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TMI Blog2017 (3) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ansparent mechanism for restructuring of corporate debts of viable entities facing problems, for the benefit of all concerned. It is also intended to minimize the losses to the creditors and other stock holders through an orderly and coordinated restructuring programme. It is a voluntary non-statutory system based on Debtor-Creditor Agreement and Inter-Creditor Agreement and the principle of approvals by super majority of 75% creditors which makes it binding on the remaining 25% to fall in line with the majority decision. It consists of three tiers, namely, CDR Standing Forum, CDR Empowered Group and CDR Cell. In view of the petitioner company having an Inter- Creditor Agreement, which is binding on the Companies, any order passed by this Court approving the scheme of arrangement would have an impact on such agreement. Though, the banks or creditors to the Companies are part of CDR mechanism, the scheme was not evaluated by the CDR mechanism as such. Some banks attended the creditors meeting and some banks did not. The HDFC Bank raised objections. In the circumstances, the scheme of arrangement is tentatively sanctioned subject to approval by the CDR EG and if the CDR EG approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. The erstwhile State of Andhra Pradesh passed Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2010 regulating the loan disbursement and recovery process for micro finance institutions in Andhra Pradesh and Telangana. The provisions of the said Act reduced the revenue generation of the companies. The reduced revenues of both the companies have caused both of them to service their repayment obligations to their creditors out of the recoveries made by them from their business in States other than Andhra Pradesh and Telangana. The debt payment obligations coupled with limited fresh loans to the companies lenders created liquidity issues. The petitioners thought of segregating their respective businesses and consolidate in order to face the challenges. The Board of Directors of both the companies met on 31.03.2016 and approved the scheme of arrangement between the two companies to be operative from the appointed date subject to approval and direction of this Court. The petitioner in Company Petition No.200 of 2016 filed Company Application No.480 of 2016 for convening the meetings of equity shareholders, preference shareholders and creditors. This Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200 of 2016 submitting their objections to the said scheme. In support of their application it is stated that the Bank is one of the creditors of the petitioner company, who advanced a term loan of ₹ 85.00 Crores vide facility agreement dated 29.07.2010. The total principal loan amount outstanding as on 31.03.2015 is ₹ 26,85,70,850/- and out of the total 33 creditors of the petitioner company, the applicant is one of the major lenders to the company. In view of the environment created by the operation of the provisions of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2010, the petitioner company proposed a Corporate Debt Restructuring Package (CDR) to its lenders. The same was approved by the lenders including the applicant on 29.06.2011 and CDR documents were executed on 16.09.2011. It was agreed that the total restructured debt was ₹ 1156.79 crores out of which an amount of ₹ 350.00 crores was to be converted into Optionally Convertible Cumulative Redeemable Preference Shares (OCCRPS) and those instruments were redeemable along with redemption premium at an yield of 12% p.a., on a quarterly basis over 16 quarterly instalm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready convened on 31.05.2016 and the bank could not attend such meeting due to inadvertent delay in internal correspondence among the departments of the applicant bank. The non-participation in the meeting is merely a procedural irregularity and hence the decision taken in the said meeting is not binding more particularly when it has a substantial loan exposure. 3) If the applicant bank had attended the creditors meeting it could not have got requisite majority for approval. 4) The mere change in legislative environment cannot be a ground for merger or demerger of the company. 5) The proposed scheme of arrangement is detrimental to the interests of the creditors and if the same is allowed it would result in severe financial hardship to the creditors. 6) The main purpose of the scheme is transferring the healthy part to one entity, petitioner in Company Petition No.201 of 2016 and unhealthy part to the other entity, petitioner in Company Petition No.200 of 2016 and it results in healthy company flourishing and unhealthy company having its natural death. 7) The reasons for formulating the CDR package and the proposed scheme are one and the same i.e., the challenges po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vival of the petitioner in Company Petition No.200 of 2016 post demerger under the proposed scheme. In fact, the CDR Cell has rejected the proposal of demerger vide its letter dated 30.07.2016. It is surprising that when no bank has given any mandate to the CDR Cell, 11 creditors consented to the scheme of demerger mechanically and without introspecting the adverse implications of such proposed scheme. 