1947 (3) TMI 21 - HC - Companies Law

Summary

Issues:
Application to set aside a sanctioned scheme and wind up the company under the Indian Companies Act.

Analysis:
The judgment pertains to an application by a creditor to set aside a scheme sanctioned by the Court and wind up the company under the Indian Companies Act. The petitioner claimed to be a creditor of the company and sought to challenge the scheme approved in 1933. The scheme allowed the company to retain funds for contingencies and operational expenses, with the remaining amount to be distributed among depositors. The petitioner's outstanding amount increased post-scheme approval, indicating financial distress. The company incurred significant losses, depleting its reserve fund and failing to make payments to creditors since 1939. The auditor highlighted financial mismanagement and lack of creditor payments, suggesting the company operated for employee benefit only.

The respondent argued that once a scheme is sanctioned, no application lies to set it aside. However, the judge held that if a scheme implies payment within a reasonable time and such payment is not made, it constitutes a breach. Creditors are bound by the scheme but can still present a winding-up petition under specific grounds. Referring to a previous case, the judge emphasized that if a scheme's foundation collapses due to breaches or unjust practices, winding up may be justified. In the present case, the judge found a breach of the scheme due to delayed payments and concluded that winding up the company was just and equitable.

Therefore, the judge ordered the winding up of the company under the Indian Companies Act, considering the company's financial deterioration, continuous losses, and lack of creditor payments. The applicant was awarded costs from the company's assets, and the decision was certified for counsel.

This judgment highlights the court's authority to set aside sanctioned schemes if breached, the rights of creditors under such schemes, and the circumstances warranting the winding up of a company under the Indian Companies Act.