TaxTMI 
TaxTMI 
2007 (3) TMI 369
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....and demerger between Core Healthcare Ltd., and Nirma Ltd., and their respective shareholders. The petitioner-company has prayed for the following reliefs: "(a)The modified composite scheme of arrangement referred to in paragraph 15 of this petition and being annexure with this petition hereto, be sanctioned by this Hon'ble Court so as to be binding on all equity shareholders, class 'A' lenders and class 'B' lenders of the petitioner-company and on the petitioner-company; (b)That the petitioner company do within 30 days from the date of sealing of the order cause a certified copy of the order sanctioning the scheme of arrangement to be filed with the Registrar of Companies, Gujarat, Ahmedabad, for registration and upon such certified copy of the order being so delivered, the Registrar of Companies, Gujarat, Ahmedabad, be directed to consolidate all relevant files, documents, records relating to the demerged company maintained by him with the files, documents, records of the resulting company; (c )For such incidental, consequential and supplemental orders and directions may be given as may be made in the premises as to this Hon'ble Court may deem fit and proper; (d)Costs ....
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.... resolution passed on 8-11-1993. One Nilnita Chemicals Ltd., was amalgamated with Nirma under order dated 3-5-1995, passed by the High Court. Vide another order dated 19-12-1996, passed by this Court, the three companies, namely, Nirma Detergents Ltd., Nirma Soaps and Detergents Ltd., and Shiva Soaps and Detergents Ltd., were amalgamated with Nirma Ltd. Under order dated 13-8-2003, passed by this Court, the operating division of Nirma Industries Ltd., was demerged and transferred to Nirma Ltd. 9. As per the latest audited balance-sheet as on 31-3-2005, the authorised, issued, subscribed and paid-up share capital of Nirma consist of the following : Share Capital as on 31-3-2005 Authorised: (Rs.) 9,50,00,000 equity shares of Rs. 10 each 95,00,00,000 5,00,000 6 per cent Redeemable non-cumulative non-convertible preference shares of Rs. 100 each 5,00,00,000 Total 1,00,00,00,000 Issued and subscribed: 7,94,01,376 equity shares of Rs. 10 each fully paid-up 79,40,13,760 2,79,285 6 per cent Redeemable non-cumulative non-convertible preference shares of Rs. 100 each 2,79,28,500 Total 82,19,42,260 Paid-up: 7,93,82,4....
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.... aggressive growth plan in 1993-95, involving investment of about Rs. 600 crores for expansion of its existing facility and also diversification into manufacture of medical devices. The plan was validated by the board of directors, consultants, lenders and also appraised by all lenders while sanctioning the loans. Based on the same, the company set up one of the world's most modern and largest, pharmaceutical manufacturing facility across 600 acres of land with most modern manufacturing technology from world-renowned suppliers. The company continued to achieve appreciable growth in sales and financial performance despite significant increase in costs, overheads and fixed charges up to 1996. The company's new manufacturing facility for I.V. Fluids won the prestigious IDMA award for 1994-95 in its very first year of operations the highest recognition for quality assurance in Indian Pharmaceutical Industry. The facility at Sachana also received ISO 9002 approval and also was certified for GMP as per World Health Organisation (WHO) standard. The medical devices products of the company were awarded "CE Mark". Such quality recognitions of the new plant at Sachana reinforced the commitmen....
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....er in the fast moving consumer goods segment. It is engaged in the business of manufacture of synthetic detergents, toilet soaps, linear alkyl benzene and soda ash, etc., having a turnover of approx. Rs. 2,150 crores during the financial year ended on 31-3-2005. The operating profit for the year was Rs. 510 crores. The company has reserves and surplus of more than Rs. 1,792 crores. The shares of the company are listed on Mumbai Stock Exchange and National Stock Exchange. "NIRMA" today is one of the largest selling detergent brand with a sustained growth in the Indian market. The company has also penetrated and developed toilet soap segment as well as premium segment and successfully acquired substantial market share. It has established integrated soaps and detergent plants, employing the state-of-the-art technology located at Mandali, Chhatral, Moraiya, Trikampura, Kalatalav and Alindra in the State of Gujarat. The logistic advantage with the geographical dispersal of the manufacturing bases has enabled it to respond to the emerging and hitherto untapped market needs with more pro-active, dynamic and near-to-the-customer approach, resulting into savings in cost and time, both. The ....
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....tments, debtors, loans and advances over a period of time. The company has balance of miscellaneous expenditure as well as debit balance of profit and loss account. Similarly, as a consequence to the proposed compromise, the value of the liabilities of the company also undergoes a substantial change. The net effects of the above are to be reflected in the reconstruction account. In order to realise the realistic financial position of the company, it is proposed that an amount not exceeding Rs. 5.66 crores standing in the share premium account of the company be utilised to adjust/write off the balance of the said reconstruction account. Under clause 46 of the articles at Table "A", which is Schedule I to the Act, and which have been adopted by the applicant generally as its articles of association, subject to the provisions of sections 78 and 100 of the Act, the petitioner-company is authorised to use its share premium account for the said purpose. 21. Accordingly, the board of directors of the petitioner-Core resolved in their meeting held on 25-10-2005, that subject to the approvals of the shareholders and lenders and subject to directions and sanctions of the appropriate court....
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....r between M/s. Core and Nirma and their respective shareholders. Despite objects raised by M/s. HDFC, one of the lenders, the court allowed the application and directed as under : "(a)That separate meetings of the equity shareholders, class 'A' lenders and class 'B' lenders (of the demerged undertaking, as defined in the scheme) of the applicant-company be convened and held at the registered office of the company at village Sachana, Taluka Viramgam, Distt. Ahmedabad on Friday, 9-12-2005 at 9.30 a.m., 10.30 a.m. and 11.30 a.m., respectively, for the purpose of considering, and if thought fit, approving with or without modifications, the composite scheme of arrangement in the nature of compromise with the lenders and reconstruction of Core Healthcare Ltd., the applicant demerged company, reorganisation of capital of Nirma Ltd., the resulting company and demerger and transfer of undertaking (as defined in the scheme) of Core Healthcare Ltd., the applicant-company to Nirma Ltd., the resulting company and its shareholders. (b)That at least 21 days before the meetings be held as aforesaid, notice convening the said meetings, indicating the day, the date, the place and the time as a....
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....ater than 48 hours before the said meetings. (h)The value of the vote of each equity and preference shareholder of the company shall be as per the entries in the registers and/or books of account of the company and where the entries in the records or registers are disputed, the chairman of the meetings shall determine the value or number for the purposes of the meetings and his decision in that behalf would be final. (i )The chairman do report to this Court, the result of the said meetings within 14 days of the conclusion of the meetings and the said report shall be verified by his affidavit." 24. The court also observed that in view of the special circumstances and the facts of the case, the requirements, to meet the provisions of section 101(2) of the Act with the procedure, as is required under rules 48 to 65 of the Companies (Court) Rules, 1959, could be conveniently dispensed with. 25. Company Petition No. 9 of 2006, has been filed by Nirma. The objects of the petition is to obtain sanction of the court to the composite scheme of arrangement in the nature of compromise with the lenders and reconstruction of Core, the demerged company, reorganisation of capital of N....
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....ulting company and its shareholders. (b)That at least 21 days before the meetings be held as aforesaid, "notice" convening the said meetings, indicating the day, the date, the place and the time as aforesaid, together with the copy of the scheme of agreement, copy of the explanatory statement required to be sent under section 393 of the Companies Act, 1956, and the prescribed form of proxy shall be sent by a pre-paid letter posted under certificate of posting, addressed to each of the equity and preference shareholders of the applicant-company at their last known address. (c)That at least 21 clear days before the meetings to be held as aforesaid, notice, convening the said meetings, indicating the day, the date, the place and the time as aforesaid be published, stating that copies of the scheme of agreement, the explanatory statement required to be furnished pursuant to section 393 of the Companies Act, 1956, and form of proxy can be obtained free of charge at the registered office of the applicant-company and/or at its advocate's office, i.e., 204, Akanksha, opposite Vadilal House, Mithakhali, Navrangpura, Ahmedabad-380 009, be published once each in The Times of India (Ahme....
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....f the company were duly convened on 9-12-2005. In accordance with the orders passed by the court, Shri Chinubhai R. Shah chaired the meeting. Shri Chinubhai R. Shah reported the results of the meeting to this Court which are as under: ( a)(i)The said meeting of the equity shareholders of the company was attended by 29 (twenty nine) equity shareholders of the said company entitled to together Rs. 16,36,12,800 being 163,61,280 equity shares of Rs. 10 each. The said scheme of arrangement was taken as read with the permission of all the equity shareholders present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29-11-2005, for the approval of the scheme, were also put before the equity shareholders of Core and the same were explained and discussed at the meeting. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified scheme of arrangement submitted to the meeting and the same we....
