2003 (3) TMI 546 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the meeting of preference shareholders.
2. Voting rights of preference shareholders with unpaid dividends.
3. Applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
4. Fairness of the Scheme of Arrangement for preference shareholders.
5. Disclosure of the latest financial position of the companies.
6. Fairness of the Scheme of Arrangement for equity shareholders of the transferee company.

Issue-wise Detailed Analysis:

Re: Validity of the meeting of preference shareholders:
The court examined whether different preference shareholders formed a separate class, requiring separate meetings. It was determined that the Government of India did not form a separate subclass among preference shareholders. The terms offered to both the Government of India and Alstom group were identical, and their rights were similarly affected. Therefore, there was no need for a separate meeting for the Government of India as a subclass of preference shareholders.

Re: Voting rights of preference shareholders with unpaid dividends:
The court acknowledged that the Government of India, as a preference shareholder with unpaid dividends for more than two years, was entitled to vote on every resolution at any meeting of the company. However, it was emphasized that the Government of India did not attend or vote in the meetings of equity shareholders or creditors. The court clarified that preference shareholders do not have the right to vote at meetings of creditors, as such meetings are not considered meetings of the company.

Re: Applicability of SICA:
The court noted that APBL had ceased to be a sick company within the meaning of section 3(1)(o) of SICA after its net worth became positive. The BIFR had formally closed the case, and the special director was discharged. Therefore, the sanction of the BIFR was not necessary for making an application under section 391 of the Companies Act, and there was no bar for approval of the scheme.

Re: Fairness of the Scheme of Arrangement for preference shareholders:
The court considered the contention that the scheme was unfair to preference shareholders of APBL, as their investment was significantly reduced. However, it was also argued that the swap ratio was too high in favor of preference shareholders, given the eroded net worth of APBL. The court concluded that the scheme was not unfair or unjust to any class of members or creditors, emphasizing the commercial wisdom of the members and creditors who approved the scheme.

Re: Disclosure of the latest financial position of the companies:
The court highlighted the importance of producing the latest financial position, including the Balance Sheet, Profit and Loss Account, and Auditor's Report. Despite the companies initially not producing the latest accounts, the court had access to the latest financial position through documents produced by Mrs. Kenia. The court found nothing adverse in the financial position and noted an improvement in the post-amalgamation results.

Re: Fairness of the Scheme of Arrangement for equity shareholders of the transferee company:
The court examined the contention that the scheme was unfair to equity shareholders of APIL. It considered the overwhelming approval of the scheme by the shareholders and creditors of both APBL and APIL. The court noted that the business of APBL was in shambles and that the merger was a commercial decision to save costs and bring in synergies. The court found no evidence that the scheme was unfair or unjust to any class of members or creditors.

Conclusion:
The court concluded that the scheme was just, fair, and reasonable from the point of view of prudent business decisions. The appeals were dismissed with costs, and the scheme was sanctioned. The order was stayed for four weeks to allow the appellants to approach the Supreme Court.