2004 (8) TMI 392 - HC - Companies Law

Summary

Issues Involved:
1. Sanction and approval of the Modified Scheme of Arrangement under sections 101, 391(2) to 394 read with section 81(1A) and sections 100 to 103 of the Companies Act, 1956.
2. Objections raised by State Bank of India (SBI) and Industrial Investment Bank of India (IIBI) against the Modified Scheme of Arrangement.
3. Compliance with statutory procedures and the fairness of the Scheme.

Issue-wise Detailed Analysis:

1. Sanction and Approval of the Modified Scheme of Arrangement:
The petitioners filed Company Petition No. 13 of 2003 under relevant sections of the Companies Act, 1956, seeking the court's sanction for a Scheme of Arrangement between two petitioner Companies and their shareholders and creditors. The objective was to transfer the Textile Division of the first petitioner to the second petitioner on specified terms and conditions. The Scheme aimed to facilitate independent growth and development of the Spinning Mill business and Iron and Steel Roller Division through separate companies, benefiting all stakeholders involved.

2. Objections Raised by SBI and IIBI:
SBI and IIBI opposed the Modified Scheme. SBI's objections included concerns over the financial viability of the Textile Division and the potential adverse impact on their interests. SBI argued that the demerger would increase the debt burden of the Textile Division and erode the security cover provided by the promoters. However, the court found that the majority of shareholders and creditors supported the Scheme, and SBI's objections were not tenable. IIBI contended that the second petitioner was incurring significant losses and would struggle to service its debts, risking the invocation of guarantees. The court noted that IIBI's outstanding amount was minimal compared to the total debt and that the Scheme did not affect IIBI's interests as a creditor.

3. Compliance with Statutory Procedures and Fairness of the Scheme:
The court examined the statutory compliance and fairness of the Scheme. The Scheme was approved by an overwhelming majority of creditors and directors. The court referred to the parameters set in Miheer H. Mafatlal v. Mafatlal Industries Ltd., ensuring that all statutory procedures were followed, requisite majority votes were obtained, and relevant material was provided to voters. The court also confirmed that the Scheme was not violative of any law or public policy and that the majority acted in good faith without coercing the minority. The court found the Scheme to be just, fair, and reasonable, promoting better administration, operational efficiency, and optimal resource utilization.

Conclusion:
The court sanctioned the Modified Scheme of Arrangement, finding it compliant with sections 391 to 394, read with section 81(1A) and sections 100 to 103 of the Companies Act, 1956. The Scheme was binding on both petitioner-Companies, their shareholders, creditors, and all concerned from January 1, 2003. The objections raised by SBI and IIBI were dismissed as unsustainable. The court directed the petitioner-Companies to communicate the order to the Registrar of Companies within six weeks and left the parties to bear their own costs.