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.... and voting Value of debt (Rs. in lakhs) % of total holding present and voting In favour 7 70 111,545.40 90.42 Against 3 30 11,816.45 9.58 Invalid votes 2 N.A. 3,095.08 N. A. Total present 12 126,457.65 Total valid voting 10 123,361.85 Out of total 12 ballot papers, two ballot papers representing the value of debt at Rs. 3,095.08 lakhs were treated as invalid as the same did not indicate whether the votes were cast in favour or against the proposed modifications. Thus, the proposed modifications were approved by majority of 70 per cent in number and 90.42 per cent in value of the class "A" lenders present and voting at the meeting, for being adopted and carried into effect by modifying the proposed scheme. ( v)Vote for the approval of the modified scheme showed the following result : Out of 12 lenders present at the meeting, 8 (eight) lenders having the total value of their debt at Rs. 112,070.40 lakhs voted in favour of the resolution approving the modified scheme and 3 (three) lenders having the total....
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....re made to consider the scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29-11-2005, for the approval of the scheme, were also put before the class "A" lenders of Core and the same were explained. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified scheme of arrangement submitted to the meeting. ( iii)Vote for the approval of the modifications showed the following result : Class "B" lenders Nos. % of total present and voting Value of debt (Rs. in lakhs) % of total holding present and voting In favour 71 94.67 31,542.63 90.61 Against 4 5.33 3,267.42 9.39 Invalid votes - - - - Total present 75 34,810.05 100 Thus, the proposed modifications were approved by majority of 94.67 per cent in number and 90.61 per cent in value of the class "B" lenders present and voting at the meeting, for being adopted and carried in....
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....re at Rs. 2,000 was cast against the modifications and 2 votes representing the value of shares at Rs. 3,920 were found to be invalid as the folio number and the name of the shareholder did not match with that of the register of the company. Thus, the modifications were approved by the majority of 97.27 per cent in number and 99.99 per cent in value by the equity shareholders present and voting at the meeting. (c)Since the proposed modifications were approved by the said meeting with requisite statutory majority, the duly modified scheme was then put for consideration and to vote. The poll was taken to ascertain the wishes of the equity shareholders which showed the following result: (i)108 (one hundred and eight) votes were cast representing the value of the shares at Rs. 64,39,06,360. Out of the same, 106 (one hundred and six) votes of the equity shareholders present, in person or through proxy, in the meeting representing the value of Rs. 64,39,02,440 were found to be in favour of the proposed resolution. Whereas 2 (two) votes representing the value of shares at Rs. 3,920 were found to be invalid as the folio number and the name of the shareholder did not match with that o....
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....nterest Act, 2002 ('the SARFAESI Act') and ARCIL is working as a trustee of ARCIL-Core Healthcare Trust. According to them, once ARCIL had exercised the powers under the SARFAESI Act, it can never be defined as class "B" lender. According to them, as various creditors and banks have assigned their loans in favour of ARCIL, neither the banks nor ARCIL can be classified in class "A" lenders. Conduction of the meeting was condemned alleging that it was done in violation of the principles of natural justice, no appropriate notices were issued, the scheme is against public interest, 90 per cent of the amount would go to class "A" lenders while only 10 per cent would be paid to class "B" lenders, which suggests that the amount available for distribution amongst class "B" lenders would be negligible. They have submitted that they have already instituted suits against Core and in view of pendency of the suits, the scheme cannot be approved. 35. Another objection was raised by HDFC Bank Ltd. (hereinafter referred to "HDFC" for brevity), they have submitted that they are secured creditors of Core and have to recover a sum of Rs. 28,70,72,244. According to them, HDFC has charge over the st....
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....ng, a firm of chartered accountants, as a special investigative audit to conduct audit of Core. M/s. Ernst and Young, vide its special investigative audit report, made several observations with respect to the working of the company. According to the objector, the said report revealed various acts of malfeasance and misfeasance by the directors of Core. It was observed by M/s. Ernst and Young that the company failed to show its books of account and other materials on certain occasions and M/s. Ernst and Young were left with no other alternative but to arrive at inferential conclusions. Various parts of the said reports have also been referred to in the objections. According to the objector, Core formulated an artificial definition under the scheme of the "secured creditors", which included only those who have security over the fixed assets of the company and they were classified as class "A" lenders. According to the objector, HDFC, which has security of raw materials, stocks, book debts and receivables, could not be put under the definition of class "B" lenders. Their further objection is that the debenture holders as well as the unsecured creditors without their proper description....
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....effect attempting to defraud public monies of the bank. 36. It is also submitted by them that Core has obtained revalidation for compliance of export obligation till 8-10-2007, and the Government of India, Ministry of Commerce has, by a letter dated 27-12-2005, addressed to the company with a copy to HDFC, stated, inter alia, that he has no objection to refund the sum of Rs. 987.24 lakhs already forfeited provided a new bank guarantee for the same amount is executed by the bank with the Commissioner of Customs, Mumbai. Their submission is that if the export obligations are performed, the amount of Rs. 987.24 lakhs would be received by Core and the same would amount to unjust enrichment if the said amount is not refunded to HDFC. Their further submission is that if the scheme is approved, the objector would get only 3 per cent while Core is likely to get back a sum of Rs. 987.24 lakhs by way of refund. Their submission is that this is a dishonest attempt on the part of Core. 37. It is also submitted by them that Core had wrongly included ARCIL in class "A" lenders, showing value of their claim of Rs. 82,270.64 lakhs permitting ARCIL to vote in favour of the scheme. Their submi....
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....market value thereof is likely to be much more than the depreciated or book Value. They also submitted that Nirma is acquiring Sachana unit of Core as a going concern and as per clause (8) of the scheme, Nirma is claiming set off of the accumulated losses and unabsorbed depreciation. According to the objector, Nirma is likely to claim set off of more than Rs. 1,200 crores and are likely to save more than Rs. 400 crores by way of tax benefits. According to them, grant of the scheme would cause loss to the revenue because the scheme is a fraud upon the revenue. They also submitted that HDFC had filed Original Application No. 77 of 2005 before the Debts Recovery Tribunal, Ahmedabad, which is pending, and as the said Recovery Act is a special Act, it would have precedence over the provisions of the Act. They submitted that the scheme be rejected. 40. Yet another objection has been filed by Oman International Bank S.A.O.G. submitting, inter alia, that Oman Bank is a secured creditor of the company and in terms of letter dated 7-12-2005, they had filed their objections before the chairman of class "A" lenders of the company. According to them, no reply to the objections was filed by a....
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.... shadow of doubt and would not make the proposal a valid proposal. They submitted that the scheme of compromise does not disclose the particulars of the secured as well as unsecured creditors and the amount due to each of the said class of creditors. According to them, the petitioner did not give the detailed particulars of lists of class "A" and class "B" creditors, amount due to each of the creditors falling in each of the classes, any agreement or otherwise arrived at with any class of creditors, percentage of sacrifice each of the creditors has to undergo and the criteria adopted for determining the classification. 43. Their further objection is that the objector had advanced foreign currency loan to the petitioner-company, therefore, they cannot be equated with that of other Indian lenders. It is also submitted by them that the scheme of compromise does not disclose the value of assets, no valuation report is shown/indicated, without placing the valuation report of the approved and independent valuer how would the figure of Rs. 138 crores could be arrived at and the company purposefully has not given realisable value of each of the assets. It is submitted that there is no t....
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....ause (a) and clause ( b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 47. Section 530 of the Act provides that in a winding up, subject to the provisions of section 529A, there shall be paid in priority to all other debts,-(a) all revenues, etc.; (b) all wages or salary of employees; (c) all accrued holiday remuneration, etc. After all such debts are paid, the shareholders would be entitled to receive their share value and thereafter, the balance would be given to the promoters. 48. In the present case, undisputedly, the assets of the company is valuing at Rs. 500 crores (as observed by some of the objectors) or Rs. 138 crores as has been offered by Nirma, with the money the entire liability of the workmen and the secured creditors cannot be discharged. If the entire liability cannot be discharged, then, nothing would be available for paying to the shareholders. In the present scheme, for 80 shares of Core, one share of Nirma would be offered by Nirma. If the scheme is accepted, then, every shareholder of Core would be benefited because, undisputedly and as would appear from the....
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....ntitled to recover the said amount from Nirma. I have already observed while dismissing the objections made by Mr. Modi that in case a company is to be put under liquidation and the entire property of Core, including both the units, namely, Rajpur and Sachana, are auctioned, then too, money to discharge the liability or pay to the secured creditors would not be made available. If such is the situation, then, the excise department even in case of liquidation and sale of the property would not be in a position to recover anything. Would it be prudent for the excise department to oppose to the scheme, which provides payment of a sum of Rs. 1,93,19,641 or to go in liquidation of the company and receive nothing. The excise department is neither a workman nor a secured creditor. If they are unable to get anything in the liquidation proceedings, then, it would be wise and prudent for them not to object to the scheme so that in future, they get something against nothing. The objections filed by the Union of India, being misconceived, are rejected. 53. In reply to the objections filed by the HDFC Bank, the petitioner-company, Core, has filed its reply dated 14-4-2006. It is submitted tha....
