Suppression of material facts in scheme sanction proceedings can justify review, setting aside, and adverse costs.

A scheme of compromise and arrangement sanctioned without notice to secured creditors and on an application implying no secured creditors existed was liable to be reviewed and set aside because the mandatory requirements under section 391(1) of the Companies Act, 1956 and rule 80 of the Companies (Court) Rules were not complied with and material facts were suppressed. The court held that the earlier sanction had been procured by misleading the court and could not stand. It further held that false statements in judicial proceedings warranted adverse action, and although contempt proceedings were not pursued because of delay and recall of the order, compensatory costs were imposed on the deponent and the official liquidator.

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Issues: (i) Whether the order sanctioning the scheme of compromise and arrangement was liable to be reviewed and set aside for non-compliance with mandatory requirements and for having been obtained by misleading the court. (ii) Whether any further action or costs should be imposed on the person who made the false statements and on the official liquidator.

Issue (i): Whether the order sanctioning the scheme of compromise and arrangement was liable to be reviewed and set aside for non-compliance with mandatory requirements and for having been obtained by misleading the court.

Analysis: The scheme had been sanctioned without notice to secured creditors and on an application which created the impression that there were no secured creditors. The court found that the mandatory requirements under section 391(1) of the Companies Act, 1956 and rule 80 of the Companies (Court) Rules had not been complied with, and that material facts had been suppressed. The order had thus been procured by misleading the court, and the earlier sanction could not stand.

Conclusion: The order sanctioning the scheme was rightly reviewed and set aside.

Issue (ii): Whether any further action or costs should be imposed on the person who made the false statements and on the official liquidator.

Analysis: The court held that false statements in judicial proceedings undermine the administration of justice and that the apology tendered was not sufficient to purge the wrongdoing. Although the court found that action against the deponent and the official liquidator was called for, it declined to refer the matter for contempt proceedings because of the lapse of time and the earlier recall of the impugned order. Instead, the court imposed compensatory costs on both.

Conclusion: No contempt reference was made, but costs were imposed on the deponent and the official liquidator.

Final Conclusion: The review applications succeeded, the earlier sanction order was set aside, and costs were awarded against the responsible parties for misleading the court.

Ratio Decidendi: A scheme sanctioned in company proceedings on the basis of suppression of material facts and non-compliance with mandatory notice requirements is liable to be reviewed and set aside; false statements made to procure such an order justify adverse costs even if contempt is not pursued.

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