Compromise or arrangement materially altered by regulator requires fresh majority approval before court confirmation, or it cannot be sanctioned.

A scheme of compromise or arrangement that has been materially modified by the Reserve Bank constitutes a different scheme from that approved by the requisite majority under section 153(2); consequently such a materially altered scheme cannot be presented for court confirmation unless it receives fresh approval from the requisite majority. Separately, a proposed bank reconstruction dependent on realisation of doubtful and unsecured loans, involving significant director loans and noncompliance with statutory capital reduction requirements, fails the tests of being reasonable and practicable to protect creditors and depositors and therefore is unfit for court sanction.

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Issues: (i) Whether a compromise or arrangement as modified by the Reserve Bank can be presented to and sanctioned by the court without fresh approval by the requisite majority under section 153(2) of the Indian Companies Act; (ii) Whether the proposed scheme for Bengal Bank Ltd. is a reasonable and practicable scheme fit for court sanction.

Issue (i): Whether the scheme, after substantial modification by the Reserve Bank, could be sanctioned by the court without being re-sanctioned by the requisite majority under section 153(2) of the Indian Companies Act.

Analysis: Section 153(2) requires approval by the requisite majority before presentation for court confirmation. Section 45 of the Banking Companies Act, 1949 requires Reserve Bank certification that a scheme is not detrimental to depositors. A Reserve Bank modification that alters the scheme substantially results in a different scheme from that sanctioned by the requisite majority and therefore cannot be confirmed by the court unless the modified scheme is again approved by the requisite majority.

Conclusion: The court cannot sanction the materially modified scheme without fresh sanction by the requisite majority; conclusion is against the appellant.

Issue (ii): Whether, on the merits, the scheme as presented is reasonable and practicable and fit for court sanction.

Analysis: The scheme's success depended on building a substantial reserve funded by realization of doubtful and unsecured loans. Evidence indicated large sums were doubtful or unsecured, significant loans to directors/officers and a likely shortfall (accepted deficit figure). Noncompliance with statutory requirements governing reduction of capital was also present. Taken together, these facts show the scheme was impracticable and unreasonable for protecting creditors and depositors.

Conclusion: The scheme is not reasonable or practicable and must be refused; conclusion is against the appellant.

Final Conclusion: The appeal is dismissed and the order refusing sanction of the scheme is upheld.

Ratio Decidendi: A court may not confirm a compromise or arrangement different in substance from the scheme approved by the requisite majority under section 153(2); where the Banking Companies Act, 1949 requires Reserve Bank certification, substantial modifications by the Reserve Bank require fresh majority sanction, and courts will refuse to sanction schemes that are not reasonable or practicable or that fail to meet statutory requirements such as lawful reduction of capital.

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