2005 (2) TMI 525 - HC - Companies Law

Summary

Issues Involved:
1. Legitimacy of adjournments of the debenture holders' meetings.
2. Requirement for the Scheme of Arrangement/Compromise to be put to vote.
3. Compliance with statutory guidelines and the role of the Chairman in the meetings.
4. Court's intervention and directions regarding the Scheme's approval process.

Detailed Analysis:

1. Legitimacy of Adjournments of the Debenture Holders' Meetings:
The applicant argued that the meetings were adjourned multiple times without putting the Scheme to vote, which suggested a bias and an attempt to delay the process. The respondent-Company contended that the adjournments were necessary due to ongoing negotiations and the need to finalize terms with lenders. The Court noted that out of 11 adjournments, 8 were unanimous and without protest, and found no statutory provision requiring a 3/4th majority for adjournments. It was concluded that the Chairman acted within his rights, but the Court expressed concern over the frequent adjournments and the potential misuse of the process.

2. Requirement for the Scheme of Arrangement/Compromise to be Put to Vote:
The applicant and supporting institutions argued that the Scheme should be put to vote as it was apparent that the requisite majority was not in favor. The Court acknowledged that while meetings can be adjourned by majority vote, it should not be used to avoid putting the Scheme to vote. The Court directed that the Scheme must be put to vote in a meeting to be held no later than 30-6-2005, with the outcome to be reported to the Court by 7-7-2005.

3. Compliance with Statutory Guidelines and the Role of the Chairman in the Meetings:
The applicant argued that the Scheme was contrary to the statutory guidelines issued by the Reserve Bank of India and that the Chairman's actions suggested bias. The respondent-Company maintained that the adjournments were necessary for negotiations and that the Chairman acted according to the Articles of Association and the Companies (Court) Rules, 1959. The Court found that the Chairman's actions were generally within legal bounds but emphasized the need for transparency and fairness in the process.

4. Court's Intervention and Directions Regarding the Scheme's Approval Process:
The Court noted its inherent powers to intervene when its directions are misused or misinterpreted. It expressed concern over the prolonged adjournments and directed the Chairman to ensure the Scheme is put to vote by the specified deadline. The Court emphasized the importance of balancing the interests of all parties involved, including the significant investments and sacrifices made by lenders and small debenture holders.

Conclusion:
The Court directed that the Scheme of Arrangement/Compromise must be put to vote in a meeting held no later than 30-6-2005, with the results reported to the Court by 7-7-2005. The application was disposed of without any order as to costs, emphasizing the need for fairness and transparency in the proceedings.