Scheme of arrangement requires bona fide revival and creditor protection; approval was rightly refused where business was not genuinely viable.

Sanction of a scheme of arrangement under section 391(2) is not automatic merely because the requisite majority approves it; the company court must be satisfied that the proposal is bona fide, feasible, workable and capable of genuine revival. Where the company had been inactive for years, lacked operative assets and route permits, had not settled creditor dues, and the materials suggested the scheme was aimed at retaining tenanted premises rather than reviving the business, rejection was justified. The interests of secured and other creditors could not be ignored in the winding-up context, and the refusal to approve the scheme was upheld.

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Issues: Whether the scheme of arrangement under section 391(2) of the Companies Act, 1956 should be sanctioned in the facts of the case despite the company having been under winding up, having lost its substratum, and the scheme being opposed by the creditors and the official liquidator.

Analysis: Sanction under section 391 is not automatic merely because the requisite majority supports the scheme. The company court must examine whether the proposal is bona fide, feasible, workable and capable of achieving the stated object of revival. Where the company had not been in business for years, had no buses or effective route permits, had not addressed the dues of creditors, and the materials showed that the scheme was intended to retain the tenanted premises rather than genuinely revive the business, the court was justified in declining approval. The interests of secured and other creditors could not be ignored, especially in a winding up situation where statutory obligations towards creditors remained unresolved.

Conclusion: The scheme was rightly rejected and no interference was called for.

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