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Issues Involved:
1. Whether the debenture holders like Unit Trust of India, which is a financial institution, constitute a separate and distinct class? Whether there is no uniformity or similarity of interest between them and the other secured creditors as their rights are distinct as envisaged in the Trust Deed? 2. Whether the objector UTI having held 64% of the total non-convertible debentures, a separate meeting for the UTI was to be held as it constitutes a separate and distinct class from other debenture holders as interest in their case was not funded and as UTI had sought for one time settlement? 3. Whether 3/4th of the value of the creditors and members had not voted in favor of the scheme and, if so, its effect? 4. Whether holding of meeting and including working capital providers in the said meeting held for the secured creditors, is illegal? 5. Whether the share exchange ratio propounded by the company under the scheme is unjust and improper? 6. Whether the latest balance sheet and latest financial position was not disclosed by the company? 7. Whether all relevant materials were not disclosed by the company along with the notice sent to the members and the creditors? 8. Whether the company could appoint those directors under the scheme who had already incurred disability under the provisions of Section 274(1)(g)(B) as the company failed to redeem the debentures within one year? 9. Whether the provisions in the scheme for transfer of the assets particularly the land is illegal as the same is sought to be transferred in violation of the orders of the Supreme Court that also on hypothetical price, which is not based on expert opinion? Issue-wise Detailed Analysis: Issues No. 1 and 2: The Court examined whether UTI, as a debenture holder, constituted a separate class from other secured creditors. Section 391 of the Companies Act provides for the compromise or arrangement between a company and its creditors or any class of them. The Court noted that all secured creditors, including UTI, were treated alike in the scheme, with no separate provision for any specific secured creditor. The Court held that since UTI did not accept the proposal for funding of interest and insisted on a one-time settlement, it could not claim to be treated separately. The Court concluded that debenture holders are secured creditors and do not form a distinct class from other secured creditors. Issue No. 3: The Court addressed whether 3/4th of the value of the creditors had voted in favor of the scheme. The objector UTI argued that the principal amount due to it was understated, affecting its voting rights. The Court found that the principal amount due to UTI was Rs. 4623 lakhs, with total dues including interest amounting to Rs. 7991 lakhs. The Court held that the majority in number representing 3/4th of the value of creditors had agreed to the arrangement, fulfilling the requirement of Section 391(2) of the Companies Act. Issue No. 4: The Court considered the legality of including working capital providers in the meeting of secured creditors. It was argued that working capital providers should not be included as they did not make sacrifices. The Court found that working capital providers were also secured creditors and had to make sacrifices under the scheme, such as reduced interest rates and conversion of interest into funded interest term loans. The Court held that the inclusion of working capital providers in the meeting was legal. Issue No. 5: The Court examined the share exchange ratio propounded by the company. The objector argued that the ratio was unjust and based on an unedited report. The Court noted that the valuation report by M/s. S.S. Kothari considered various methodologies and recommended the exchange ratio based on maintainable profits and free cash flows. The Court held that the valuation of shares is a technical matter best left to experts and found no justification to interfere with the share exchange ratio approved by the majority of shareholders and creditors. Issue No. 6: The Court addressed the objection that the company did not disclose the latest balance sheet and financial position. The Court found that the company had obtained an extension for holding the Annual General Meeting and filed the latest available audited accounts up to September 30, 2001. An unedited balance sheet for the period up to September 30, 2002, was prepared and circulated. The Court held that the latest financial position was adequately disclosed. Issue No. 7: The Court considered whether all relevant materials were disclosed by the company. The objector argued that material interests of directors and other information were not disclosed. The Court found that the company had provided full disclosure about the directors and their relatives. The Court also noted that there was no complaint from any creditor or member about non-receipt of annexures. The Court held that the company had complied with the disclosure requirements under Section 393 of the Companies Act. Issue No. 8: The Court examined whether the company could appoint directors who had incurred disability under Section 274(1)(g) of the Companies Act. The objector argued that the directors were disqualified due to the company's failure to redeem debentures. The Court found that only Shri Siddharth Sriram was appointed as a director in the new companies, and he had resigned before the disqualification period. The Court held that the appointment was justified and necessary as he had provided personal guarantees for securing loans. Issue No. 9: The Court addressed the legality of transferring land under the scheme. The objector argued that the land could not be transferred without removing financial encumbrances. The Court found that the company had surrendered 68% of the land as per the Supreme Court's order and proposed to transfer the remaining 32% of the land. The Court noted that an asset committee, including secured creditors, was constituted to oversee the sale of the land. The Court held that the proposed transfer was legal and properly safeguarded. Conclusion: The Court dismissed the objections raised by UTI and other objectors, finding them without merit. The scheme of arrangement was sanctioned with a modification that UTI be paid an additional amount of Rs. 3 crores to maintain parity with other lenders on funding of interest. The petitions were disposed of accordingly.
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