2005 (6) TMI 285 - HC - Companies Law

Summary

Issues Involved:
1. Direction for convening a meeting of Scheme Lenders.
2. Declaration of the Scheme of Arrangement as null and void.
3. Separate meetings for Debenture holders holding more than 2000 debentures.
4. Examination of the Scheme at the stage of seeking direction for convening the meeting.
5. Constitution of class for Scheme Lenders.

Detailed Analysis:

1. Direction for convening a meeting of Scheme Lenders:
Company Application No. 217 of 2005 was filed by Essar Oil Limited seeking the court's direction to convene a meeting of the Scheme Lenders to consider and approve the Scheme of Compromise and Arrangement. The court, after considering the statutory provisions and relevant case laws, issued directions for convening the meeting. The court emphasized that the application for an order for meetings is a preliminary step, and the company takes the risk that the classes fixed by the judge may reveal inadequacies, potentially leading to the scheme not being approved.

2. Declaration of the Scheme of Arrangement as null and void:
Company Application No. 224 of 2005, filed by Peerless General Finance and Investment Company Limited, sought to declare the Scheme of Arrangement as null and void. The court did not find it just and proper to reject the application at the threshold. The court noted that the minority debenture holders would have the opportunity to discuss, deliberate, and raise objections during the meeting and subsequently when the substantive petition is filed for the scheme's confirmation.

3. Separate meetings for Debenture holders holding more than 2000 debentures:
The objectors argued for separate meetings for debenture holders holding more than 2000 debentures, stating that they constitute a different class from the Term Lenders and Working Capital Lenders. The court, however, decided not to entertain this prayer at this stage, citing the principle that the court does not consider at this point what classes of creditors or members should be made parties to the scheme. This issue would be reserved for a later stage when the substantive petition is filed.

4. Examination of the Scheme at the stage of seeking direction for convening the meeting:
The court referred to various judgments, including those of the Supreme Court, to conclude that the scheme should not be examined in detail at the stage of seeking direction for convening the meeting. The court emphasized that the merits of the scheme could be discussed at the meeting, and objections could be raised during the meeting and later when the substantive petition is filed.

5. Constitution of class for Scheme Lenders:
The court addressed the issue of whether the company could place debenture holders in the same class as Term Lenders and Working Capital Lenders under the new scheme. The court referred to the principle from Palmer's Company Law, which states that the court does not consider at this point what classes of creditors or members should be made parties to the scheme. The court decided to issue directions for convening the meeting without pronouncing judgment on the justification of the class constitution at this stage.

Conclusion:
The court issued directions for convening the meeting of Scheme Lenders, including detailed procedural instructions, while reserving the examination of the scheme's merits and the justification of class constitution for a later stage when the substantive petition is filed. Both company applications were disposed of without any order as to cost.