1948 (1) TMI 19 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of a scheme of arrangement under-section 153 of the Indian Companies Act.
2. Compliance with Court's directions and statutory requirements.
3. Feasibility and practicality of the proposed scheme.
4. Investigation into the management and financial affairs of the company.
5. Allegations of misleading the Court and creditors.
6. Winding-up of the company.

Detailed Analysis:

1. Sanction of a Scheme of Arrangement:
The company, Calcutta Industrial Bank, Ltd., applied for sanction of a scheme of arrangement under-section 153 of the Indian Companies Act. The scheme proposed various provisions for the payment of liabilities, including:
- Payment of sundry liabilities in full.
- Secured creditors to be unaffected to the extent of their securities.
- Conversion of certain liabilities into current accounts to be paid within four months.
- Creditors to give up arrears of interest and not entitled to future interest.
- Payment of 80% of the principal amount due to creditors in installments over three years.
- Allotment of fully paid-up shares for 20% of the principal amount due.
- Reshuffling of the board of directors to include representatives from creditors and shareholders.

2. Compliance with Court's Directions and Statutory Requirements:
The Court found non-compliance with its directions, particularly the failure to make the report of Mr. D.N. Guha Roy available for inspection at the head office at least a fortnight before the creditors' meeting. Although the report was sent to the company's solicitors, there was no immediate facility for inspection at the head office. Additionally, allegations were made that many creditors did not receive notice of the meeting, and there were issues with the conduct of the meeting, including noise, disturbances, and the presence of outsiders.

3. Feasibility and Practicality of the Proposed Scheme:
The Court scrutinized the financial details and found discrepancies between the figures presented in the petition and those in Mr. D.N. Guha Roy's report. The trial balance sheet showed an excess of assets over liabilities, whereas Mr. Guha Roy's report indicated a significant deficit. The Court was not convinced that the proposed scheme was feasible, particularly given the company's limited cash and bank balances and the substantial establishment expenses.

4. Investigation into the Management and Financial Affairs:
The Court noted that the company had declared dividends in violation of section 277K of the Companies Act and had not called up or realized Rs. 1,42,000 due on subscribed capital despite financial difficulties. The management's handling of the Eastern Agency account, which involved large share speculations and a substantial debit balance, was particularly concerning. The Court emphasized the need for a thorough investigation into this account and the company's overall management.

5. Allegations of Misleading the Court and Creditors:
The Court found that the company had misled the Court by presenting inaccurate figures showing an excess of assets over liabilities. The discrepancies between the figures in the petition and those in Mr. Guha Roy's report were significant, amounting to over Rs. 10 lacs. The Court concluded that the creditors and shareholders were not fully informed of these discrepancies, which impacted their decision to approve the scheme.

6. Winding-up of the Company:
Given the findings, the Court refused to sanction the proposed scheme and dismissed the company's application under section 153. The Court made a winding-up order, appointing an official liquidator to take charge of the company's assets and convene meetings of creditors for appointing a committee of inspection. The company's application for vacating the order for the appointment of a provisional liquidator was also dismissed.

Conclusion:
The Court concluded that the proposed scheme was not feasible or practical and that the approval of the creditors and shareholders was obtained by withholding material facts. The management's handling of the company's affairs, particularly the Eastern Agency account, called for a thorough investigation. Consequently, the Court refused to sanction the scheme, dismissed the company's application, and ordered the winding-up of the company.