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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 ..... ly, the petitioner in Company Petition No.201 of 2016, SHARE Microfin Limited (SHARE) was registered on 20.04.1999 as a public limited company and it is having its registered office in Hyderabad, Telangana. Its authorized share capital as on 01.04.2015 is Rs. 830.00 crores divided into 10,00,00,000 equity shares of Rs. 10/- each and 73,00,00,000 preference shares of Rs. 10/- each. The issued, subscribed and paid-up share capital as on 01.04.2015 is Rs. 697,35,20,420/- divided into 5,32,17,042 fully paid up equity shares of Rs. 10/- each and 64,41,35,000 OCCRPS of Rs. 10/- each. Both the companies are engaged in the business of providing financial and support services to marginalized sections of society particularly underserved rural and urban women across India. 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 obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Andhra Bhoomi Telugu Daily, Hyderabad edition. Appropriate notices were issued to the Regional Director, South East Region, Ministry of Corporate Affairs, Ranga Reddy District. Pursuant to the said notices, the Regional Director filed his report on 04.08.2016. After publication of notices in the Newspapers, the HDFC Bank Limited filed Company Application No.1277 of 2016 in Company Petition No.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 Rs. 85.00 Crores vide facility agreement dated 29.07.2010. The total principal loan amount outstanding as on 31.03.2015 is Rs. 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 docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts reply dated 18.07.2016 refused to cooperate. After receipt of the said reply the applicant informed by letter dated 10.08.2016 that it reserves its rights to raise appropriate objections before this Court. 2) Though the notice of meeting was received in the branch office of the applicant bank it took sometime to reach the higher authorities and by that time the meeting was already 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te with a moratorium period of 3 years. In fact, the creditors are not going to realize any significant portion of their debt in the next 6 years and since the survival of the company itself is doubtful, it is not in the interest of creditors to sanction the scheme by this Court. 12) There is no road map outlined under the scheme in clear terms about the survival 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders, preference shareholders and the creditors of the companies. The total exposure of the applicant Bank is Rs. 26,85,70,850/- and it represents the total outstanding debt of 6% of the petitioner as on 30.04.2016 and the applicant is a participant in the Joint Lenders Forum (JLF) formed in respect of the petitioner company in accordance 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular communication between the petitioner companies for more than a decade. E-mails were sent to the senior officials on 05.05.2016 and 06.05.2016 also and the deponent of this application is one of such officers. It is also stated that if a lender abstains from attending the court ordered meeting of creditors, such a lender cannot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly, Company Application No.1278 of 2016 was filed by the applicant HDFC Bank in Company Petition No.201 of 2016. M/s. Aditya Birla Finance Limited also filed Company Application No.1342 of 2016 in Company Petition No.201 of 2016 seeking to implead as respondent and adjudicate the objections raised by it. In support of the said application it is stated that the applicant sanctioned and disbursed an amount of Rs. 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 Rs. 36.00 Crores as on 01.04.2011 and the said amount was restructured as Rs. 23.02 Crores towards term loan and Rs. 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 Rs. 6.70 Crores to the petitioner company. As on 31.03.2015 the petitioner company is due and payable a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement proposed by the Board of Directors of the Companies involved in it and approved by the shareholders, creditors and others in the meeting held for the purpose of considering the scheme of arrangement and if so whether the proposed scheme of arrangement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was opened for voting at the meeting by the Chairperson, Ms. K. Sumathi. No votes were cast against the proposed scheme of arrangement. The proposed scheme of arrangement was approved unanimously by the equity shareholders. 