TMI Blog2012 (12) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... , and in the balance sheet, the profit and loss account, and the annexures thereto for the said year. Such usage would suffice to protect the interests of prospective investors and would safeguard public interest. All that this Court is required to do, in an application seeking its sanction for a scheme of arrangement involving reduction of capital, is to ensure that the statutory provisions have been complied with, and the scheme as a whole is fair and reasonable. The wisdom or otherwise of the scheme is for the shareholders to decide and, since all the shareholders, all the secured creditors, and around 80% of the unsecured creditors, who attended the respective meetings, have supported the scheme, it is not for this Court to go into the merits of the scheme or to sit in judgment over the wisdom of the shareholders of the company in seeking reduction of capital. Scheme of arragment involving reduction of capital allowed. Subject to conditions. - CO. PETITION NO. 240 OF 2011 - - - Dated:- 17-10-2012 - Ramesh Ranganathan, J. S. Ravi for the Petitioner. Ch. Ramesh Babu for the Respondent. Ponnam Ashok Goud for the Assistant Solicitor General. ORDER 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 350 crores. Its issued, subscribed and paid up capital, as at 31.03.2011, was Rs. 384,86,50,250 divided into 7,73,70,025 equity shares of Rs. 10/- each fully paid up for Rs. 77,37,00,250/-; 57,49,500 6% optionally convertible cumulative Redeemable Preference (OCCRPS) Shares of Rs. 100/- each fully paid up for Rs. 57,49,50,000/-; and 2,50,00,000 6% cumulative redeemable Preference Shares (CRPS) of Rs. 100/- each fully paid up for Rs. 250 crores. 4. The Board of Directors of the petitioner, by way of a resolution by circulation, approved the proposed scheme of arrangement on 27.07.2011. The petitioner, thereafter, filed C.A. No.1649 of 2011 before this Court praying that a meeting of the equity shareholders (38351 in number) be convened and held for the purpose of considering and, if thought fit, approving the scheme of arrangement. This Court, by order dated 04.11.2011, directed that the meeting, of the equity shareholders of the petitioner, be convened on 09.12.2011. The quorum of the said meeting was fixed at 20. Individual notices were issued to the equity shareholders, and a notice of the meeting was published in Business Standard (English daily), and Andhra Prabha (Telug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to direct that a meeting of the unsecured creditors of the petitioner company be convened for approving the scheme of arrangement. This Court, by order dated 4.11.2011, directed that a meeting of the unsecured creditors of the petitioner- company be convened on 9.12.2011. The quorum for the meeting of the unsecured creditors was fixed at 20. Notices were issued individually to the unsecured creditors, and a copy of the notice was published in Business Standard (English daily) and Andhra Prabha (Telugu daily) newspapers. The Chairperson, in his report dated 9.12.2011, has stated that the said meeting was convened on 9.12.2011; it was attended by 53 unsecured creditors in person, to whom the company owed an aggregate sum of Rs. 279,63,25,741/-; 50 unsecured creditors, to whom the petitioner owed Rs. 278,33,87,502/-, had voted in favour of the resolution approving the scheme of arrangement; three unsecured creditors, to whom the petitioner-company owed Rs. 1,29,38,239/-, had voted against the resolution; while 99.54% of the unsecured creditors, who participated in the meeting, had voted in favour of the resolution, unsecured creditors holding 0.46% of the unsecured debt had voted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the discretion and commercial wisdom of the stakeholders and the Board of Directors. (Ratners Group Plc., In re [1988] BCLC 685; Hindalco Industries Ltd., In re [2009] 94 SCL 1 (Bom.). 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. In re [1988] Ch. D 685; Ratners Group plc., (supra); Hindalco Industries Ltd. (supra). 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. (supra) Hyderabad Industries Ltd., In re [2004] 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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., In re (supra); Hindalco Industries Ltd. (supra), 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 (Cambridge) Ltd., In re [1985] BCLC 222 (Ch. D); Grosvenor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 100 to 103 of the Act, being special provisions, limit the generality of the power conferred on the Court by Section 391 to sanction a scheme of arrangement. Where the Court, called upon to sanction the scheme, finds that it is also called upon to confirm a reduction of capital, the Court is bound to follow and observe the formalities which it ought to follow and observe in cases of confirmation of reduction of capital. (Hindusthan Commercial Bank Ltd. (supra). 