Scheme of arrangement cannot override statutory orders or stay criminal and tax proceedings in winding up context.

A compromise scheme under the Companies Act could be considered during a winding up proceeding, but it could not be sanctioned if it conflicted with Chapter IIIB of the Reserve Bank of India Act or sought to displace statutory and quasi-judicial orders. Reliefs aimed at vacating regulatory directions, or staying criminal and income tax proceedings, were outside scheme jurisdiction. Once those impermissible terms were removed, the proposal was found not bona fide, feasible or fair. The rejection of the scheme revived the winding up petition, which had to be examined afresh on its own merits.

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Issues: (i) Whether a scheme under Sections 391 and 392 of the Companies Act, 1956 was maintainable during the pendency of a winding up petition filed by the Reserve Bank of India under Section 45MC of the Reserve Bank of India Act, 1934; (ii) whether such a scheme could override or set aside orders passed by statutory authorities and stay criminal and income tax proceedings; (iii) whether the scheme in question was bona fide, feasible and fair; and (iv) whether the winding up petition stood revived once the scheme was rejected.

Issue (i): Whether a scheme under Sections 391 and 392 of the Companies Act, 1956 was maintainable during the pendency of a winding up petition filed by the Reserve Bank of India under Section 45MC of the Reserve Bank of India Act, 1934.

Analysis: Section 45MC(4) makes the provisions of the Companies Act relating to winding up applicable to a winding up proceeding initiated by the Reserve Bank of India. Section 45Q gives overriding effect to Chapter IIIB of the Reserve Bank of India Act only to the extent of inconsistency. The filing or consideration of a scheme under Section 391 is not, by itself, inconsistent with Section 45MC. However, any scheme placed before the Court must conform to the statutory framework and cannot contain terms that violate Chapter IIIB of the Reserve Bank of India Act or any other governing law.

Conclusion: A scheme under Sections 391 and 392 was maintainable, but it could not be sanctioned if it contravened statutory provisions, including Chapter IIIB of the Reserve Bank of India Act, 1934.

Issue (ii): Whether such a scheme could override or set aside orders passed by statutory authorities and stay criminal and income tax proceedings.

Analysis: The securities market legislation, the reserve bank legislation and the income-tax machinery are complete codes within their respective fields. Orders passed under those enactments cannot be displaced by a compromise scheme under the Companies Act. Likewise, the expressions used in Sections 391(6) and 446 do not extend to criminal proceedings, and the company court cannot quash or stay criminal prosecutions or income tax proceedings while sanctioning a scheme. Reliefs seeking revocation of SEBI directions, vacation of criminal cases, or stay of income tax action were therefore beyond the court's power under the scheme jurisdiction.

Conclusion: No. The scheme could not set aside statutory or quasi-judicial orders, nor could it stay criminal or income tax proceedings.

Issue (iii): Whether the scheme in question was bona fide, feasible and fair.

Analysis: The scheme was built on concessions and reliefs that were integral to its operation, including directions against SEBI, the Reserve Bank of India, the income tax department and criminal courts. Once those impermissible reliefs were excluded, the scheme ceased to be workable. It also ran contrary to the statutory discipline governing repayment to depositors under the Reserve Bank of India Act. In these circumstances, the commercial basis of the proposal failed the test of fairness, feasibility and bona fides.

Conclusion: The scheme was not bona fide, feasible or fair.

Issue (iv): Whether the winding up petition stood revived once the scheme was rejected.

Analysis: The earlier order had kept the winding up petition in abeyance only because the scheme had been sanctioned. Once the scheme was held unsustainable, the foundation for disposing of the winding up petition disappeared. The matter therefore had to go back to the company court for consideration of the winding up petition in accordance with law.

Conclusion: Yes. The winding up petition revived and had to be considered afresh.

Final Conclusion: The appeals succeeded, the sanction granted to the compromise scheme was set aside, and the matter was remitted for fresh consideration of the winding up petition on its own merits.

Ratio Decidendi: A scheme under Section 391 of the Companies Act may be considered during a winding up petition under Section 45MC of the Reserve Bank of India Act, but it cannot be sanctioned if it contravenes statutory provisions or seeks to override the adjudicatory powers and final orders of special enactments, nor can it be used to stay criminal or income tax proceedings.

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