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....ubmitted that the objection that some of the creditors wanted audit of Core when the matter was pending before the BIFR would lead to nothing, because present is not a case to find out whether the company is sick or not, present is a case for restructuring a company and scheme is for compromise and/or arrangement between the petitioner-company and its shareholder and lenders. They also submitted that the writing off of some amount by majority is not a question to be considered in these proceedings, because these proceedings are in relation to the scheme and are not relating to malfeasance or misfeasance. It is submitted that the misconduct on the part of the management and mismanagement of the company concerned would not be relevant consideration, because, this Court is not required to decide that whether company suffered losses because of the mismanagement. 55. They also submitted that they did not create any artificial definition of "secured creditors" under the scheme. They submitted that debenture holders also held security but that does not have the first charge. According to them, Core has not placed any creditor in class "B", which is not a lender to Core. According to th....
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....of its market value today is lower than 10 per cent which is coming to their share. They submitted that this matter is purely in the realm of the discussion, negotiations and satisfaction between the respective creditors, inter se and between one and another group and between all of them at one end and Nirma on the other. According to them, the issue has no bearing to the validity of the scheme. They submit that ARCIL, certainly would be creditor of Core to the extent of Rs. 82,273.64 lakhs, because the lenders who had right to recover the amount and had transferred the debt in favour of ARCIL, had to recover the said amount. They submit that question that for what ARCIL had purchased the debt would be immaterial, because, ARCIL had paid some money to all such persons who had lost all their hopes to recover anything from Core. According to them, ARCIL having acquired financial assets from the banks and other financial institutions under the provisions of section 5 of the SARFAESI Act has become lender to the extent of the original amount and interest thereon. They also submit that ARCIL would not be benefited and is also not charging any fees, but it would be entitled to recover ac....
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....y lender had any objections, then the same were to be projected in the meetings. Once statutory majority which includes international banks, financial institutions, foreign banks and private banks, had considered everything, then it would be too much to say that the other institutions which had higher stakes approved the scheme without understanding it. According to them, in the meeting dated 23-11-2005, ARCIL had agreed that sale proceeds from sale of shares will be distributed by it in the same manner and on the same basis as is contained in the case of Sachana unit. According to them, benefit of pledge of shares would be available to the whole body of lenders of Core and ARCIL, and ARCIL is not to make any profit from such sale. It is also submitted that it was open to each class of lenders to oppose the scheme if it was felt that the scheme was unfair or against their interest. They submit that it was open to every lender to discuss with other lenders that their class had been given unfair terms and therefore the scheme be rejected. They submit that barring present objector, Oman International Bank, everybody understood that the scheme was fair and was not only in the interest ....
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....lakhs in favour of Astramd Technologies Ltd. Their submission is that purchaser of the debt, specially, ARCIL has acquired financial assets from the banks and financial institutions under section 5 of the SARFAESI Act and it has become lender. It is further submitted that minority was not forced to accept the settlement in order to promote interest of ARCIL. Core had filed yet another affidavit dated 13/14-12-2006, wherein, they had submitted that Core did not know that for what amount financial institutions had assigned their debt in favour of ARCIL, but the said institutions had informed the petitioner that the debts were assigned. By further affidavit dated 5-1-2007, it is submitted by them that the board of directors of the company at its meeting held on 27-6-2006, passed a resolution for extending time up to 31-12-2006, and ARCIL had granted its approval and thereafter board of directors of the company again extended the time up to 31-6-2007. They have also submitted that IDBI, ICICI, IFCI, SBI, SBM and SBT had assigned their debt of Rs. 82,270.64 lakhs in favour of ARCIL. On 9-1-2007, HDFC Bank again filed its affidavit wherein they informed that certain bank guarantees were ....
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....is being wound up, on the liquidator and the contributories of the company : Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the Tribunal under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every office....
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....e interests of other persons; and (b)in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such statement as aforesaid. (2) Where the compromise or arrangement affects the rights of debenture holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company's directors. (3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement. (4) Where default is made in complying with any of the requirements of this section, the company, and every off....
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....f any legal proceedings pending by or against any transferor company; (iv)the dissolution, without winding up, of any transferor company; (v)the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; and (vi)such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out : Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company which is being wound up, with any other company or companies, shall be sanctioned by the Tribunal unless the Tribunal has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest : Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Tribunal unless the official liquidator has, on scrutiny of the books and papers of the company, made a report to the Tribunal that the affairs of the company have not....
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.... not homogeneous. Class "B" lenders include assignees of the debt being ARCIL, Niya Finstock (P.) Ltd., and Astramed Technologies Ltd., representing Rs. 3,676.63 lakhs, Rs. 10,385 lakhs and Rs. 5,371.60 lakhs of value of debts of class "B" lenders. Since the debts had been purchased at a fraction of the value by the assignees, the compromise offered under the scheme to the class "B" lenders (3.8 per cent of the outstanding amount as on the cut off date) is effectively and in substance different, for the original lenders would have to sacrifice 96.2 per cent of their claim. According to them, assignees being the majority would ride rough shod over the original lenders-minority representing a distinct interest, despite which they have been clubbed together. Explanatory statement issued by Core does not disclose necessary facts and material in relation to the scheme as provided under section 393(1)(a) of the Act. It was necessary to disclose relevant material facts inter alia being that ARCIL got assigned to itself substantial debts of Core of various banks/financial institutions and ARCIL took possession of the assets of Core under the SARFAESI Act. According to them, ARCIL having pu....
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....at the scheme is neither legal nor fair and reasonable. Before the scheme came to be proposed, notices were served and possession of the secured assets was taken by ARCIL under the SARFAESI Act and the said Act has to prevail over the provisions of the Companies Act. Once the possession has been taken under the SARFAESI Act and such action has not been challenged by Core, assets are required to be disposed of in accordance with the provisions of the SARFAESI Act and sale proceeds are required to be distributed as per the provisions of the SARFAESI Act. According to the objections, the SARFAESI Act does not contemplate disposal of assets in the form of scheme of compromise and/or arrangement. According to them, the SARFAESI Act proceeds for liquidating assets to realise debts of secured creditors which would mean that compromise and/or arrangement was not found possible and therefore, secured creditor has proceeded further to liquidate the assets 75 per cent of the secured creditors in value take a decision to liquidate the assets of debtor by enforcing security would imply that 75 per cent of the secured creditors take a decision not to compromise the debt and decide to liquidate t....
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....d creditors, because it never lent money to the company but in fact, it had purchased debts and the assignment is secured at a price much less than the amount of debts. Under the circumstances, consideration for sanctioning the scheme of compromise for ARCIL would be different. It is also submitted by them that the Company Court has no jurisdiction to pass an order taking away effect of O.A. (DRT proceedings) and the reliefs claimed thereunder. They are placing their reliance upon the judgment of the Supreme Court in the matter of Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64. They also rely upon a judgment in the matter of Fidelity Investment International Plc. v. My Travel Group Plc. [2006] 1 Comp. LT 152 (CA). They also submit that the petitioner has approached this Court with tainted hands by suppressing and without placing valuation report of the assets of Core. They submit that the petitioners are not entitled to any of the reliefs from this Court. They place reliance upon the judgment in the matter of Rajasthan Financial Corporation v. Official Liquidator [2005] 128 Comp. Cas. 387; [2005] 8 SCC190. They submit that demerged undertaking is not being transferred for f....
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.... "Class A" lenders Nos. % of total present and voting Value of debt (Rs. in lakhs) % of total holding present and voting In favour 7 70 111,545.40 90.42 Asset Reconstruction Co. (India) Ltd. 1 82,270.64 Dresdner Bank AG 1 13,892.19 GE capital through Alpa 1 3,605.98 One Revitalization Vehicle HSBC 1 4,064.19 Standard Chartered 1 2,570.80 Burgan Bank 1 3,213.50 State Bank of India 1 1,928.10 Against 3 30 11,816.45 9.58 Dena Bank 1 3,833.11 Oman International Bank 1 2,570.80 LIC 1 5,412.54 Invalid votes 2 N.A. 3,095.80 Total votes 12 126,457.65 Total valid voting 10 123,361.8....
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....e circumstances, the scheme cannot be said to be illegal. 67. I will take up the objections and their replies later on, but, at this stage, I am tempted to refer to the judgment of the Supreme Court in the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 792^1 . The said judgment has been relied upon by both the sides. Both sides say that what should be the approach of the court in the matter of sanction of the scheme. The relevant part of the said judgment reads as under: "However, the further question remains whether the court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by section 391(2). On this aspect, the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote ....
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....e supervisor cannot ever be treated as the author or a policy maker. Consequently, the propriety and the merits of the compromise or arrangement have to be judged by the parties who are sui juris with their eyes open and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise, or arrangement. The court cannot, therefore, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of commercial democracy, permeating the activities of the concerned creditors and members of the company who in their best commercial and economic interest by majority agree to give the green signal to such a compromise or agreement. The aforesaid statutory scheme which is clearly discernible from the relevant provisions of the Act, as seen above, has been the subject of a series of decisions of the different High Courts and this Court as well as by the courts in England which had also occasion to consider schemes under pari materia English company law. We will brief....
