Court grants petition to modify scheme of arrangement by reducing share capital via share cancellation.

The court allowed the petition under section 392 of the Companies Act, 1956, seeking to modify the scheme of arrangement and amalgamation by confirming the reduction of share capital of IMFA through the cancellation of 3,49,466 equity shares. The court found the modification necessary for the proper working of the scheme, with no objections raised by shareholders or creditors. The petition was granted, and the scheme was modified accordingly, with directions for registration and publication as per the court's order.

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Issues Involved:
1. Petition under section 392 of the Companies Act, 1956.
2. Modification of the scheme of arrangement and amalgamation.
3. Cancellation of 3,49,466 equity shares of IMFA.
4. Reduction of share capital of IMFA.
5. Implementation and compliance with the sanctioned scheme.
6. Powers of the court under section 392 of the Companies Act.

Issue-wise Detailed Analysis:

1. Petition under section 392 of the Companies Act, 1956:
The petition was filed by Indian Metals and Ferro Alloys Ltd. (IMFA) seeking to modify the scheme of arrangement and amalgamation by confirming the reduction of share capital of IMFA through the cancellation of 3,49,466 equity shares held by the erstwhile ICCL Shareholders Trust.

2. Modification of the scheme of arrangement and amalgamation:
The original scheme was sanctioned by the court on October 13, 2006, under sections 391 and 394 of the Companies Act, for the amalgamation of Indian Charge Chrome Ltd. (ICCL) into IMFA. Clause 12.1 provided for the issuance and allotment of IMFA shares to ICCL shareholders. However, IMFA, being a shareholder of ICCL, was entitled to 8,64,902 equity shares, which were to be cancelled as a company cannot hold its own shares.

3. Cancellation of 3,49,466 equity shares of IMFA:
To benefit small shareholders of ICCL, clause 13 of the scheme provided that IMFA's entitlement of 8,64,902 shares would be allotted to a trust for sale to small shareholders at a discount. Despite extensions and reminders, only 5,15,436 shares were accepted, leaving 3,49,466 shares unaccepted. The trustees decided to cancel these unaccepted shares as per clause 7.2(c) of the trust deed.

4. Reduction of share capital of IMFA:
The cancellation of the unaccepted 3,49,466 shares would result in the reduction of IMFA's paid-up share capital. The petition sought the court's confirmation for this reduction, arguing that it does not involve diminution of liability or payment to any shareholder, thus not affecting creditors' interests.

5. Implementation and compliance with the sanctioned scheme:
The court had directed the petitioner to advertise the notice of hearing in newspapers, which was duly complied with. No objections were filed against the petition, indicating no adverse effect on the shareholders or creditors.

6. Powers of the court under section 392 of the Companies Act:
Section 392 empowers the court to supervise and modify a sanctioned scheme to ensure its proper working. The Supreme Court in S.K. Gupta v. K.P. Jain emphasized that the court has wide powers to remove obstacles and make necessary modifications for the effective implementation of the scheme.

Conclusion:
The court concluded that the modification sought for the cancellation of 3,49,466 equity shares was necessary for the proper working of the scheme. There were no objections, and the modification did not adversely affect any shareholder or creditor. The petition was allowed, and the scheme was modified to cancel the shares and confirm the reduction of IMFA's share capital. The registry was directed to issue certified copies of the order and the approved minute of reduction for registration with the Registrar of Companies, followed by publication in specified newspapers.

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