ORDER
N. Kumar, J.
1. The petitioner – company formulated a scheme of arrangement between the company and its equity shareholders. The said scheme envisages an exit option to those equity shareholders for the cancellation of equity shares on the face value of Rs. 10/- a cash warrant of Rs. 25/- per share to the equity shareholders or average of six months high and low at the stock exchange such shareholders are interested whichever is higher is paid.
2. This Court on an application made by the petitioner for convening a meeting of the shareholders, secured creditors and unsecured creditors of the company to consider and approve the said scheme, by an order dated 6.12.2001 in CA.No. 765/2001 granted the permission sought for and directed that the meeting shall be held on 24.1.2002 at 10.00 a.m. at Registered Office. Accordingly, a meeting was convened and the scheme was approved by the requisite majority and thereafter the Chairman of the meeting has submitted his report, which was accepted by this Court. It is thereafter the present petition is filed seeking sanction of the scheme by this Court.
3. The object of the scheme as approved is to provide an exit option to the small equity shareholders of the company holding small-lots up to 500 equity shares with a view to mitigate the hardship faced by the small shareholder, in the present capital market scenario. The scheme is conceived with the object to result in the small shareholders getting back their investment without in any manner affecting the rights and interest of creditors and employee of the company. The scheme envisages cancellation of small shareholding up to 500 shares to all such shareholders, save and except those shareholders who opt to retain their holding of shares and inform the company of their desire to continue to hold the equity shares. Thus, the scheme is basically designed to help the investors at large so as to enhance liquidity in the hands of small investors which in turn would stimulate activities in the capital market.
4. After this petition was notified for hearing in the newspaper and after due notice to the Regional Director, Southern Region, Chennai, he has entered appearance and filed his objections. In his statement of objections he contends that the scheme provides for an exist option to those of the equity shareholders of the company holding small lots up to 500 shares against the payment of consideration of Rs. 25/- per share and the scheme is unjust and inequitable since only a class of equity shareholders holding up to 500 shares are compelled to forego their right to continue as shareholders of the company. It is also contended that by the aforesaid scheme, the petitioner is trying to circumvent the provisions of Section 77-A of the Companies Act, 1956. Further, it was contended that as the said offer is made in discrimination, if the petitioner to make a draft letter of offer as a part of the scheme and the shareholders get the chance of responding the offer, there would be no discrimination amongst the shareholders.
5. One of the shareholders of the company has also filed a detailed statement of objections opposing the sanction of the scheme. In the said objection, the objection taken by the Registrar of Companies is also reiterated. In addition, he contends that he holds 36000 equity shares in the company and if the scheme is sanctioned, he would get over-ruled by majority, and his interest would be affected. The price fixed by the company is very meager and it does not reflect the book value and therefore the said scheme is unjust. Lastly it was contended that absolutely there is no justification for restricting to the shareholders who hold the shares up to 500 and which ought to be extended to all the shareholders.
6. After hearing the learned Counsel representing the parties, when the Court wanted to know why the company was not be able to purchase the shares of other shareholders holding more than 500 shares, the learned Counsel took time to discuss the matter with his client and submit on the next hearing date. Accordingly, a submission is made that the Clause -1.7 and Clause 4.1.(i), (ii) and (iii) which deals with the aforesaid objections would be modified so as to satisfy the opposing shareholder as well as the Registrar of Companies. By the proposed amendment, the company is to buy-back the shares of all the shareholders and even those shareholders who hold in excess of 500 are eligible to get the benefit under the said scheme only on their surrendering their shares of the company. In view of the aforesaid modification suggested by the company, the interest of all the shareholders is taken into consideration and the offer is made. The terms of the scheme cannot be held to contravene Section 77-A of the Companies Act. Other modification suggested remedy the other objections raised.
7. The material on record discloses that all the requirements as contemplated under Section 39 of the Companies Act have been complied with. No other shareholder has any objection for sanctioning of the scheme. The scheme has been approved in the meeting of the shareholders, secured and unsecured creditors by the requisite majority. Now that the objection raised by the opposing shareholder is also taken care of. There is absolutely no legal impediment for granting the sanction sought for. The material on record discloses that the affairs of the company are not conducted in a manner prejudicial to the interest of the public or the members of the company. Under these circumstances, when the scheme proposed by the scheme is just, bona fide and honest and when it takes care of all the shareholders’ interest who are interested to have the benefit of the scheme, a case for according sanction has been made out. Accordingly, I pass the following order subject to the modification set out hereunden:-
MODIFICATIONS
1.7 – “Date of Cancellation” means the 45th day of the Record Date or any such succeeding day, if such 45th day of the Record Date is a “public holiday’, being the date on which the Board cancels the equity shares and issues cash warrant to such shareholders pursuant to this scheme.
4. – Scheme
4.1 – The Company shall issue cash warrant for every equity share cancelled as follows:-
(i) In respect of those shareholders holding upto 500 shares and held by such shareholders in physical form as on any such ‘Record Date’, on their surrendering of the share certificate/s by such persons up to 500 shares, shall stand cancelled on such ‘date of cancellation’ in accordance with the scheme and the liability thereof shall be extinguished.
(ii) In respect of those shareholders holding in excess of 500 shares and held by such shareholders in physical form as on any such ‘Record date’, their entire holdings on their surrendering of the share certificate/s by such persons, shall stand cancelled on such ‘date of cancellation’ in accordance with the scheme and the liability thereof shall be extinguished.
(iii) In respect of those shareholders holding shares in dematerialized form (i.e., in Electronic Media with NSDL and CDSL), on their submitting a written request to the company on or before the Record Date, shall stand cancelled on such ‘date of cancellation’ in accordance with the scheme and the liability thereof shall be extinguished. The written request shall be in the prescribed form and shall be submitted along with proof of debit instruction slip duly acknowledged by the Depository Participants in respect of such surrender of their entire holding of shares on or before such Record Date.
8. It is made clear that in view of the modifications suggested and accepted, an obligation is cast on the company to inform individually to every shareholder calling upon them to express their option to avail the benefit of the scheme in writing so that all the shareholders who are interested in the scheme could exercise their option. Now the company has come forward to purchase the entire shares holding by the opposing shareholder as per his request and the interest of the opposing shareholder is completely taken care of, his objection to the scheme stands withdrawn,
9. Company petition is allowed. The scheme of arrangement as per Annexure-B is hereby sanctioned, subject to the modifications suggested therein so as to binding on the petitioner company, its members, secured creditors and unsecured creditors.
10. Office is directed to draw up the order in the prescribed form.
11. As the scheme does not involve the transfer of any assets, the question of petitioner – company furnishing any stamp duty for drawing up of decree would not arise. Therefore, the office is directed to proceed to draw up the order without insisting on the stamp duty.