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....ss whom they purport to represent; and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve it.' [Emphasis supplied] To similar effect were the observations of Fry L. J., which read as under: 'The next enquiry is-under what circumstances is the court to sanction a resolution which has been passed approving of a compromise or arrangement? I shall not attempt to define what elements may enter into the consideration of the court beyond this, that I do not doubt for a moment that the court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proposition was made in good faith; and, further, it must be satisfied that the proposal was at least so far fair and reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the court may take into consideration I will not attempt to forecast.' In Anglo-Continental Supply Co. Ltd., In re [1922] 2....
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....llowing pertinent observations in this connection in paragraphs 3 and 6 : 'But what was lost sight of was that the jurisdiction of the court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical tests. A Company Court does not exercise an appellate jurisdiction. . . . Section 394 casts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered into between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved the principle of "prudent business management test" or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising the profit of the shareholders or whether the interest of employees was protected but it has to ensure that the merger shall not result in im....
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....d almost unanimously by the shareholders, debenture holders, secured creditors, unsecured creditors and preference shareholders of both the companies. There must exist very strong reasons for withholding sanction to such a scheme. Withholding of sanction may turn out to be disastrous for 60,000 shareholders of TOMCO and also a large number of its employees.' (p. 528) In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly of earmarked. The following broad contours of such jurisdiction have emerged : (1) The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)(a) have been held. (2) That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391(2). (3) That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of vo....
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....jurisdiction." (p. 94) 68. From this judgment, it would be clear that in the scheme proceedings, the court does not sit in judgment over the commercial wisdom of the parties to the scheme, the court has supervisory role in the matter of sanction of the scheme, the court is not required to find out as to whether a better scheme could have been adopted by the parties and unless the court finds that the action of majority is manifestly unfair and fraud is involved in the scheme, the court cannot reject the scheme. 69. In the matter of Sussex Brick Co. Ltd., In re [1960] 30 Comp. Cas. 536 (Ch. D), the court has observed as under : "That being the undoubted law, I think that the present scheme and present offer are undoubtedly open to criticism, and that a clever businessman, a man well versed in company law and matters which influence dealings on the stock exchange, could find a good many loopholes in it. That amounts to this : the scheme is open to criticism; but does that go far enough ? That is the difficulty in the present case. It has not been suggested on behalf of the applicant that there has been any bad faith or any intentional misleading of the applicant, but althoug....
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....grounds of such a nature as to render the whole thing unfair in the sense in which Maugham, J. used the words in the case which I have cited. ****** Without putting my own view as to how this scheme could have been improved and made a little more favourable and a little more fair, perhaps, to the ordinary shareholders, I do not think that unfairness in the sense in which it has been used in the reported cases has been established. It must be affirmatively established that, notwithstanding the view of the majority, the scheme is unfair, and that is a different thing from saying that it must be established that the scheme is not a very fair or not a fair one : a scheme has to be shown affirmatively, patently, obviously and convincingly to be unfair." (p. 538) 70. The said judgment has been followed by the Calcutta High Court in the case of Maknam Investments Ltd., In re [1996] 87 Comp. Cas. 689 as also Bombay High Court in the case of Larsen & Toubro Ltd., In re [2004] 121 Comp. Cas. 523^1. From the above referred judgment it would again be clear that unless the court records that the scheme is absolutely unfair and tantamounts to fraud and unfair to the meanest intelligence....
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....her de jure by a consolidation of their undertaking, or de facto by the acquisition of a controlling interest in the share capital of one by the other or of the capital of both by a new company. It has now been established that the compromise and arrangement covered by section 391 are of the widest character ranging from a simple composition or moratorium to an amalgamation of various companies with a complete reorganisation of their shares and loan capital. The next question is : what do the words 'compromise' and 'arrangement' connote ? Pennington on Company Law has observed as under : 'A compromise has been described as an agreement terminating a dispute between parties as to the rights of one or both of them, or modifying the undoubted rights of a party which he has difficulty in enforcing. An arrangement, as the expression is used in the Companies Act, 1948, embraces a far wider classes of agreement, and it need be in no way analogous to a compromise, so that it will include agreements which modify rights about which there is no dispute, and which can be enforced without difficulty.' If such is the wide meaning of the word 'arrangement', the fact that the scheme of compr....
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....re prescribed in section 395 is followed. Any scheme of compromise and arrangement under section 391 must undisputably be between the company and its creditors and members or any class of them. But under section 395 an individual or a company may directly by making offer to the shareholders of the other company and completely ignoring the company buy over the shares and if they are in a position to buy or acquire nine-tenths of the total shares they can force the dissenting minority to compulsorily sell its shares to the purchaser. This result can be brought about by sidetracking the first company. The contention, however, is whether such a thing can at all be said to be a scheme of compromise and arrangement between the company and its shareholders and creditors. In other words, Mr. Shah specifically contended that where by a scheme of compromise so-called attempt is made to take over one public limited company by another public limited company, it can never be said to be a scheme of compromise and arrangement between the company and its shareholders and members. There is no compromise between the company and its shareholders and it was urged that this can hardly be said to be an ....
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....ny's funds more than his agreed contribution in respect of his shares. It was, therefore, felt that it would be a remarkable thing to find that any section of the Act authorised a majority of his fellow shareholders to require, even with the approval of the court that same shareholder to return to the company a part of what he had received from it in respect of his statutory obligations, such return being for a purpose which the company could quite conveniently achieve and if so ought assuredly to provide for out of its own corporate funds. Justice Younger further felt that there is attached to the section throughout its history the idea of some difficulty to be resolved by a compromise or arrangement of rights on one side or the other-a situation which prior to the enactment of the section only necessitated winding up of the company. He was, therefore, not inclined to extend section 120 to cover up a scheme of arrangement which compelled a shareholder to part with his own shares in return for shares of some other company. He rejected the scheme on the ground that the scheme itself could not be said to be either compromise or a disputed claim or an arrangement between shareholders ....
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....ired by the Irish Bank.'-that is to say, the Bank of Ireland-'and the National Bank will become a wholly-owned subsidiary of the Scottish bank.' I have taken pains to set out the broad outlines of the scheme to show that the scheme which I am now considering is almost identical though not as complicated as one in the aforementioned case, the very effect of the scheme if sanctioned being to make National Bank which had proposed the scheme wholly-owned subsidiary company of the Scottish bank. In the case before me, the scheme is between Navjivan and its shareholders and creditors, sponsored by Kohinoor and the scheme if sanctioned would have the effect of making Navjivan a wholly-owned subsidiary company of the Kohinoor. The question in terms raised is : can such a thing be said to be a scheme of arrangement between Navjivan and its creditors and shareholders ? and, secondly, whether it can be sanctioned under section 391 ? Second question raised by Mr. Shah will also stand answered by this decision that such a scheme would be covered by section 395 and the procedure contemplated therein should have been carried out. When the scheme in the National Bank's case [1966] 36 Comp. Cas.....
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....ny such limitation in terms and I see no reason for implying any. Moreover, the two sections, sections 206 and 209, involve quite different considerations and different approaches. Under section 206 an arrangement can only be sanctioned if the question of its fairness has first of all been submitted to the court. Under section 209, on the other hand, the matter may never come to the court at all. If it does come to the court, then the onus is cast on the dissenting minority to demonstrate the unfairness of the scheme. There are, therefore, good reasons for requiring a smaller majority in favour of a scheme under section 206 than the majority which is required under section 209 if the minority is to be expropriated.' (page 637). It would thus appear that even if the scheme of compromise and arrangement, in essence involves acquisition by one company of the whole of the share capital of another company notwithstanding the fact that 90 per cent of the shareholders do not agree as envisaged by section 395, the same can still be sanctioned under section 391 and it is no answer to the problem that such a scheme can only be considered under section 395. At this stage, one submission....
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....lt that may be achieved by the one or the other scheme may be the same. The present scheme in my opinion being one under section 391(1) it is immaterial and irrelevant whether any procedure prescribed in section 395 has or has not been carried out. The third limb of the submission under this head was that the scheme is in fact a scheme of amalgamation of the Navjivan with the Kohinoor and, therefore, the procedure prescribed under section 394 ought to have been carried out. This point may be disposed of briefly by merely saying that the scheme does not envisage amalgamation of Navjivan with the Kohinoor. The effect of the scheme as and when implemented would be that Navjivan would be a wholly-owned subsidiary company of Kohinoor. It will still retain its own independent identity with this difference that all its shares will be owned by Kohinoor. This is not amalgamation of two companies in the sense in which the word is understood in section 394. It is, therefore, not necessary to carry out the particular procedure prescribed under section 394 before the scheme is sanctioned." (p. 296) 72. In the matter of Larsen & Toubro Ltd.'s case (supra) the Bombay High Court has observed....