14. What is share premium? A company may issue its shares at a price exceeding their nominal par value, that is, at a premium. (Gower's Principles of Modern Company Law (Fourth Edition) Chapter 10). Share premium is a new class of capital of a company, not being share capital, but not being distributable as income any more than any capital asset. On a winding up, the surplus moneys in the share premium account would be returned to the shareholders as capital and, so long as the company is a going concern, these same moneys can ordinarily be returned to the shareholders through the medium of a reduction petition or, in other words, except under more or less the same conditions under which any capital asset can reach the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2011, after deducting the sums utilized for share issue expenses of Rs. 1.21 Crores, was Rs. 629.60 Crores. From the balance remaining in the "securities premium account", as at 31.3.2011, of Rs. 629.60 Crores, Rs. 17.36 Crores was utilized on 29.6.2011 for issue of bonus preference shares to the preference shareholders resulting in the balance in the "securities premium account" being reduced to Rs. 612.24 Crores. 17. Instead of adjusting the accumulated losses as on 30.3.2011 of Rs. 432.42 Crores, against the balance in the "securities premium account" of Rs. 629.60 Crores, the petitioner seeks to now revive the profits, hitherto carried over to the Balance Sheet as at 31.3.2008, of Rs. 293.048 Crores. (This profit for the year 2007-08 of Rs. 293.048 Crores was, hitherto, adjusted in the petitioner's books against the losses for the year ending 31.3.2009 of Rs. 489.79 Crores; the net loss of Rs. 185.69 Crores had been carried over the Balance Sheet as at 31.3.2009 which was later added to the losses for the financial year ending 31.3.2010 of Rs. 249.64 Crores; the resulting accumulated losses of Rs. 435.33 Crores had been carried forward to the Balance Sheet as at 31.3.2010; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended by Sri S. Ravi, Learned Senior Counsel, the purpose of utilizing the share premium is to write off past losses resulting in revival of the profits for the year 2007-08, or the purpose is to utilize the entire share premium account to write off the accumulated losses, and the remainder for payment of dividend to their shareholders, application of the share premium account is not for the purposes specified in clauses (a) to (d) of Section 78(2) and, as such, the provisions of the Companies Act, 1956, relating to reduction of share capital, apply. As the petitioner seeks sanction of this Court to a scheme of arrangement for reduction of capital, the statutory requirements of Section 78, 100 to 104 of the Companies Act, relating to reduction of capital, and Sections 390 to 394-A of the Companies Act, relating to a scheme of arrangement, must be satisfied. 21. Where share premium is to be applied for purposes, other than those specified in clauses (a) to (d) of Section 78(2), Section 78(1) of the Act requires the provisions of the Act, relating to reduction of capital, to be applied as if share premium is the paid up share capital of the company. Section 100(1) enables a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time being authorized by applicable law, its share capital." 25. Clause 10 does not, specifically, provide for reduction of share premium. Sri S. Ravi, Learned Senior Counsel, would submit that, except where share premium is utilized for the purposes stipulated in Section 78(2), the procedure for reduction of capital is to be followed; for this purpose share premium is equated with the paid-up share capital of the company; the requirement of an enabling clause in the Articles of Association of the company is in Section 100, and not in Section 78; so long as the company is empowered under its Articles to reduce the capital, its entitlement to seek the sanction of the Court under Section 100 is undisputed; for the limited purpose of utilizing the securities premium account, it is equated with paid up share capital; and a power to reduce the capital includes the power to reduce the share premium. The submission, in effect, is that this Court must read "share capital" in Article 10 to include "share premium", as Section 78(1) enables the petitioner to reduce its "share premium" as if it were a reduction of share capital. The legal fiction under Section 78(1), requiring this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution; (b) the notice, required under the Act, has been duly given of the general meeting; and (c) the votes cast in favour of the resolution by members are not less than three times the number of votes cast against the resolution. The notice given to the members of the petitioner company does not specify that the resolution to be passed by them must be a special resolution. 