Composite scheme of arrangement and share capital reduction approved where no net reduction of capital arose after the merger structure.

A composite scheme of arrangement involving transfer of a windmill undertaking, amalgamation of the residue undertaking and restructuring of share capital was approved after shareholder and creditor consent, absence of objections, and satisfaction that the scheme was fair and in the public interest. The court also treated the proposed capital reduction as integral to the scheme and involving no net reduction of capital after issue of shares to the transferor's shareholders, so the reduction procedure under Sections 100 to 103 of the Companies Act, 1956 was dispensed with. Consequential directions were issued on records, tax liabilities, pending proceedings, stamp duty and regulatory compliance.

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Issues: (i) whether the modified composite scheme of arrangement, comprising transfer of the windmill undertaking, amalgamation of the residue undertaking and restructuring of share capital, deserved sanction; (ii) whether the proposed reduction of share capital of the transferee company, being an integral part of the scheme and involving no net reduction of capital, attracted the procedure under Sections 100 to 103 of the Companies Act, 1956.

Issue (i): whether the modified composite scheme of arrangement, comprising transfer of the windmill undertaking, amalgamation of the residue undertaking and restructuring of share capital, deserved sanction.

Analysis: The Court noted that the scheme had been approved by the requisite shareholders and creditors, no objections were received after public notice, and the Official Liquidator found that the affairs of the transferor company had been conducted within its objects and not prejudicially to members or the public interest. The Regional Director's observations were considered and addressed, including protection of tax liabilities, continuation of pending proceedings, regulatory approvals, stamp duty, and preservation of books and records. On the material placed, the Court found the modified scheme to be fair and in the interest of shareholders, creditors and the public interest.

Conclusion: The modified scheme of arrangement was sanctioned.

Issue (ii): whether the proposed reduction of share capital of the transferee company, being an integral part of the scheme and involving no net reduction of capital, attracted the procedure under Sections 100 to 103 of the Companies Act, 1956.

Analysis: The Court accepted that the reduction in the existing equity share capital was part of the composite scheme and, after issue of new shares to the shareholders of the transferor company, there would be no net reduction of capital. In that view, the reduction was treated as not attracting the provisions governing reduction of capital, and the procedure under Section 101(2) and the related rules was dispensed with.

Conclusion: The reduction of capital did not attract Sections 100 to 103 of the Companies Act, 1956, and the statutory procedure was dispensed with.

Final Conclusion: The petitions for sanction of the modified composite scheme were allowed, with consequential directions regarding preservation of records, compliance with law, stamp duty and filing of the order with the Registrar of Companies.

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