2010 (9) TMI 220 - HC - Companies Law

Seeking approval of the scheme of arrangement - Held that - In view of the fact that revaluation of assets is bilateral in nature as per the scheme; in the interest of shareholders and is part of a scheme contemplating transfer of the Security Premium Account to the Business Reconstruction Reserve Account and the fact that there is no objection from the Regional Director, Northern Rezon, Ministry of Corporate Affairs, Noida, the Scheme as proposed is approved. The scheme shall be binding on the petitioner-Company, its shareholders, secured & unsecured creditors and all concerned.

Summary

Issues:
Petition under sections 391 to 394 of the Companies Act, 1956 for seeking approval of the scheme of arrangement.

Detailed Analysis:

1. Scheme of Arrangement Approval:
The petitioner-Company sought approval for a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956. The scheme aimed at realigning existing reserves to Business Reconstruction Reserve and revaluing immovable property to its current realizable value. The Board of Directors approved the scheme, focusing on adjusting accumulated losses and presenting a positive balance sheet. The scheme did not involve compromise with creditors but aimed at financial restructuring.

2. Utilization of Securities Premium Account:
The petitioner argued that the securities premium account could be applied for creating a business reserve account as per section 78 of the Act. The company's Article of Association allowed for the reduction of share capital, enabling the transfer of the securities premium account to the Business Reconstruction Reserve Account. The Kolkata High Court's precedent supported the transfer with the permission of the Company Court, given shareholders' consent.

3. Revaluation of Assets:
The scheme also included revaluing the company's assets, following provisions in section 391 of the Act and Accounting Standards specified by the Institute of Chartered Accountants of India. The revaluation aimed at improving the company's financial status by transferring funds to the Business Reconstruction Reserve Account. The revaluation process allowed for an increase in the net book value, benefiting shareholders, creditors, employees, and stakeholders.

4. Approval and Binding Nature of the Scheme:
Considering the bilateral nature of the revaluation process and the scheme's benefits for shareholders and stakeholders, the Court approved the scheme. The Regional Director, Ministry of Corporate Affairs, had no objections. The scheme's approval made it binding on the petitioner-Company, its shareholders, secured and unsecured creditors, and all concerned parties.

5. Compliance and Publication:
The Court directed the filing of a certified copy of the order with the Registrar of Companies and mandated publication in specified newspapers and the Official Gazette of the Punjab Government. Interested parties were granted the liberty to apply to the Court for any necessary direction as per the law.

In conclusion, the Court approved the scheme of arrangement, emphasizing the realignment of reserves and revaluation of assets to strengthen the company's financial position and benefit stakeholders.