2003 (2) TMI 330 - HC - Companies Law

Summary

Issues Involved:
1. Approval of the scheme by the majority of secured creditors under section 391(2) of the Companies Act.
2. Non-convening of the meeting of preference shareholders as required under section 391(1) of the Companies Act.
3. Alleged contravention of the Trade Marks Act by the scheme.
4. Modification of the scheme suggested by ICICI.
5. Impact of the scheme on the security of State Bank of Travancore.
6. Overall sanctioning of the scheme with or without modifications.

Detailed Analysis:

1. Approval of the Scheme by the Majority of Secured Creditors:
The court examined whether the scheme had the approval of the requisite majority of secured creditors as required under section 391(2) of the Companies Act. The total number of secured creditors present was 18, with one abstaining from voting. The valid votes cast were 15, out of which 12 voted for the scheme, representing 80.58% of the value of valid votes, thus meeting the three-fourths majority requirement. The court held that the scheme was approved by the requisite majority of secured creditors.

2. Non-convening of the Meeting of Preference Shareholders:
The court considered whether the failure to convene a meeting of preference shareholders violated section 391(1) of the Companies Act. The entire preference share capital was held by IDBI, which provided written consent to the scheme. The court noted that when a class of shareholders is numerically small and provides written consent, convening a meeting is an empty formality. Thus, the court concluded that the requirement of section 391(1) was substantially complied with.

3. Alleged Contravention of the Trade Marks Act:
Kirloskar Proprietary Limited (KPL) objected to the scheme, claiming it involved an unauthorized transfer of the "Kirloskar" trademark. The court noted that the dispute over the trademark's ownership could not be resolved in these proceedings. The court clarified that sanctioning the scheme would not affect KPL's rights, and KPL could initiate separate legal proceedings to protect its interests. The court held that the scheme did not contravene the Trade Marks Act.

4. Modification of the Scheme Suggested by ICICI:
ICICI sought a modification to hold up to 19% of the shareholding in the Special Purpose Vehicle (SPV) directly and the remaining shares through nominees, due to regulatory restrictions under the Banking Regulation Act. The court accepted this modification, as it did not affect the scheme's functioning. The scheme was modified accordingly.

5. Impact of the Scheme on the Security of State Bank of Travancore:
State Bank of Travancore objected to the scheme, fearing a dilution of its security. The court noted that the bank would receive a first pari passu charge on fixed assets and a second pari passu charge on current assets, thus improving its security position. The court rejected the bank's objection, finding that the scheme adequately protected the bank's interests.

6. Overall Sanctioning of the Scheme with or without Modifications:
The court reviewed the scheme's fairness, legality, and compliance with statutory requirements. It found that the scheme was fair, just, and reasonable, and that it had the overwhelming support of shareholders and creditors. The court sanctioned the scheme with the following modifications:
- ICICI Bank Limited could hold up to 19% of the shareholding in the SPV directly and the remaining through nominees.
- The sanctioning of the scheme would not affect KPL's rights to the "Kirloskar" trademark, and KPL could pursue separate legal proceedings to protect its interests.

Conclusion:
The court sanctioned the scheme of arrangement, finding it compliant with legal requirements, fair, and beneficial for the company and its stakeholders. The modifications suggested by ICICI were accepted, and KPL's rights were protected, allowing them to pursue separate legal remedies if necessary.