1991 (11) TMI 212 - HC - Companies Law

Reduction of share capital Application to Tribunal for confirming order, objections by creditors, and settlement of list of objecting creditors, Compromise and arrangement

Issues Involved:

1. Directions for holding meetings of shareholders and creditors.
2. Dispensation of notice to certain creditors.
3. Approval and amendment of the scheme of arrangement.
4. Observations by the Central Government.
5. Sanction of the scheme of arrangement.

Detailed Analysis:

1. Directions for Holding Meetings of Shareholders and Creditors:
An application was filed under section 391 of the Companies Act, 1956, by the petitioners seeking directions to hold meetings of equity shareholders, secured creditors, unsecured creditors, and statutory creditors of HCL Limited (existing company) and equity shareholders of HCL Hewlett-Packard Ltd. (new company) for approving a scheme of arrangement. By an order dated May 30, 1991, directions were given for holding separate meetings of the mentioned classes. Individual notices were directed to be given to all shareholders of the two companies and creditors of the existing company. Notices of the meetings were also directed to be published in daily newspapers Hindustan Times and Navbharat Times.

2. Dispensation of Notice to Certain Creditors:
In C.A. No. 429 of 1991, the issue of individual notices to unsecured creditors of the existing company of nominal value less than Rs. 50,000 and fixed deposit value less than Rs. 10,000 was dispensed with, as their numerical value was 3.23% of the aggregate debt and 7.48% of the unsecured creditors. Later, by an order dated July 11, 1991, the quorum for the meeting of statutory creditors was dispensed with, and the quorum for the meeting of secured creditors was fixed at two, and for unsecured creditors, it was fixed at five.

3. Approval and Amendment of the Scheme of Arrangement:
Four separate meetings of equity shareholders, secured creditors, unsecured creditors, and statutory creditors of the existing company were held on July 15, 1991. A separate meeting of the shareholders of the new company was also held. The scheme of arrangement and an amendment to the scheme were approved by more than a three-fourths majority of the equity shareholders present and voting. Reports filed by the chairpersons of the other meetings showed that the scheme was passed unanimously by the secured creditors and statutory creditors and by more than a three-fourths majority in value of the unsecured creditors. The amendment to the scheme was also unanimously approved by the equity shareholders of the new company.

4. Observations by the Central Government:
The Central Government, through an affidavit by Mr. K.M. Gupta, made two observations:
(a) The "appointed date" for the scheme was July 1, 1990, despite the new company being incorporated only on May 15, 1991. The court found this observation illusory, explaining that the "appointed date" was for identification and quantification of assets and liabilities based on the audited balance-sheet for the financial year ending June 30, 1990.
(b) The reduction of share capital without a petition before the High Court. The court found this observation insignificant as there was no diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital.

5. Sanction of the Scheme of Arrangement:
The court found that no objections to the proposed scheme of arrangement were received and that the observations made by the Central Government were insignificant. The requisite majority in number representing three-fourths in value of the creditors and members of the existing company and the members of the new company agreed to the arrangement. The petitioners disclosed all material facts and the latest financial position of the two companies. No investigation in relation to either company was pending. The court sanctioned the scheme of arrangement, declaring it binding on the two companies, shareholders, and creditors of the existing company and shareholders of the new company. The assets, liabilities, and reserves were directed to vest in the existing company and the new company in accordance with the split balance-sheet as of June 30, 1990. The "effective date" would be the date when the certified copy of the court's order is filed with the Registrar of Companies.

Conclusion:
The petition was allowed, and the scheme of arrangement was sanctioned. The Registry was directed to draw and issue the formal order in accordance with the rules. The petitioners were directed to file a certified copy of the order with the Registrar of Companies within 14 days.

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