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TMI Blog1978 (10) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ose contacted an expert in the line to find out how the company can restart and carry on its business. After making the necessary investigations and enquiries a project report was prepared by that expert and handed over to the group of workers who contacted him. These workers also contacted the major creditors and shareholders to find out whether the creditors will be willing to accept the payment of a lesser sum and that over a period after the restart of the company. It seems the creditors were very reasonable and agreed to wait for some time and to receive a sum lesser than due in full satisfaction. The major shareholders were also willing to assign their shares in favour of those workers who have come forward to make an effort to restart the company. On these, a scheme was prepared to reconstruct the company and by Application No. 239 of 1977 filed under section 391 of the Companies Act, the applicant, an employee, moved for an order to convene a meeting of the creditors and shareholders. By order dated 20th July, 1977, the official liquidator was directed to prepare a list of the creditors, secured and unsecured, of the company as disclosed by the books taken charge of by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding up has also been filed. The question for consideration is whether sufficient grounds have been made out to sanction the scheme for the reconstruction proposed. Proviso to section 391(2) casts a duty on the court to see that all material facts relating to the company such as the latest financial position of the company, latest auditors' report on the accounts of the company are disclosed by the company or the person who made the application. The court must also be satisfied on the materials disclosed that the scheme of reconstruction is in the best interests of the company, its members and creditors. In my order dated 20 July, 1977, I had reserved for consideration the question whether the company which has been ordered to be wound up can be revived and whether the court has got power to do it. Except section 466, I do not find any specific provision in the Act for that. Section 466 is in the following terms: "466. Power of court to stay winding up. (1) The court may at any time after making a winding-up order, on the application either of the official liquidator or of any creditor or contributory, and on proof to the satisfaction of the court that all proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been complied with, whether the majority are acting bona fide , and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it." This principle was again endorsed by the same learned judge in In re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385 (CA). At page 408 the above quotation has been cited with approval. The learned judge further said (pp. 408 409): "Now, it is quite obvious from the language of the Act and from the mode in which it has been interpreted, that the Court does not simply register the resolution come to by the creditors or the shareholders, as the case may be. If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to their commercial advantage than the Court can be. I do not say it is conclusive, because there might be some blot in a scheme which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and acted honestly and in good faith? (4)Whether considerations of public interest ought, in the opinion of the Court, to override the decision of the creditors or shareholders?" Again in In re Hindustan General Electric Corporation [1959] 29 Comp. Cas. 46; 62 CWN 836 (Cal.), Himamsu Kumar Base J. has affirmed the above principles and also pointed out that the onus of proving the unreasonableness or unfairness about the scheme or want of good faith is on those who object to the sanction of the scheme. In the light of these the question for consideration is whether the statutory provisions contained in section 391 of the Companies Act have been complied with in placing the scheme for sanction before the court and, secondly, the scheme is fair and reasonable for the court to accept. The scheme has been placed before the meeting of the creditors and of the members for their consideration. The members have unanimously approved the scheme and the creditors have also approved the scheme unanimously. That scheme is in the following terms: (1)That the former managing director and his relatives, who together hold 6,000 out of the total 8,000 equity shares, have agreed to sell th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have agreed to receive lesser sum in full satisfaction of the amount due and that after a period. The managing directors and their relatives have agreed to transfer their shares to the workers who have come forward to purchase them and to provide a working capital to restart the company. The only reason which influenced the board of directors to move the court to wind up the company was that they are unable to pay the debts which exceed the assets. Now that the creditors have agreed to wait for a fairly reasonable period to claim the amount due to them and have also agreed to receive lesser sum in full satisfaction, the creditors' pressure on the company is to a large extent reduced. If in this background a new set of office bearers who depend on the working of the company to earn their livelihood are inducted there is every reason to assume that they will be enthusiastic enough to work the company to the interest of all concerned. The assets disclosed by the balance-sheet is only the book value of the assets after depreciation. The actual value now will be very much more. The project report filed along with the application gives an encouraging picture regarding the possibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hurdles which may have to be got over, what are the difficulties which one has to anticipate in restarting the company, these are all matters on which the above authorities could have rendered assistance. Their indifference in this matter is highly regrettable. I have been noticing this indifferent attitude on their part not only in this case, but in almost all the companies which have now gone into liquidation. The regulatory function of the Registrar and the Company Law Board does not stop with calling for some returns and the fees for them. If the balance-sheet and the auditors' reports are looked into from time to time by these authorities they could find out whether the companies are working satisfactorily and if they are not so working it is the duty of these authorities to take appropriate action in the matter. Their inaction at the relevant time and their indifference in not placing the various aspects which have to be looked into before the court sanctions the scheme do not commend to the court. In the result the scheme referred to above is sanctioned. Under section 392, the court has got power when sanctioning the scheme to supervise the carrying out of the scheme a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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