In re Tata Advanced Materials Ltd.

Mr. Budihal R.B. J.—This company petition is filed by the petitioner-company under Sections 391 and 394 read with Section 100 of the Companies Act, 1956, read with rule 79 of the Companies (Court) Rules, 1959 praying the court that the scheme of arrangement produced as per annexure E between the petitioner-company and its creditors and members may be sanctioned with effect from April 1, 2015, so as to be binding on all the shareholders, secured creditors and unsecured creditors of the petitioner-company and on the petitioner-company.

The brief facts as pleaded by the petitioner are that the petitioner-company was originally incorporated by the name M/s. Matrix Materials Ltd. on November 10, 1989 under the Companies Act, 1956 as a company limited by shares. The name of the petitioner-company was subsequently changed to M/s. Tata Advanced Materials Ltd., (for short "TAML") on November 18, 1992. The registered office of the company is situated at No.10, Jigani Industrial Area, Jigani, Bangalore. The petitioner-company is engaged in the business of providing global engineering, manufacturing and design services in advanced composites. The memorandum and articles of association is produced as per annexure C. The authorised capital of the petitioner-company as on March 31, 2015, was Rs. 300,00,00,000/- consisting of 16,00,00,000 equity shares of Rs. 10/- each and 1,40,00,000 non-cumulative, non-convertible redeemable preference shares of Rs. 100/- each. The issued, subscribed and paid-up capital is Rs. 266,76,32,870/- consisting of 14,17,63,287 equity shares of Rs. 10/- each, 50,00,000 number of 6 per cent, redeemable non-cumulative, non-convertible preference shares of Rs. 100/- each and 75,00,000 numbers of 8 per cent, redeemable non-cumulative, non-convertible preference shares of Rs. 100/- each. The balance-sheet of the petitioner-company for the year ending March 31, 2015 is at annexure D. It is further pleaded that the board of directors of the petitioner-company has approved and adopted the scheme of arrangement at its 120th meeting held on February 19, 2015. The board resolution is as per annexure H. The objects clause of the memorandum of association of the applicant-company enables it to enter into a scheme of arrangement, i.e., clause 1II(B)(13). Further, article 70 of the articles of association permits the applicant-company to reduce its capital. The salient features of the scheme of arrangement are as under :

(i) The petitioner-company in the course of its operations has an accumulated business loss to the tune of Rs. 192,84,18,067/- as on March 31, 2015. The petitioner-company holds free hold land carrying a book value of Rs. 57,50,696/- which has now been revalued at Rs. 112,00,00,000/- by an independent chartered engineer produced as per annexure F. In the books of the petitioner-company with effect from the effective date, the debit balance of the profit and loss account and un-absorbed depreciation of the petitioner-company as on the effective date shall stand partially written off against the capital reserve account and revaluation reserve account, resulting from the revaluation of the land of the petitioner-company to the extent of the balance available in the capital reserve account and revaluation reserve account. This will reflect the true financial position of the petitioner-company.

(ii) The scheme envisages a reduction in the equity share capital of the petitioner-company, whereby the issued, subscribed and paid-up equity share capital be reduced by extinguishing 1,32,107 equity shares held by non-promoter shareholders by paying them a fair value for each equity share extinguished. The fair value of equity shares in connection with deciding consideration for the cancelled/extinguished equity shares has been determined on the basis of a valuation report by an independent firm of chartered accountants. As per the valuation report, the value of each equity share of the company is Rs. 10/- per equity share. However, after taking into account the interests of non-promoter shareholders and to ensure a fair return for their investment, the non-promoter shareholders will be paid Rs. 20/- per equity share cancelled in the reduction of equity share capital. The paid-up equity share capital of the company which presently stands at Rs. 1,41,76,32,870/- divided into 14,17,63,287 equity'' shares of Rs. 10/- each will stand reduced to Rs. 1,41,63,11,800/- consisting of 14,16,31,180 equity shares of Rs. 10/- each consequent upon reduction of equity share capital.