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....lidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods; and. . . . ." The proposed scheme does not contemplate a reorganisation of the share capital of the company by the consolidation of shares of different classes. On the other hand, the scheme contemplates an adjustment or modification of rights, and if this be so, then it cannot fall within the ambit of the expression 'arrangement' used in section 390. In support of his contention as to the import of the word 'arrangement' in section 390 of the Act, Mr. Bulchandani relied upon the observations in Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation [1960] 30 Comp. Cas. 367; AIR 1960 Cal. 637, and the observations in Chowgule and Co. (P.) Ltd., In re [1972] TLR 2163. Mr. Bulchandani urged that in view of this, the petitioner would not be entitled to come under section 391 and hence no relief can be granted on this score. I am unable to accept this contention. The word 'arrangement' as set out in section 390(b) is an inclusive definition and contemplates all arrangements and not only reorganisation of the share capital. This is a....
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....d subsidiary of the petitioner-company and the issuance of shares by the transferee company to the shareholders of the transferor company. Both the companies continue to remain in existence. The effect of the scheme is that the shareholders of the transferor company become the shareholders of the transferee company while retaining their shareholding in the transferor company. In the present scheme, the cement assets which were in the transferor company, are now held by the transferee company, who issues shares to the shareholders of the transferee company. The concept of demerger is well-established and explained under the Companies Act as well as under the Income-tax Act. The Bombay High Court in Nicholas Piramal (India) Ltd., In re [2004] 121 Comp. Cas. 623, while considering a scheme of arrangement, sanctioned such scheme and therein also proportions of the shares were fixed and accordingly decided as per the proposed scheme of arrangement. Therefore, in the circumstances, I see no reason not to consider the present scheme of arrangement on the merits. The objectors have been unable to point out any other provisions whereby such scheme can be objected to or rejected. Mere genera....
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....om the sale of shares held by ARCIL would be distributed for the benefits of the lenders. The promoters would not be getting share of Nirma and this aspect is clearly noted in the second meeting of the lenders which is available on the record at pages 562 and 563. 75. So far as the question of the scheme being bad because of the lack of particulars is concerned, the petitioners submit that the representatives of the objectors remained present in both the meetings of the lenders wherein complete details were discussed and the objectors also remained present in the meeting convened under the orders of the court. In the said meeting, each and every issue was discussed. According to them, out of the lenders who were more than 100 in number, only two objectors found that the details were not available. The objection raised by the objectors cannot be accepted because the said details were already available and all required particulars were given. If some particulars were not made available, then too, details were made available, the parties knew about the facts and in fact, every thing was read over in the meetings. The objectors have not challenged the submission of the petitioners t....
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....f 2006), is that the report was circulated amongst all lenders of Core and the lenders had complete information about the worth of Core. These facts stated on oath have not been controverted by anybody. It would also be clear from the records (page 149 of Company Petition No. 9 of 2006) that the worth of assets of Core was Rs. 137.2 crores (gross) and Rs. 115.9 crores (net) after considering the statutory liabilities in Core. I am unable to hold that the lenders did not have valuation report. In fact, the lenders had the valuation report with them and in any case, non-supply of the said report to a person who knew about the report is not going to make any difference. It is also to be seen that thumping majority had found that the scheme is fair and reasonable, then it would not be possible to hold that any further valuation report would have changed the exercise of discretion. I must agree with the petitioner that it is in the realm of commercial wisdom of the creditors as to what should be the amount payable to them under the scheme of compromise. Furthermore, statutory majority of the lenders believe that instead of waiting for years together and getting uncertain amount of money....
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....t the past conduct/transactions of the company would disentitle approval of the scheme. As far as provisions contained in section 391 and section 394 are concerned the past conduct would be hardly relevant for the purpose of the approval of the arrangement. In the case of the scheme of restructuring the company concerned would very much remain as legal entity and would continue to function. Past transactions would be relevant or required to be seen in cases of amalgamation of the company where the transferor-company merges into the transferee-company. Section 391 does not contemplate or require that the past events be reflected in the scheme document. The past events cannot be a disqualification as far as approval of the scheme of restructuring is concerned. It is only because of the financial difficulties experienced/undergone by the company and the debt mounting over the company the scheme of restructuring is necessitated, so that the company can survive and the creditors may also get their dues with some sacrifice on their part depending upon the resources available to the company and the object behind the exercise of restructuring is that the employees of the company may not st....
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.... conspiracy amongst Core, Nirma and ARCIL. So far as the allegation of conspiracy is concerned, this Court is unable to accept the said argument. ARCIL and other banks, in the opinion of this Court, would not become party to a conspiracy. After all, if the ARCIL disowns its recoveries then it is also answerable to the public/companies/financial institutions. If Nirma, is to receive some benefits and such benefits would come in its favour because of the provisions in the statute, then it cannot be said that they are playing fraud. So far as Core is concerned, it would not be possible to say that they would be benefited by grant or sanction of the scheme. Core had already lost possession of its property as the assets are taken over by ARCIL and directors/board of directors or the management of Core had no say in the day-to-day management of the property. I would agree with the petitioners that the scheme of demerger is a matter of contract between the parties and agreement to the terms of the contract and if agreeing with the terms, they entered into contract because each of them had identical minds or is taking up identical position, then it would be right to say that there can be n....
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....liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower : Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under sect....
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....d by him in trust, to be applied firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor or at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourths in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors : Provided that in the case of a company in ....
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....e borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub-section (2) transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor." 85. I had specifically asked learned counsel for the respondents that who would continue to be the owner of the property even if possession is taken by ARCIL under the provisions of the SARFAESI Act, learned counsel for the objector in their fairness submitted that right to manage the property and sell the same would accrue in favour of ARCIL but the property would continue to belong to....
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.... So far as section 35 of the SARFAESI Act is concerned, the said provision would come into force if it is held that the scheme under the provisions of the Companies Act contained anything inconsistent with the SARFAESI Act. Sections 391 to 394, in the present set of circumstances and even otherwise are in no way inconsistent with the SARFAESI Act. Section 13 of the SARFAESI Act deals with disposal of the property by its management or sale, while the scheme floated under sections 391 to 394 also deals with disposal of the property by way of some arrangement or demerger. If ultimately, goals to be achieved under the different Acts are the same, then it cannot be argued that provision run contrary to each other and those are inconsistent with each other. Section 37 of the SARFAESI Act provides that provisions of the SARFAESI Act are in addition and not in derogation of the Act. A fair understanding of section 37 would make it clear that provisions of floating a scheme under sections 391 to 394 would be in addition to power to sell the property and would not be taken to be contrary to the authority to sell the property. 87. Provisions of the SARFAESI Act provide that after a borrowe....
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....statutory right and at the same time, right to get any scheme approved is also a statutory right under the Companies Act. If no proceedings are taken for the scheme or its finalisation, then, the Debts Recovery Tribunal can proceed with the matter and at the same time, under the SARFAESI Act, ARCIL would be entitled to sell the property. I presume a case where a matter is pending before the Debts Recovery Tribunal and at the same time, ARCIL, exercising its rights under the SARFAESI Act sells the entire property of the company. After sale proceeds are received would the property be distributed amongst the lenders in accordance with their rights, i.e., proportionate ratio or in accordance with the decrees granted either by the Debts Recovery Tribunal or by some court or by High Court in some other proceedings. If action of the ARCIL in disposing of the property cannot be condemned and despite decree by the Debts Recovery Tribunal, sale proceeds are to be distributed amongst the lenders, that too, pari passu or in proportion, then pendency of the proceedings before the Debts Recovery Tribunal would not come in the way of the High Court in approving/sanctioning the scheme. The moment ....
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....er secured creditors of the benefits under the scheme when they have floated and supported the scheme. Pages 392 to 403 of file-I is the copy of the plaint filed in the English court. As far as the reliefs claimed in the suit pending before the court in England against ICICI and the company are concerned, consideration of the scheme cannot come in the way of grant of relief of declaration prayed in para 30(a) and (b) thereof if the English court is inclined to grant the same against the company. The relief of declaration sought against the company in the suit before the English court will remain irrespective of the sanctioning, if any, of the scheme, as the scheme is to be considered under the provisions of sub-sections (1) and (2) of section 391 of the Act. In my opinion, filing of the aforesaid suit by some of the objectors and pendency of the same before the court in England cannot come in the way of considering the scheme by this Court as it is the body of the creditors which has floated and supported the scheme with a view to protect its own interest coupled with the intention that the company be put on sound financial footing, so that all the creditors can have their dues, th....
