Compromise and arrangement for revival must be procedurally compliant, fair and commercially viable before sanction can be granted

Sanction of a compromise or arrangement for revival under the Companies Act, 1956 requires proper convening of the relevant class meetings, requisite approval, and a scheme that is fair, lawful and commercially viable. The proposed revival arrangement failed because the secured creditor had opposed it, the meeting was not held in the manner earlier directed for secured creditors, and the proposal did not disclose any concrete means of mobilising funds or discharging admitted liabilities. A revival plan unsupported by material particulars and viability was therefore not fit for sanction, and approval was declined.

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Issues: Whether the proposed scheme of compromise or arrangement for revival of the company in liquidation deserved sanction under the Companies Act, 1956.

Analysis: Sanction of a scheme under sections 391 and 394 requires the Court to ensure that the requisite class meetings are properly convened, that the proposal has the necessary approval, and that the scheme is fair, just, reasonable and lawful. The record showed that the sole secured creditor had opposed the proposal and that the meeting held was not in accordance with the earlier direction to hold a separate meeting of secured creditors. The scheme also did not disclose any concrete and viable arrangement for mobilising funds or discharging the admitted liabilities, particularly in view of the absence of financial material regarding the proposed sources and supporting entities. A revival proposal that is unsupported by material particulars and is not viable cannot be approved merely because it is styled as a compromise or arrangement.

Conclusion: The proposed scheme was not fit for sanction and the petition was dismissed.

Final Conclusion: The Court declined to approve the revival arrangement, holding that the proposal failed both on procedural compliance and on substantive viability.

Ratio Decidendi: A scheme of compromise or arrangement will not be sanctioned unless the statutory procedure is properly followed and the Court is satisfied that the proposal is fair, lawful, and commercially viable for the affected class as a whole.

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