Compromise scheme approval is a jurisdictional precondition; without requisite creditor consent, the court cannot sanction or modify it.

Section 391 was treated as enabling, so a creditor or member could move the court even while the company was in liquidation; however, sanction of a compromise or arrangement still depended on prior approval by the requisite majority under section 391(2). The company court had no power to examine alleged mala fides or arbitrariness in the secured creditors' refusal of consent, to compel reconsideration, or to sanction the scheme without that approval. Section 392 could not be used to modify or salvage a scheme unless a validly sanctioned arrangement already existed under section 391. The governing principle is that approval under section 391(2) is a condition precedent to the court's jurisdiction under sections 391 and 392.

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Issues: (i) Whether an application for sanction of a compromise or arrangement under section 391 could be maintained by the petitioner when the company was in liquidation and the scheme had been rejected by the secured creditors. (ii) Whether the court could examine the alleged mala fides or arbitrariness in the refusal of consent by the secured creditors and nonetheless sanction the scheme or direct reconsideration. (iii) Whether the court could modify the proposed scheme under section 392 when the requirement of approval under section 391(2) had not been satisfied.

Issue (i): Whether an application for sanction of a compromise or arrangement under section 391 could be maintained by the petitioner when the company was in liquidation and the scheme had been rejected by the secured creditors.

Analysis: The language of section 391(1) was held to be enabling and not restrictive so far as the liquidator is concerned. The provision does not exclude a creditor or member from moving the court merely because the company is being wound up. However, sanction under rule 79 is dependent on prior approval of the compromise or arrangement by the requisite majority under section 391(2).

Conclusion: The preliminary objection as to maintainability was rejected, but only on the footing that the absence of rejection was not the real bar; the true bar was the absence of approval under section 391(2).

Issue (ii): Whether the court could examine the alleged mala fides or arbitrariness in the refusal of consent by the secured creditors and nonetheless sanction the scheme or direct reconsideration.

Analysis: The jurisdiction under the Companies Act and the Rules was held to be circumscribed by section 391(2). Approval by the requisite majority was treated as a condition precedent to the court's power to entertain and sanction the scheme. The court held that it had no statutory authority to enquire into the reasons for withholding consent by the secured creditors, to declare such refusal mala fide or arbitrary for the purpose of sanction, or to compel them to reconsider their decision. Any possible remedy in that context would lie, if at all, under constitutional writ jurisdiction and not under the company court's powers in the present proceedings.

Conclusion: The contention was rejected and the court held that it had no jurisdiction to sanction the scheme or direct reconsideration in the absence of approval by the requisite majority.

Issue (iii): Whether the court could modify the proposed scheme under section 392 when the requirement of approval under section 391(2) had not been satisfied.

Analysis: Section 392 was held to operate only after a compromise or arrangement has been validly sanctioned under section 391. Where the statutory precondition of approval by the requisite majority was absent, there was no valid scheme before the court and the power to modify the arrangement could not be invoked.

Conclusion: The court held that it could not modify or salvage the scheme under section 392.

Final Conclusion: In the absence of approval of the proposed compromise or arrangement by the requisite majority of secured creditors, the court had no jurisdiction to sanction or modify the scheme, and the application failed.

Ratio Decidendi: Approval of a compromise or arrangement by the requisite majority under section 391(2) is a condition precedent to the company court's jurisdiction to sanction, modify, or otherwise act upon the scheme under sections 391 and 392.

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