The petitioner-company has 11,741 share holders. M/s. Tata Industries Ltd., (i.e., the promoter company) holds 14,16,31,180 shares amounting to 99.91 per cent, of the total shareholding. M/s. Tata Industries Ltd. has furnished its affidavit approving the scheme along with company application bearing C. A. No. 458 of 2015 filed by the petitioner-company before this court. The statutory auditor of the petitioner-company certified the list of creditors of the company and no objection certificates from secured and unsecured creditors giving their consent to the scheme were also furnished with the company application. The value of secured creditors who have consented is over 99 per cent, of the total value of secured creditors and 86 per cent, of unsecured creditors have approved the scheme. In view of the above, this court vide order dated June 23, 2015, in C. A. No. 458 of 2015 was pleased to dispense with holding meeting of shareholders and creditors for considering the proposed scheme. This petition was filed on July 13, 2015 and this court vide its order dated July 24, 2015 issued notice to the Regional Director and also directed the petitioner to carry out notice of the petition in Business Standard, English news daily and Prajavani, Kannada news daily on or before August 3, 2015, fixing the date of hearing as August 24, 2015. The notice of the petition was published in the aforesaid newspapers on August 1, 2015, as per the order of this court and same was produced before this court along with memo dated August 17, 2015. The Registrar of Companies, Karnataka has filed affidavit dated October 29, 2015, praying this court be pleased to take into consideration its observations in relation to the company petition by the petitioner. The petitioner-company has filed its affidavit dated December 9, 2015, addressing all issues raised by the Registrar of Companies. The restructuring contemplated in the scheme is purely a business decision arrived at by the share holders on the business of commercial principles involving a very small cash outflow. The restructuring is in accordance with sound commercial and accounting practise and would enable the petitioner-company to project a more realistic picture of its operations. Hence, the petitioner-company sought to allow the petition and to grant the relief as prayed for.

In the affidavit dated October 29, 2015, filed on behalf of the Registrar of Companies, Karnataka it is contended that their office has been communicated by the Regional Director, Ministry of Corporate Affairs, South East Region, Hyderabad vide reference dated October 8, 2015, stating that he being the competent authority on behalf of the Central Government has examined the scheme with reference to the materials made available and it has been decided to make the following observations.

The notice dated August 7, 2015, was issued to the Income-tax Department as required by the Ministry of Corporate Affairs, General Circular No. 1 of 2014 dated January 15, 2014, giving 15 days time, but no comments/objections have been received so far from the Income-tax Department by the office of the Regional Director. However, the following issues are also brought to the notice of this court :

(i) Clause V of the scheme provides for selective capital reduction. Scheme envisages a reduction in equity share capital of the company in accordance with Sections 100 to 104 of the Companies Act, 1956 and article 70 of the articles of association of the company. Therefore, reduction of 1,32,107 equity shares requires approval of 11,741 shareholders through a special resolution passed in the meeting of shareholders. However, the company has not produced the approval of the shareholders through special resolution passed in the meeting under Section 100(1) of the Companies Act, 1956 read with article 70 of the articles of association of the company. The petitioner-company in the directors report dated May 15, 2014, for the financial year ending March 31, 2014 reported that :

"Tata Industries Ltd., TAML''s promoter company, holds 99.91 per cent, of equity share capital of Rs. 141.76 crores. A minuscule 0.09 per cent, of equity shareholding is held by non-promoter shareholders. The delisting of equity shares of the company from the Bombay Stock Exchange and Bangalore Stock Exchange in the year 2001 has resulted in equity shares not being freely tradable in the market. The lack of marketability for equity shares has limited the scope for equity shareholders from liquidating their shareholding in the company. The company has received requests from certain non-promoter shareholders to provide them with an exit opportunity for liquidating their equity shareholdings in the company. Further, having such a minuscule percentage of shareholding with a large number of shareholders results in increased administrative costs for the company. In view of the above, TAML''s board at their 117th meeting held on May 15, 2014, deliberated and approved a selective capital reduction scheme for the company, where non-promoter shareholders are paid a fair value for the equity shares held by them upon which their shareholding will be cancelled and extinguished. The company seeks the approval of the members to the resolutions being moved at the forthcoming annual general meeting for the said capital reduction. Notice dated July 21, 2014, issued to 11,741 members of the annual general meeting of the members of the company held on September 4, 2014, item No. 6 of the notice contained agenda for selective capital reduction as under :

''To consider and, if thought fit, to pass with or without modifications the following resolution as a special resolution referred to as a resolution for reduction of share capital.''