13) The petitioner would not be in a position to continue its business in the States of AP and Telangana due to legislative environment and hence the proposed scheme would cause undue financial damage to its creditors. 14) The petitioner did not enclose the list of pending litigations to the scheme nor disclosed the details in the scheme with respect to suits for recovery of monies filed against its borrowers in order to show its bona fides in recovering the dues. The applicant Bank further states that most of the claims are now time barred and hence the petitioner cannot recover any money from the defaulters. 15) The petitioner had written off an amount of ₹ 318.18 Crores as per the explanatory scheme of calculations enclosed to the scheme, but the mode of adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the Reserve Bank of India guidelines and CDR mechanism. When the applicant Bank filed a request to the CDREG to revoke the approved CDR package to the company on 03rd October 2015 the same was rejected by the CDREG. The applicant Bank also asked the larger creditors for one time settlement with the petitioner company in the meeting of JLF held on 14.10.2015 and the same was also negatived by the other lenders. In fact, the creditors consented to the present scheme of arrangement and referred it to the CDREG for approval. It was stated that consequent to the legislation, the RBI issued a notification recognizing that the challenges afflicting the MFI sector were not necessarily on account of any credit weakness per se, but were mainly due to environmental factors and hence a special regulatory asset classification benefit has to be extended by the RBI to the lenders who have restructured MFI accounts. In pursuance of the same, the petitioner companies were referred to the CDR mechanism by the lenders and the decisions regarding the CDR proposals, schemes, assumptions and workings were driven by the lenders. The CDR package assumed recoveries of approximately 20% of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raise contentions after the scheme of arrangement has been approved. The applicant, having not chosen to attend the meeting, is not entitled to raise the objections nor thwart the approval of the scheme of arrangement. The allegation that the petitioner did not cooperate for the information sought by the applicant on 12.07.2016 in spite of its reply dated 18.07.2016 is without any basis. The applicant intentionally not participated in the creditors meeting held on 31.05.2016 and the allegation that if it had attended the meeting, the scheme would not have got requisite majority of approval is totally unsustainable. The present application is filed only to harass and pressurize the petitioners to engage in discussion for one time settlement of their dues after the scheme of arrangement was approved by all the shareholders and pending consideration before this court. Since October 2013, the petitioner company in Company Petition No.201 of 2016 disbursed INR 63.61 Crores and the petitioner company in Company Petition No.200 of 2016 disbursed INR 36.81 Crores in the AP State. These fresh disbursements facilitated recoveries from the defaulted borrowers to the tune of 55.51% and 59.41% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said application it is stated that the applicant sanctioned and disbursed an amount of ₹ 50.00 Crores to the petitioner company in Company Petition No.201 of 2016 in August 2010 and September 2010. The said company was unable to maintain the repayment schedule of the said term loan in view of the enactment. The applicant is a part of the lenders who approved the CDR package with effect from 01.04.2011. As per the said package the outstanding amount was fixed at ₹ 36.00 Crores as on 01.04.2011 and the said amount was restructured as ₹ 23.02 Crores towards term loan and ₹ 12.98 Crores towards OCCRPS. In spite of not maintaining the repayment schedule under the said CDR package the applicant sanctioned and disbursed additional loan of ₹ 6.70 Crores to the petitioner company. As on 31.03.2015 the petitioner company is due and payable a sum of ₹ 27.80 Crores to the applicant. The applicant also stated that in the scheme of arrangement the said amount is proposed to be transferred to the extent of ₹ 18.18 Crores to the petitioner company in CP No.200 of 2016 where recoveries were negligible and ₹ 9.19 Crores to be transferred to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requires any modification in the light of the objections raised by the objectors? Both the companies are engaged in the business of providing financial and support services to marginalized sections of the society particularly underserved rural and urban women across India. Both the companies were incorporated in the year 2001 and 1999 respectively. The passing of Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2010 brought a drastic change on the operations of both the companies. It reduced the revenue generation of the companies. In view of the adverse impact caused by the legislation, both the companies had to service their repayment obligations to their creditors out of the recoveries made by them from their business in the States other than in the State of Andhra Pradesh and Telangana. The debt repayment obligations coupled with limited fresh loans to the companies created liquidity issues. In those circumstances, they thought of segregating their AP businesses and non-AP businesses from each other and consolidate them. They wanted to consolidate their AP businesses in Asmitha and non-AP businesses in SHARE. The salient features of the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttended by 20 preference shareholders in person holding 16,40,72,140 preference shares of Asmitha and 1 preference shareholder through proxy holding 30,10,000 preference shares of Asmitha, aggregating to 21 preference shareholders holding 16,70,82,140 preference shares of Asmitha. The said scheme of arrangement was opened for voting at the meeting by the Chairperson, Mr. J. Amrutha Rao. 11 preference shareholders (holding 8,72,12,940 preference shares of Asmitha) have voted in favour of the proposed resolution. 