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Issues: Application under section 277N of the Indian Companies Act for staying proceedings, Financial position of the company, Validity of the order staying proceedings, Scheme of composition proposed by the company, Solvency of the company.
Analysis: The judgment pertains to an application filed under section 277N of the Indian Companies Act seeking an order to stay all actions and proceedings against the applicant, a bank, for a year. The initial order was passed by a learned Judge based on a report recommending a four-month stay of proceedings. The conditions included having depositors' representatives on the board. Subsequently, various applications were filed by depositors and creditors requesting payment of deposited sums and an increase in the number of directors representing depositors. The court clarified that it cannot order payment of deposited money and that such matters must be resolved in the proper court. The main issue before the court was whether to withdraw or confirm the order staying proceedings under section 277N. The court had to determine if the bank was temporarily unable to meet its obligations, as required by the Act. The Registrar's report indicated that the bank's assets were significantly less than its liabilities, suggesting insolvency. Despite arguments that assets were underestimated, the court found no evidence to support the bank's solvency. The chairman presented a composition scheme, but it revealed the bank's inability to meet liabilities for years, raising doubts about its solvency. The court emphasized that the legislative intent behind section 277N was not to protect insolvent companies but to ensure temporary relief. Without certainty about the company's solvency, the court could not justify maintaining the order. Consequently, the court withdrew the order staying proceedings and dismissed the company's application, citing concerns about the company's financial stability. No costs were awarded in the matter.
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