2010 (5) TMI 384 - HC - Companies Law

Reorganization of share capital - seeking sanction of Scheme of Arrangement providing for conversion of 65 lakh preference shares (out of 130 lakh shares each of Rs. 10) into equity shares Held that - In the instant case while meetings of preference shareholders had taken place all of them including equity shareholders have consented for approval of scheme of Arrangement proposed - resolution in that regard was also unanimously passed. Preference shareholders if at all adversely affected have not raised any objection to the Scheme of Arrangement impugned; in such circumstances in the opinion of this Court the Scheme of Arrangement proposed by petitioner-company is not in any manner prejudicial to the interest of shareholders but it stands consented by them; therefore there is no reason to withhold the sanction as sought for the Scheme of Arrangement as prayed for in instant petition filed under section 391 of the Act. Company petition stands allowed

Issues:
1. Scheme of Arrangement under section 391 of Companies Act, 1956.
2. Compliance with statutory requirements for the scheme.
3. Objections raised by creditors regarding the scheme.
4. Jurisdiction of the company court in sanctioning the scheme.
5. Impact of the scheme on preference and equity shareholders.

Analysis:

Issue 1: Scheme of Arrangement under section 391 of Companies Act, 1956
The company filed a petition seeking sanction for a Scheme of Arrangement to convert preference shares into equity shares and reorganize share capital. Separate meetings of preference and equity shareholders were held, and the scheme was unanimously approved. The company followed the procedural requirements as per the Act.

Issue 2: Compliance with statutory requirements for the scheme
The company complied with the statutory procedures, including holding separate shareholder meetings and obtaining no objection from the Regional Stock Exchange. The objections raised by creditors regarding redemption of preference shares and reduction in capital were countered by the company, stating that the scheme aimed at reorganization, not redemption.

Issue 3: Objections raised by creditors regarding the scheme
Creditors objected to the scheme, claiming it required compliance with section 80 of the Act and provisions related to reduction in capital. However, the court found the objections unsubstantiated as preference and equity shareholders had unanimously approved the scheme, and no objections were raised by them.

Issue 4: Jurisdiction of the company court in sanctioning the scheme
The court examined the jurisdiction parameters laid down by the Apex Court, ensuring compliance with statutory procedures, requisite majority vote, and fairness to all stakeholders. The court found the scheme just, fair, and reasonable, benefiting the shareholders for whom it was framed.

Issue 5: Impact of the scheme on preference and equity shareholders
The court determined that the scheme did not adversely affect the rights of preference and equity shareholders, as they had consented to the arrangement. The objections raised by creditors claiming to be affected were dismissed, and the scheme was sanctioned, binding on all shareholders.

In conclusion, the court allowed the company petition, rejected the objections raised by creditors, and sanctioned the Scheme of Arrangement proposed by the company. The court emphasized that the scheme was not prejudicial to the shareholders' interests and directed the Registrar to draw the necessary order.

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