2006 (2) TMI 290 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the High Court amidst pending proceedings before the AAIFR under SICA.
2. Classification of creditors and the fairness of the proposed scheme of arrangement.
3. Objections raised by secured and unsecured creditors.
4. Approval and implementation of the scheme of arrangement.

Detailed Analysis:

1. Jurisdiction of the High Court amidst pending proceedings before the AAIFR under SICA:
The court examined whether the pending proceedings before the AAIFR under SICA excluded its jurisdiction to entertain the petition for sanctioning the scheme of arrangement. It referred to the case of Sharp Industries Ltd., concluding that the High Court's jurisdiction is not excluded by the pendency of proceedings before the AAIFR. The court emphasized that the provisions of SICA and the Companies Act operate in different spheres and are not inconsistent with each other. The court also noted that the proposed scheme aimed at reviving the company would align with SICA's objectives.

2. Classification of creditors and the fairness of the proposed scheme of arrangement:
The court addressed the objections regarding the classification of creditors, particularly the argument that UTI, as a secured creditor, formed a separate class due to its unique security interests. The court held that the classification of secured and unsecured creditors was permissible and that UTI, despite having a decree, did not constitute a different class of creditors. The court relied on the principle that creditors with similar interests and rights should be treated as a homogeneous class. The court also considered the fairness and reasonableness of the scheme, noting that it provided a structured plan for repayment and revival of the company, which was in the best interest of all stakeholders.

3. Objections raised by secured and unsecured creditors:
The court dealt with various objections raised by secured and unsecured creditors, particularly UTI's contention that the scheme required it to make a significant sacrifice and that the repayment terms were spread over a long period. The court found that the proposed scheme was fair and reasonable, providing a viable alternative to winding up the company. The court also addressed the objections regarding the inclusion of certain creditors and the exclusion of others, concluding that the classification was based on the nature of the creditors (banks and financial institutions) and was justified.

4. Approval and implementation of the scheme of arrangement:
The court considered the procedural compliance and the approval of the scheme by the requisite majority of creditors. It noted that the scheme had been approved by the majority in number representing more than 3/4th in value of both secured and unsecured creditors. The court emphasized that its role was not to usurp the decision of the creditors but to ensure that the scheme was fair, reasonable, and in the best interest of all parties involved. The court approved the scheme with certain modifications, particularly not absolving the guarantors of their liabilities under the original agreements.

Conclusion:
The court sanctioned the scheme of arrangement with modifications, ensuring that it was fair, reasonable, and in the best interest of all stakeholders. The court's decision balanced the need for the revival of the company with the interests of the creditors, providing a structured plan for repayment and rehabilitation.