The resolution is also pleaded on page Nos. 5 and 6 of the said affidavit. It is further resolved that the reduction of the company paid-up equity share capital as mentioned in the resolution is subject to the following terms and conditions :

Upon the reduction of equity share capital being confirmed by the order of this court and within 30 days from the date of registering the High Court order (effective date) with the Registrar of Companies, Karnataka, non-promoter shareholders holding equity shares as on the effective date be paid a sum of Rs. 20/- per equity share for the extinguishment of equity shares held by them. All such payments will be made by RTGS, NEFT, cheques, pay-order or demand draft.

Upon the reduction of equity share capital being confirmed by the order of the High Court and within 30 days from the date of registering the High Court order with the Registrar of Companies, Karnataka, non-promoter shareholders holding equity shares as on the effective date be returned a sum of Rs. 20/- per equity share for the extinguishment of the equity'' shares held by them subject to the receipt of required sanctions and approvals, if any, from the Reserve Bank of India, in the absence of which they shall be paid the amount not more than the fair value of share as determined by the independent valuer in accordance with extant foreign exchange laws.

The petitioner-company since proposed shareholders special resolution under Section 100 of the Companies Act, 1956 read with articles of association in the annual general meeting held on September 4, 2014, as per the above board resolution dated May 5, 2014, and notice dated July 21, 2014, of the annual general meeting, the petitioner-company should have clarified to the court the outcome of the resolution under Section 100 of the Companies Act, 1956 proposed in the annual general meeting held on September 4, 2014. Details of the petition filed under Sections 100-104 of the Act after such special resolutions, reasons for not filing the petition, if any, before this court. By not mentioning the above facts in the present petition the petitioner-company has suppressed the material information before the court. Therefore, the court may direct the petitioner-company to explain the outcome of the proposed resolutions, petition filed if any, etc."

(ii) Clause V of the scheme provides for selective capital reduction. Scheme provides that the company has total 11,741 shareholders out of which, 11,740 shareholders are public at large, one shareholder M/s. Tata Industries Ltd., which is a holding company with 99.91 per cent, shareholding. These 11,740 public minority shareholders holds 1,32,107 equity shares of the company. Scheme provides for removal of 11,740 public minority shareholders from the register of members of the company by extinguishing 1,32,107 equity shares by way of payment of Rs. 20/- per share to these public shareholders.

By removing these 11,740 public minority shareholders from the register of members through the process of extinguishing 1,32,107 equity shares, they seizes to be the shareholders/members of the company and therefore, rights of these shareholders are affected. Since M/s. Tata Industries Ltd., is continuing as a shareholder/member of the company, its right is not at all affected. Therefore, the rights of different members are affected differently under the scheme. It is therefore a scheme offered to one group of shareholders, i.e., minority public shareholders consisting of 11,740 which is one class and it is not the scheme offered to the majority'' one shareholder which is another class. However, while obtaining permission of the Hon''ble court for not conducting the meeting of the shareholders of the company under Section 391(1) of the Companies Act, 1956 vide order dated June 23, 2015, in C. A. No. 458 of 2015, company has filed the affidavit of consent of one majority shareholder, i.e., Tata Industries Ltd., and it has not provided affidavit of consent of other 11,740 minority public shareholders. Rights of one shareholder, i.e., Tata Industries Ltd., is in no way affected and therefore, their consent is not at all relevant, but the consent of 11,740 minority public shareholders is mandatory under Section 391 of the Companies Act, 1956. The petitioner-company has neither held the meeting of that class of shareholders consisting of 11,740 minority public shareholders nor provided their consent. With the consent provided by one majority shareholder, i.e., Tata Industries Ltd., which is another class, it cannot be said that consent of other class of shareholders has been submitted before this court. If the consent of these minority public shareholders is not obtained, it may amount to grave error on the part of the petitioner-company. If the court approves the scheme without consent of these minority public shareholders it may amount to forcibly terminating the rights of the shareholders as members of the company and they may agitate later on, after receipt of the order of the court.

