2008 (5) TMI 432 - HC - Companies Law

Scheme of arrangement - Held that - In the light of the controversy between the parties the court is of the view that the objections raised by the Kotak Mahindra Bank Ltd., can not be taken into account as the Kotak Mahindra Bank Ltd., is an assignee of the debt. Since the issue regarding assignment of debt is pending before the Division Bench, whether the assignee can be considered to be a secured creditor is a question to be decided by the Division Bench. If the value of the votes stated to have been held by the Kotak Mahindra Bank Ltd., is ignored, it cannot be said that the scheme has not been approved by the requisite majority of secured creditors. Since the scheme has been approved by the secured creditors, unsecured creditors and workers and it is beneficial to the interest of the members and it is not contrary to public interest and the scheme is hereby sanctioned.

Issues Involved:
1. Sanctioning the scheme of arrangement under sections 391 to 394 of the Companies Act, 1956.
2. Objections raised by the Central Government.
3. Objections raised by Kotak Mahindra Bank Ltd.
4. Approval and voting process of the scheme by shareholders and creditors.

Issue-wise Detailed Analysis:

1. Sanctioning the Scheme of Arrangement:
The petitioner filed a petition under sections 391 to 394 of the Companies Act, 1956, seeking sanction for a scheme of arrangement involving compromise between Shree Narmada Aluminium Industries Ltd., its secured and unsecured creditors, and shareholders. The company, incorporated on April 15, 1981, faced financial difficulties and was registered with the Board for Industrial and Financial Reconstruction (BIFR). The BIFR recommended winding up the company, leading to multiple legal proceedings. The petitioner-company, aiming to revive its operations, proposed a scheme to settle dues with creditors and shareholders.

2. Objections Raised by the Central Government:
The Central Government, through an affidavit by the Assistant Registrar of Companies, raised several objections:
- The company, being listed on various stock exchanges, had not obtained No Objection Certificates (NoC) from these exchanges.
- The scheme proposed a reduction in paid-up capital without passing a special resolution under sections 100-105 of the Companies Act.
- The BIFR had previously recommended winding up the company in public interest.
- The board of directors had not presented a concrete revival scheme.

3. Objections Raised by Kotak Mahindra Bank Ltd.:
Kotak Mahindra Bank Ltd. objected to the scheme, highlighting that ICICI Bank Ltd. had assigned its debt to Kotak Mahindra Bank, and recovery proceedings were pending before the Debts Recovery Tribunal (DRT). The bank argued that the scheme did not have the statutory majority support as required under section 391(1) of the Act. Additionally, the bank contended that the scheme was based on outdated figures and that it was the sole secured creditor, thus holding a significant stake in the debt.

4. Approval and Voting Process of the Scheme by Shareholders and Creditors:
The court directed the petitioner to convene meetings of shareholders, secured creditors, and unsecured creditors to consider the scheme. The meetings were held, and the scheme was approved by the shareholders and unsecured creditors. However, the meeting of secured creditors faced issues due to procedural lapses, leading to a fresh meeting. In the subsequent meeting, amendments to the scheme were proposed and voted upon, with the majority of secured creditors approving the scheme.

Judgment:
The court considered the objections raised by Kotak Mahindra Bank Ltd. and the Central Government. It noted that Kotak Mahindra Bank Ltd. was an assignee of the debt, and the issue of assignment was pending before the Division Bench. Ignoring the votes of Kotak Mahindra Bank Ltd., the court found that the scheme had been approved by the requisite majority of secured creditors. The objections by the Central Government were also overruled as they had been adequately addressed by the petitioner. Consequently, the court sanctioned the scheme, finding it beneficial to the members and not contrary to public interest. The company petition was allowed, and related applications were disposed of.

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