28. While it would have been desirable for the petitioner to specifically state in the notice, that the resolution to be passed in the meeting should be a special resolution, failure to do so would not, by itself, necessitate refusal to sanction the scheme, as all the shareholders were made aware of the contents of the scheme; all those who attended the meeting have voted in favour of the resolution approving the scheme of arrangement involving reduction of capital; and the requirement of setting out the intention to move a resolution as a special resolution in the notice cannot be said to be such a mandatory requirement that failure to comply with it would invalidate the resolution. However passing a special resolution is mandatory. Maneckchowk and Ahmedabad Manufacturing Co. Ltd. (supra); Novopan India L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1972 (Bom.) 276. Any fact which would influence them in making up their minds, one way or the other, would be a material fact under Section 173(2), and has to be set out in the explanatory statement to the notice of the meeting. Firestone Tyre Rubber Co. (supra); Gopal Das Gujarati v. Titagarh Paper Mills Co. Ltd. [1986] 60 Comp. Cas. 92 (Cal.). It is not, however, the function of an Explanatory Statement to travel beyond the proposed resolution. Material facts have to be given, but not detailed particulars. (East India Commrl. Co. v. Raymon Engin. Works AIR 1966 (Cal.) 232). If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are much better judges of what is to their commercial advantage than the Court can be. The Court has only to see that the creditors have been properly convened and have been properly consulted, and have considered the matter. The Court ought to be slow to differ from them. - Dorman, Long and Company Limited (supra) ; English, Scottish, and Australian Chartered Bank In re [1893] 3 Ch. 385). 31. The court, before approving a scheme of arrangement or sanctioning a reduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with the notice, under Section 393 of the Companies Act, was bald and its correctness could not be examined in the absence of details of the assets and liabilities of the petitioner being furnished. Sri S. Ravi, Learned Senior Counsel, would submit that Section 393 does not require a winding up petition, pending against the petitioner company, to be disclosed in the explanatory statement; the objector, in the present case, is trying to confuse the disclosure requirements under the proviso to Section 391(2) with the disclosure requirements under Section 393; and the petitioner has made all the relevant disclosures under Section 393 to the shareholders, secured and unsecured creditors. 34. Section 393(1)(a) requires particulars to be given of any material interests of some persons connected with the company, including the directors and the managing director. The interest, contemplated in Section 393(1)(a), is interest material for consideration of the scheme by the shareholders. Hindustan Lever Employees's Union (supra). Every kind of interests is not to be mentioned. Only material interests are to be so done. All that clause (a) to section 393(1) requires is that the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to meet all their liabilities; the scheme will not adversely affect the rights of any of the creditors in any manner whatsoever; and due provision had been made for payment of all liabilities as and when the same fell due in the usual course. The petitioner has placed copies of all its balance sheets upto the year 2010-11. Sri Ch. Ramesh Babu has not been able to show, from the said balance sheets, as to how the statement in Clause 6, of the assets being more than sufficient to meet the liabilities, is erroneous. 37. Though the explanatory statement does not refer to the material interests of the Directors, the notice of the meeting, (published in the Business Standard (English daily) dated 12.11.2011), refers to the entitlement of all persons to copies of the scheme of arrangement free charge at the registered office of the petitioner company. Under clause 18 of the Scheme it is stated that the Board of Directors of the company, involved in the scheme of arrangement, have no material interest in the proposed scheme of arrangement except as share-holders in general. No material interest of theirs, which is unlike the interest of others in the scheme, and which necessitated disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium was only to write off accumulated losses. (Though Clause 10 of Part III of the Scheme, which relates to "dividends and corporate benefits", makes a vague reference to the entitlement of shareholders to dividend and corporate benefits, on the shares, that may be declared or accrue on the equity shares or preference shares out of the credit balance in the profit and loss credit balance remaining after the adjustments mentioned in Part I of the scheme). Does this non-disclosure of "material facts", disabling the shareholders from taking an informed decision whether or not to approve the scheme of arrangement, necessitate refusal by this Court to confirm reduction of capital?; and would doing so be against public interest?. We shall examine these questions later. 