2003 (9) TMI 804 - HC - Companies Law

Summary

Issues Involved:
1. Sanctioning of the Scheme of Restructuring under Sections 391 and 394 of the Companies Act.
2. Approval of the scheme by the requisite majority of shareholders and creditors.
3. Objections raised by SBI Home Finance (SHF) regarding the scheme.

Detailed Analysis:

1. Sanctioning of the Scheme of Restructuring under Sections 391 and 394 of the Companies Act:
The petitioner company filed a petition under Sections 391 and 394 of the Companies Act seeking the sanctioning of the Scheme of Restructuring. The meetings of shareholders and creditors were convened as directed by the Court, and the scheme was approved by the requisite majority. The Official Liquidator and the Regional Director, Department of Company Affairs, did not object to the proposed scheme. The scheme was formulated due to the delay and stoppage of work on the real estate project, causing a burden on the company's cash flow. The scheme aimed at restructuring the company, settling debts, and fulfilling obligations to customers.

2. Approval of the scheme by the requisite majority of shareholders and creditors:
The scheme was approved by more than the requisite majority of three-fourths in number and value of the shareholders and creditors. The salient features of the scheme included the restructuring of the company, repayment of debts in installments, and acquisition of development rights. The scheme also provided for the restructuring of debt and offered two options for settlement to financial institutions and banks. The results of the meetings indicated overwhelming support for the scheme, with 100% of shareholders and a significant majority of secured and unsecured creditors voting in favor. The Court emphasized the collective wisdom of shareholders and creditors and the necessity of the scheme for the company's revival.

3. Objections raised by SBI Home Finance (SHF) regarding the scheme:
SHF raised several objections, including the manipulation of the majority in the meeting of secured creditors, the release of personal guarantees, the viability of the project, and the experience of DEIL in the real estate business. SHF also contended that the scheme was a fraud on creditors and that DCM should not be considered an unpaid vendor. In response, the Court noted that consents given after the meeting by other secured creditors were valid, and the requisite majority had approved the scheme. The Court found that the objections raised by SHF were not sustainable, as the other secured creditors had accepted the scheme, and the commercial wisdom of the shareholders and creditors should not be substituted by the Court's judgment.

Conclusion:
The Court concluded that the scheme was fair and reasonable, complied with statutory requirements, and was approved by the requisite majority. The objections raised by SHF were addressed and found to be without merit. The scheme was sanctioned, and the petition was disposed of accordingly.