NBFC registration cancellation did not justify winding up; compromise scheme sanctioned on majority approval and fairness.

Cancellation of an NBFC registration did not, by itself, justify winding up where the company had an alternative commercial object, had begun recovering dues, and was repaying creditors; the High Court therefore rejected the Reserve Bank of India's winding-up petition. The proposed compromise and arrangement was also sanctioned because the statutory meetings were properly convened, the material facts were disclosed, and the scheme secured overwhelming approval from shareholders and creditors. The court declined to override the commercial wisdom of the majority, found no conflict with law or public policy, and treated the arrangement as workable, fair and beneficial, subject to modifications and safeguards for repayment and supervision.

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Issues: (i) whether the winding-up petition filed by the Reserve Bank of India against the company was liable to be allowed in view of the cancellation of its certificate of registration as a non-banking financial company; (ii) whether the scheme of compromise and arrangement proposed by the company deserved sanction under the Companies Act, 1956.

Issue (i): whether the winding-up petition filed by the Reserve Bank of India against the company was liable to be allowed in view of the cancellation of its certificate of registration as a non-banking financial company.

Analysis: The company had ceased to be entitled to carry on non-banking finance business after cancellation of its registration, but its memorandum of association also permitted real estate business. The materials showed that the company had an alternative commercial object, that the Reserve Bank's later policy permitted rejected or cancelled NBFCs to convert into non-banking non-financial companies within three years, and that the company had begun recovering dues and repaying creditors. In those circumstances, the court held that the company had not become wholly unsustainable merely because it could no longer function as an NBFC.

Conclusion: The winding-up petition filed by the Reserve Bank of India was not allowed.

Issue (ii): whether the scheme of compromise and arrangement proposed by the company deserved sanction under the Companies Act, 1956.

Analysis: The statutory meetings were duly convened, the explanatory statement disclosed the material facts, and the scheme received overwhelming approval from equity shareholders, debenture holders and deposit holders. The court held that it was not to sit in appeal over the commercial wisdom of the majority, and found no contravention of law or public policy in the scheme. The fact that the bankers had initially not approved the scheme did not prevent sanction, because their dues were later fully settled. The court therefore considered the scheme workable, fair and beneficial to the class concerned, subject to modifications and safeguards for repayment and supervision.

Conclusion: The scheme of compromise and arrangement was sanctioned, subject to the stated modifications and conditions.

Final Conclusion: The company was permitted to proceed under the sanctioned compromise arrangement, while its non-banking finance business remained closed, and the winding-up request was rejected in favour of revival on the revised terms.

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