2015 (9) TMI 1588 - HC - Companies Law

Scheme of Arrangement in the nature of De-merger - Held that - Meeting of the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Applicant Company for considering and approving the proposed scheme are not necessary and are not required to be held under the provisions of Section 391(2) of the Companies Act, 1956. The same are hereby dispensed with. As submitted that the reduction of the capital is essentially consequential in nature and is proposed as an integral part of the proposed Scheme of Arrangement and that the same does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and the order of the court sanctioning the scheme shall be deemed to be an order under Section 102 of the Companies Act, 1956 confirming the reduction. It has been further submitted that the approval granted to the present scheme by the Equity Shareholders of the applicant Company in form of the consent letters include the specific consent for the proposed reduction of capital. Hence, the same be treated as the special resolution as required under Section 100 of the Companies Act, 1956. It has also been contended that the interests of the Creditors of the Applicant Company are not in any way affected by such reduction. Considering the above submissions, the procedure described under Sections 100 and 101(2) of the Companies (Court) Rules, 1959, are not required to be undertaken and the same are dispensed with.

Summary

Issues:
1. Application under Sections 391 and 394 of the Companies Act, 1956 for a Scheme of Arrangement involving De-merger and Transfer of Divisions.
2. Dispensation of meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors.
3. Reduction of equity share capital as part of the proposed Scheme of Arrangement.

Analysis:
1. The application was filed by Zenith Silk Mills Private Limited under Sections 391 and 394 of the Companies Act, 1956 for a Scheme of Arrangement involving the De-merger and Transfer of Processing and Windmills Divisions to another company. The application sought to restructure the capital of both companies along with their respective shareholders and creditors.

2. The applicant requested dispensation of meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors, as all necessary approvals were obtained. Consent letters from Equity Shareholders, Secure Creditors, and Unsecured Creditors were submitted, along with a Certificate from a Chartered Accountant confirming the status and approvals. The Court, after considering the submissions, dispensed with the requirement of holding meetings for approval of the scheme under Section 391(2) of the Companies Act, 1956.

3. The proposed Scheme included a reduction of equity share capital, which was deemed consequential and integral to the arrangement. The Court noted that the reduction did not involve diminishing liability or payment to shareholders. The approval from Equity Shareholders for the scheme included consent for the reduction of capital, fulfilling the requirement of a special resolution under Section 100 of the Companies Act, 1956. The Court further dispensed with the procedures outlined in Sections 100 and 101(2) of the Companies (Court) Rules, 1959, as the interests of the Creditors were not affected by the reduction.

4. In conclusion, the Company Application was disposed of accordingly, with the Court approving the Scheme of Arrangement involving De-merger and Transfer of Divisions, and the reduction of equity share capital as part of the restructuring process. The Court dispensed with the meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors, as all necessary consents and approvals were obtained and deemed sufficient for the scheme's implementation.