(iii) Clause VI of the scheme provides for revaluation, restructuring and accounting treatment. But the accounting treatment proposed in the scheme is not in accordance with the normally accepted accounting practise, accounting treatment and accounting standards issued by the Institute of chartered Accountants of India. The petitioner-company may be directed to submit a certificate from the statutory auditors of the company that accounting treatment proposed in clause IV of the scheme is in accordance with the normally accepted accounting practise, accounting treatment and accounting standards issued by the Institute of Chartered Accountants of India.

One of the shareholder of the petitioner-company by name Smt. P.K. Pushpa, w/o. P.M. Keshavamurthy is the objector in this case filed the affidavit opposing the scheme of arrangement. The contents of the said affidavit are also similar to the observations made by the Registrar of Companies which I have already referred above. Therefore, the contents of said affidavit of Smt. P.K. Pushpa need not be narrated in detail again.

Heard the arguments of learned senior counsel appearing on behalf of the petitioner-company, learned counsel representing the Registrar of Companies and also the arguments of learned counsel Sri Saji P. John, learned counsel for the objector.

Sri S.S. Naganand, learned senior counsel during the course of his arguments submitted that before presenting this petition the company filed Company Application No. 458 of 2015 seeking dispensation of holding of the meeting of equity shareholders and creditors of the applicant-company and this court by its order dated June 23, 2015, allowed the application dispensing with the calling of the meeting of equity shareholders and creditors to consider the proposed scheme of arrangement between the company, its creditors and members. By the said order, this court allowed the petitioner-company to file the petition under Sections 391 and 394 read with Section 100 of the Companies Act, 1956 and accordingly, the present petition has been filed. Learned senior counsel further submitted that the decision by the board of directors regarding the restructuring contemplated in the scheme is purely a business decision arrived at by the shareholders on the basis of commercial principles. The restructuring involves very small cash outflow and same will not affect the normal operations of the petitioner-company or its ability to honour its commitments and to pay its debts in the ordinary course of business. He further submitted that restructuring is in accordance with sound commercial and accounting practise and it enables the petitioner-company to project a more realistic picture of the petitioner''s operations. He further submitted that all the procedural aspects so also the legal provisions contemplated under Sections 100, 391 and 394 of the Companies Act, 1956 were followed. It is also his submission that the reduction/extinguishment of equity share capital is in the best interest of the shareholders as well as in the best interest of the petitioner-company. Before conducting the 24th annual general meeting notices were issued to all the equity shareholders and the attendance slips are also produced to show that the members have attended the said meeting and subject No. 6 of the agenda was with regard to the reduction of the equity share capital. The voting was also conducted. The number of votes in favour of the resolution for restructuring by reducing the equity share capital are Rs. 14,16,31,470/-. The number of persons present in the voting in person or by proxy-are 27. He has also submitted that the number of members present in the voting as against the said resolution are five and number of votes cast by them are 10. Therefore, the votes casted as against the resolution are very negligible.

The requirement of Section 129 of the Companies Act, 2013 is that the financial statement shall give a true and fair view of the state of affairs of the company and it has to comply with the Accounting Standards notified under Section 133 of the Act. Learned senior counsel also drew the attention of this court to Section 129(5) of the Act and submitted that in case of deviation and as per clause 5, it is permissible for the company to disclose in financial statements about the deviation from the accounting standards, the reasons for such deviation and financial effects if any arising out of such deviation. In this connection, learned counsel drew the attention of this court to relevant paragraph No. 26 of the decision reported in 2015 SCC on line Guj 3356. Learned senior counsel has also drawn the attention of this court to Section 391 and submitted that if the majority in number representing three-fourth in value of the creditors or class of creditors or members or class of members present and voting either in person or where the proxies are allowed agree to any compromise or arrangement, the same is binding on the company as well as its shareholders. It is submitted that the number representing three-fourth is referring to value and not the number of the shareholders. In this connection also learned senior counsel has drawn the attention of this court to paragraph No. 49 and submitted that the members who were present in the annual general meeting voted in favour of the said resolution for restructuring of the company''s financial position and only the negligible percentage there was opposition to the said resolution. He also submitted that so far as the contention of the other side and as per the observation made by the Registrar of Companies in the affidavit filed dated October 29, 2015, that the non-promoter equity shareholders which are minority in number have to be treated as a separate class and only for such non-promoter minority equity shareholders a separate meeting has to be held to get their approval to the proposed restructuring arrangement is concerned, such type of classification between the equity shareholders is not permissible under law and they are to be treated as one class along with other equity-shareholders. Hence, he submitted that the contention of the objector-shareholder so also, the observation made by the Registrar of Companies are not sustainable in law and they are against the provisions of Section 391 of the Companies Act. In this connection also, learned senior counsel relied upon the decision rendered in Company Appeal No. 70 of 2012 in the case of Ram Kohli v. Indrama Investment P. Ltd. (2014) 186 Comp Cas 358 (Delhi) and drew the attention of this court to the relevant paragraphs Nos. 12, 17 and 19 of the said judgment. It is submitted that regarding valuation of the properties of the petitioner-company report of the auditors has been obtained and with regard to the equity shares are concerned, the auditors in their report fixed the value at Rs. 10/- per equity share. The board of directors while preparing the proposed scheme/arrangement agreed to pay Rs. 20/- per equity share to the shareholders. Therefore, the equity shareholders will not sustain any financial loss or injury by the proposed arrangement and on the contrary, they are benefited.

