Composite scheme sanction requires maintainability at filing, full disclosure of material facts, and no conflict with special insolvency regime.
A composite scheme of compromise and arrangement under the Companies Act, 1956 could not be pursued while a BIFR reference was pending, because the special sick-company regime prevailed at the date of filing and later discharge did not cure the defect. Sanction also depended on full disclosure of all material facts to shareholders, lenders and the Court; non-disclosure of significant SEBI and SAT proceedings, together with a scheme that had become commercially stale, justified refusal of approval. Objections based on separate compliance with Sections 100 and 101 were rejected, as a Section 391 scheme could include consequential capital restructuring within the same process. The Court therefore refused sanction.
Issues: (i) whether the petition for sanction of the composite scheme of compromise and arrangement was maintainable when a reference concerning the company had been pending before BIFR at the time of filing; (ii) whether the scheme could be sanctioned when material facts, including the SEBI and SAT orders, were not disclosed to the shareholders, lenders, and the Court as required by the Companies Act, 1956; (iii) whether the objections based on non-compliance with Sections 100 and 101 of the Companies Act, 1956 could defeat the scheme.
Issue (i): whether the petition for sanction of the composite scheme of compromise and arrangement was maintainable when a reference concerning the company had been pending before BIFR at the time of filing.
Analysis: The petition was filed while the BIFR reference was still pending, and the subsequent order of discharge from the BIFR regime could not alter the position as on the date of filing. The special regime governing sick industrial companies prevailed over the general jurisdiction under the Companies Act in that situation.
Conclusion: The petition was not maintainable at the time it was filed.
Issue (ii): whether the scheme could be sanctioned when material facts, including the SEBI and SAT orders, were not disclosed to the shareholders, lenders, and the Court as required by the Companies Act, 1956.
Analysis: The scheme was sanctioned only if the Court was satisfied that all material facts had been disclosed to the persons voting on the scheme and to the Court. The record showed non-disclosure of significant regulatory proceedings and orders affecting the company and its investor group. The scheme was also found to have become stale because the dates and commercial terms embedded in it had long passed.
Conclusion: The scheme could not be sanctioned for want of full disclosure of material facts and because it had become stale.
Issue (iii): whether the objections based on non-compliance with Sections 100 and 101 of the Companies Act, 1956 could defeat the scheme.
Analysis: The objection regarding separate compliance with the capital-reduction procedure was rejected because a scheme under Section 391 operates as a complete code and permits consequential capital restructuring within the scheme itself under the single window approach.
Conclusion: The objections under Sections 100 and 101 of the Companies Act, 1956 were not accepted.
Final Conclusion: The Court refused sanction to the composite scheme and brought the proceedings to an end by dismissing the petition.
Ratio Decidendi: A scheme under Section 391 of the Companies Act, 1956 can be sanctioned only when it is maintainable at the time of filing and all material facts relevant to the company and the scheme have been fully disclosed; absence of such disclosure or existence of a prior special statutory bar justifies refusal of sanction.
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