Court Dismisses Bid to Cancel Sanctioned Company Scheme, Cites Lack of Jurisdiction; Urges Modifications for Workability.

The Court dismissed the applications to recall or set aside the order sanctioning the Company Scheme, emphasizing its lack of jurisdiction to cancel a sanctioned Scheme under the Companies Act. The Court noted that any issues with the Scheme's workability should be addressed through modifications, as per Section 391, rather than cancellation. The Applicants failed to provide sufficient evidence of the Scheme's unworkability, and the Court highlighted that vested rights under the Scheme cannot be nullified without substantial justification. The Court reiterated that modifications must not alter the Scheme's "basic fabric" and that substantial changes require adherence to procedural requirements.

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Issues Involved:
1. Recall and/or setting aside of the order sanctioning the Company Scheme.
2. Workability and advantages of the sanctioned Scheme.
3. Legal powers of the Court under Section 392 of the Companies Act.
4. Jurisdiction and inherent powers of the Court to recall a sanctioned Scheme.
5. Principles analogous to Order 23 of the Code of Civil Procedure.
6. Evidence supporting the claim that the Scheme is not workable.

Detailed Analysis:

1. Recall and/or Setting Aside of the Order Sanctioning the Company Scheme:
The Applicants sought to recall and/or set aside the order dated 25.06.2010, which sanctioned the Company Scheme, arguing that the Scheme did not yield the anticipated benefits and was prejudicial to shareholders and creditors. They requested the restoration of the original status of the Resulting Company and the Demerged Company prior to the Scheme's approval.

2. Workability and Advantages of the Sanctioned Scheme:
The Applicants contended that the Scheme, which aimed at consolidating Facility Service Business and pooling resources, was not workable. They highlighted several reasons, including the loss of market reputation, confusion due to the Resulting Company's name, and the division of Net Worth affecting contract acquisition. They argued that the Scheme was prejudicial and failed to deliver the expected advantages.

3. Legal Powers of the Court under Section 392 of the Companies Act:
The Court examined Section 392, which empowers it to supervise and modify a sanctioned Scheme for its proper working but does not authorize the recall or cancellation of the Scheme. The Court can only intervene to ensure the Scheme's proper functioning or order the winding up of the company if the Scheme cannot be worked satisfactorily.

4. Jurisdiction and Inherent Powers of the Court to Recall a Sanctioned Scheme:
The Court emphasized that it lacks the jurisdiction to recall or rescind a sanctioned Scheme under Section 391 and/or 394 of the Companies Act. The Court referred to the Supreme Court's rulings in S.K. Gupta v. K.P. Jain and Reliance Natural Resources Ltd. v. Reliance Industries Ltd., which clarified that modifications should not alter the "basic fabric" of the Scheme and that substantial changes require following the procedure under Section 391.

5. Principles Analogous to Order 23 of the Code of Civil Procedure:
The Court agreed with the Regional Director's submission that recalling the order sanctioning the Scheme is analogous to Order 23 of the Code of Civil Procedure, which restricts the withdrawal of a suit after rights have vested under a decree. The Court cited R. Rathinavel Chettiar v. V. Sivaraman, emphasizing that vested rights cannot be nullified without strong reasons.

6. Evidence Supporting the Claim that the Scheme is Not Workable:
The Court found that the Applicants failed to produce evidence showing that existing contracts were canceled or that clients refused to deal with the Resulting Company due to the Scheme. The Court noted that the Applicants had previously asserted the Scheme's benefits under oath. The Court concluded that if the Scheme is unworkable, the Applicants should seek directions or modifications rather than cancellation.

Conclusion:
The Court dismissed both Applications, stating that it does not have the power to recall or cancel a sanctioned Scheme once it has become effective. The Applicants must follow the procedure under Section 391 of the Companies Act if they wish to revert to the original status. The Court emphasized that the Scheme's workability issues should be addressed through modifications rather than cancellation.

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