Supervisory power under company compromise law can support interest relief when a sanctioned scheme is not properly implemented.

Section 392 of the Companies Act, 1956 gives the company court wide supervisory power to issue directions and modify a sanctioned scheme where implementation fails, and that power can extend to equitable relief such as interest in favour of unsecured creditors. A temporary moratorium under section 5 of the Karnataka Relief Undertakings (Special Provisions) Act, 1977 only suspends enforcement of liability; it does not extinguish the debt, which revives once the notification ends. On that basis, interest may be awarded for the period during which creditors were kept out of their money, and the direction to pay interest at 6 per cent per annum was upheld.

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Issues: Whether, in proceedings under section 392 of the Companies Act, 1956, the company court could direct payment of interest to unsecured creditors on amounts due under a sanctioned scheme, and whether the moratorium under the Karnataka Relief Undertakings (Special Provisions) Act, 1977 barred such interest.

Analysis: The sanctioned scheme did not exhaust the court's powers where the company failed to carry out its obligations. Section 392 of the Companies Act, 1956 confers wide supervisory jurisdiction on the court to issue directions and make modifications necessary for the proper working of the compromise or arrangement. The creditors were entitled to invoke that jurisdiction when the scheme was not satisfactorily implemented. The temporary suspension of liabilities under section 5 of the Karnataka Relief Undertakings (Special Provisions) Act, 1977 did not extinguish the debt; on cessation of the notification, the suspended liability revived and became enforceable as if the notification had never been issued. In those circumstances, the court could award equitable compensation by way of interest for the period during which the creditors were kept out of their money.

Conclusion: The direction to pay interest at 6 per cent per annum from the dates of the applications was valid, and the challenge to the award of interest failed.

Ratio Decidendi: The supervisory power under section 392 of the Companies Act, 1956 is wide enough to grant equitable directions, including interest, to secure proper working of a sanctioned scheme, and a statutory moratorium that merely suspends liability does not destroy the underlying debt for the purpose of such relief.

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