Company scheme of arrangement sanctioned after 93% debenture holder approval under Sections 391-394

Madras HC sanctioned a scheme of arrangement under Sections 391-394 between a company and its secured debenture holders. The scheme was approved by 93.16% of debenture holders, with the company's Founder-Director filing an affidavit accepting the arrangement and undertaking compliance. The court found substantial assets available to discharge debenture holders' claims and granted the company petition as prayed, sanctioning the proposed scheme of arrangement.

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Issues Involved:

1. Sanction of the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956.
2. Financial status and operations of Viswapriya (India) Limited.
3. Approval process and objections regarding the Scheme of Arrangement.
4. Compliance with procedural requirements for convening a meeting of debenture holders.

Detailed Analysis:

1. Sanction of the Scheme of Arrangement:

The primary issue was whether the proposed Scheme of Arrangement between Viswapriya (India) Limited and its secured debenture holders should be sanctioned under Sections 391 and 394 of the Companies Act, 1956. The petitioner, a significant shareholder of Viswapriya (India) Limited, sought the court's approval for a rescheduling of the secured debenture obligations. The scheme aimed to ensure that all debenture holders were paid fully, including interest for delayed payment, without impairing the company's operations. The court sanctioned the scheme, noting that 93.16% of the debenture holders agreed to it, and the company had substantial assets to fulfill its obligations.

2. Financial Status and Operations of Viswapriya (India) Limited:

Viswapriya (India) Limited had a net worth of over Rs. 32 Crores and had consistently reported profits. The company was solvent, with assets exceeding its liabilities, allowing for full repayment of debts. However, due to weakened economic conditions, there was a temporary liquidity squeeze. The company had a fund base of Rs. 164.90 Crores as of 31.3.2012, with Rs. 119.21 Crores in secured borrowings via debentures. The scheme proposed to reschedule these obligations to protect the company's operations and the interests of all stakeholders.

3. Approval Process and Objections Regarding the Scheme of Arrangement:

The court considered objections from certain debenture holders and third parties, which were addressed through interim orders. Despite initial resistance, almost all objectors eventually agreed to the scheme. The Central Government Standing Counsel did not file any objections. The court emphasized that the substantial majority approval by debenture holders (93.16%) and the undertaking by the company's Founder-Director to abide by the scheme were pivotal in its decision to sanction the arrangement.

4. Compliance with Procedural Requirements for Convening a Meeting of Debenture Holders:

The court had previously ordered the convening of a meeting of secured debenture holders, appointing a Chairman to oversee the process. The meeting was conducted with strict adherence to procedural requirements, including notice publication and quorum stipulations. The Chairman's report confirmed that the meeting was attended by 2,164 debenture holders, representing a significant portion of the total debentures. The report indicated overwhelming support for the scheme, with 93.16% voting in favor. The court found that the procedural compliance and the substantial majority approval justified sanctioning the scheme.

In conclusion, the court ordered the sanction of the Scheme of Arrangement as proposed, recognizing the overwhelming support from debenture holders and the company's capacity to meet its obligations under the scheme.

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