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Issues: Whether, pending sanction of a scheme of arrangement under the Companies Act, 1956, the Company Court can enquire into the financial soundness of the companies and pass interlocutory directions, including appointment of a committee, for preservation and recovery of assets and for making the scheme workable.
Analysis: The scheme was proposed in the context of reconstruction and revival of the companies. The proviso to section 391(2) of the Companies Act, 1956 requires the Court to satisfy itself that all material facts, including the latest financial position and audit material, have been disclosed before sanctioning any compromise or arrangement. The Court treated this requirement as mandatory and held that it was entitled to call for reports and enquire into the companies' financial condition before granting sanction. It further held that the scheme provisions in sections 391 to 394, read with Rule 6 and Rules 82 to 84 of the Companies (Court) Rules, 1959, confer wide powers on the Company Court to issue such directions as are necessary for reconstruction, preservation of assets, and securing of debts and claims. The Court relied on the principle that a workable revival scheme is to be preferred over winding up and that the Court is not functus officio during the process of implementation and supervision.
Conclusion: The Company Court does have power, pending sanction of the scheme, to conduct such enquiry and to issue interlocutory directions, including continuation of a committee, for preservation and recovery of assets and for making the scheme workable, in favour of the petitioner.
Final Conclusion: The application was allowed with extensive supervisory and protective directions, the interim stay was continued to facilitate implementation, and the connected impleadment matters were substantially allowed.
Ratio Decidendi: In a pending scheme of arrangement for reconstruction, the Company Court may exercise its wide supervisory jurisdiction to call for material financial disclosure and issue interlocutory directions for preservation and recovery of assets so that the proposed arrangement remains workable before sanction.
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