and not involving diminution of liability in respect of unpaid share capital or payment to shareholders of paid-up capital. In these circumstances, the Court found it to treat the approval of the equity shareholders at the convened meeting as the special resolution required under the relevant provisions and to dispense with the procedural requirements under Section 101(2) and the connected meeting rules.

Conclusion: Directions were issued for convening separate meetings of the equity shareholders, secured creditors and unsecured creditors, and the procedural requirements under Section 101(2) of the Companies Act, 1956 and Rules 48 to 65 of the Companies (Court) Rules, 1959 were dispensed with.

Ratio Decidendi: Where a reduction of share capital is consequential to and forms an integral part of a proposed scheme of arrangement, and does not involve diminution of liability or payment out of paid-up capital, the Court may dispense with the prescribed procedural requirements and direct convening of meetings for consideration of the scheme.

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