Court approves Essar Group's Scheme of Arrangement for de-mergers, transfers, and share capital restructuring

The court sanctioned a Composite Scheme of Arrangement involving de-mergers, transfers of business undertakings, restructuring of share capital, and reduction of equity share capital within the Essar Group. Leave was granted to amend petitions, meetings for shareholders and creditors were dispensed with, and compliance with regulatory authorities, including FEMA and RBI guidelines, was confirmed. The court approved the scheme, directing compliance with procedural requirements and payment of costs, finding it in the interest of shareholders, creditors, and the public.

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Issues Involved:
1. Sanction of Composite Scheme of Arrangement
2. Leave to amend petitions
3. Dispensation of meetings for shareholders and creditors
4. Observations and compliance with regulatory authorities
5. Preservation of books of accounts and statutory compliance
6. Exchange Ratio Certificate and shareholding
7. Compliance with FEMA and RBI guidelines
8. Transfer of licenses, approvals, and permissions
9. Compliance with Income Tax Act
10. Approval of the scheme and associated prayers

Detailed Analysis:

1. Sanction of Composite Scheme of Arrangement:
The petitions sought the court's sanction for a Composite Scheme of Arrangement involving multiple de-mergers and transfers of business undertakings among various companies within the Essar Group, including the de-merger and transfer of several identified business undertakings to different entities, amalgamation of residue undertakings, restructuring of share capital, and reduction of issued and paid-up equity share capital.

2. Leave to Amend Petitions:
Leave to amend Company Petition No. 234 of 2016 was sought to add a paragraph under Sec. 103 (1) of the Companies Act and specific prayers regarding the sanction of the Restructure of Share Capital. The court granted the leave considering the facts and circumstances.

3. Dispensation of Meetings for Shareholders and Creditors:
The court noted that meetings of Equity Shareholders and Unsecured Creditors of certain companies were dispensed with due to written consent letters approving the scheme. Separate meetings for Secured and Unsecured Creditors were convened as directed, and the proposed scheme was unanimously approved.

4. Observations and Compliance with Regulatory Authorities:
The Regional Director, Ministry of Corporate Affairs, made several observations. These included factual statements, compliance with FEMA and RBI guidelines, non-disclosure of complete lists of assets and liabilities, and obtaining requisite licenses and approvals. The court found the petitioners' responses and undertakings satisfactory, requiring no further directions.

5. Preservation of Books of Accounts and Statutory Compliance:
The Official Liquidator observed that the affairs of the amalgamating companies were conducted within their object clauses and not prejudicially to members or public interest. The court directed the Amalgamated/Transferee Company to preserve the books of accounts and comply with all applicable provisions of law.

6. Exchange Ratio Certificate and Shareholding:
The Chartered Accountant's report indicated that no shares were required to be issued to the shareholders of Vadinar Ports & Terminal Limited. The petitioners clarified that the entire share capital was held by Essar Ports Limited and Vadinar Oil Terminal Limited, and the scheme envisaged that VPTL would become a wholly-owned subsidiary of VOTL. The court found the clarification satisfactory.

7. Compliance with FEMA and RBI Guidelines:
The observation regarding shareholding by foreign entities and compliance with FEMA and RBI guidelines was addressed by the petitioners, who confirmed compliance with applicable provisions and undertook to continue compliance upon the scheme's effectiveness.

8. Transfer of Licenses, Approvals, and Permissions:
The petitioners confirmed that they had obtained requisite approvals/licenses for their business activities and would apply for the transfer of such licenses and permissions to the Resulting Companies upon the scheme's effectiveness.

9. Compliance with Income Tax Act:
The Regional Director noted that no objections were received from the Income Tax Department. The petitioners undertook to comply with all applicable provisions of the Income Tax Act and Rules.

10. Approval of the Scheme and Associated Prayers:
The court concluded that the Composite Scheme of Arrangement was in the interest of shareholders, creditors, and the public. The scheme, including the restructuring of share capital and reduction of equity share capital, was sanctioned. The court granted the prayers in the petitions and directed the petitioner companies to comply with various procedural requirements, including filing copies of the order and scheme with the Registrar of Companies and the Superintendent of Stamps for adjudication of stamp duty.

Conclusion:
The petitions were disposed of with directions for compliance with procedural requirements and payment of costs to the Central Government Standing Counsel and the Office of the Official Liquidator. The court sanctioned the Composite Scheme of Arrangement, finding it beneficial for shareholders, creditors, and public interest.

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