2008 (8) TMI 556 - HC - Companies Law

Compromise and arrangement - Held that - The Regional Director has examined the Scheme and has deposed in the Affidavit dated 30-1-2008 that the Scheme is not prejudicial to the interest of creditors, shareholders and the public except that the petitioner company has not passed a special resolution as required by section 100 of the Companies Act, 1956. Section 100 requires a special resolution for reducing share capital. Section 189 of the Companies Act, 1956, contemplates two kinds of resolution. Sub-section (1) contemplates an ordinary resolution which requires a simple majority of the members from amongst those who are present for the meeting and who vote. When a resolution is passed at a meeting where the number of votes cast in favour of the resolution exceeds the number of votes cast against it, it is known as ordinary resolution. A resolution for reduction of share capital requires a special resolution. A special resolution is defined by sub-section (2) as one which is passed by a majority of not less than 3/4th of such members as being entitled so to do, vote in person or by proxy at a general meeting of which a notice specifying the intention to pass a special resolution has been duly given. There is no doubt that the resolution in question has been passed as a special resolution which has been passed by 75 per cent of those voting. It was however contended that since what was achieved was a reduction in the share capital. It was necessary for the company to have separately passed a resolution under section 100 of the Companies Act. However, this objection cannot be sustained. In the result, Objections are rejected and the Scheme is sanctioned in terms of prayer clause (a) of the Petition. Petition is allowed.

Issues Involved:
1. Validity of the shareholders' meeting and resolution under section 391 of the Companies Act.
2. Fairness of the options provided to shareholders for liquidating shares.
3. Classification of shareholders and the necessity for separate meetings.
4. Compliance with statutory requirements for reduction of share capital under section 100 of the Companies Act.
5. Examination of the Scheme by the Regional Director and objections raised.

Detailed Analysis:

1. Validity of the Shareholders' Meeting and Resolution under Section 391 of the Companies Act:
The meeting of shareholders was convened under section 391 of the Companies Act, and the resolution was passed by a majority of 96.15% shareholders, with an objection from 3.85% of shareholders. The court noted that the resolution was backed by the requisite majority vote as required by section 391(2). The court emphasized that the majority decision of the concerned class of voters is just and fair to the class as a whole, binding even the dissenting members.

2. Fairness of the Options Provided to Shareholders for Liquidating Shares:
The company offered three alternatives to shareholders for liquidating their shares, each valued at Rs. 177. The objectors argued that the options were unfair, particularly the last option, which compelled shareholders to return shares for a consideration of Rs. 177. The court acknowledged that while the options might seem unfair, they were within the company's power if applied uniformly and validly taken by the majority under section 391(2).

3. Classification of Shareholders and the Necessity for Separate Meetings:
The objectors contended that separate meetings should have been convened for Hoganas Hogap AB, a subsidiary of Hoganas AB Sweden, and other shareholders due to differing interests. The court referred to precedents, including Sandvik Asia Ltd., and Gujarat High Court's Maneckchowk case, which emphasized the need for homogeneous groups with commonality of interest. The court concluded that all shareholders, including Hoganas Hogap AB, were offered identical terms, forming a single homogeneous class with common interests. Hence, separate meetings were not required.

4. Compliance with Statutory Requirements for Reduction of Share Capital under Section 100 of the Companies Act:
The Regional Director raised an objection that the company had not passed a special resolution as required by section 100 for reducing share capital. The court clarified that the resolution in question contained all the characteristics of a special resolution and that section 391 is a complete code intended to provide a 'single window clearance' system, negating the need for separate applications under section 100. The objection was rejected based on the precedent set in PMP Auto Industries Ltd.

5. Examination of the Scheme by the Regional Director and Objections Raised:
The Regional Director examined the Scheme and found it not prejudicial to the interests of creditors, shareholders, and the public, except for the lack of a special resolution under section 100. The court rejected this objection, reiterating that section 391 provides a comprehensive framework for such schemes. The court concluded that the proposed arrangement was not violative of any provisions of law or contrary to public policy, and the majority decision was commercially sound and acceptable.

Conclusion:
The court rejected the objections and sanctioned the Scheme, confirming that the resolution was validly passed, the options provided were fair within the legal framework, and the classification of shareholders did not necessitate separate meetings. The Scheme was found compliant with statutory requirements and not prejudicial to any stakeholders. The judgment was stayed for four weeks to allow the objectors to file an appeal.

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