( 1 ) KIRLOSKAR Electric Company has filed this company petition under sections 391 to 394 of the Companies Act, 1956 ('act', for short), inter alia requesting this Court to sanction the scheme of arrangement annexed as Annexure-B to the petition, so that the same becomes binding on all the shareholders, creditors of the petitioner-company as well as on the petitioner-company.

( 2 ) THE petitioner-company was incorporated as a public limited company on 26th day of July, 1946 under the provisions of the Mysore companies Act, 1938, under the name and style of M/s. Kirloskar Electric company Limited. Its registered office is situate at the Industrial suburb, Rajajinagar, Bangalore. The authorised share capital of the company is Rs. 700,000,000 (Rupees seven hundred million) divided into 40,000,000 (forty million) equity shares of Rs. l6/- each and 3,000,000 (three million) preference shares of Rs. 100/- each. The issued, sub-scribed and paid up share capital is Rs. 25,268,817 (twenty-five million two hundred and sixty-eight thousand eight hundred and seventeen) equity shares of Rs. 10/- each and 1,800,000 (one million eight hundred thousand) preference shares of Rs. 100/- each. The main object for which the company was incorporated was to manufacture electric apparatus and appliances required for or capable of being used in connection with the generation, distribution, supply, accumulation and employment of electricity, produce a wide range of electrical motors, alternators, traction equipments, rotating machines, transformers, switchgears, voltage regulators, industrial electronics, automotive controls, etc.

( 3 ) THE petitioner-company has explained the reasons, which necessitated the formation of the scheme and also the benefits under the scheme to the company, to its shareholders and creditors. They are:"a. The petitioner-company has a dominant market position in large and medium sized rotating machines and traction equipments and over the years it has built reputation and the company enjoys goodwill in the domestic and foreign markets and the company was having sound financial position till about 1997-98. B. The company's profitability started getting affected from 1998-99 onwards on account of the recession in capital goods industry, downturn of infrastructure and core sectors, which are generally the end users of the company's products. The capital goods industry including the petitioner-company made substantial investments in the core sectors in the mid-nineties in anticipation of good demand from infrastructure and core sectors which did not materialise and thereby affecting the performance of the company and resulting in the company incurring losses. Additional interest on huge borrowings at high rate of interest exacerbated the position. Decline in sales during the last three years affecting the profit margin and competitive pressures due to over-capacity in the industry coupled with longer credit periods to customers apart from the following, are the circumstances that have necessitated the proposed arrangement. High level of debt (Rs. 305 crores); excess labour force and high employee cost of 24% of sales in the year 2000-2001; high interest cost at 23% of sales in the year 2000-2001; high level of receivables; continuing large losses; continuing poor financial situation, which can lead to reluctance on the part of the suppliers and others to continue their support; threat of legal cases from creditors/statutory authorities".

( 4 ) THE Board of Directors of the company have approved the scheme of arrangement and the scheme is annexed to the main petition. The latest audited balance-sheet is also produced as one of the annexures to the petition.

( 5 ) THE petitioner-company had filed Company Application No. 134 of 2002 under Section 391 (1) of the Companies Act, 1956, praying for directions, for convening the meetings of the equity shareholders, secured and unsecured creditors for examining and if thoug