40. The requirement, under Section 189(2)(c) and Section 391(2) of the Act, is that the votes cast by members/creditors in favour of the resolution are not less than three times the number of votes cast against it. The Chairman's report does show that this requirement is satisfied as all the shareholders and secured creditors, and more than 3/4th of the unsecured creditors, who attended the respective meetings, had vot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legations may well have necessitated a detailed enquiry for, if they are true, it may have resulted in the unsecured creditors, who voted in favour of the scheme, not being 3/4th of those present and voting, it cannot be lost sight of that these contentions are raised for the first time during the hearing of the petition, and in the written submissions filed thereafter. Neither in their representation dated 8.12.2011 submitted to the Chairman of the meeting, nor in their objections filed before this Court, has the respondent-objector taken any such plea. 43. In their representation filed before the Chairman dated 8.12.2011, reference is made by the respondent to their claim of being due Rs. 70.02 Crores; to C.P. No.199 of 2010 filed by them against the petitioner company; and to the hearing of the said petition. In their intervenor application filed before this Court, in C.A. No.31 of 2012, the respondent-objector has referred in detail to the dispute between them and the respondent which is the subject matter of C.P. No.199 of 2010. Neither the respondent-objector's representation dated 8.12.2011, nor their intervenor application, refer to the claims now made across the Bar of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t its financial commitments as and when they fell due. III. UTILISING A PART OF THE SHARE PREMIUM FOR PAYMENT OF DIVIDENT - DOES IT AMOUNT TO PAYMENT OF PAID-UP CAPITAL TO THE SHAREHOLDERS? 45. Where the scheme of compromise and arrangement comprises, within its ambit, reduction of the share capital, the procedure for reduction must be gone through, but if it is shown that the procedure prescribed under Section 100 onwards has been carried out simultaneously, while submitting the scheme for approval of the creditors and members, the court can, while sanctioning the scheme, sanction reduction of share capital. The important thing to be found out would be whether the procedure for reduction of share capital, wherever it is mandatory, has been strictly carried out and, wherever it is directory, has been substantially carried out. (Maneckchowk and Ahmedabad Manufacturing Co. Ltd., In re (supra); : G.V. Films Ltd. In Re (supra). 46. Sections 100 and 101, and Section 391 (2), require the Court to confirm the reduction in capital, and sanction the scheme of arrangement respectively. Reduction of capital, in the present case, does not involve diminution of liability in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the money already paid to the company in respect of his shares is returned to him, unless the court has sanctioned the transaction. Paid-up capital may be diminished or lost in the course of the company's trading; that is a result which no legislation can prevent; but persons who deal with, and give credit to a limited company, naturally rely upon the fact that the company is trading with a certain amount of capital already paid; and they are entitled to assume that no part of the capital which has been paid into the coffers of the company has been subsequently paid out, except in the legitimate course of its business. (Durairajan (supra); Trevor v. Whitworth 12 AC 409 (HL). A limited company, not in liquidation, can make no payment by way of return of capital to its shareholders except as a step in an authorized reduction of capital. Any other payment made by it, by means of which it parts with moneys to its shareholders, must and can only be made by way of dividing profits. Whether the payment is called 'dividend' or 'bonus', or any other name, it still must remain a payment on division of profits. (Re Sechiari (deceased). Argenti v. Sechiari [1950] 1 ALL ER 417 ; Hill v. Permane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (Henry Head Co. Ltd. v. Ropner Holdings Ltd. [1951] 2 All. ER 994 (Ch.d). 