Learned senior counsel has submitted that after taking into consideration all these aspects and to safeguard the interest of both the company as well as the equity shareholders, the board of directors by passing a resolution taken a decision for restructuring of the financial status of the petitioner-company. These aspects were taken into consideration by this court while allowing the company application. When this petition was filed, advertisement of the petition was taken in two leading newspapers, one in English and another in Kannada. The objector ought to have appeared before this court immediately after publication of the said petition in the newspapers, which was not done. Only at the fag end while considering the petition by this court, the objector has filed his objections opposing the arrangement contending that his consent was not there to the proposed arrangement. Hence, learned senior counsel submitted that the petitioner-company has made out its case and as such, the petition may be allowed.

Learned counsel representing the Registrar of Companies during the course of arguments submitted that though the non-promoter shareholders are 11,470, they are the minority shareholders and the majority-equity shareholders is Tata Advanced Materials Ltd. When there is such a large number of shareholders who are in minority, they could have been considered as a separate class apart from Tata Advanced Materials Ltd., and by holding separate meeting for those minority group, their opinion ought to have been taken by the board of directors before taking a decision for the proposed arrangement. Learned counsel submitted that if the arrangement is sanctioned by this court then the interest of minority equity shareholders is going to be affected severely. As no such separate meeting was called, the proceedings conducted for taking the opinion of the equity shareholders by way of voting as contended by the petitioners is not in accordance with law. Hence, it is submitted that petitioner has not made out case to allow the petition and to grant the relief. Accordingly, the petition may be rejected.

Learned counsel appearing for the objector during the course of his arguments also submitted that the objector was not informed about holding of such annual general meeting and it is also his contention that the non-promoter equity shareholders are constituting the minority group in terms of value of the shares and separate meeting ought to have been called only for those non-promoter equity shareholders before taking the decision for proposed arrangement. In the absence of their consent to the proposed arrangement if this court allows the petition, it amounts to forcing the non-promoter equity shareholders to accept the said arrangement. Hence, he has submitted that petition may be rejected. In support of his contention learned counsel for the objector has relied upon the decision reported in (1996) JT (8) SC 205, in the case of (Miheer H. Mafatlal v. Mafatlal Industries Ltd.).

I have perused pleadings of the parties, documents produced in support of their claim, decisions relied upon by learned senior counsel, which are referred above and also the decision relied upon by learned counsel for the objector.

Perusing the contentions of the petitioner it is seen that before filing this petition the company application was filed by the petitioner-company in C. A. No. 458 of 2015. Wherein this court has allowed the said application by order dated June 23, 2015 and dispensed with holding of the meeting of the shareholders and creditors of the applicant-company. It was also ordered to file a petition under Sections 391 and 394 read with Section 100 of the Companies Act, 1956 seeking sanction of the scheme on or before July 15, 2015. Accordingly, the petitioner-company filed the present petition praying the court for sanction of the scheme of arrangement produced as per annexure E between the petitioner-company and its creditors and members with effect from April 1, 2015, to be binding on all the shareholders, secured creditors and unsecured creditors of the petitioner-company, so also, on the petitioner-company.