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....to recover full money, then in these proceedings, one cannot be allowed to say that ARCIL purchased the right of greater value but lower price was paid, therefore, value of the purchased or assigned right should be reduced proportionately taking into consideration the price paid by the purchaser. 91. It is also undisputed fact that assignment of the debt has already been registered in the office of the Registrar of Companies. It cannot be gainsaid that ARCIL does not step into the shoes of the lender and it cannot be deemed to be lender for all purposes and does not acquire all the rights of the secured lender. In fact, all the rights of secured lender or financial institution would vest in ARCIL. 92. Section 5 of the SARFAESI Act reads as under : "5. Acquisition of rights or interest in financial assets.-(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution,- (a )by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank....
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....suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be." 93. If debts were not assigned in favour of ARCIL, then, each of the assignor, that is, lender bank would have been entitled to take part in the meeting and project its views and the amount which it was entitled to recover from Core was to be given its true value, then, why representative of such lending institution/bank or purchaser from such lending institution/bank would not be entitled to take part in the meeting. ARCIL as assignee having acquired absolute rights of a lender will be entitled to attend the meeting. 94. The submission of objectors is that there is conflict of interest between ARCIL and other lenders. Objection, in fact, is that the objectors having not agreed to the scheme would be entitled to recover in full while ARCIL having purchased the property at a lower price would be entitled to recover the price which it had paid to the lending institution. The argument is absolutely misconceived. If statutorily required majority agrees to the scheme and the High Court sanctions the same, then irrespect....
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.... be put in identical position because, amount of loan is different, rate of interest is different, repayment period is different or in a given case, some extra or additional benefits are offered by the lending bank. If this objection put forth by the objectors is accepted, then, a scheme of compromise or arrangement would never be approved, because each lender would be a different entity and a class in itself and if one only opposes or the minority having very small stake opposes the scheme, then the scheme cannot be approved. Such is not the intention of the Legislature. It is also to be seen that the price paid to acquire right would not be the criteria but in fact, face value of the right would be the criteria. In a given case, a shareholder might have purchased the share for Rs. 10 and the other at Rs. 100. If payment of the price is to be taken as a criteria to create a different class, then, shareholders amongst themselves would create different classes and it would lead to an impossible situation. In a case where, after discharge of the liabilities, the Company Court in liquidation proceedings proposes to pay money to the shareholders, then it would pay the face value and no....
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....be entitled to presume that interest is definite. Perception of such lender or presumption in its favour or any ipse dixit of a lender would not change the legal position. In fact, perception of one lender would not prevent other lenders from considering interest of all concerned. 98. At this stage, I am tempted to refer a judgment of the Supreme Court in All India ITDC Workers Union v. ITDC [2006] 9 JT 585. In the said matter, the Government declared a disinvestment policy. Under the said policy, the Government issued an advertisement for outright sale of six hotels and long-term lease of two hotels. The property of ITDC was demerged in the name of the new company with the approval of the Company Law Board. The matter came up before the Supreme Court on a challenge to the disinvestment policy and sale of the property by demerger. The Supreme Court observed that ITDC or the Government could direct sale of the property and could adopt the policy of disinvestment. The Supreme Court observed that the demerger was approved by the Company Law Board and it was clear from the demerger scheme that all the liabilities relating to the transferred undertaking up to the date of the transfer....
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....ved by the shareholders, then, virtually, the shareholders are taking a policy decision subject to approval of the scheme by the lenders of class "A" or class "B", whose interest may be adversely affected by the resolution passed by the shareholders. After application of mind and taking all pros and cons into consideration, if the lenders approved the scheme, then, such a scheme would be an outcome of the policy and would reflect the commercial wisdom of the persons, who are interested in the company or in the loans which they had advanced to the company. The objections raised by the objectors that demerger is not permissible under sections 391 and 394 of the Act, does not merit. 103. In the matter of Maftlal Industries Ltd., In re [1996] 87 Comp. Cas. 705 (Guj.) this High Court has observed as under : "In our opinion, a plain reading of a section does not leave any doubt that only where separate terms are offered to separate classes of shareholders or creditors under the proposed compromise or arrangement, separate meetings are required to be held in respect of each class of creditors or shareholders for whom separate compromise or arrangement has been offered. Otherwise, th....
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....ered to persons holding shares affected by the family arrangement or otherwise. In fact, the entire proposal is one affecting in a like manner all the existing shareholders of the petitioner-company, namely, that under the proposed scheme M. Fine shall be amalgamated with MIL and in consideration of such amalgamation with the petitioner-company, the petitioner-company shall make the members of the transferor company participants in its share capital by issuing two shares of MIL in lieu of five shares of M. Fine to the members of M. Fine or in substance the business of M. Fine shall be acquired by MIL for consideration which is equal to the conversion of five equity shares of the transferor company to two equity shares of the transferee company. That is to say, instead of paying cash to the transferor company, the consideration shall be paid in terms of issue of share capital to the members of the transferor company directly in the aforesaid ratio. That will be so because on amalgamation, the transferor company, M. Fine, shall cease to exist. We have not been able to apprehend how these terms operate distinctly or differently for one shareholder from another shareholder of MIL vis-a....
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.... of the provisions of section 391 of the Act, is not defined under the statute. But, as discussed above, it is obvious from the scheme of provision itself that, in order to be treated as a separate class of members or creditors claiming a right to hold a separate meeting for the purpose of approving the proposed compromise scheme of arrangement by requisite majority, it must be such which is to be treated differently under the scheme in its implementation or intended effect of the scheme or such interest. In Palmer's Company Law, 24th edition, the principle, which is germane for constituting a separate class of members or creditors requiring a meeting in pursuance of the directions of the court under the English law, has been enunciated thus : 'What constitutes a class : The court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. This is for the company to decide, in accordance with what the scheme purports to achieve. The application for an order for meetings is a preliminary step, the applicant taking the risk that the classes which are fixed by the Judge, unusually on the applicant's request, are sufficient....
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....e a class distinct from others. Such interest is to be taken care of by way of expressing their views and voting during the course of the meeting. If that were not so, all interests would be identical and if anybody has any interest apart from being treated differently under the scheme, likely to be affected in different manner because of the personal circumstance of the holder of shares or creditor, as the case may be, on account of consequences of the scheme but not on account of the terms of treatment under the scheme, would lead to the whole provisions being unworkable inasmuch as every person claiming his interest to be adversely affected by the proposed scheme on that account will have to be treated differently resulting in classification of groups having identical interest and identical response to the scheme. A great deal of reliance was placed by learned counsels for the appellant on two judgments in the case of Sovereign Life Assurance Co. v. Dodd [1892] 2 QB 573 (CA) and Hellenic and General Trust Ltd., In re [1976] 1 WLR 123. However, a close reading of the two judgments, in our opinion, does not lead to a different conclusion, rather it fortifies the conclusion w....
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....nd by no community of interest, and their claims are not capable of being ascertained by any common system of valuation. Are we, then, justified in so construing the Act of Parliament as to include these persons in one class ? The word "class" is vague, and to find out what is meant by it, we must look at the scope of the section, which is a section enabling the court to order a meeting of a class of creditors to be called. It seems plain that we must give such a meaning to the term "class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.' (p. 583) It would be apparent from the aforesaid principle as applied to the facts of the case before the Court of Appeal, that the court clearly spelt out dissimilarity of interest vis-a-vis the scheme as existed between the holders of the policy then current requiring payment on a future date of maturity, valuation of which could not be fairly ascertained on that date and the interest of holders of policies, which on amalgamation hav....
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....under the scheme perceive their interest differently or consider that their interest may be affected differently from others because of their interrelationship of their interests other than as shareholder simpliciter, cannot sustain their claim to constitute a class distinct from others. Such interest is to be taken care of by way of expressing their views and voting during the course of the meeting. If that were not so, all interests would be identical and if anybody has any interest apart from being treated differently under the scheme, likely to be affected in different manner because of the personal circumstance of the holder of shares or creditor, as the case may be, on account of consequences of the scheme but not on account of the terms of treatment under the scheme, would lead to the whole provisions being unworkable inasmuch as every person claiming his interest to be adversely affected by the proposed scheme on that account will have to be treated differently resulting in classification of groups having identical interest and identical response to the scheme. The contention of the objectors is that their interest is not similar to that of other secured creditors, parti....
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....ppellant. It is not his case that his interest as an equity shareholder in the respondent-company is in any way conflicting with the general interest of the equity shareholders as a class. Consequently, it could not be urged by him with any emphasis that the general body of equity shareholders acting as a class while considering the question of approval of the scheme was likely to take a decision which would adversely affect the commercial interest of the appellant as an equity shareholder. His personal conflict of interest with the director was totally foreign to the scope of class meeting which was convened to consider the scheme in question as we have seen earlier while considering earlier points for determination. It is also to be kept in view that the appellant could have urged with some justification his contention for convening a separate meeting representing him and his group of dissenting enquiry shareholders if it was his case that the scheme of compromise and arrangement as offered to him and his group was in any way different from the scheme of compromise and arrangement offered to other equity shareholders who also belonged to the same class in the wider sense of the t....