50. The Section does not, in terms, convert the share premium account into paid up share capital, but merely makes the provisions of the Act relating to the reduction of share capital apply as if the share premium account was paid up share capital. But the provisions thus made applicable are the essential provisions on which the distinction between share capital and divisible profit depends, and on which the implied prohibition against the distribution of paid up share capital, otherwise than in pursuance of a duly authorized reduction of capital, is based. The Section does take the share premium account out of the category of divisible profit and prevent it from being distributed by way of dividend. The terms of the Section shows that, where the transaction in question is a distribution amongst shareholders of the share premium account, or a part thereof, that transaction is to be treated as if the company was reducing its capital by paying off paid up share capital. The company being thus, by force of the section, deemed to have paid off notionally paid up capital, the sum distributed must clearly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by depletion of the capital of the company being paid off to the shareholder, or the future legal obligation of holders of partly - paid up shares being diminished, would the Court have to exercise discretion. On the other hand, Sri Ch. Ramesh Babu would submit that, as sanction of the scheme by this Court would also bind the minority creditors, the debt claimed by the respondent, in C.P. No.199 of 2010, i.e., for Rs. 70.02 crores, should be enquired into, and the petitioner should be directed to secure the said claim in case this Court proceeds to allow C.P. No.240 of 2011 in their favour. 53. While the Court, undoubtedly, has the discretion "in any other case" also to direct that the provisions of clauses (a) to (c) of Section 101(2) shall have effect, it is unnecessary to examine whether or not this Court should exercise its discretion to do so, as what, in effect, the scheme envisages is utilizing a part of the share premium for payment of paid-up share capital to the preference shareholders, and Section 101(2) requires compliance with clauses (a) to (c) in such cases, save when the Court chooses to exercise its discretion under Section 101(3) of the Act. 54. Apart from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); publication of the notice of the meeting was also made in the newspapers; and the Chairperson had filed proof of service and publication before this Court. While the secured creditors, in their meeting, unanimously consented to the scheme of arrangement involving reduction in share capital (share premium), amongst the 53, who attended the meeting of the unsecured creditors, three, including the respondent- objector, voted against the scheme. On the company petition being admitted, the petitioner was directed to cause publication of the date of hearing of the petition, and publication was effected in Business Standard (English daily) and Andhra Prabha (Telugu daily) newspapers on 07.01.2012. In the affidavit dated 10.09.2012, the authorized signatory of the petitioner would submit that neither the petitioner nor the office of their Counsel received any objections from any creditors, (other than from the respondent-objector), regarding either the scheme of arrangement or reduction of capital. Even among the three unsecured creditors, who voted against the scheme, it is only the respondent-objector which has approached this Court opposing the scheme of arrangement involving reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o result in adjudicating C.P. No.199 of 2010 on its merits which, to say the least, would be wholly inappropriate. 58. The legislature has made Section 101(2) subject to the provisions of Section 101(3) of the Act which enables this Court, having regard to the special circumstances of the case and if it thinks proper so to do, to direct that the provisions of Section 101(2) shall not apply as regards any class of creditors. The court has a complete discretion under the Section whether to confirm a reduction, and on what terms. One of the factors it will take into account in all cases is whether the reduction proposals have been properly explained. (Ratners Group Plc (supra); Thorn EMI plc (supra) ; Campaign Holdings Pty, In re [1989] 15 ACLR 762 ; Heron International NV, In re [1994] 1 BCLC 667 ; Ransomes plc (supra); Palmer's Company Law (Vol.I); 25th Edition para 4.313). 59. According to Sri S. Ravi, Learned Senior Counsel, even if payment of dividend, in the present case, is held to be payment of share premium, the circumstances, in their entirety, will have to be looked into; convertible and non-convertible preference shares have been issued to ten Banks/financial instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady executed; the current assets also include Rs.689.40 crores of loans and advances which are considered good; the total assets as per the balance sheet, after netting off the current liabilities and after writing off depreciation of fixed assets on straight line method of accounting at the rates applicable, are Rs.1429.51 Crores; the current value of the fixed assets on replacement cost basis would be much more than the historical value reflected in the balance sheet; the liabilities to the secured and unsecured lenders are only Rs.847.46 crores and, even if the claim of the respondent-objector is held to be valid, there are substantially more assets that the company has, as compared to the liabilities, and the petitioner would be able to meet its obligations. 