I have perused annexure E, which is the scheme of arrangement and restructuring between Tata Advanced Materials Ltd., and its shareholders and creditors. Paragraphs Nos. IV and V of annexure E the arrangement and restructuring are as under :

"IV. Revaluation, Restructuring and Accounting Treatment

TAML holds freehold land carrying a book value of Rs. 57,50,696/-. The freehold land has now been revalued at Rs. 112,00,00,000/- by an independent Chartered Engineer. In line with the valuation of the chartered engineer, with effect from the effective date, the said ''Land'' shall be revalued in the books of account of TAML at Rs. 112,00,00,000/- and a revaluation reserve shall be created as on the effective dale in the following manner :

Rs.

Book Value of freehold land

57,50,696

Value of freehold land as per valuation report of independent chartered engineer

112,00,00,000

Difference between the original value and the revaluation credited to revaluation reserve

111,42,49,304

In the books of TAML, with effect from the effective date.

The debit balance of the profit and loss account and unabsorbed depreciation of TAML as on the effective date shall stand partially written off against the capital reserve account and revaluation reserve account of TAML to the extent of the balance available in the capital reserve account and revaluation reserve account in the following manner :

Rs.

Accumulated business loss brought forward as on 31-0.3-2015

192,84,18,067

Unabsorbed depreciation brought forward as on 31-03-2015

59,18,46,071

Total Loss brought forward

252,02,64,138

Available balance in revaluation reserve account

111,42,49,304

Available balance in capital reserve account

57,39,771

Total reserves available for set off

111.99.89.075

Less : Written off against business losses

111.99.89.075

Less : Written off against unabsorbed depreciation

Nil

Balance remaining in revaluation reserve account

Nil

Balance remaining in capital reserve account

Nil

Accumulated business loss carried forward

80,84,28,992

Unabsorbed depreciation carried forward

59,18,46,071

Total Loss carried forward

140,02,75,063

And accordingly, the capital reserve account and revaluation reserve account of TAML shall stand reduced as on the effective date to that extent. The reduction in the capital reserve account of TAML, as aforesaid, shall be effected as part of this scheme in accordance with Sections 391-394 of the Act and other applicable provisions of law.

Selective Capital Reduction

This scheme envisages a reduction in equity'' share capital of the company in accordance with Sections 100 to 104 of the Act and article 70 of the company''s articles of association, whereby the issued, subscribed and paid-up equity share capital be reduced by extinguishing 1,32,107 equity shares held by non-promoter shareholders by paying them a fair value for each equity share extinguished.

The fair value of equity shares in connection with deciding consideration for the cancelled/extinguished equity shares has been determined on the basis of the shares valued by an independent, firm of the chartered accountants. As per the valuation report the value of each equity share of the company is Rs. 10/- (rupees ten) per equity share. However, after taking into account the interests of the non-promoter shareholders will be paid Rs. 20/- (rupees twenty) per equity'' share cancelled in the reduction of equity share capital. The board of directors'' determined value of Rs. 20/- (rupees twenty) for each equity share cancelled/extinguished.

The reduction of equity share capital shall take effect on the date of filing of the High Court of Karnataka''s order sanctioning this scheme with the Registrar of Companies, Karnataka at Bengaluru.

The company shall pay non-promoter shareholders within 30 days of filing of the High Court of Karnataka''s order sanctioning this scheme with the Registrar of Companies, Bengaluru, a sum of Rs. 20/- (rupees twenty) per equity share (subject to deduction of applicable taxes, if any) for cancellation/extinguishment of their paid-up equity'' share capital. All such payments will be made by RTGS, NEFT, cheques, pay order or demand draft.

The paid-up equity share capital of the company which presently stands at Rs. 141,76,32,870/- divided into 14,17,63,287 equity'' shares of Rs. 10/- each will stand reduced to 141,63,11,800 consisting of 14,16,31,180 equity shares of Rs. 10/- each, consequent upon reduction of equity share capital."