2. The meeting was attended 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 aggregatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENED MEETINGS OF SHARE & ASMITHA Sl No Meeting for Meeting held on Name of the Court appointed Chairperson/Chair man for the meeting 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 of SHARE Microfin Ltd 1st June 2016 Mrs. K. Vijaya Laxmi 3553,216,542 3553,216,542 100% - - - 5 Preference shareholders of SHARE Microfin Ltd 2nd June 2016 Mrs. V. Poorna Sri 19406,954,750 13346,620,250 85% 6 60,334,500 15% 6 Creditors of SHARE Microfin Ltd 2nd June 2016 Mr. P.V. Narsaiah 21 6,790,204,375 145,959,312,677 88% 7 830,891,698 12% Section 390 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the same was sanctioned by the Court. The Company Court recalled the winding up order and cancelled the same in view of the said scheme. The Court appointed a committee of management for implementation of the scheme. It was held that whenever a choice is available to Court between the revival of the company and its winding up, the Court must as far as possible, lean in favour of revival of the company for that will have the prospectus of generating jobs and putting the assets of the company to productive use as against auction of assets and distribution of the proceedings by the official liquidator to various parties. Hence, there is nothing in the Act preventing a company whose financial position is weak from submitting a proposal for the scheme of compromise or arrangement. Thus, point No.1 has to be held in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Scheme of Compromise and Arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote. 28-A. However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the this aspect the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the provision of sub-Section (2) of Section 391of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same. 6. That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the Scheme with a view of to satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Industries Ltd., 2004 55 SCL 1, the arrangement is such as a man of business would reasonably approve, Hindustan Lever Employees Union v Hindustan Lever Ltd., 1995 83 CompCas 30; Custina Re Haare, 1933 AER 105 and Butfe Press LIC, 1961 CD 270, and the proposed reduction is within the powers of the company, and for the purposes allowed by the statute. The courts have a 'discretion' to confirm or not to confirm, which it is their duty to apply in 'every proper case,' and this discretion is to be exercised by reference to - whether the scheme would be 'fair and equitable,' 'just and equitable,' 'fair and reasonable' or 'not unjust or inequitable'. Gower's Principles of Modern Company Law (Fourth Edition) Chapter 10; Scottish Insurance Corpn. v. Wilson & Clyde Coal Co., 1948 SC 360). Petitions, for approval of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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, 1985 BCLC 222; In Re Grosvenor Press Plc., 1985 1 WLR 980; the proposal is one that ought to be sanctioned; and the proposal is fair and equitable to the shareholders as a whole. Ransomes Plc, 1999 2 BCLC 591. 12. Subject to confirmation by the court, which is required and which is the safeguard of the minority, the question of reducing capital is a domestic one for the decision of the majority, and the Act leaves the company to determine the extent, the mode, and the incidence of the reduction and the application of any capital moneys which the reduction may set free. (Buckley on the Companies Acts (14th edn, 1981, Butterworths), Vol. 1, p. 180; Re Ransomes plc15). The power of confirming or refusing to confirm the special resolution of a company to reduce its capital is conferred on the court to enable it to protect the interest of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioned 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 the following illustration is not based on any judgment of any Court or any authentic judicial pronouncement in interpreting the expression. I will deal with Objections Nos. (i) and (ii) together. The main objection which was most vehemently canvassed before me by Mr. J C. Seth, counsel for Mr. H. L. Seth related to the Scheme having not been approved by the requisite majority in terms of Section 391(2) of the Act and that the Court should: not exercise its discretion in favour of the Scheme. Another application being Ca 328190 was filed by one Mr. Subhas Chander raising substantially similar objections to the sanction of Scheme contained in Ca 26185 as modified by Resolution No. 1 in the meeting of the creditors and shareholders of the Company. His objection was mainly based on the plea that notwithstanding the 314th majority of number of shares represented by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 in number of the total class. The provisions of section 391(2) of the Act are in pari materia with the section 206(2) of the Companies Act, 1948 which was being interpreted in the aforesaid book. The English Company Law by Professor Robert R. Pennington (5th Edition), Page 590 use of the words "present and voting" has been explained as under: "...It appears that proxies may both speak and vote at meetings of creditors or members, and that the inability of proxies for members to speak at general meetings of a public company does not apply to meetings called to approve scheme of arrangement. The vote on the scheme at each meeting of members or creditors is taken by a poll, and for a resolution approving the scheme to be carried, the persons who are present in person or by proxy at the meeting and who vote in favour of the scheme must comprise a majority in number of all persons who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 voting" has been explained