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Issues Involved:
1. Jurisdiction of the Court to Sanction the Scheme 2. Compliance with Section 153 of the Indian Companies Act 3. Compliance with Section 45 of the Banking Companies Act 4. Reasonableness and Practicability of the Scheme 5. Reduction of Share Capital Detailed Analysis: 1. Jurisdiction of the Court to Sanction the Scheme: The court emphasized that under Section 45 of the Banking Companies Act, the court cannot sanction a scheme unless it is certified by the Reserve Bank as not being detrimental to the interests of the depositors. This section overrides any other law in force. The Reserve Bank's certification is a prerequisite for the court's approval. The court noted that the Reserve Bank has limited power to certify whether the scheme is detrimental to depositors' interests but cannot modify the scheme. If the Reserve Bank modifies the scheme, it is considered a refusal to grant a certificate. The court cannot sanction a modified scheme unless it is re-approved by the requisite majority under Section 153 (2) of the Indian Companies Act. In this case, the scheme was modified by the Reserve Bank without re-approval by the majority, thus the court lacked jurisdiction to confirm it. 2. Compliance with Section 153 of the Indian Companies Act: Section 153 allows companies to enter into compromises or arrangements with creditors or members, subject to court sanction. The procedure involves obtaining court leave to call meetings, approval by a majority representing three-fourths in value, and court confirmation. The court does not merely register the decision of the majority but ensures the scheme is reasonable and not oppressive to the minority. The court found that the scheme presented was not the one sanctioned by the majority as required under Section 153 (2), due to substantial modifications by the Reserve Bank. 3. Compliance with Section 45 of the Banking Companies Act: Section 45 imposes additional conditions for banking companies, requiring Reserve Bank certification that the scheme is not detrimental to depositors' interests. The court noted that the scheme, as modified by the Reserve Bank, was not re-approved by the requisite majority, thus failing to meet the conditions of Section 45. The modifications included changes in the board's constitution and deletion of certain clauses, which were substantial and required re-approval under Section 153 (2). 4. Reasonableness and Practicability of the Scheme: The court assessed the scheme's reasonableness and practicability, focusing on the bank's financial position. The success of the scheme depended on building a reserve of Rs. 11,26,000, which relied on realizing loans and advances of Rs. 44,95,000. However, a significant portion of these loans was considered doubtful or bad. The court highlighted that Rs. 18,08,776-3-11 of the loans were doubtful, with only one-third potentially realizable. This indicated that Rs. 12,00,000 could not be realized, undermining the scheme's foundation. The court also noted substantial unsecured loans and advances, including to directors and officers, which were unlikely to be repaid. The court concluded that the scheme was neither reasonable nor practicable, as it was based on unrealistic financial assumptions. 5. Reduction of Share Capital: The scheme involved a reduction of share capital, which must comply with statutory provisions. The court cited In re Cooper: Cooper & Johnson Limited, stating that schemes involving capital reduction must adhere to legal requirements. The appellant's counsel admitted non-compliance with these provisions. The court identified several technical difficulties but noted that even if these were addressed, the scheme's impracticability and unreasonableness would still prevent its sanction. Conclusion: The court upheld the order of Bachawat, J., refusing to sanction the scheme. The appeal was dismissed with costs, and the scheme was deemed impracticable and unreasonable. The court emphasized the necessity of Reserve Bank certification and compliance with statutory provisions for capital reduction. The judgment highlighted the importance of realistic financial assessments and adherence to legal requirements in sanctioning schemes of arrangement.
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