62. While the assets of the petitioner may well be sufficient to meet its liabilities, including the sum of Rs.70.02 crores claimed as due to them by the respondent-objector, the special circumstances which would justify a direction for dispensing with the creditors' objections must be such as would satisfy the court that, so far as could be reasonably foreseen, the relevant creditors would not be adversely affected by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll over again. Instead, it would suffice if the petitioner is directed to set apart Rs.68.90 crores as a "special reserve" during the pendency of C.P. No.199 of 2010. After the final outcome of the said case, or pursuant to any order passed therein, Rs.68.81 crores may be available, for utilization by the petitioner, later. The remaining balance of Rs.9.00 lakhs shall be retained in the "special reserve" till the dues of the other two creditors are settled. This would not only secure the interests of the respondent-objector, even if they were to succeed later in C.P. No.199 of 2010, but would also enable the company to forthwith utilize the remaining balance in the profit and loss account of Rs.110.92 crores for the purposes specified in their affidavits dated 10th and 18th September, 2012. It is reiterated that this Court has not expressed any opinion on the merits of the respondent-objector's claim of the debt due to them, from the petitioner, to be Rs.70.02 crores, as they are the subject matter of proceedings, before another bench of this Court, in C.P. No.199 of 2010. 64. In the affidavit dated 10.09.2012, the authorized signatory would state that Rs.34.65 crores is to be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67. Sri S. Ravi, Learned Senior Counsel, would submit that the distinctive character of share premium, as being apart from the paid-up share capital, is not destroyed since what is being reduced is the share premium, and not the share capital; although the procedure for reduction of capital is being followed as mandated by law, the said requirement of adding the words "and reduced" would not apply; however, if this Court is of the opinion that the same should be added, it may be for a restricted period as may be directed by the Court. 68. Section 78 (1) requires the provisions of the Act, relating to the reduction of the share capital of a company, to apply as if the securities premium account were the paid-up share capital of the company. The provisions of the Act relating to reduction of capital are those in Sections 100 to 104, including Section 102(2)(a) (b) of the Act. As such, even in the case of reduction of share premium, this Court has the power to direct the company to add the words "and reduced" as the last words to its name, and to require the company to publish the reasons for reduction. 69. In Novopan India Limited, In re.34, this Court held: ".....Clause (a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany are listed, and are being traded, in the stock exchanges, public interest would necessitate the prospective investors being informed of the reduction of capital. This Court has the option of directing the company to add the words "and reduced" as the last words of its name (either permanently or for a certain duration), and/or direct it to cause publication of the reasons and the causes for such reduction, in order to give proper information to the public. While publication of the reasons in the newspapers can only be on a particular day, directing the company to add the words 'and reduced' to its name for a certain duration would caution prospective investors and inform them that the company has reduced its capital, which would enable them to make further enquiries in this regard. On Line Media Solutions Ltd., In re [2008] 82 SCL 64 (AP). 72. Instead of directing publication, of the causes and the reasons for reduction of capital, in the newspapers I consider it appropriate to direct the petitioner to add to its name, as its last words, the words "and reduced" for the period upto and until the end of the financial year 2012-13, and in the balance sheet, the profit and los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inabove, this Court had directed meetings of the shareholders of the petitioner company, its secured creditors and its unsecured creditors to be convened and held. Pursuant thereto, such meetings were convened and the Chairmen of the said meetings, in their respective reports, have reported that more than the required majority of 3/4th, of those who attended the meeting, had voted in favour of the scheme of arrangement. The requirements of Section 391 (1) and (2) are satisfied. 75. Sri Ch. Ramesh Babu, learned Counsel for the respondent-objector, would submit that the petitioner had failed to furnish the information and/or documents, as stipulated in Section 391(2) and Section 393; they had submitted incorrect information to this Court; the respondent had filed C.P. No.199 of 2010 seeking winding up of the petitioner on the ground that they had failed to pay their dues of Rs.70.02 crores; this information was withheld in the proposed scheme of arrangement circulated to the creditors for the purpose of casting their vote to support or oppose the scheme of arrangement; as against the credit value of Rs.70.02 crores due to the respondent, (Rs.50.00 crores towards principal and Rs.