2010 (4) TMI 1236 - HC - Companies Law

Summary

Issues Involved:
1. Right of respondents-objectors to participate in the meeting.
2. Justification of ARCIL's actions.
3. Fairness and reasonableness of the scheme of arrangement.

Detailed Analysis:

Issue 1: Right of Respondents-Objectors to Participate in the Meeting
The respondents-objectors contended that their right to participate in the meeting of the Board of Directors was taken away by the petitioner company. They were prevented from participating in the meeting, which was convened as per the directions of the Company Court on 23.3.2007, by ARCIL addressing letters requesting them not to attend. The court examined the pledge agreements, which contained clauses authorizing the lenders to exercise voting rights on behalf of the respondents-objectors. The court found that these agreements were binding and that the respondents-objectors had authorized their lenders to vote on their behalf. The court concluded that the respondents-objectors had no right to participate in the meeting as they had already pledged their shares and voting rights.

Issue 2: Justification of ARCIL's Actions
ARCIL, as the leading secured creditor, took over the management of the petitioner company and invited bids for the resolution of the debt. The court noted that ARCIL had the right to choose the best bidder to invest capital and bring in technical and managerial expertise to revive the company. The court found that the bidding process was transparent and that ARCIL's actions were justified. The respondents-objectors' participation in the bidding process through their company, M/s. Ganta Infrastructures, which failed to win the bid, further weakened their objections. The court held that ARCIL's actions were in the best interest of the company and its stakeholders.

Issue 3: Fairness and Reasonableness of the Scheme of Arrangement
The court examined whether the scheme of arrangement was fair, reasonable, and in the best interest of the company and its shareholders. The scheme involved restructuring the company's debt and capital to avoid liquidation. The court noted that the scheme was approved by an overwhelming majority of the shareholders and secured creditors. The court also considered the financial position of the company, which was suffering from enormous losses, and the necessity of the scheme to revive the company. The court found that the scheme was in the absolute interest of the company and its shareholders. The court also addressed the respondents-objectors' contention that the scheme was devised with a mala-fide intention, concluding that the scheme was fair and legitimate.

Conclusion:
The court dismissed all the appeals, finding no reason to interfere with the impugned common order rendered by the learned Company Judge. The court held that the scheme of arrangement was fair, reasonable, and in the best interest of the company and its shareholders. The court also upheld ARCIL's actions and the validity of the pledge agreements, which authorized the lenders to exercise voting rights on behalf of the respondents-objectors.