4 preference shareholders (holding 2,64,05,250 preference shares of Asmitha) have voted against/opposing the resolution. 6 preference shareholders holding 5,34,63,950 preference shares of Asmitha did not participate in the voting or cast valid votes. 3. The meeting was attended by 22 creditors in person to whom Asmitha owed a sum aggregating to INR 397,45,46,441 and one creditor through proxy to whom Asmitha owed a sum aggregating to INR 7,33,69,937, aggregating to 23 creditors to whom Asmitha owed a sum aggregating to INR 404,79,16,378. The said scheme of arrangement was read and explained to the meeting by the Chairperson, Mr. JUMV Prasad. 11 creditors (to whom Asmitha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.of Shareholders/Proxies/Cr editors participated No.of Shares held/Amount outstanding In favour of the Resolution Against the Resolution Votes No.of shares held/amount outstanding % of holding Votes No.of shares held/Amount outstanding % of holding 1 Shareholders of Asmitha Microfin Ltd 30th May2016 Mrs.K. Sumathi 9523,639,286 95 23,639,286 100% - - - 2 Preference shareholders of Asmitha Microfin Ltd 31st May 2016 Mr. J. Amruth Rao 15113,618,190 1187,212,940 77% 4 26,405,250 23% 3 Creditors of Asmitha Microfin Ltd 31st May 2016 Mr. JUMV Prasad 16 2,293,026,485 111,730,678,609 75.48% 5562,347,876 24.5 2% 4 Shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor' s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the Court under sub- section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. The above provision makes it clear that even in the case of a company which is being wound up one can ask for consideration of the proposal for a compromise or arrangement if majority number representing 3/4th in value of the creditors or members present and voting at the meeting agreed to such proposal, the compromise or arrangement can be considered by the Court. In Wearwell Cycle Company India Limited v. A.K. Misra and Brahm Arenja [(1998) 94 CampCas 723 Delhi = ILR 1994 Delhi 109] , the Delhi High Court was dealing with a company in liquidation which submitted a scheme for revival of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned company, has to act merely as rubber stamp and must almost automatically put its seal of approval on such a scheme. t is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members as the case may be, even though they have not consented to such scheme and to that extent absence of their consent will have to effect the scheme. It can be postulated that even in case of such a Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of this interest might reasonably approve. After considering the case law the Honble Supreme Court culled out the following points: 1 The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)(a) have been held. 2. That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by Section 391, sub-section(2). 3. That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just fair to the class as whole so as to legitimately blind even the dissenting members of that class. 4. That all the necessary material indicated by Section 393(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391, sub-Section (1). 5. That all the requisite material contemplated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a reduction of capital or a scheme of arrangement or both, the Court cannot interfere with the discretion and commercial wisdom of the stakeholders and the Board of Directors. (Re Ratners Group Plc; In Re Hindalco Industries Ltd). If the reduction is one which is properly passed by the shareholders who are treated equitably, have had the facts explained, and provided the creditors are safeguarded, the court will habitually sanction reductions and exercise its discretion in favour of them unless the act is a pointless and hollow act. Provided those requirements are satisfied, the company may reduce its capital in any way that it thinks fit. Rafter Group plc, 1988 ChD 685; Re Ratners Group plc; In Re Hindalco Industries Ltd. The court does not exercise any appellate power over the decision of the Company or its management. The Court is required to satisfy itself and see that the procedure, by which the resolution is carried through, is legally correct and the shareholders and creditors are not prejudiced. It is also the duty of the Court to see that the scheme is fair and equitable between the different classes of shareholders, Hindalco Industries Ltd; Hyderabad Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the proposals properly explained to them so that they could exercise an informed judgment upon them; that the creditors of the company are safeguarded so that money cannot be applied in any way which would be detrimental to creditors, Ratners Group plc, 1988 BCLC 685; Hindalco Industries Ltd, 2009 151 CompCas 446), and the reduction is for a discernible