Scheme of arrangement sanction upheld where disputed creditor notice and unsupported fraud allegations did not warrant interference.
A scheme of arrangement sanctioned under Sections 391 and 394 of the Companies Act, 1956 was not liable to be interfered with merely because a claimant asserted creditor status and did not receive individual notice. The Company Court's role is supervisory, limited to statutory compliance, requisite majority approval, disclosure of material facts, and consistency with law and public policy; it does not review commercial wisdom. As the appellant's claim was disputed and pending in arbitration, and was secured by a bank guarantee, absence of individual notice did not invalidate sanction. The fraud and non-disclosure challenge also failed because no affidavit with particulars was filed, so no factual basis existed to refuse sanction.
Issues: (i) whether a scheme of arrangement sanctioned under Sections 391 and 394 of the Companies Act, 1956 could be interfered with on the ground that the appellant, claiming to be a creditor, did not receive individual notice; (ii) whether the absence of detailed particulars of fraud or alleged non-disclosure required refusal of sanction.
Issue (i): whether a scheme of arrangement sanctioned under Sections 391 and 394 of the Companies Act, 1956 could be interfered with on the ground that the appellant, claiming to be a creditor, did not receive individual notice.
Analysis: The jurisdiction of the Company Court in sanctioning a scheme is supervisory and not appellate. The Court does not sit in judgment over the commercial wisdom of shareholders, and its role is confined to examining statutory compliance, the support of the requisite majority, the holding of necessary meetings or dispensation thereof, disclosure of material facts, and whether the scheme is contrary to law or public policy. The appellant's claim was a disputed claim pending in arbitration and had also been secured by a bank guarantee pursuant to orders of the Calcutta High Court. In these circumstances, the absence of individual notice to the appellant did not furnish a ground to invalidate the sanction.
Conclusion: The objection based on want of notice failed, and the scheme could not be invalidated on that ground.
Issue (ii): whether the absence of detailed particulars of fraud or alleged non-disclosure required refusal of sanction.
Analysis: The record showed that an opportunity had been given to file an affidavit setting out particulars of fraud, but no such affidavit was filed. The challenge therefore remained unsupported by the necessary factual foundation, and no material was shown to justify withholding sanction of the scheme.
Conclusion: The contention based on fraud or non-disclosure was rejected.
Final Conclusion: The sanction of the scheme of arrangement was upheld and no interference was called for in appeal.
Ratio Decidendi: In proceedings for sanction of a scheme of arrangement, the Court's function is limited to supervisory review of statutory compliance and legality, and a disputed claim pending adjudication does not by itself justify refusal of sanction or invalidate the scheme.
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AI Drafter ✕
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