2010 (4) TMI 607 - HC - Companies Law

Modification to the said sanctioned scheme of compromise and/or arrangement qua the deep discount bond holders - Held that - The classification could not be said to be bad in law for inclusion of DDB holders in the category of secured creditors, which are under the broad head of existing lenders, more particularly when the term of compromise offered to all such classes was common. Thus the classification of DDB holding in the category of lenders, who were secured creditors, as has not been found bad in law, such aspect may not assume much importance. Appeal dismissed.

Issues:
1. Recalling or modification of the order dated 13th September, 2005 in Company Petition No.131 of 2005.
2. Classification of deep discount bond (DDB) holders as secured creditors.
3. Compliance with statutory requirements for offering the scheme of arrangement.
4. Proper classification at the time of convening the meeting.
5. Approval of the scheme by the requisite majority of DDB holders.
6. Consideration of material regarding the approval by DDB holders.
7. Legal principles governing classification in schemes for sanction.

Issue 1: Recalling or modification of the order dated 13th September, 2005:
The applicant sought to recall or modify the sanctioned scheme of compromise regarding DDB holders, requesting interest at 15.5% per annum and maturity value as promised. The court considered the basis of the application, arguing that DDB holders should be treated as a separate class, contending that the mandatory procedure was not followed. The respondent argued that DDB holders were rightly classified as secured creditors, and the terms offered were common to all secured creditors. The court noted that the applicant's purchase of DDB during the proceedings did not entitle them to declassify existing secured creditors or recall the order.

Issue 2: Classification of DDB holders as secured creditors:
The court analyzed the scheme's classification of DDB holders as secured creditors. It was argued that DDB holders should be treated as a separate class due to distinct interests. However, the court found that the scheme's terms offered a common arrangement to all secured creditors, including DDB holders. The court emphasized that the interest of secured creditors was based on security interest in the company's property, not individual contractual terms.

Issue 3: Compliance with statutory requirements for offering the scheme:
The court examined compliance with statutory requirements for offering the scheme of arrangement. It noted that the scheme was sanctioned following due process, including meetings, publication of advertisements, and consideration of objections. The court found that the scheme had been approved by the requisite majority, and objections were duly considered.

Issue 4: Proper classification at the time of convening the meeting:
The court addressed the contention regarding proper classification at the time of convening the meeting. It was argued that DDB holders were not classified separately, leading to improper classification. However, the court found that the terms offered to secured creditors, including DDB holders, were common and met statutory requirements.

Issue 5: Approval of the scheme by the requisite majority of DDB holders:
The court considered the approval of the scheme by the requisite majority of DDB holders. Material presented during the hearing showed that a significant majority of DDB holders supported and approved the scheme. The court found that the statutory requirements for approval had been met.

Issue 6: Consideration of material regarding the approval by DDB holders:
The court discussed the consideration of material regarding the approval by DDB holders. While the respondent presented material showing approval by a majority of DDB holders, the applicant contested its admissibility. The court noted the approval by DDB holders as a factor in determining compliance with statutory requirements.

Issue 7: Legal principles governing classification in schemes for sanction:
The court referred to legal principles governing classification in schemes for sanction. Citing relevant judgments, the court found that the classification of DDB holders as secured creditors was not improper. The court emphasized the common terms offered to all secured creditors, indicating a homogeneous class.

In conclusion, the court dismissed the application, finding it meritless and upholding the classification of DDB holders as secured creditors under the sanctioned scheme of compromise. The court emphasized the common terms offered to all secured creditors and the approval of the scheme by the requisite majority, indicating compliance with statutory requirements.

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