purpose. Discernible means something which is demonstrated by evidence to the court and is something sufficiently solid and near in expectation to be a real prospect. Once those tests have been satisfied the court, which has a discretion whether or not to confirm a reduction, will normally exercise its discretion in favour of confirming the reduction. Thorn EMI plc, 1988 4 BCC 698. The discretion conferred by the section will, however, only be exercised in favour of confirmation of the reduction where the court is satisfied that the cause of the reduction (capital in excess of wants; capital lost; capital not represented by available assets, or as the case may be) was properly put to the shareholders so that they could exercise an informed choice; the cause is proved by the evidence before the court; Jupiter House Investments (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a combined petition for sanction of a scheme of arrangement and reduction of share capital is maintainable. Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation . 74. No separate procedure for bringing requisite changes: The provisions under Sections 391 to 394 of the Act are meant to clear the contemplated scheme and related to or concerning other alterations or changes which may be made effectively to implement the sanctioned scheme. PMP Auto Industries Ltd., In re [1994] 80 Comp Cas 289 (Bom) has declared that these provisions are in the nature of a single window clearance system to ensure that the parties are not put to avoidable or unnecessary cumbersome procedure for making a representation or application to the court for various other alterations or changes which may be essential or necessary or consequential to implement the sanctioned scheme. In view of this, on this ground also, scheme cannot be halted. With regard to counting of votes in the creditors meeting, the High Court of Delhi in Wearwell Cycle Company India Limiteds case (supra) relied on Palmers Company Law, 24th Edition, para 79.16 and quoted the following passage and opined that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the votes of the remaining 50 because there would not be a majority in number. The same principle applies to creditors. It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored. It was further held that the correct method for counting the votes of the creditors is counting the number of creditors represented by the persons voting including the number of creditors into whose shoes he has stepped. It was held Number to mean/convey number of shares/creditors represented by each person present and voting. A similar view was taken in Maharashtra Apex Corporation Limiteds case (2005) 124 Comp Cas 637 (Kar.) , which is as follows: 29In the 13th Edition of Buckley on the Companies Act, it has been observed that for the purpose of corresponding provision under the English law, sanction of majority in number representing 3/4th in value of the members of the class present and voting in person or by proxy is sufficient, although it may not represent 3/4th in value, nor semble, constitute a majority i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he vote of the holder of the 901 shares, because they do not muster three-fourths in value. Conversely, that shareholder and 49 of the others could not force a scheme against the votes of the remaining 50 because there would not be a majority in number. The same principle applies to creditors. It will be seen that the majorities are of those who vote, not of those entitled to vote nor of those who are present. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored. However, this is not the whole requirement, because in addition the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether 1000 shareholders holding 10,000 shares in all, the Court would be unlikely to be satisfied by the statutory majorities at a meeting at which 10 members holding 100 shares in all were present and voted. In Gower's Principles of Modern Company Law (sixth edition) (at page 585) the scope and meaning of the concept of majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, present and vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-76] 1 Ch. D 251, wherein identical provisions of the English Law have been interpreted as under: (page 252): The only question is, whether the agreement has been approved by the proper number of creditors required by the Act. The second section of the Act provided that the meeting of the company's creditors may approve and sanction the agreement: 'If a majority in number representing three- fourths in value of such creditors, or class of creditors, present either in person or by proxy at such meeting, shall agree to the arrangement or compromise, and the agreement or compromise shall, if sanctioned by an order of the Court, be binding on all such creditors or class of creditors (as the case might be) and also on the liquidators and contributories of the company'. The question, therefore, is whether 'the majority representing three-fourths in value' is to be the majority of all the creditors in which case the Pounds 1,20,002,12s, 3d. does not constitute three-fourths of funds 1,70,000, or the majority representing that value of the creditors present at the meeting? In the latter case, all the creditors but one, for a very small amount, approved the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because casting an invalid vote is no voting in the eyes of law. 30. In the aforesaid case of