Therefore, by filing the present petition the petitioner-company is seeking sanction of said arrangement of restructuring. In the petition it is contended by the petitioner-company that the petitioner-company holds freehold land carrying a book value of Rs. 57,50,696/-. The freehold land has now been revalued at Rs. 112,00,00,000/-. The copy of the valuation report of the independent chartered engineer is produced at annexure in respect of landed property and as per the valuation of the chartered engineer, the said land shall be revalued in the books of account of the petitioner-company at Rs. 112,00,00,000/- and revaluation reserve shall be created as on the effective date. I have perused the valuation report of the M/s. Tata Advanced Materials Ltd., produced as per annexure F at page No. 156 of the file in respect of valuation of the landed property, which was measuring 16 acres as shown at item No. 15 and the said report is from the Government Registered Valuer who has mentioned about the guideline rate obtained from the Registrar''s office, adopted rate of valuation as on December 31, 2014 and estimated value of the land. Accordingly, they have fixed the fair market value of the said property. I have also perused annexure G the letter addressed by B. K. Ramadhyani and Co., Chartered Accountants addressed to the board of directors on February 18, 2015, wherein they have calculated the value of the equity share of Tata Advanced Materials Ltd., as on January 1, 2015 to Rs. 10/-. As per this report of the independent chartered accountants, the market value of the equity shares as on January 1, 2015 was Rs. 10/-. But in the proposed arrangement and restructuring, the board of directors decided to pay a sum of Rs. 20/- per equity share for cancellation/ extinguishment of their paid-up equity share capital. Therefore, the petitioner-company has taken into consideration the market value of the equity share and double the amount they have proposed to pay to the said equity shareholders. Therefore, the contention of the objector, so also the observation made by the Registrar of Companies that by the proposed scheme the non-promoter equity shareholders will be put into financial loss or injury cannot be accepted at all.

So far as the contention of the objector and the Registrar of Companies that no separate meeting for the non-promoter equity shareholder was conducted to get their opinion with regard to the proposed arrangement is concerned, I have perused the decision relied upon by learned counsel for the petitioner in Company Appeal No. 70 of 2012 reported in Ram Kohli v. Indrama Investment P. Ltd. (2014) 186 Comp Cas 358 (Delhi) wherein at paragraphs Nos. 17 and 19 of the said decision, it is held as under (pages 364 and 365) :

"Under Section 391 of the Companies Act, there is only one class of equity shareholders. The decisive factor for determining the class of shareholder is not the shareholding pattern but the category of shares that one holds. All equity shareholders constitute the same class of shareholders. Merely because individuals held small fraction of shares, that would not make them a separate class. All equity shareholders irrespective of the shareholding pattern would constitute the same class. What the appellant is seeking to do is to create a class within a class, which is not what is contemplated in the scheme of Section 391 of the Companies Act.

The appellant merely held 15,000 shares out of 15,000,000 shares (i.e., 0.001 per cent, shares) in the transferee company. A person holding 0.001 per cent, miniscule shareholding cannot defeat a scheme approved by at least 99 per cent, of the shareholders. Even Section 391 sub-Section (2) provides that a decision of majority, i.e., three-fourths in value of the creditors or class of creditors or class of members as the case may, shall be binding on all the creditors and shareholders of that class as well as on the company."

As per this provision, the contention of the objector and also the learned counsel for the Registrar of Companies that the non-promoter equity shareholders have to be considered as one class and by holding separate meeting their consent is to be obtained for the proposed arrangement cannot be accepted at all. Therefore, learned senior counsel for the petitioner is justified in his submission that there cannot be a class within one class of shareholders.

Perusing the materials placed on behalf of the petitioner-company for holding 24th annual general meeting is concerned, the document from the Assistant Chief Post Master, Bangalore G. P. O. is produced to show that the postal authorities have received 11,720 annual reports of M/s. Tata Advanced Materials Ltd., Bangalore. I have also perused the letter of the Assistant Director (M & M) for the Chief Post Master General, Karnataka Circle, Bangalore addressed to the Deputy General Manager-Legal, M/s. Tata Advanced Materials Ltd. These materials clearly show that the annual reports were sent to the shareholders. Further, the attendance slip of M/s. Tata Advanced Materials Ltd., also show that notices have been issued to the equity shareholders to be present before the annual general meeting and the report of scrutiniser by V. Sreedharan and Associates, company secretary'' addressed to the chairman of the 24th annual general meeting of the equity shareholders show that the subject agenda for reduction of the equity share capital was under resolution No. 6. Perusing the said materials it is seen that the subject was put to voting and number of members present in voting was shown as 27 and number of votes cast by them is shown as Rs. 14,16,31,470/- in favour of the resolution. The votes as against the resolution column shows that number of members present at the voting in person or proxy is 5 and number of votes cast by them is 10, which is mentioned in the last column as negligible. Taking these materials into consideration it is seen that proper procedure has been followed while holding the annual general meeting and putting the subject for voting and after considering the number of members present and voted in favour of the said resolution ultimately, the decision was taken to reduce the equity share capital of the company so also the restructuring of the financial position of the petitioner-company.

