Scheme of arrangement refused for unexplained delay, inadequate disclosure, and a collusive design to defeat creditors.

A scheme of arrangement under section 391 of the Companies Act, 1956 was not sanctioned because the petition was filed beyond the period prescribed by rule 79 of the Companies (Court) Rules, 1959 and the delay was not satisfactorily explained. The company also failed to disclose all material facts and its latest financial position as required by the proviso to section 391(2). On the merits, the arrangement was found to be designed to defeat genuine third-party creditors, with most liabilities owed to directors, shareholders or their relatives, indicating a collusive and mala fide attempt to avoid execution of decrees. The petition was rejected.

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Issues: Whether the scheme of arrangement under section 391 of the Companies Act, 1956 should be sanctioned.

Analysis: The petition for sanction of the scheme was filed beyond the period prescribed by rule 79 of the Companies (Court) Rules, 1959, and the delay was not satisfactorily explained. The company also failed to disclose all material facts and its latest financial position as required by the proviso to section 391(2) of the Companies Act, 1956. On the merits, the arrangement was found to be designed to defeat the claims of genuine third-party creditors, while most of the other liabilities were owed to directors, shareholders, or their relations, indicating a collusive and mala fide attempt to avoid execution of decrees.

Conclusion: The scheme was not entitled to sanction and the petition was rejected.

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