2013 (2) TMI 495 - HC - Companies Law

Modification of the scheme of amalgamation - scheme was sanctioned by this court under sections 391 and 394 of the Companies Act for amalgamation of ICCL into IMFA After sanction of the scheme ICCL was dissolved without being wound up - petition under section 392 was filed to modify the scheme of arrangement and amalgamation - by confirming the reduction of share capital of IMFA, by cancellation of 3,49,466 equity shares of Rs. 10 each presently held by the erstwhile ICCL Shareholders Trust Held that - Modification is sought for cancellation of 3,49,466 equity shares of IMFA which have not been accepted by the small shareholders of erstwhile ICCL offered to them at a discount of 50 per cent. - This situation was not conceived at the time of framing the said scheme and, therefore, this situation has arisen during the working of the scheme. No objection has been received from any person to the modification sought in this petition. The shareholders to whom the said shares were to be offered under the scheme have not accepted the same despite reminders as aforesaid. Further, since the consequent reduction of capital does not involve either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, the interest of creditors of IMFA are not affected. The modification sought in this petition is merely a small portion of the scheme and does not involve any substantial modification of the scheme This does not affect the interest of any shareholder of either the erstwhile shareholder of ICCL or IMFA or creditor of IMFA adversely and there cannot be any possible objection to the same. As decided in S. K. Gupta s case 1979(1)TMI 195 SC , the company court has been conferred power of widest amplitude under section 392 not only to give direction but to make such modifications in the scheme as the court may consider necessary and the only limit on the power of the court being that such directions can be given and modifications can be made for the proper working of the scheme - petition is allowed and the scheme sanctioned modified to the extent that 3,45,466 equity shares -consequent reduction of share capital of IMFA to the above extent is confirmed In favour of petitioner.

Summary

Issues Involved:
1. Petition under section 392 of the Companies Act, 1956.
2. Modification of the scheme of arrangement and amalgamation.
3. Cancellation of 3,49,466 equity shares of IMFA.
4. Reduction of share capital of IMFA.
5. Implementation and compliance with the sanctioned scheme.
6. Powers of the court under section 392 of the Companies Act.

Issue-wise Detailed Analysis:

1. Petition under section 392 of the Companies Act, 1956:
The petition was filed by Indian Metals and Ferro Alloys Ltd. (IMFA) seeking to modify the scheme of arrangement and amalgamation by confirming the reduction of share capital of IMFA through the cancellation of 3,49,466 equity shares held by the erstwhile ICCL Shareholders Trust.

2. Modification of the scheme of arrangement and amalgamation:
The original scheme was sanctioned by the court on October 13, 2006, under sections 391 and 394 of the Companies Act, for the amalgamation of Indian Charge Chrome Ltd. (ICCL) into IMFA. Clause 12.1 provided for the issuance and allotment of IMFA shares to ICCL shareholders. However, IMFA, being a shareholder of ICCL, was entitled to 8,64,902 equity shares, which were to be cancelled as a company cannot hold its own shares.

3. Cancellation of 3,49,466 equity shares of IMFA:
To benefit small shareholders of ICCL, clause 13 of the scheme provided that IMFA's entitlement of 8,64,902 shares would be allotted to a trust for sale to small shareholders at a discount. Despite extensions and reminders, only 5,15,436 shares were accepted, leaving 3,49,466 shares unaccepted. The trustees decided to cancel these unaccepted shares as per clause 7.2(c) of the trust deed.

4. Reduction of share capital of IMFA:
The cancellation of the unaccepted 3,49,466 shares would result in the reduction of IMFA's paid-up share capital. The petition sought the court's confirmation for this reduction, arguing that it does not involve diminution of liability or payment to any shareholder, thus not affecting creditors' interests.

5. Implementation and compliance with the sanctioned scheme:
The court had directed the petitioner to advertise the notice of hearing in newspapers, which was duly complied with. No objections were filed against the petition, indicating no adverse effect on the shareholders or creditors.

6. Powers of the court under section 392 of the Companies Act:
Section 392 empowers the court to supervise and modify a sanctioned scheme to ensure its proper working. The Supreme Court in S.K. Gupta v. K.P. Jain emphasized that the court has wide powers to remove obstacles and make necessary modifications for the effective implementation of the scheme.

Conclusion:
The court concluded that the modification sought for the cancellation of 3,49,466 equity shares was necessary for the proper working of the scheme. There were no objections, and the modification did not adversely affect any shareholder or creditor. The petition was allowed, and the scheme was modified to cancel the shares and confirm the reduction of IMFA's share capital. The registry was directed to issue certified copies of the order and the approved minute of reduction for registration with the Registrar of Companies, followed by publication in specified newspapers.