I have also perused Section 129 of the Companies Act, 2013, wherein it is stated that the financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under Section 133 and shall be in the form or forms as may be provided for different class or classes of Companies in schedule III-

Provided that the items contained in such financial statements shall be in accordance with the Accounting Standards.

Section 129(5) of the Companies Act, 2013 is to the effect that without prejudice to sub-Section (1), where the financial statements of the company did not comply with the accounting standards referred to in sub-Section (1), the company shall disclose in its financial statements, the deviation from the Accounting Standards, the reasons for such deviation and the financial effects if any, arising out of such deviation and the financial effects, if any arising out of such deviation.

In this regard I have also perused the affidavit filed by the petitioner in response to the affidavit filed by the Registrar of Companies dated October 29, 2015. One Shashidhar S.K., s/o. Sri Krishnamurthy S.N., the General Manager, Finance and" Company Secretary of the petitioner-company sworn the affidavit wherein it is mentioned that the petitioner-company undertakes that it shall disclose in its financial statements the deviation from the accounting standards, the reasons for such deviation and the financial effects if any arising out of such deviation as stipulated in Section 129(5) of the Companies Act, 2013. In paragraph No. 10 of the said affidavit it is mentioned that petitioner-company produced certificate dated December 2, 2015, from its statutory auditors namely, Deloitte Haskins and Sells as per annexure L. I have perused paragraphs (e) and (f) of the said certificate and they are as under :

"(e) Having regard to our comments in paragraphs (a) to (c) above, the utilisation of the revaluation reserves for setting of accumulated losses as envisaged in clause 4.2 of the scheme, would not be in line with the provisions of Accounting Standard 10 ''accounting for fixed assets'' and the other generally accepted accounting principles in India.

(f) Section 129(5) of the Companies Act, 2013 prescribes that where the financial statement of a company do not comply with the Accounting Standards referred to under Section 133 of the Companies Act, 2013, such deviations along with the reasons therefore and the financial effects are to be disclosed in the financial statements.

Having regard to our comments in paragraph (e) above in the event the scheme is approved by the Hon''ble High Court of Judicature, the setting of the accumulated losses against the revaluation reserves as envisaged under clause 4.2 of the scheme will need to be disclosed in the company''s financial statements as a deviation from the requirements of Accounting Standard 10 ''accounting for fixed assets'' in accordance with the provisions of Section 129(5) of the Companies Act, 2013 referred above."

Therefore, looking to these materials placed on record by the petitioner-company, the steps taken by the petitioner-company are also in accordance with Section 129(1) and (5) of the Companies Act, 2013. There is no violation of any of the relevant provisions of the Companies Act, 1956, so also, the Companies Act, 2013. The reports of the valuators, the statutory auditors also support the case of the petitioner-company that in order to have the proposed arrangement for re-construction of the petitioner-company all steps have been taken by the petitioner-company for protecting the interest of the company, so also, the equity shareholders.

Considering the entire materials on record, so also the legal position, I am of the opinion that the proposed arrangement is not unfair or inequitable. Further, I have also perused the decision relied upon by learned counsel for the objector and the principle enunciated in the said decision. But the facts and circumstances of the case on hand which are discussed above and the facts and circumstances of the reported decision are not exactly one and the same. Therefore, the said decision will not come to the aid and assistance of the objector in seeking dismissal of the petition. In view of my above discussion, the petitioner-company has made out a case to allow the petition.

(a) Accordingly, the petition is allowed and the scheme of arrangement as per annexure E between the petitioner-company and its creditors and members is sanctioned, to come into effect from April 1, 2015, so as to bind all the shareholders, secured creditors and unsecured creditors of the petitioner-company, so also, the petitioner-company.

(b) The certified copy of this order be produced before the Registrar of Companies within 30 days from the date of receipt of the copy of this order.