2013 (12) TMI 1765 - HC - Companies Law

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the scheme of arrangement proposed under Section 391 of the Companies Act, 1956, can be sanctioned by the court.
Whether the objections raised against the scheme, particularly those concerning fraud, public policy, and the bona fides of the scheme, are valid.
Whether the procedural requirements for sanctioning a scheme under Section 391 have been complied with.
Whether the rights and liabilities of the parties involved, including creditors and shareholders, are adequately addressed in the scheme.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sanctioning the Scheme of Arrangement

Relevant Legal Framework and Precedents: The scheme is proposed under Section 391 of the Companies Act, 1956. The court refers to the principles established in Miheer H Mafatlal v. Mafatlal Industries Ltd., which outline the jurisdiction of the company court in sanctioning schemes.
Court's Interpretation and Reasoning: The court examines whether the statutory procedure for convening meetings under Section 391(1)(a) was followed, and whether the scheme has the requisite majority support. The court also considers whether the scheme is fair and just to the creditors and shareholders as a whole.
Key Evidence and Findings: The scheme received overwhelming support from both creditors and shareholders, with Scheme A securing the majority of votes. The court notes that the Builder is the only entity with assets, and the scheme provides a feasible solution for creditors to receive partial repayment.
Application of Law to Facts: The court applies the principles from Miheer H Mafatlal to determine that the scheme meets the necessary legal requirements and is not contrary to public policy.
Treatment of Competing Arguments: The court addresses objections raised by Mr. S R Kalyanakrishnan, including allegations of fraud and manipulation, and finds them unsubstantiated. The court emphasizes that the scheme does not condone any illegal acts and allows for criminal prosecutions to continue.
Conclusions: The court concludes that the scheme is fair, just, and reasonable, and sanctions it with slight modifications to ensure proper implementation.

Issue 2: Objections to the Scheme

Relevant Legal Framework and Precedents: The objections are considered under the framework of Section 391 and relevant case law, including Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and SESA Industries Ltd. v. Krishna H Bajaj.
Court's Interpretation and Reasoning: The court finds that the objections do not demonstrate that the scheme is contrary to public policy or fraudulent. The court emphasizes that the scheme is a commercial decision supported by the majority.
Key Evidence and Findings: The court notes that the majority of creditors and shareholders support the scheme, and that the allegations of fraud are not supported by evidence.
Application of Law to Facts: The court applies the principles from relevant case law to conclude that the objections do not warrant refusal of sanction.
Treatment of Competing Arguments: The court addresses each objection raised, finding them either unsubstantiated or irrelevant to the sanctioning of the scheme.
Conclusions: The court rejects the objections and proceeds to sanction the scheme.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The statutory procedure for convening the requisite meetings under section 391(1)(a) of the Act have been complied with and that the scheme put up for sanction is backed up by the requisite majority."
Core Principles Established: The court reaffirms the principles for sanctioning a scheme under Section 391, emphasizing the need for compliance with statutory procedures, majority support, and fairness to creditors and shareholders.
Final Determinations on Each Issue: The court sanctions Scheme A with slight modifications, dismisses the objections raised, and emphasizes that criminal proceedings related to unauthorized deposit acceptance will continue.

The judgment concludes with the sanctioning of Scheme A, subject to modifications, and the disposal of related company petitions. The court appoints a Core Committee to oversee the implementation of the scheme, ensuring that creditors receive repayment from the Builder's assets.

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