by giving an illustration as under: "An ordinary resolution is one passed by a simple majority of those voting, and is used for all matters not requiring another type of resolution under the Act or the articles. An extraordinary resolution is one passed by a three-fourths majority but no special period of notice is needed. Under the Act an extraordinary resolution is required only for certain matters connected with winding up, or when class meetings are asked to agree to a modification of class rights. A special resolution is also one passed by a three-fourths majority, but 21 days notice must be given of the meeting at which it is to be proposed. A special resolution is required before any important constitutional changes can be undertaken; and as a result of the legislation in the 1980s the number of such cases has greatly increased. In the case of both extraordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We say that the clause in the Act is satisfied by the sanction of three- fourths in value of the persons present at the meeting, and this was decided by your Lordship in re Tunis Railway Company (May 22, 1874) affirmed on appeal (before the Lords Justices, July 11, 1874). Carson, for Dixon said he was desirous that the arrangement should be carried into effect. MALLINS, V.C. : I think the agreement should be carried into effect. All the creditors of the company received notice of this meeting, and it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. At all events, I think that under the Act of Parliament only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained 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. A member present and voting may remain neutral, indifferent, unbiased or impartial not engaged on either side. Voting has to be either in the affirmative or negative, i. e., 'yes' or 'no' on the ballot paper or voting paper. One is not supposed to write anything except putting 'yes' or 'no' either in favour of the proposition or against the proposition. In addition to the same, if any suggestion, condition, reservation or stipulation is written stating that the expression of the will or opinion either for or against the proposition is subject to those things, then, the votes have to be necessarily treated as invalid or void, as such votes are no votes leading either way. A vote cast without indicating the mind of the voter either for or against the resolution is no voting at all. Similarly, voting for or against the motion subject to the conditions stipulated in the vote is no voting in the eye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 three-fourths value of the creditors/shareholders who are present and voting. This ensures that the persons representing nominal value of shares or credits though may be in majority, may not take a decision which adversely affects the rights of the persons who have substantial shareholding or credit, but are in minority in numbers. Conversely, it also protects the rights of the small creditors/shareholders against persons holding large shareholdings or representing substantial credit. . 39. Therefore, if the creditors who have been duly served with the notices of the meeting which was also accompanied by the scheme, if they do not chose to be present in the meeting and express their view one way or the other, the only inference that could be drawn is prima facie, they have no objection for the said scheme being approved. Any other interpretation in this regard would make it impossible for any company to get any of the schemes appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, prima facie, the scheme is a fair and reasonable one, such as a prudent and reasonable shareholder would approve of and not object to. Followed in Navjivan Mills Ltd., Re [(1972) 42 Com Cases 265 at 320 (Guj)]. As stated above, the scheme of compromise and arrangement was approved by the requisite 3/4th majority of the members and creditors who attended the meeting. Now an objection is raised by the two creditors who did not attend the meeting and raised any objection, but pursuant to the notice published in the Newspapers, appeared before this Court and raised the above objections. The creditor who raised an objection in respect of Asmitha is HDFC Bank Limited which advanced a term loan of Rs. 85.00 Crores under facility agreement dated 29.07.2010. The total principal loan amount outstanding as on 31.03.2015 was Rs. 26,85,70,850/-. As stated above, in view of the financial difficulties faced by the company it proposed a Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articipation 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 Limited who is also one of the creditors is with regard to majority secured in the meeting of the creditors by taking the vote of SIDBI and coming down of the equity of the SHARE company from 644,13,50,000 to 32,20,67,500. The composite scheme of arrangement affects the OCCRPS. As a part of the scheme, 57,45,71,293 OCCRPS issued by SHARE to its CDR lenders under the SHARE Master Restructuring Agreement representing 89.2004% of the total outstanding OCCRPS issued by SHARE shall be cancelled and on such cancellation the cancelled capital will be moved to the Securities Premium