Fair repayment schemes in winding up may be approved if creditors are treated equally and debts are cleared within a reasonable time

A repayment arrangement in a winding up matter concerning a sick company may be sanctioned if it is fair, reasonable, and proportionate, and if it balances the company's interest with the interests of creditors dealing with public money. The Court emphasised that the scheme must provide for liquidation of debts within a reasonable time, rather than merely postponing winding up, and that similarly placed creditors must be treated alike without undue preference. The repayment schedule was approved on uniform terms for all concerned creditors, subject to compliance with the Court's conditions, and default was to lead to liquidation proceedings.

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Issues: Whether the proposed repayment arrangement in a winding up matter involving a sick company should be sanctioned, and on what terms.

Analysis: The company had been referred by the Board for Industrial and Financial Reconstruction for winding up after revival efforts had failed, but it proposed a repayment arrangement in the nature of a one time settlement with its creditors. The arrangement was examined on the touchstone of fairness, reasonableness, and the need to balance the interests of the company with those of the financial institutions dealing with public money. The Court considered that a repayment schedule should not merely defer winding up, but should provide for liquidation of debts within a reasonable period. It also held that the creditors should be treated alike and placed at par, without undue preference to any one creditor.

Conclusion: The repayment schedule was sanctioned, with uniform terms for all the concerned creditors and with default to result in liquidation proceedings.

Final Conclusion: The company obtained approval of its repayment arrangement, subject to compliance with the Court-directed terms designed to secure equitable repayment to all creditors.

Ratio Decidendi: In a winding up proceeding concerning a sick company, a repayment or settlement scheme may be sanctioned if it is fair, reasonable, proportionate, and treats similarly placed creditors alike while securing repayment within a reasonable time.

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