2007 (3) TMI 369 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the composite scheme of arrangement.
2. Classification of creditors and shareholders.
3. Disclosure requirements under Section 393.
4. Validity of the scheme in light of the SARFAESI Act.
5. Objections by creditors and shareholders.
6. Reduction of share capital.
7. Allegations of fraud and unfairness.
8. Valuation and share exchange ratio.
9. Bank guarantees and liabilities.
10. Legal implications of the scheme on pending litigations.

Issue-wise Detailed Analysis:

1. Sanction of the Composite Scheme of Arrangement:
The court sanctioned the modified composite scheme of arrangement involving Core Healthcare Ltd. and Nirma Ltd., which included a compromise with lenders, reconstruction, reorganization of capital, and demerger. The scheme was approved by the requisite majority in meetings convened for equity shareholders, class "A" lenders, and class "B" lenders.

2. Classification of Creditors and Shareholders:
The court addressed the classification of creditors and shareholders, affirming that the scheme did not create any unfair advantage for any class. The classification was based on the terms offered under the scheme, and all creditors within a class were treated equally. The court held that ARCIL, as an assignee of debts, was rightly included in the meetings of class "A" and class "B" lenders.

3. Disclosure Requirements Under Section 393:
The court examined the adequacy of disclosures in the explanatory statement under Section 393. It was found that all relevant material facts were disclosed, and the lenders had sufficient information to make an informed decision. The court noted that any non-disclosure of facts already known to the lenders did not vitiate the scheme.

4. Validity of the Scheme in Light of the SARFAESI Act:
The court held that the scheme did not contravene the SARFAESI Act. It was noted that ARCIL, having taken possession of the assets under the SARFAESI Act, could facilitate the scheme without violating statutory provisions. The court emphasized that the SARFAESI Act and the Companies Act provisions could coexist, and the scheme was not inconsistent with the SARFAESI Act.

5. Objections by Creditors and Shareholders:
Objections raised by creditors, including HDFC Bank and Oman International Bank, were addressed. The court found that the objections lacked merit and were not sufficient to reject the scheme. It was noted that the majority of creditors and shareholders had approved the scheme, and the objections did not demonstrate any manifest unfairness or fraud.

6. Reduction of Share Capital:
The court sanctioned the reduction of share capital as part of the scheme, holding that the procedure prescribed under Sections 100 and 101 of the Companies Act was duly followed. The court observed that the reduction of share capital could be approved simultaneously with the scheme of arrangement.

7. Allegations of Fraud and Unfairness:
The court dismissed allegations of fraud and unfairness, stating that the scheme was not manifestly unfair and did not involve any fraudulent activities. The court emphasized that the commercial wisdom of the majority should prevail unless there was evidence of fraud or coercion.

8. Valuation and Share Exchange Ratio:
The court upheld the share exchange ratio determined by a recognized firm of chartered accountants. It was noted that the ratio was approved by the majority of shareholders and was based on a fair valuation. The court reiterated that it would not interfere with the commercial judgment of the shareholders.

9. Bank Guarantees and Liabilities:
The court addressed the issue of bank guarantees and liabilities, holding that HDFC Bank, having paid the amount under the bank guarantee, became a lender and was entitled to recover the amount under the scheme. The court noted that the scheme included all liabilities and benefits, and future recoveries from the Customs Department would accrue to Nirma as part of the demerger.

10. Legal Implications of the Scheme on Pending Litigations:
The court clarified that the approval of the scheme would not affect the pending litigations, including those before the Debts Recovery Tribunal. The court emphasized that the scheme would bind all stakeholders, and the statutory majority's decision should be respected.

Conclusion:
The court sanctioned the modified composite scheme of arrangement, addressing all objections and ensuring compliance with statutory requirements. The scheme was found to be fair, reasonable, and in the best interest of all stakeholders. The court emphasized the importance of commercial wisdom and the binding nature of the scheme on all parties involved.