Account and/or Capital Reserve Account in the balance sheet of SHARE. The OCCRPS amount shall be treated as repayments made by the SHARE to the holders of such OCCRPS on debt owed by SHARE to such holder of OCCRPS and shall be applied (i) first any priority debt to be repaid to such lender and (ii) thereafter to any CDR debt repayable to such lender. It was also stated that the consent expressed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Asmithas rest of India business to SHARE. * Shareholdersl of SHARE would be allotted equity shares in Asmitha in the ratio of 1:1.1541 as consideration for transfer of SHAREs AP/TS business to Asmitha. OCCRPS Shareholders: Note:- The Optionally Convertible Cumulative Redeemable Preference Shares are held by Banks/Financial Institutions for a total value of INR 644 Crores in SHARE and INR 309 Crores in Asmitha. * SHARE * 89.2004% of the total outstanding OCCRPS issued by SHARE to be cancelled (Note corresponding OCCRPS being issued in Asmitha) * 5.7996% of the total outstanding OCCRPS issued by SHARE to be converted to equity shares. * Asmitha * Out of the total outstanding debt of Asmitha (INR 422,98,77,843), an amount of INR 247,06,65,820 to be converted to 24,70,66,582 OCCRPS. * 0.0320% of the total outstanding OCCRPS issued by Asmitha to be converted to equity shares * In lieu of cancellation of OCCRPS issued by SHARE as mentioned above, 57,45,71,293 OCCRPS to be issued by Asmitha to the CDR lenders of SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 satisfied is with regard to unfairness of the scheme. In the light of the above, it has to be seen whether the case set up by the objector before this Court can be entertained in spite of its non- participation in the meeting convened for the purpose of approving the scheme of arrangement. The objector states that the main purpose of the scheme is transferring the healthy part to one entity and unhealthy part to other entity resulting in the unhealthy company to have its natural death. The conduct of the companies in not adhering to the terms of the CDR package approved on 29.06.2011 and reduced into writing on 24.09.2011 under the CDR mechanism, and the challenges faced by both the companies were not appreciated and a Joint Lenders Meeting was called after two years. In the Senior Level Bankers Meeting held on 22.08.2013 the merger - de-merger plans of both the companies were discussed, but it appears that nothing concrete has emerged as could be seen from the latest communication made by the CDR Cell on 08.11.2016. The relevant resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act provide a complete mode and manner in which scheme of arrangement between a company, its shareholders and its creditors are to be proposed, considered, scrutinized, approved and sanctioned. It is further submitted that the proceeding before CDREG cannot have any effect on a scheme proposed. It is admitted that the CDR mechanism operates as follows. The RBI has issued detailed guidelines on the Corporate Debt Restructuring System on 23.08.2001 for implementation by the banks and financial institutions. The Corporate Debt Restructuring (DCR) Mechanism provides for a voluntary, non-statutory system based on the principle of approvals of debt restructuring packages by super majority of 75% creditors by value, which makes the CDR EG decisions binding on the remaining 25% creditors. The CDR Mechanism is based on a three tier structure comprising of the CDR Standing Forum, CDR Empowered Group (CDR EG) and CDR Cell. The CDR EG is the second tier structure in the CDR Mechanism which decides individual cases of corporate debt restructuring. CDR EG, in respect of each individual case, comprises of Executive Director level representatives of IDBI Ltd., ICICI Bank Ltd., and SBI as st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad, for providing mandate at the meeting of the Creditors of Share Microfin Limited. In this connection, we would like to inform you that we are agreeable for proposed Scheme subject to increasing your offer of debt allocation in Company to SIDBI from existing offer to higher amount to our satisfaction. Please bring this to kind attention of Chairperson, Creditors Meeting of Share Microfin Ltd, and record the same in his report to Honble High Court. The apprehension with regard to recovery of an amount of Rs. 18.18 Crores by transferring the said amount to the petitioner in Company Petition No.200 of 2016 which was given the unhealthy part as stated above cannot be said to be without basis. There is no answer to the objection that the proposed scheme of arrangement reduces the equity of the share from 6,44,13,50,000 to 32,20,67,500 and the shares of OCCRPS would be converted into ordinary shares giving up their preferential and security coverage. Though this Court is not in agreement with the contention raised by the objector that the procedure prescribed for reduction of share capital was not valid, the reduction of share capital as aforesaid and conversion of OCCRPS into ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India to ensure timely and transparent 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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