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mier Motors (P) Ltd. v. Ashok Tandon [1971] 41 Comp. Cas. 656 (All.), Navjivan Mills Co., Ltd. (supra), Bhagwan Singh Sons (P.) Ltd. v. Kalawati [1986] 60 Comp. Cas. 94 (Delhi), Bharat Synthetics Ltd. v. Bank of India [1995] 82 Comp. Cas. 437 (Bom.), Aradhana Beverages and Foods Co., Ltd., In re [1998] 16 SCL 681 (Delhi), and K.E.C. International Ltd. v. Kamani Employees Union [2002] 109 Comp. Cas. 659 (Bom.); Deepika Chit Fund (P.) Ltd., In re [2005] 56 SCL 566 (AP). 78. The audited balance sheet, as at 31.3.2011, has been placed before this Court. Sri S. Ravi, Learned Senior Counsel, would submit that the balance sheet, for the subsequent year, has neither been finalized nor have the auditors submitted their report thereon; and, as such, the latest financial position of the petitioner is as reflected in its balance sheet as at 31.3.2011 only. It is evident, therefore, that the latest financial position of the company, (as reflected in its balance sheet as at 31.3.2011 and its annexures), and the latest auditors report on the accounts of the company have been placed before this Court. Both the National stock Exchange, vide letter dated 18.10.2011, and the Bombay Stock Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onveyed their no objection to the scheme of arrangement of the petitioner. 80. While the Court, called upon to sanction a scheme of arrangement, would not act as a Court of appeal and sit in judgment over the informed view of the concerned parties to the scheme, as the same is best left to the corporate and commercial wisdom of the parties concerned, it is clear that the Court, before whom the scheme is placed, is not expected to put its seal of approval on the scheme merely because the majority of the shareholders have voted in favour of the scheme. Since the scheme, which gets sanctioned by the Court, would bind the dissenting minority shareholders or creditors, the Court is obliged to examine the scheme in its proper perspective together with its various manifestations and ramifications to find out whether the scheme is fair, just and reasonable to the concerned members, and is not contrary to any law or public policy. The expression "public policy", though incapable of precise definition, connotes some matter which concerns the public good and the public interest. (Sesa Industries Ltd. (supra) ; Hindustan Lever Employees' Union (supra); Central Inland Water Transport Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OCCRPS were made on 31.03.2011 and 06.12.2010, after completing necessary statutory compliances; the secured loans, after conversion, stood at Rs.703.90 crores as on 31.03.2011; the company had issued 17.36 lakh 6% bonus preference shares of Rs.100/- each to the said preference shareholders aggregating to Rs.17.36 crores in June, 2011 to maintain the yield of 6% from the date of conversion of the loan upto the date of allotment of preference shares; the actual allotment of bonus preference shares was on 29.09.2011; and ICICI Bank had sold off its original CRPS to IL FS Trust Co. Ltd after the bonus issue was completed on 29.09.2011. The affidavit details the bank-wise break-up of the converted OCCRPS and CRPS in the form of a tabular statement: Name of the shareholder No. of OCCRPS No. of CRPS ICICI Bank Ltd 96,86,000 21,81,500 State Bank of India 30,80,000 6,97,500 Punjab National Bank 8,50,000 2,88,000 Allahabad Bank 18,90,000 4,51,500 State Bank of Hyderabad 23,37,000 5,08,000 IDBI Bank Ltd 30,54,000 7,50,000 Bank of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , their shareholders/creditors of the need to pay dividend to the preference share-holder banks, both in the explanatory statement and in the scheme, instead of making this information available to this Court later by way of affidavits. 87. Faced with a similar situation, of failure of the company to disclose material facts to their shareholders, a Division bench of the Delhi High Court, in Idea Cellular Ltd. v. Union of India [2012] 115 SCL 454, observed: "..............Further, Mr. Chandhiok is right in his submission that the appellant itself understood the implication of Licence Agreement and Merger Guidelines, 2008 as per which prior permission of DoT for merger of the companies was mandatory and for this reason simultaneously with the decision of amalgamation of Spice with the appellant, the appellant itself had started communicating with the DoT seeking such prior permission. Whether the action of DoT in refusing to grant such a permission is valid or not is not the question. What is important is that all this becomes relevant information and material information casting an obligation upon the appellant to have disclosed the same. It is rightly pointed out by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act. The Company Law Board, by its order dated 5.3.2009, authorized the Central Government to appoint four nominees on the Board of the petitioner-Company making it clear that one of them shall be chairman, and the Board would have complete powers in regard to the affairs of the company. The Government of India appointed four nominee-directors on the Board of the petitioner-company in March/April, 2009. Two of the erstwhile Directors continued as Directors of the Board. 