Kirloskar Electric Co. Ltd. (supra) this Court had an occasion to consider the meaning of the words present and voting and it was held as under: Sub-section (2) of section 391 requires that a scheme of compromise or arrangement must be approved by majority of creditors/members representing three-fourths in value of the creditors or class of creditors, or members or class of members, present and voting either in person or where proxies are allowed, by proxy. There is no difficulty in understanding the word 'present' as the creditors or members should be physically present in person or through their proxy in the meeting. The problem arises in the context of the word 'voting'. Voting is formal expression of will or opinion by the person entitled to exercise the right on the subject or issue in question. Voting is explained as the expression of ones will, preference, or choice in regard to the decision to be made by the body as a whole upon any proposed measure or proceeding. Right to vote means right to exercise the right in favour of or against the motion or regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. dealing with the identical situation, after reviewing the entire case law on the point has held that to interpret the requirement of majority under section 391(2) of the Act to mean three-fourths majority of the total value of shares/credit would not only render the expression present and voting as redundant but also make the provision totally unworkable and impractical. It was also held that for the purpose of section 391(2) of the Act, the requirement of majority of three-fourths has to be seen in relation to the value of shares/credit represented by the persons who are present and voting in the meeting, either in person or by proxy. This provision cannot be interpreted to mean that the three-fourths majority has to be of the total value of the creditors/shareholders of the company. It was also held that section 391(2) of the Act has also been enacted so as to ensure that, a compromise or arrangement should receive substantial support from the creditors/shareholders. It is for this purpose that a two fold requirement has been prescribed. Firstly, it must be approved by a majority in number of the members present and voting and in addition, such majority should also represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into consideration. The conduct of the propounder of the scheme is also a relevant consideration. However, the law is settled that when a scheme is found to be reasonable and fair, it is not the function of the Court to substitute its judgment for the collective wisdom of the shareholders of the companies involved. In Sidhpur Mills Co. Ltd., In Re AIR 1962 Guj 305 , the learned single Judge of the Gujarat High Court, while pointing out the correct approach for the sanctioning of a scheme for amalgamation, says that the scheme should not be scrutinized in the way a carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel would do it. But, it must be tested from the point of view of an ordinary reasonable shareholder, acting in a businessman-like manner, taking within his comprehension and bearing in mind all the circumstances prevailing at the time when the meeting was called upon to consider the scheme in question. It is pointed out that, before the scheme is sanctioned, it would be the duty of the court to see that the proposed scheme is a fair and reasonable one, but the initial burden in this respect would be on the petitioner to show that, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06.2011. Out of the total debt of ₹ 1940.94 Crores of all lenders an amount of ₹ 700.00 Crores was agreed to be converted as OCCRPS. The said instruments were to be redeemed along with redemption premium at an yield of 12% p.a., on a quarterly basis over 16 quarterly instalments commencing from June 2013 to March 2018. In the case of the said company also the CDR Cell did not approve the scheme of arrangement and informed vide its letter dated 30.07.2016. In spite of the said letter, now the scheme of arrangement was approved by the requisite majority of creditors who attended the meeting. The value of the HDFC Bank interest in SHARE Company is 4.27% aggregating to INR 418,646,368, whereas in Asmitha it is 5.12% aggregating to INR 296,301,250. The other objector, Aditya Birla Finance Limited is not having any interest in Asmitha, but its interest in SHARE company is 1.74% and of the value of INR 170,323,420. The objections of the HDFC Bank relate to its non-participation in the meeting due to improper communication of the notice of the meeting, the very nature of the scheme and repayment schedule provided to the creditors. The objections of the Aditya Birla Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing Agreement. It was also stated that an aggregate of 98,910 OCCRPS that were issued by Asmitha under Asmitha Master Restructuring Agreement to Asmitha OCCRPS conversion lenders, representing 0.0320% of the total outstanding OCCRPS issued by Asmitha would be converted into 98,910 equity shares of Asmitha each having a face value of INR 10 each. As per the information furnished by the petitioners, the position is as follows: I. ESSENTIAL FEATURES OF THE SCHEME OF ARRANGEMENT * SHARE demerges its Andhra Pradesh/Telangana States business into a demerged undertaking which merges into Asmitha. * Asmitha demerges its rest of India business (except AP/TS business) into a demerged undertaking which merges