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Issues: (i) Whether the scheme could be sanctioned when the version placed before the Court had been substantially modified by the Reserve Bank and was therefore not the same scheme approved by the requisite majority under section 153; (ii) Whether the scheme was, on merits, a reasonable and practicable scheme fit for judicial sanction, including in light of the proposed reduction of share capital.
Issue (i): Whether the scheme could be sanctioned when the version placed before the Court had been substantially modified by the Reserve Bank and was therefore not the same scheme approved by the requisite majority under section 153.
Analysis: Sanction under section 153 depended on prior approval by the requisite majority of creditors or members. In the case of a banking company, section 45 of the Banking Companies Act, 1949 imposed an additional requirement that the compromise or arrangement must be certified by the Reserve Bank as not detrimental to depositors. The modifications introduced by the Reserve Bank were substantial, including changes in the composition of the board, deletion of a clause, and insertion of a new supervisory clause. The scheme as presented to the Court was therefore not the same scheme that had been sanctioned by the requisite majority.
Conclusion: The scheme could not be sanctioned because the version placed before the Court had not been approved in that form by the requisite majority and the Court lacked jurisdiction to confirm it.
Issue (ii): Whether the scheme was, on merits, a reasonable and practicable scheme fit for judicial sanction, including in light of the proposed reduction of share capital.
Analysis: A scheme under section 153 had to be reasonable and practicable, and the Court was bound to ensure that it did not operate oppressively or rest on unreal assumptions. The financial position disclosed that the success of the scheme depended on recovery of doubtful and unsecured debts, including large sums that were unlikely to be realised. The Court also noted serious shortcomings in the management of the bank and found that the scheme contemplated reduction of share capital without compliance with the statutory requirements governing such reduction.
Conclusion: The scheme was not a reasonable or practicable one and could not be sanctioned on merits.
Final Conclusion: The appeal failed because the scheme was materially altered from the version approved by the requisite majority and, in any event, the proposal was not fit for judicial confirmation.
Ratio Decidendi: A court cannot sanction a compromise or arrangement unless the exact scheme has been approved by the requisite majority and, in the case of a banking company, certified under the special banking restrictions; moreover, judicial sanction will be refused where the scheme is not reasonable, practicable, or legally compliant.
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