THE HON’BLE SRI JUSTICE NOOTY RAMAMOHANA RAO C.P.No.74 of 2006 ORDER: This Petition has been moved under Section 391 of the Companies Act, 1956, r/w Rule 79 of the Companies (Court) Rules, 1959, by M/s. Suvarna Aqua Farm & Exports Limited, seeking sanction of the Scheme of Arrangement, so as to bind all the shareholders and secured creditors of the Company as well as all such persons, whosoever are concerned. It is pointed out that the Petitioner Company was incorporated under the Provisions of the Companies Act, 1956, on 25-10-1991 and commenced its business on 06-12-1991. The Registered Office of the Company is situated at Pakala Village, Singarayakonda Mandal, Prakasam District, Andhra Pradesh. The authorized share capital is Rs.18,00,00,000/- divided into 18000000 equity shares of Rs.10/- each. The issued and subscribed share capital of the Petitioner Company, as on 31-03-2005, was Rs.16,67,00,000/- comprising of 16670000 equity shares of Rs.10/- each. The paid up share capital of the Petitioner Company is Rs.16,65,00,000/- divided into 16650000 equity shares of Rs.10/- each. The Company has been established, essentially, for carrying on business of aquaculture rearing, culturing, breeding, cultivating, harvesting all varieties of marine products / foods whether inland water or in sea and to process the same. It was pointed out that due to a change in the policy, including issuance of regulations under the Coastal Regulatory Zone Act, the business could not be carried on the expected lines. It has resulted in substantial erosion in the net worth of the Company. Hence, a Reference, in terms of Section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985, has been made to the Board for Industrial and Financial Reconstruction (‘BIFR’ for short). Upon consideration of the Reference the BIFR recommended for winding up of the Petitioner Company on 11-06-2002. That decision has been challenged before the Appellate Authority for Industrial and Financial Reconstruction (‘AAIFR’ for short). The AAIFR confirmed the Orders of BIFR on 30-06-2005. The decision of the AAIFR is called in question by instituting W.P.No.17460 of 2005, before this Court. Entertaining the said writ petition, an interim order was passed on 25-08-2005, staying all further proceedings including the winding up of the Petitioner Company. This writ petition is still engaging the attention of this Court. However, in the mean time, the promoters of the Petitioner Company have undertaken certain efforts for mobilizing the requisite additional capital for purposes of restarting the operations of the Company and also to settle, partly at least, the claims of the creditors. Accordingly, a consortium of investors have come forward to infuse additional funds of Rs.1-00 crore. As on 31-03-2005, the Company owed an amount of Rs.3939.51 lakhs as per the books of account maintained by the Company. This amount was due and payable to four banks, namely, State Bank of India, State Bank of Hyderabad, State Bank of Travencore and IndusInd Bank. The Petitioner Company has pursued with the respective banks for securing a one-time settlement of their debts. Accordingly, a Scheme of Arrangement has been worked out by which the Company has proposed to settle the secured creditors a sum of Rs.4-00 crores and the said sum is also sought to be paid on installment basis. It is now represented by the learned counsel for the Petitioner Sri L. Venkateswara Rao that so far a sum of Rs.355.76 lakhs has been paid up and still a sum of Rs.44.39 lakhs is due and payable together with interest thereon. The learned counsel would further submit that in view of variety of factors, including the factor such as virus attack and also need to comply with the regulations issued under the Coastal Regulation Zone Act, have very adversely impacted the aqua and marine Farms generally and the Petitioner Farm in particular. However, in view of the potential for reviving the industry, the Petitioner seeks sanction of the Scheme. It consists of two parts; the first part relates to entering into a compromise / settlement of the dues of the secured creditors; and the second part deals with the appropriate reduction of the share capital, so that the net worth of the Company can be rendered positive. Insofar as the first part of the Scheme sought to be sanctioned is concerned, after several rounds of negotiations with the secured creditors, namely, State Bank of India, State Bank of Hyderabad, State Bank of Travencore and IndusInd Bank, a one-time settlement has been struck. The Petitioner Company, as was noticed supra, has already paid up a sum of Rs.355.76 lakhs to these secured creditors. The balance amount payable to them is only a sum of Rs.44.39 lakhs. The learned counsel for the Petitioner would urge that if a reasonable period of time from today is granted, the Petitioner would pay up this balance amount to the secured creditors and thus settle completely the loans of the secured creditors. Since, the learned counsel for the petitioner has established his bona fides by securing appropriate resources and paid up a sum of Rs. Rs.355.76 lakhs to the consortium of the banks, who are the secured creditors, I consider that granting the Scheme would help in reviving the Company. Further, the consortium of the banks, who are the secured creditors, have carefully assessed the ground realities after taking into account and consideration the nature of the assets lying, as they were in a neglected condition, whose net worth has been greatly eroded, have agreed for the one-time settlement. Sri Deepak Bhattacharjee, learned Standing Counsel for the State Bank of India group, has affirmed that after an appropriate consideration of all relevant factors only the Scheme of one-time settlement has been worked out. I, therefore, have no hesitation to hold that sanctioning the Scheme would be more appropriate and hence, for enabling the debts of the secured creditors to be liquidated, I sanction the Scheme, insofar as the first part is concerned. The Petitioner Company shall liquidate the balance liability of the secured creditors fully latest by 15- 06-2010. On payment of the balance money due and payable to those banks, the liability of the Company shall cease, vis-à-vis, the secured creditors. Insofar the second part