with SHARE. * If this Honble Court were to accord sanction to the scheme the resultant companies will have the following present businesses of the two companies - Asmitha Andhra Pradesh and Telangana State business - SHARE Rest of India business II. SITUATION POST SANCTION (If accorded by this Honble Court) Equity Shareholders: * Shareholders of Asmitha would be allotted equity shares in SHARE in the ratio of 1:1.956 as consideration for transfer of Asmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of notice, in view of the objection raised by the applicant before this Court in the present Company Petitions it has to be considered whether the objection of the applicant should be taken into account in spite of non-participation in the meeting convened for the purpose. The learned counsel for the petitioners in the Company Petitions submitted that it is not open to the applicant to raise the objection that the scheme was unfair to it in view of its remaining absent in the meeting conducted. Learned counsel for the petitioners relied on the observations of the Honble Supreme Court in Mafatlal Industries Limiteds case (supra) and that of the High Courts of Karnataka and Bombay reported in Maharashtra Apex Corporation Limiteds case (supra), Alstom Power Boilers Limited v. State Bank of India (Company Petition Nos.337 and 338 of 2002 in Company Application Nos.116 and 117 of 2002 of Bombay High Court decided on 31.10.2002), and Larsen and Toubro Limiteds case (2004) 121 CompCas 523 (Bom) (supra). However, learned counsel, by relying on the observations made in the last two cases agreed that the applicant can raise objection before this Court and the only thing that has to be sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, there was no consensus among lenders for bilateral funding They informed that a separate note on bilateral funding shall be submitted to CDR EG for approval after discussions at JLM. Thereafter, Shri R. Jayasurya (CEO Asmitha Microfin Ltd.) was invited to the CDR EG meeting. The forum enquired about the status of the merger-demerger proposal. Shri Jayasurya mentioned that the proposal on demerger has been referred to High Court and the outcome of the same is awaited. He mentioned that they have approached RBI for seeking forbearance and special dispensation for asset classification in the books of lenders. Thereafter, CDR EG gave the following decision. Decision: CDR EG noted the above matters for information and directed the MI to bring a review note after seeking high court approval. Learned counsel for the petitioners submitted that the matter was not pursued at the level of CDREG regarding merger - demerger as requisite majority of lenders had already approved the scheme in the board convened meeting and Sections 391 and 394 of the Act provide a complete mode and manner in which scheme of arrangement between a company, its shareholders and its creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. The majority of the shareholders are common to both the companies and this Court is not concerned with their interest as there was no objection from that group. This Court is concerned only with the interest of the preference shareholders and the creditors. As stated above, though 11 creditors consented securing the technical requisite majority, in view of the substantial objection raised by the objectors, it has to be seen whether the scheme secured the requisite majority (the scheme of arrangement proposed cannot be approved without the approval of the CDR Cell, though the same is a voluntary body of lenders). The other objection raised by the objector in Company Application No.1342 of 2016 relates to the vote cast by SIDBI based on the letter dated 02.06.2016 issued to the Chairperson. The letter issued by SIDBI to the Managing Director of Share Microfin Limited dated 02.06.2016 reads as follows. With regard to the Scheme of Arrangement between Share Microfin Limited and Asmitha Microfin Limited, SIDBI has received notice from the Honble High Court, Hyderabad, for providing mandate at the meeting of the Creditors of Share Microfin Limited. In this connection, we w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faults and in some cases the Banks themselves writing off the loans. In this present scenario, the Court has to cautiously examine the scheme of arrangement and this Court considers the tenability of the objection with regard to transfer of business relating to Telugu States to one company and non- Telugu States in another company exposing the business in Telugu States to greater risk. This Court has no expertise to evaluate the risk. It is also noticed that Asmitha Microfin Limited is not a member of Micro Finance Institutions Network, whereas SHARE is a member. There is reduction in the equity, conversion of OCCRPS into ordinary equity shares involved in the present scheme of arrangement. In the absence of any expertise, this Court cannot give any conclusive finding except placing before the CDR EG for a decision on the scheme of arrangement, though legal requirements are met substantially, as the CDR EG itself deferred its decision in view of the pendency of the present Company Petitions before this Court. The Corporate Debt Restructuring Mechanism was evolved by the Reserve Bank of India to ensure timely and transparent mechanism for restructuring of corporate debts of viabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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