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....t, at the meeting of the unsecured creditors of the company to consider a proposed scheme for revival of the company, certain motions for amendments sought to the scheme were not carried for want of majority and the scheme was approved as proposed. The learned single Judge accorded sanction to the scheme in the interest of the employees, rejecting the objections of certain unsecured creditors, inter alia, that the scheme proposed differential treatment to fixed depositors and other unsecured creditors such as loan and hundi and suppliers, and that proxies obtained by those attending the meeting had been misused (including by the chairman, a director of the company) to defeat the motion for amendments. As far as the principle enunciated is concerned, there cannot be any disagreement with the same. 111. In the case of Osiris Insurance Ltd., In re [1999] 1 BCLC 182, 188 (Ch. D), the case of Sovereign Life Assurance Co. v. Dodd [1892] 2 QB 573 (CA), has been referred to, reproducing the following observations thereof: "The word 'class' is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the court to order a meeting o....
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....me with other secured creditors or that the class was formed to ensure that the rights and interest of some of the secured creditors (objectors) are confiscated. It will be seen from the above discussion that all the secured creditors, including foreign currency lenders who were constituted as one class and called at the meeting had the commonality of interest and their rights are not so dissimilar as to make it impossible for them to consult together with a view to have their common interest. The nature of the proposals embodied in the scheme apply equally to all the secured creditors, domestic currency lenders as well as foreign currency lenders and the same terms were offered to the entire body of secured creditors under the scheme. It is not suggested from the scheme offered that the interest of the secured creditors is in any manner conflicting or there is no commonality of interest vis-a-vis the company and the objectors form a homogeneous group along with other secured creditors and the class of secured creditors constituted cannot be regarded as heterogeneous. In my opinion, the objectors would not be entitled to be treated as a different class of secured creditors, a....
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....rs could not reasonably have approved it or whether it contains some other blot. (3) Notwithstanding some disadvantages with the scheme, given the relative benefits which the scheme conferred on scheme claimants compared with their position in the absence of the scheme, the fact that the meeting resulted in a unanimous and significant vote in favour of the scheme, and the care that had been taken to inform fully all former policy-holders of the scheme, the scheme was approved, subject to the giving of two undertakings to cover certain possible lacunae." 114. From the observations made by the Chancery Division, it would be clear that the meeting was validly held because there was only one class of creditors. Whilst those summoned to attend the meeting had different types of insurances, given the nature of the proposed scheme, it could not be said that their interests were different or conflicted with each other. From the said judgment it would also be clear that if the scheme is beneficial to all concerned, then, such a scheme should be accepted. 115. In the matter of Hawk Insurance Co. Ltd., In re, the Supreme Court of Judicature, Court of Appeal (Civil Division) observed ....
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....) 117. In view of the authoritative pronouncements of this Court, the Supreme Court and other courts and in view of the facts which are floating on the surface of the records must hold that the rights of the creditors are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. I must hold that a broad view should be taken of what constitutes a class of creditors. 118. I must also hold that there is no conflict of interest and there are no conflicting interest between ARCIL and other lenders, specially, the objectors. Each of them being a lender has common interest of recovering the dues from Core as much as and as early as possible so as to give them best in the returns. If the petition for compromise/demerger is not allowed and the scheme is rejected, then, the property would remain in possession of Core and in case, a petition is taken for winding up, then, all the properties would come in the hands of the official liquidator and ultimately, the same would be sold. After such property is sold, the claim of the workmen and the secured creditors will have to be taken up for consideration and each of them would be entitled ....
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....cording to the petitioners, can never be regarded as a failure because the purpose of such information is to supply necessary facts to the person, who are to attend the meeting enabling them to make correct vote. According to the petitioners, if the facts are fully known to somebody, then, reiteration of the same and non-supply of the said details would not amount to breach of the provisions of law. 123. In the matter of Miheer H. Mafatlal's case (supra), the Supreme Court has observed as under : "So far as this point is concerned it was vehemently contended by learned senior counsel, Shri Shanti Bhushan, that the explanatory statement placed for consideration of the meeting of equity shareholders was not a complete statement and relevant material indicating the interest of the director of MIL, Shri Arvind Mafatlal, was not placed before the voters with the result that the majority vote supporting the scheme got vitiated. The explanatory statement which came to be circulated to the voters, namely, the equity shareholders of the transferee company MIL alleged as under : 'It is proposed to amalgamate MFL with MIL so as to enable the carrying on of the combined business more ....
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....ers must satisfy the following requirements of the section before it can be treated to be a relevant special interest of the director which is required to be communicated to the voters : 1. The director's interest must be a special interest different from the interest of other members who are the voters at the meeting. 2. The compromise or arrangement which is put to vote must have an effect on such special interest of the director. 3. Such effect must be different from the effect of compromise and arrangement on similar interest of other persons who are called upon to vote at the meeting. When we enquired of Shri Shanti Bhushan, learned senior counsel for the appellant as to which special interest, according to him, of the director, Arvind Mafatlal was required to be communicated to the voters as per section 393(1)(a), he stated that there was a pending litigation between the appellant on the one hand and Shri Arvind Mafatlal on the other in the Bombay High Court. That Shri Arvind Mafatlal had sought a declaration in a pending suit against the appellant that the latter was required to sell off his shareholding in the transferee company MIL to the plaintiff, Arvind Mafa....
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....the proposed arrangement for amalgamation on such interests were not required to be disclosed under section 393(1)(a). In our view, the aforesaid observations of the Division Bench are not quite apposite in the light of the proposed scheme of compromise and arrangement which was sought to be got sanctioned by the court. On the other hand, the learned Single Judge was quite justified in taking the view that this type of interest which was of personal nature so far as the director, Arvind Mafatlal, on the one hand and the appellant on the other hand were concerned was not at all germane to the question relating to sanctioning of the scheme of compromise and arrangement with which the court was concerned. It is obvious that when a scheme of compromise and arrangement which involves two companies, namely, the transferor company and the transferee company and their shareholders and creditors is on the anvil of scrutiny before the sanctioning court, the court has to see that the interest of the class of creditors or shareholders to whom the scheme is offered for approval is in any way likely to be affected by suppression of the special interest of the director in connection with such ....
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....he equity shareholders of the transferee company had to take. For taking this informed decision they were least concerned whether 5 per cent shareholding of the appellant in the company remained or did not remain with him in future. Consequently, if Arvind Mafatlal's suit ultimately succeeded before the Bombay High Court and the appellant lost in his counter claim that would have no effect whatsoever on the informed decision which the equity shareholders were called upon to take while approving the scheme in question. Conversely, if the appellant succeeded in his counter claim and the director, Arvind Mafatlal, lost in his suit, then, all that would happen is that Arvind Mafatlal will have to transfer his shareholding and the shareholding of his group in favour of the appellant so far as the transferee company is concerned. That future possibility would have no impact on the decision-making process which the equity shareholders of transferee company had to undertake at this stage while approving the scheme. Consequently such an eventuality was totally irrelevant for being brought to the notice of the equity shareholders before whom the scheme was put to vote. While deciding whet....
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....idering the proposed scheme. Over 23 per cent votes have been attributed to public limited companies or private limited companies which held the shares of MIL and in which Arvind Mafatlal was also alleged to have interests. Thus, non-mentioning of the private dispute between Arvind Mafatlal and the objector in connection with the holding of shares in the transferee company had in fact no impact on the voting pattern of equity shareholders including the financial institutions which had nothing to do with this personal feud between the warring groups. Consequently, the non-mentioning of the pending dispute between the appellant on the one hand and Arvind Mafatlal on the other which was pending adjudication in the Bombay High Court had in fact no impact whatsoever on the result of the voting undertaken by the equity shareholders in their class meeting. Thus, the requisite statutory majority of votes approving the scheme could not have been adversely affected by the non-mentioning of this pending litigation in the explanatory note even assuming that the Division Bench was right in holding that it was required to be informed to the voters as per the requirements of section 393(1)(a). In....
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....-disclosure levelled against ARCIL, it is only required to be said that it is not a director or managing director or manager of Core. It is a lender and it has rights of a lender and under the circumstances, the price at which it acquired the right is relevant. The petitioners submit that ARCIL has not proposed the scheme, it is merely facilitating the scheme. Under the circumstances, the so-called non-disclosure of the role of ARCIL cannot be found to be illegal under section 393(1)(a) of the Act. 125. The petitioners also submit that under the scheme no special treatment was given to ARCIL and ARCIL was treated like any other lender. According to them, the company had supplied all details at the time of meeting and if ARCIL had not supplied the details, in their meeting, which was conducted prior to the meeting ordered by the court, no wrong can be found with anybody. 126. After going through the records, I must hold that ARCIL was not required to supply the alleged details. ARCIL, being a lender like all other lenders, itself was entitled to the details, as required under the law. The objector cannot assert that it was the duty of ARCIL to supply the details, especially, w....
