2010 (9) TMI 221 - HC - Companies Law

Whether the assets of the petitioner carried in the books on historical basis do not adequately reflect true and fair view of the state of affairs of the petitioner-company? Held that - The scheme of arrangement was in respect of reorganization of reserves and revaluation of assets, adjustment of goodwill or any intangible that may arise on account of the acquisition of the electrical contracting business of Naseer Electricals Private Limited against the general reserve of the Company as well as for adjustment of any consideration, fees, incentives etc., payable to any employee or consultants in accordance with the business purchase agreement and its annexures thereof. In the said case the scope of the scheme of arrangement was wider than the proposed scheme of arrangement to revalue the assets of the Company alone. Revaluation of assets was only one part of the Scheme. Thus, the said order does not answer the question raised that the process of revaluation of assets of the company unitarily does not require any approval of the company court. In view of the said fact, the scheme of arrangement, as proposed by the petitioner-company, does not require any approval by this Court. Consequently, the present petition is dismissed with liberty to the petitioner for appropriate action on its own, in accordance with law

Summary

Issues:
1. Scheme of arrangement for reconstruction of the petitioner-company based on estimated realizable values of its assets.
2. Dispensing with the convening and holding of the meeting of equity shareholders for approval of the scheme.
3. Interpretation of sections 390 and 391 of the Companies Act, 1956 regarding revaluation of assets.

Analysis:
1. The petitioner-company sought reconstruction based on estimated realizable values of its assets due to discrepancies in the historical valuation of assets. The company highlighted the need for a scheme to reflect the true state of affairs, considering factors like aging land and buildings, diminished investments, and carried forward losses. The scheme aimed at restating assets based on their estimated realizable values as of the appointed date.

2. The petitioner requested dispensation with the meeting of equity shareholders for scheme approval, citing the inadequacy of historical asset valuation in reflecting the company's true financial position. With seven equity shareholders holding the share capital, the petitioner argued for court direction to forego the shareholder meeting and proceed with the scheme's approval through notice publication as per Company (Court) Rules, 1959.

3. The court deliberated on the interpretation of sections 390 and 391 of the Companies Act, 1956 concerning the revaluation of assets. The petitioner contended that revaluation falls within the scope of section 391, citing provisions of section 211 and Accounting Standards by the Institute of Chartered Accountants of India. Reference to a Bombay High Court order on a similar scheme was made, emphasizing the need for court approval. However, the court concluded that revaluation of assets by the company alone, without involving creditors or members, did not constitute an arrangement under section 391. The court highlighted that revaluation is an accounting process permissible under section 211, not requiring court approval as per the Act.

In summary, the judgment dismissed the petition, stating that the proposed scheme did not necessitate court approval. The court emphasized that revaluation of assets by the company alone did not fall under the scope of section 391 of the Companies Act, 1956, and was deemed a unilateral accounting process permissible under section 211. The court's decision allowed the petitioner to take appropriate action independently in accordance with the law.