PSI DATA SYSTEMS LIMITED Vs. REGISTRAR OF COMPANIES

JUDGEMENT

(1.) This is an application under S.391 of the Companies Act for sanction of a scheme of arrangement and compromise between the Company and its preferential shareholders. The Company, according to the affidavit, is not functioning on profitable basis. It is impossible for the Company to discharge its liabilities towards the preferential shareholders. Therefore, an arrangement has been thought of to release the preferential shareholders by converting their stake in the company as loan due to them from the company. This will protect, according to the company, the preferential shareholders. It is in that respect this application under S.391 of the companies Act has been filed to record and sanction that compromise.

(2.) A notification for the meeting of the preferential shareholders has been issued and a meeting had been convened. The Chairman has filed his report. In the meeting, not only the preferential shareholders but also equity shareholders and secured creditors were present. The unanimous decision endorsed the proposal made by the company as aforesaid. Therefore, under S.392 of the Companies Act, the company prays for an order to sanction the said scheme.

(3.) Notice had been issued to the Central Government and other necessary parties. It is contended on behalf of the Central Government that preference shares can be redeemed only in terms of S.80(1) of the Companies Act, 1956. Such redemption shall be out of the profits earned by the company or out of the fund collected by issuing further shares. In the proposal made by the company preferential shares are not sought to be redeemed out of the funds obtained in either of the two manners. Therefore, the proposal is opposed to S.80(1).