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Issues: (i) Whether the modified composite scheme of arrangement, comprising compromise with lenders, reconstruction of the demerged company and demerger of the Sachana undertaking, satisfied the requirements of Sections 391 to 394 of the Companies Act, 1956. (ii) Whether the classification of lenders into Class A and Class B and the approval obtained in the meetings was valid and binding. (iii) Whether the objections based on alleged non-disclosure, pending recovery proceedings, SARFAESI action, bank guarantee liabilities, reduction of share capital and tax benefits vitiated the scheme.
Issue (i): Whether the modified composite scheme of arrangement, comprising compromise with lenders, reconstruction of the demerged company and demerger of the Sachana undertaking, satisfied the requirements of Sections 391 to 394 of the Companies Act, 1956.
Analysis: The statutory framework permits compromise or arrangement between a company and its creditors or members, and also enables reconstruction, amalgamation and transfer of undertaking as part of the same scheme. The Court held that a demerger scheme is maintainable within this framework and that the company court exercises a supervisory, not appellate, jurisdiction. The scheme was backed by the requisite approvals of shareholders and lender classes, and there was no legal bar merely because the arrangement involved restructuring, compromise and demerger together.
Conclusion: The scheme fell within the scope of Sections 391 to 394 of the Companies Act, 1956 and was legally maintainable.
Issue (ii): Whether the classification of lenders into Class A and Class B and the approval obtained in the meetings was valid and binding.
Analysis: The Court applied the principle that a class is determined by the terms of treatment under the scheme and by commonality of interest, not by individual disputes, purchase price of debt or subjective perceptions of different lenders. Since all lenders within each class were offered the same terms, there was no impermissible class within a class. The meetings were properly convened, the statutory majority approved the scheme, and the commercial wisdom of the majority could not be displaced absent fraud, unfairness or lack of bona fides. An assignee of debt was entitled to participate and vote as lender to the extent of the assigned rights.
Conclusion: The lender classifications and the approvals recorded in the meetings were valid and binding.
Issue (iii): Whether the objections based on alleged non-disclosure, pending recovery proceedings, SARFAESI action, bank guarantee liabilities, reduction of share capital and tax benefits vitiated the scheme.
Analysis: The Court held that the explanatory material was adequate because the lenders were aware of the relevant facts and the meetings had discussed the issues. Pending DRT proceedings and SARFAESI measures did not oust the company court's jurisdiction to sanction a scheme under Sections 391 to 394, since the scheme and SARFAESI remedies were not inconsistent. The bank guarantee liability could be dealt with within the package scheme. Reduction of share capital could be sanctioned as part of the scheme where the requisite procedure was substantially complied with. The tax benefit arising from carry-forward and set-off of losses was statutorily recognised and did not amount to fraud on revenue.
Conclusion: None of the objections was sufficient to defeat the scheme.
Final Conclusion: The Court sanctioned the modified composite scheme of arrangement and directed that it bind the concerned shareholders and lenders, with the consequential filing and registration directions.
Ratio Decidendi: A scheme under Sections 391 to 394 of the Companies Act, 1956 must be sanctioned when it is procedurally compliant, supported by the requisite statutory majority, fair and reasonable to the class concerned, and not shown to be vitiated by fraud, manifest unfairness or violation of law; commercial wisdom of the majority prevails over individual dissent in the absence of such defect.
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