Winding up on just and equitable grounds where a sanctioned scheme's implied reasonable-time payment obligation is breached.

A sanctioned scheme of arrangement does not immunise a company from winding up where its implied obligation to pay creditors within a reasonable time is breached; courts will infer a reasonable time for payment when the scheme is silent. More than thirteen years without payments, progressive dissipation of assets, loss-making operations and inadequate realisation of debts supported a petition under winding-up provisions on just and equitable and statutory grounds, permitting a creditor bound by the scheme to seek winding up. The High Court concluded that continued operation of a breached scheme cannot prevent winding up and ordered liquidation with costs payable from company assets.

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Issues: Whether, notwithstanding a scheme of arrangement previously sanctioned by the Court, the company should be wound up by the Court under the Indian Companies Act on grounds including breach of the scheme, failure to pay creditors within a reasonable time and that it is just and equitable to wind up the company.

Analysis: The scheme sanctioned under section 153 governs distribution to creditors but did not fix a time for payment; the law implies payment within a reasonable time. More than thirteen years had elapsed since sanction without payments to creditors and the company had run at a loss, eroded its reserve fund and shown progressive dissipation of assets. Since 1939 no payments were made to creditors and auditors had noted inadequate realisation of book debts and procedural failures. A creditor bound by a scheme may be unable to demand payment except in terms of the scheme, but such a creditor may still present a winding-up petition under section 166 where grounds in paragraph 162 or other statutory grounds exist. Where there is a breach of the scheme's implied term to effect payment within a reasonable time, continued operation of the scheme no longer protects the company from a winding-up petition if the facts make winding up just and equitable.

Conclusion: The company is to be wound up by the Court under the provisions of the Indian Companies Act; the petitioner is entitled to the costs of the application out of the assets.

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