2007 (10) TMI 407 - HC - Companies Law

Compromise and arrangement - Held that - Since the scheme as proposed was approved by the shareholders as well as creditors by more than the required statutory majority and as the objections raised by the Regional Director of Companies were found to be unsustainable and even the objections raised by the objectors are held to be devoid of merit, the scheme as proposed is approved without any modification, A copy of the order approving the scheme is directed to be served on the Registrar of Companies as is required under the Rules within 30 days from the date of receipt of a copy of this order. The company petition is accordingly ordered.

Issues:
1. Approval of the scheme of arrangement under section 391 of the Companies Act, 1956.
2. Financial restructuring and debt repayment.
3. Objections from shareholders and other stakeholders.
4. Compliance with statutory requirements and disclosure of material facts.
5. Validity of the voting process and the role of ARCIL as a pledgee.

Analysis:

1. Approval of the Scheme of Arrangement:
The petitioner-company, Spectrum Power Generation Ltd., sought approval for a scheme of arrangement under section 391 of the Companies Act, 1956. The scheme aimed to restructure the company's debts and capital to safeguard the interests of shareholders, creditors, and other stakeholders. The scheme involved converting existing equity into redeemable preference shares, infusing new equity capital, and restructuring the company's debt obligations.

2. Financial Restructuring and Debt Repayment:
The company's financial situation necessitated the proposed scheme due to severe financial constraints, including mounting debts and accumulated losses. The scheme proposed converting existing equity into redeemable preference shares, infusing Rs. 150 crores as new equity capital, and restructuring debt repayment terms. The restructuring included paying Rs. 150 crores in 60 monthly installments with 10% interest, a bullet payment of Rs. 175 crores in 2012, and issuing compulsorily convertible debentures worth Rs. 325 crores.

3. Objections from Shareholders and Other Stakeholders:
Several objections were raised by shareholders and stakeholders, including allegations of non-disclosure of material facts, improper voting rights exercised by ARCIL, and concerns about the fairness and transparency of the bidding process. The objectors claimed that the scheme was designed to benefit certain shareholders and that the financial statements contained distorted figures. They also argued that the guarantees provided by the original promoters should not continue without their consent.

4. Compliance with Statutory Requirements and Disclosure of Material Facts:
The court examined whether the scheme complied with statutory requirements, including the disclosure of the latest financial position and material facts. The petitioner-company provided financial statements up to March 31, 2006, and a limited review report up to December 2006. In response to objections, the company also filed unaudited financial statements for the year ending March 31, 2007. The court found that the company had complied with the statutory requirements and that the objections regarding non-disclosure were not tenable.

5. Validity of the Voting Process and the Role of ARCIL as a Pledgee:
The court considered whether the voting process was valid, particularly the role of ARCIL, which exercised voting rights as a pledgee. The objectors argued that they were prevented from participating in the shareholders' meeting and that ARCIL's exercise of voting rights was improper. The court noted that the pledge did not extinguish the rights of the original shareholders and that ARCIL had the right to vote as per the terms of the pledge. The objections regarding the voting process were dismissed.

Conclusion:
The court approved the scheme of arrangement, finding that it complied with statutory requirements and was in the best interest of the company and its stakeholders. The objections raised by the shareholders and other stakeholders were found to be without merit. The scheme was deemed fair, just, and reasonable, and the court emphasized that its role was supervisory, not appellate. The court ordered the company to serve a copy of the order to the Registrar of Companies within 30 days.

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