2007 (4) TMI 376 - HC - Companies Law

Issues Involved:
1. Sanction of Scheme of Arrangement under sections 391 to 394 of the Companies Act, 1956.
2. Financial condition of the petitioner company.
3. Negotiations with unsecured creditors.
4. Validity of notice and meeting procedures.
5. Classification of creditors and voting rights.
6. Rejection of certain ballots.
7. Modified terms of settlement.

Issue-Wise Detailed Analysis:

1. Sanction of Scheme of Arrangement under sections 391 to 394 of the Companies Act, 1956:
The petitioner sought the Court's sanction for a Scheme of Arrangement with its unsecured creditors. The company, originally named Veedip Financial Services Pvt. Ltd., underwent several name changes and became a subsidiary of Wilo AG, a German company, after a Share Purchase Agreement in 2005.

2. Financial condition of the petitioner company:
The audited balance sheet as of 30-6-2006 revealed severe financial distress with gross fixed assets valued at Rs. 54.56 lakhs, net block at Rs. 6,200, sundry debtors at Rs. 77.73 lakhs, cash and bank balance at Rs. 34.10 lakhs, net current liabilities at Rs. 6.94 crores, and total losses amounting to Rs. 10.34 crores.

3. Negotiations with unsecured creditors:
Negotiations with unsecured creditors were unfruitful. The company had no secured creditors. A Board meeting on 20-9-2006 approved a Scheme of Arrangement for restructuring debts, which received no objections from the Bombay and Pune Stock Exchanges.

4. Validity of notice and meeting procedures:
The Court directed a meeting of unsecured creditors on 1-12-2006. Notices were sent Under Certificate of Posting, and public notices were issued. On 30-12-2006, 99 unsecured creditors attended the meeting, with 85 out of 92 valid votes cast in favor of the Scheme. The objection regarding the absence of individual notices was dismissed as all objectors attended and voted at the meeting.

5. Classification of creditors and voting rights:
The objectors argued that MPPL, a subsidiary of Wilo AG like the petitioner, should have been treated as a separate class of creditors. The Court held that MPPL was an unsecured creditor like others and the Scheme did not confer higher rights upon it. The Court referred to the Supreme Court's judgment in Miheer H. Mafatlal v. Mafatlal Industries Ltd., emphasizing that a separate meeting of a class of creditors is required only if different terms of compromise are offered.

6. Rejection of certain ballots:
The Scrutineer rejected ballots for valid reasons, such as the absence of a Board resolution or proper authorization as required under rule 70(2) of the Companies (Court) Rules, 1959. The rejection of AP Genco Ltd.'s ballot was upheld due to non-compliance with rule 70(2). The objections regarding the rejection of ballots were found to be without merit.

7. Modified terms of settlement:
After discussions, the company proposed more beneficial terms for unsecured creditors, offering three revised options for settlement:
- Option I: 40% of the outstanding principal in installments over 30 months.
- Option II: 50% of the outstanding principal with 5% upfront and 45% by the end of 2012.
- Option III: 100% of the outstanding principal at the end of nine years.

The revised terms were agreed upon by the objectors and deemed fair by the Court. The Scheme, as modified, was sanctioned.

Conclusion:
The Company Petition was made absolute with modifications to clause 4.1, incorporating the revised options. The petitioner was directed to pay costs to the Regional Director and the Official Liquidator. The filing and issuance of the drawn-up order were dispensed with.

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