Scheme of arrangement in liquidation must be fair, workable and protect statutory dues before court sanction.

A scheme of arrangement for a company in liquidation is not non-maintainable merely because the official liquidator did not support or move it, since the court's jurisdiction under the Companies Act, 1956 can extend to such a company. However, sanction requires affirmative satisfaction that the proposal is bona fide, fair, reasonable and workable. The scheme was refused because it made inadequate provision for statutory preferential dues and workers' claims, lacked a credible financial basis for implementation, and proposed asset transfers to newly formed subsidiaries with minimal capital, which undermined its commercial soundness and practical feasibility.

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Issues: (i) Whether a scheme of arrangement proposed in respect of a company under liquidation could be sanctioned when it was not supported by the official liquidator and when the application was not moved by the liquidator. (ii) Whether the proposed scheme was just, fair, reasonable and workable so as to merit sanction in view of the absence of concrete provision for statutory dues, workers' claims and the financial basis of implementation.

Issue (i): Whether a scheme of arrangement proposed in respect of a company under liquidation could be sanctioned when it was not supported by the official liquidator and when the application was not moved by the liquidator.

Analysis: The jurisdiction under section 391 of the Companies Act, 1956 extends to a company which is being wound up, and the mere fact that the company is in liquidation does not by itself make the proposal non-maintainable. The court also noted that the statutory procedure under sections 393 and 394 of the Companies Act, 1956 had been followed and that the question was not one of maintainability alone but of the merits of the proposed arrangement.

Conclusion: The objection to maintainability was rejected, but this did not entitle the petitioners to sanction of the scheme.

Issue (ii): Whether the proposed scheme was just, fair, reasonable and workable so as to merit sanction in view of the absence of concrete provision for statutory dues, workers' claims and the financial basis of implementation.

Analysis: A sanctioning court must be satisfied that the scheme is bona fide, commercially fair, reasonable and capable of implementation. The scheme was found deficient because it made no adequate provision for statutory preferential dues, did not meaningfully address workers' and employees' claims protected by sections 529A and 530(1)(a) of the Companies Act, 1956, and lacked a credible financial plan for meeting the substantial liabilities proposed to be settled. The court also treated the proposed transfer of assets to newly formed subsidiary entities with minimal capital as undermining the bona fides and practicality of the arrangement. The objections relating to the liquidator's expenses and related compliance further reinforced the conclusion that the scheme was not a sound commercial compromise.

Conclusion: The scheme was held to be neither just, fair nor proper and was refused sanction.

Final Conclusion: The petitions for sanction of the arrangement failed because the proposed compromise did not satisfy the court on fairness, bona fides and practical feasibility, and the official liquidator was left free to proceed with the liquidation and disposal of assets.

Ratio Decidendi: Sanction of a scheme under the company compromise and arrangement provisions requires the court to be affirmatively satisfied that the proposal is bona fide, fair, reasonable and workable; where statutory liabilities and protected creditor claims are left inadequately addressed and no credible means of implementation is shown, sanction must be refused.

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