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2002 Supreme(Bom) 1139
IN THE HIGH COURT OF BOMBAY
S.J. Vazifdar, J.
In the matter of sections 391 to 394 read with section 100 of the Companies Act, 1956.
Hindustan Dorr-Oliver Ltd. .... Petitioners.
Company Petition No. 153 of 2002 connected with Company Application No. 573 of 2001, decided on 21-10-2002.
Advocates appeared :
Virendra V. Tulzapurkar, Ms. Alpana Ghone i/b. Kanga Co., for petitioners.
C.J. Joy with D.A. Dube, Panel Counsel, i/b. T.C. Kaushik, for Regional Director Department of Company Affairs, Maharashtra, Mumbai.
J.S. Saluja i/b. M.V. Kini Co., for Watco Technics Pvt. Ltd. intervenor.
R.S. Apte with A.A. Garge i/b. N.R. Bubna, for Global Environmental Engineering Ltd. Intervenor Unsecured Creditors.
S.V. Doijode i/b. Doijode Phatarphekar Associates, for Thermax Limited, Intervenor Unsecured Creditor.
Kedar Wagle, for Paharpur Cooling Towes, Intervenor Unsecured Creditors.
The financial position of the company, absence of mala fides, and genuine reasons furnished by the petitioner justified the sanction of the scheme and the dispensation of the procedure under section 101(2) of the Companies Act, 1956.
Headnote:
Scheme of Arrangement - Companies Act, 1956 - Sections 391 to 394, Section 100
Fact of the Case:
The petitioner sought the Court's sanction for a scheme of arrangement between the petitioner and its equity shareholders, seeking to cancel equity shares and issue debentures. The petitioner also sought permission to amend certain provisions of the scheme.
Finding of the Court:
The Court found that the financial position of the petitioner was strong and that the procedure under section 101(2) of the Companies Act, 1956 could be dispensed with. The Court also noted the absence of mala fides in the scheme.
Issues: The issues involved the sanction of the scheme of arrangement, permission to amend the scheme, and the dispensation of the procedure under section 101(2) of the Companies Act, 1956.
Ratio Decidendi: The Court decided that the financial position of the company, absence of mala fides, and the genuine reasons furnished by the petitioner justified the sanction of the scheme and the dispensation of the procedure under section 101(2).
Final Decision: The petition was made absolute, allowing the scheme of arrangement and the amendments sought by the petitioner. The Court also stayed the order and rejected a creditor's application for security under section 101(2).
2. The petitioner was incorporated on 26th July, 1974. As on 31st March, 2001, the authorized share capital of the petitioners was Rs. 10,00,00,000/- (Rupees ten crores) divided into 1,00,00,000/- equity shares of Rs. 10/- each. The issue, subscribed and paid up shares capital is Rs. 4,75,20,000/- divided into 47,52,000/- equity shares of Rs. 10/- each.
The shareholding pattern is as follows:---
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No. of No. of % of No. of % of
Equity Share Share Shares Share
Shares holders holders held hold- held ing
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1 to 50 3491 35.26 1,25,832 2.65
51 to 100 2852 28.81 2,61,007 5.49
101 to 200 2739 27.66 4,81,687 10.14
201 to 500 598 6.04 2,08,104 4.38 501 to 1000 155 1.56 1,07,788 2.27
1001 to 5000 57 0.57 94,187 1.98
5001 above 9 0.09 34,73,355 73.09
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Total 9901 100.00 47,52,000 100.00
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3. The petitioners Board of Directors propounded the scheme and approved the same in a meeting held on 27th November, 2001.
The scheme is presented under sections 391 to 394 read with section 100 of the Companies Act, 1956 for cancellation of equity shares held in small lots and to issue in lieu thereof 11% secured redeemable non-convertible debenture (NCDs) of Rs. 20/- each of the company in the manner and to the extent provided therein.
4(a). Clauses 3 and 4 of the Scheme are as follows:---
"3. Objective of the scheme:
The company has a high number of shareholders who hold equity shares in small lots. The cancellation of equity share capital of the company and issue of debentures proposed to be effected through this scheme is expected to eliminate the high number of small lot shareholding in the company and reduce the cost of distribution of dividend, cost of printing and posting of annual reports and dividend warrants and avoid dividend remaining unpaid due to difficulties in encashment of warrants.
The shares of the company are thinly traded in view of the low liquidity and shareholders find it difficult to dispose their holdings easily. During the past one year, the volume of shares traded on the B.S.E. was less than 1.2%. Moreover, since the shares of the company are traded compulsorily in dematerialised form, shareholders of small-lot equity shares in physical form will also find it difficult and expensive to dematerialise and dispose of the small number of their shareholding in the company. The proposed issue of debentures will facilitate accumulation of interest and encashment thereof on maturity together with the principal amount of the debentures and early encashment by buy back of the debentures by the company immediately after issue and allotment. The proposed scheme is thus expected to provide an exit option to the shareholders holding small lots as also to shareholders holding odd lots. "
4. Scheme of arrangement:
The company shall issue and allot 1 (one) debenture of Rs. 20/- (Rupees twenty) or as may be approved by the Court for every equity share cancelled as follows:
(a) In case of shareholding being up to 200 (two hundred) equity shares held in physical form on the record date, automatic cancellation of the entire shareholding without surrender of the share certificate relating to the equity shares, unless the company receives a written intimation in Form A from such shareholder on or before the record date desiring to continue holding the equity shares;
(b) In case of shareholding being mor
