2006 (5) TMI 197 - HC - Companies Law

Summary

Issues:
Consideration of an unsecured creditor's locus standi to oppose the sanctioning of a scheme of arrangement under sections 391(2) and 394 of the Companies Act.

Detailed Analysis:
The judgment addresses the issue of whether an unsecured creditor, whose dues have been disputed, has the standing to oppose the approval of a scheme of arrangement under sections 391(2) and 394 of the Companies Act. The objector company, an unsecured creditor of one of the petitioner companies, had filed a winding-up petition against the company. However, the court dismissed the petition, acknowledging the bona fide dispute raised by the respondent company regarding the claim. The objector company then appealed this decision, and the matter was pending for final hearing. Additionally, the objector company initiated arbitration proceedings related to the alleged dues.

The petition involved four petitioner companies seeking approval for a scheme of arrangement. The first part of the scheme focused on the amalgamation of two petitioner companies, while the second part involved transferring liabilities and investments among the companies. The petitioners provided various grounds for seeking approval, including enhanced operational focus, optimal resource utilization, and improved asset base. The scheme aimed to benefit shareholders by creating independent entities with focused growth strategies.

The court directed meetings of shareholders and creditors to approve the scheme. The meetings were convened, and the scheme received unanimous approval. However, the objector company raised objections, citing outstanding dues and lack of notice for creditors' meetings. The official liquidator's report concluded that the scheme would benefit all shareholders and that the transferor company's affairs were not prejudicial to its members or creditors.

The court considered the objecting creditor's submissions and relevant legal precedents. It highlighted that objecting creditors must demonstrate that the scheme adversely affects them and is unjust or unfair. The court referenced previous judgments emphasizing that schemes under the Companies Act are not tools for debt recovery when the debt is disputed. In this case, since the alleged dues were genuinely disputed, and arbitration proceedings were initiated, the objector company lacked standing to oppose the scheme's approval.

Ultimately, the court found the scheme fair, reasonable, and in the interest of shareholders. It sanctioned the scheme, deferred the annual general meeting, and ordered costs to be paid to the official liquidator. The judgment underscored that judicial intervention in such matters is warranted only if the scheme is unfair, unreasonable, or contrary to law and public policy, which was not the case here.