of the Scheme is concerned, it is proposed to reduce the paid up share capital from Rs.16.65 crores to Rs.16.65 lakhs. An extraordinary general meeting of the shareholders of the Petitioner Company has been convened at 11-00 am., on 20-12-2005 at the registered office of the Company. It was unanimously resolved thereat, that subject to approval of the Scheme of Arrangement, under Sections 391 and 394 of the Companies Act, the subscribed equity share capital of the Company be reduced from Rs.16,65,00,000/- divided into 16650000 equity shares of Rs.10/- each to Rs.16,65,000/- divided into 1,66,50,000 equity shares of Re.0-10 ps each, fully paid up, duly canceling the remaining capital to the extent of Rs.9-90 ps per each of the equity shares. It was further resolved that upon reduction of the capital taking into effect every 100 equity shares of Re.0-10 ps each be consolidated into one equity share of Rs.10/- each fully paid up, such that the total number of equity shares does not exceed 166500. The carried forward loss of Rs.16,48,35,000/- be written off by proportionately reducing the paid up capital of the Company. In view of this resolution of the shareholders, who have agreed for reduction of their capital, by sanctioning the second part of the Scheme also, the remaining net worth of the Company can be turned positive. That would, perhaps, enable the Company to renew and revive its operations. The Registrar of Companies in his affidavit dated 11-10-2006 has raised two objections to be considered before sanctioning the Scheme. The first objection raised by the Registrar of Companies relates to the fact that the shares of the Petitioner Company are listed on the Bombay and Hyderabad Stock Exchanges and, therefore, the procedure necessary for securing the permission of the stock exchanges, where the shares of the Petitioner Company are listed, has got to be adopted. The learned counsel for the Petitioner has pointed out that in view of the objection raised by the Registrar of Companies, the Scheme be sanctioned without making any reference to the lifting of suspension of trading of the shares of the Petitioner Company by the Bombay and Hyderabad Stock Exchanges and leaving it to the Company to follow the procedure prescribed for securing lifting of the said suspension by the respective stock exchanges, subsequent to the sanction of the Scheme. It is, therefore, made abundantly clear that the present sanction of the Scheme of Arrangement is without any regard to the suspension on the trading of the shares of the Petitioner Company imposed by the Bombay Stock Exchange and Hyderabad Stock Exchange and it is open to the Petitioner Company to follow the procedure, in accordance with law, for securing lifting of such a suspension. The sanction of the present Scheme shall in no manner be understood to have secured lifting of such suspension. The second objection raised by the Registrar of Companies is that, some of the partially paid up shares are also sought to be consolidated and, therefore, it has to be specifically noticed while sanctioning the Scheme that even all those partially paid up shares shall also be appropriately reduced and then get consolidated in terms of the resolution passed at the extraordinary meeting convened on 20-12-2005 at the registered office of the Company. This was agreed upon in the Scheme of Arrangement by the Company. Incidentally, it was also pointed out that insofar as the objections raised by the secured creditors / banks are concerned, that initially proposed settlement of their dues being on installment basis, there should be a time limit within which date the one-time settlement amount has to be cleared, while sanctioning the Scheme. The changed circumstances, which witnessed payment of substantial amount of Rs. Rs.355.76 lakhs to the four secured creditors in the interregnum, would, perhaps, obviate the necessity to fix a further time limit in this regard. Even otherwise, time has already been fixed for the Petitioner Company to pay up the balance amount of Rs.44.39 lakhs, latest by 15-06-2010. Therefore, sanctioning of the Scheme of Arrangement, as is proposed, would not adversely impact the interests of the secured creditors. When I have perused the various clauses of the Scheme, I have not found any of them as coming in serious conflict with any element of public interest or any conflict with any of the statutory provisions or the regulatory procedures. Nor are they intended to defeat the objectives of any statutory provision. Therefore, since there was nothing that has come for adverse notice, the Scheme, perhaps, would not cause any prejudice to any section. Further, notice of the proposed Scheme of Arrangement has been got published on 10-08-2006 in Andhra Jyothi and Deccan Chronicle, daily newspapers. In response thereto, no objections have been received. Therefore, it can safely be inferred that there is no objection from any quarter for sanctioning the Scheme. In accordance with Section 102 of the Companies Act, the paid up share capital of the Company shall now stand reduced, as the reduction of such share capital was an essential and integral part of the Scheme itself. Therefore, it is not required by the Company to record the words “and reduced” as a suffix to the name of the Company. Accordingly, the Company shall continue to carry on its activities and business in its old name only. It is, therefore, appropriate that in the minute that is to be submitted to the Registrar of Companies the following be incorporate therein. “The reduction of the paid up capital shall be effected as an integral part of the said Scheme itself and the order of this Hon’ble High Court sanctioning the said Scheme shall be deeded to be an order under Section 102 of the Act confirming the reduction. The petitioner company shall not be required to add “and reduced” as a suffix to its name and it shall continue in its old name.” Accordingly, the company petition is allowed and the Scheme of Arrangement, subject to what has been stated supra, is sanctioned and the Registrar of Companies be intimated within a period of thirty days from the date on which the certified copy of this order is made available by the Registry. No costs. --------------------------------- Nooty Ramamohana Rao, J mrk 22nd April 2010