2002 (10) TMI 417 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the petition under Section 391 of the Companies Act, 1956.
2. Bona fides and genuineness of the scheme of arrangement.
3. Interest of the company, its members, and creditors in the proposed scheme.

Issue-wise Detailed Analysis:

1. Maintainability of the petition under Section 391 of the Companies Act, 1956:

The primary question was whether the petition filed by the petitioners could be accepted and the request made therein granted. The official liquidator argued that the petition was not maintainable since the second petitioner was neither a shareholder, creditor, nor a member of the company in liquidation. Section 391(1) specifies that an application for a scheme of arrangement can only be made by the company, any creditor, or any member of the company, or the liquidator in the case of a company being wound up. The Court observed that the second petitioner, who was the propounder of the scheme, was neither a member nor a creditor of the company, and thus, the petition was not maintainable under Section 391 of the Act. The first petitioner, although a member of the company, was not the propounder of the scheme but merely an intermediary assisting the second petitioner.

2. Bona fides and genuineness of the scheme of arrangement:

The Court needed to determine whether the scheme of arrangement was a genuine and bona fide attempt to revive the company in liquidation. The official liquidator opposed the scheme, arguing that it was not a real arrangement for revival but a ruse to sell the company's assets to the second petitioner. The Court noted that the scheme did not provide a clear plan for reviving the company, especially since the plant and machinery had already been sold by the secured creditor, the State Bank of Mysore. The scheme also provided for the discharge of employees, which further questioned its genuineness and bona fides. The Court concluded that the scheme was not in the best interest of the company in liquidation, its members, and creditors.

3. Interest of the company, its members, and creditors in the proposed scheme:

The Court had to ensure that the scheme of arrangement was in the best interest of the company, its members, and creditors. The petitioners argued that the scheme would benefit the shareholders and creditors by reviving the company and settling their claims. However, the official liquidator contended that the scheme was merely a means for the second petitioner to acquire the company's assets at a price. The Court found that the scheme did not convincingly demonstrate how it would revive the company without its plant and machinery and with the discharge of its employees. Therefore, the Court concluded that the scheme was not in the best interest of the company, its members, and creditors.

Conclusion:

The Court rejected the petition for the sanction of the scheme of arrangement on the grounds that it was not maintainable under Section 391 of the Companies Act, 1956, as the second petitioner was neither a member nor a creditor of the company. Additionally, the scheme was found to lack genuineness and bona fides and was not in the best interest of the company, its members, and creditors. The petition was accordingly dismissed with no order as to costs.