89. On the application of the petitioner, the CLB passed an order dated 31.8.2009 directing that M/s Infrastructure Leasing Financial Services Ltd (IL FS) shall be the new promoter of the company; that IL FS should hold 37.01% of the shares of the petitioner; it should appoint four of its nominees on the Board of the petitioner-company including the Chairman of the Board; it would be in control of the management of the affairs of the petitioner-company; the Government should withdraw two of its four nominees, and the remaining two government nominees would continue for a period of two years; Sri Teja Raju and Sri B. Narasimha Rao (who continued as Directors of the old management) should resign immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 page: 4.313). 92. As part of the corporate debt restructuring scheme, the secured creditors converted Rs.250.00 crores of their principal term loan, and Rs.57.50 crores of their funded interest term loan, into OCCRPS and CRPS. Conversion of a part of their secured debt as preference shares is a sacrifice by the secured creditors, (most of whom are public sector banks/financial institutions), only to ensure revival of the petitioner and put it back on rails. Retention of the debt, as it is and without conversion, by the secured creditors would have enabled them to realize their security to recover their dues. Conversion of the term loan, into redeemable preference shares, has resulted in these public sector banks standing lower in priority to the secured debt, workmen's dues, and even unsecured creditors, in winding up proceedings. Their sacrifice appears not to have been in vain, as the petitioner made a profit of Rs.2.91 crores during the financial year 2010-11. The debt restructuring scheme obligates the petitioner to pay dividend to the preference share holders (erstwhile secured creditors) of Rs. 34.65 crores by 30th September, 2012. The efforts to revive the petitioner wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the annexures thereto for the said year. 94. ORDER CONFIRMING REDUCTION OF CAPITAL AND APPROVING MINUTE Upon the petition of IL FS Engineering and Construction Limited, presented on the 20th day of December, 2011 (upon hearing Sri S.Ravi, Senior Advocate appearing for the Petitioner, and upon reading the said petition and the affidavit in support thereof filed on the 20th day of December, 2011) and the exhibits therein referred to, the order on the summons made on the 4th day of November, 2011 in C.A. Nos. 1649 of 2011, 1650 of 2011, 1651 of 2011 and 1652 of 2011 convening the meeting of the equity shareholders, preference shareholders, secured creditors and unsecured creditors of the Petitioner Company respectively, the reports of the Chairpersons appointed for the meetings of the equity shareholders, preference shareholders, secured creditors and unsecured creditors of the Petitioner Company, upon perusing "Business Standard" and "Andhra Prabha" (Hyderabad Editions) containing the notice of the date of hearing of this petition, and the Court being satisfied with respect to every creditor entitled to object to the reduction that either his consent to the reduction has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certified copy of this order including the minute as approved be delivered to the Registrar of Companies within 30 days from the date of receipt of the order. 4. That notice of the registration by the Registrar of Companies of this order and of the said minute be published once each in "Business Standard" and "Andhra Prabha" (Hyderabad Editions) within 14 days of the registration as aforesaid. Dated this the Seventeenth day of October, 2012 SCHEDULE The securities premium account of IL FS Engineering and Construction Company Limited of Rs. 612.40 crores shall be adjusted against the gross debit balance of the Profit and Loss Account of IL FS Engineering and Construction Company Limited for the financial years 2008-09 and 2009-10 in a sum of Rs. 728.379 crores. The unadjusted debit balance of Rs. 116.139 crores shall be adjusted against the gross credit balance of the Profit and Loss Account of IL FS Engineering and Construction Company Limited, leaving Rs.68.90 crores in a special reserve, and the net credit balance of Rs. 110.92 crores in the Profit and Loss Account of IL FS Engineering and Construction Company Limited as on the Appointed Date pursuant to the Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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