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....ration is that whether the scheme is unfair to treatment of bank guarantee and amount payable to HDFC Bank in relation to the bank guarantee can become subject-matter of the scheme proceedings. The objections of HDFC is that certain amounts, which have been paid by HDFC Bank under the bank guarantee, have not been reflected in the balance-sheet of Core and the same cannot be the subject-matter of these proceedings. The objection further says that in view of non-disclosure of the bank guarantee amount, the balance-sheet does not disclose "true and fair view" of the accounts of the company and as such, the accounts of the company are not reliable and in view of the glaring facts, there can be no compromise. 130. It is also the case that the said debt is settled between Core and/or Nirma with the Customs Department or on a later date, the export obligations are fulfilled, Nirma would be entitled to realise the full amount from the Customs Department and this, in fact, would cause injustice to HDFC. The petitioners have submitted that there is no dispute that HDFC Bank has paid money to the Customs Department on account of encashment of the bank guarantee. Once the amount is paid by....
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....he compromise and demerger scheme is a package deal and when a party is agreeable to the compromise in a package deal, then, such party would be entitled to all the benefits flowing from the scheme. It is also true to say that the statutory liabilities and other liabilities, known or unknown, real or contingent, will have to be suffered by Nirma and at this stage, it is not possible to define with reasonable certainty and exact calculation as to what would be the sum total of such liabilities. As on today, the amount under the bank guarantee has been paid for or on behalf of Core and if this amount ultimately is to be refunded, then, the benefit must go to the party entitled to it under the scheme. It would also be correct to say that if Nirma fulfils the export obligations, then, their right to recover the money from the Customs Department would be a right flowing from the scheme and in fact, the amount to be paid to Nirma would not be an amount, which is to go back to HDFC Bank. In case, there is no scheme and Core fulfils the export obligations, then, Core would be entitled to the refund and HDFC, even at that time, cannot say that the money should be paid to them directly. Unde....
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....ocedure prescribed for the same in the Companies Act and Rules should be carried out as stated earlier. This provision is made for very good reasons. It unmistakably indicates that reorganisation of share capital can be brought about as part of the scheme of compromise and arrangement. But even if it is to be done as part of the scheme of compromise and arrangement this special provision in rule 85 enjoins a duty to carry out the procedure contained in section 100 onwards of the Companies Act. Ordinarily, reduction of share capital affects members of the company and it can be brought about by a compromise or arrangement between the company and its members ignoring the creditors. Now, if reduction of share capital involves repayment of a part of paid up capital or extinguish or reduce the liability on any of the shares in respect of unpaid share capital it would adversely affect the creditors. Yet the creditors would have no voice in the matter. If the procedure as provided in section 100 onwards has got to be carried out the court could not sanction reduction of share capital unless the creditors are heard and provision is made for the creditors who object to the reduction. However....
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....but where that is not so, the court can under section 120 sanction the scheme which alters the memorandum. In Katni Cement and Industrial Co. Ltd., In re [1937] 7 Comp. Cas. 348 (Bom.), a scheme of amalgamation was proposed between the said company and merger of all the cement companies to be named as Associated Cement Companies Ltd. Before this merger could be made it became necessary to reorganise the share capital and alter the rights conferred by the memorandum of association upon different classes of shareholders in the capital of the said company. This was proposed as a part of the scheme of amalgamation under section 153 of the Indian Companies Act, 1913, which is pari materia with section 191 of the Companies Act, 1956. It is observed that the court under section 153 can sanction a scheme, even though it involves acts which, apart from such provisions, would be ultra vires the company; but this rule, is subject to the limitation that if the Companies Act contains express provision enabling the doing of any act in a particular way, the provisions of the enabling section, and not those of section 153, must be followed. Relying on this observation, it was urged that if there i....
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....are capital in a given case, it must be found out how the company proposes to reduce the share capital. The share capital of a company can be reduced in three distinct ways as set out in section 100. The company for effecting reduction of share capital may extinguish or reduce the liability of any of its shares in respect of share capital not paid up; either with or without extinguishing or reducing liability on any of its shares cancel any paid up share capital which is lost, or is unrepresented by available assets; or with or without extinguishing or reducing liability on any of its shares, pay off any paid up share capital which is in excess of the wants of the company. The reduction of the share capital can be effected by a special resolution at a general meeting which must be sanctioned by the court. Section 101 provides that, if the proposed reduction of share capital involves either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up share capital, the provisions therein prescribed shall have effect, subject to the powers of the court having regard to the special circumstances in the case to direct that the provisions of su....
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....al meeting to be attended by the ordinary share-holders and preference shareholders is set out in the notice convening the meeting or meetings. The reasons set out above while considering the case of issue and allotment of further share and the provision contained in section 81(1) and 81(1A) would mutatis mutandis apply here. I would, therefore, hold that the members of the company in a general meeting approved reduction of share capital by a special resolution which has been passed by statutory majority and while approving the scheme the members simultaneously approved reduction of share capital by a special resolution. Therefore, the procedure prescribed in sections 100 and 101 has been carried out by the company and section 102 would not be attracted and therefore while sanctioning the scheme the court can sanction the reduction of share capital. I would, therefore, hold that the mandatory procedure prescribed for reduction of the share capital has been strictly complied with. Therefore, the company has carried out the procedure prescribed for reduction of share capital and the same can be simultaneously confirmed while sanctioning the scheme which I hereby propose to do." (p. 8....
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....ders are to receive some benefits, then, conferral of such benefits upon such shareholders is not going to affect the rights of the objectors. It is also to be noted that the shareholders of Core would continue to hold their shares and additional benefit would be conferred upon the shareholders of Core. Conferral of this benefit upon the shareholders will also have to be appreciated from the viewpoint of the shareholders, who are now to get something against nothing and that is persuading them to accept this scheme. In any case, the objectors are not entitled to challenge the scheme on the ground of share exchange ratio. 137. In the matter of Miheer H. Mafatlal's case (supra) the Apex Court had observed as under : ". . .It has also to be kept in view that which exchange ratio is better is in the realm of commercial decision of well-informed equity shareholders. It is not for the court to sit in appeal over this value judgment of equity shareholders who are supposed to be men of the world and reasonable persons who know their own benefit and interest underlying any proposed scheme. With open eyes they have okayed this ratio and the entire scheme. 40 per cent of the majority sh....
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....ion goes through. We wholly concur with this view. In this connection we may also refer to a decision of Maugham, J., in Hoare and Co. Ltd., In re [1933] All ER 105 (Ch. D), wherein it was laid down that where statutory majority had accepted the offer the onus must rest on the applicants to satisfy the court that the price offered is unfair. In this connection, the following pertinent observations were made by the learned Judge : 'The other conclusion I draw is this . . . that the court ought to regard the scheme as a fair one inasmuch as it seems to me impossible to suppose that the court, in the absence of any strong grounds, is to be entitled to set up its own view of the fairness of the scheme in opposition to so very large a majority of shareholders who are concerned. Accordingly, without expressing a final opinion on the matter, because, there may be special circumstances in special cases, I am unable to see that I have any right to order otherwise in such a case as I have before me, unless it is affirmatively established that, notwithstanding the views of a very large majority of shareholders, the scheme is unfair.' We may also refer to a decision of the Madras High Co....
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.... while according to ARCIL, the value of debt would be Rs. 373.88 crores. The difference would be of Rs. 1.97 crores only, which would be less than 0.6 per cent. They also submitted in relation to class B lenders' vote that ARCIL voted in relation to State Bank of India only. According to them, irrespective of this discrepancy, outcome of the meeting would not undergo any change. They also submitted that as a matter of fact, in the meeting of the lenders, ARCIL's vote was given the value as per the books of Core, which was less by Rs. 1.97 crores and not by the value as claimed by ARCIL. They also submitted that so far as the value of the vote of Niya Finstock (P.) Ltd., and Astramed Technologies Ltd., are concerned, the same are correct. According to them, even if their votes are completely ignored, the scheme would stand carried with the statutory majority. They have submitted that even after exclusion of Niya Finstock (P.) Ltd., and Astramed Technologies Ltd., it would appear that 69 lenders out of 73 voted in favour of the scheme, which amounts to 94.52 per cent of the lenders present and voting and from the pattern of voting it would appear that 82.85 per cent value of the debt....
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....g to them, then, they should not create unnecessary complications in the matter and should always act as honest business people, who do not grab property of others. 145. Taking into consideration the provisions of the scheme, I hold that the scheme deserves to be approved. It is, accordingly, approved. Company Petition No. 10 of 2006, filed by Core is disposed of with the following directions : (i)The modified composite scheme of arrangement referred to in paragraph 15 of the petition, which shall be an integral part of this order, stands sanctioned and it would be binding on all the equity shareholders, class A lenders and class B lenders of the petitioner-company and on the petitioner-company. (ii)Within 30 days from the date of sealing of the order, the petitioner-company shall serve a certified copy of the order sanctioning the scheme of arrangement with the Registrar of Companies (Gujarat), Ahmedabad, for registration and upon such certified copy of the order being so delivered, the Registrar of Companies (Gujarat), Ahmedabad, shall consolidate all relevant files, documents, records, relating to the demerged company maintained by him with the files, documents records ....