Government company restructuring under company law may proceed under scheme provisions if the arrangement is substantively a reconstruction.

A scheme under section 391 was held applicable to a Government company, as the Companies Act did not exclude such companies from the arrangement provisions. Workers were not treated as creditors for invalidating the scheme, because no individual wage claim within the scheme required notice to them as creditors, and the court's modification protected employees not absorbed by ensuring lawful dues and admissible compensation. The arrangement was also treated as a reconstruction under section 394 because, in substance, it transferred the undertaking, continued the business through the transferee, and contemplated closure of the transferor. The sanctioned scheme was upheld.

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Issues: (i) whether the workers could be treated as creditors so as to invalidate the scheme for want of notice or representation at the creditors' meeting; (ii) whether a Government company is excluded from the operation of section 391 of the Companies Act; (iii) whether the scheme fell within section 394 of the Companies Act as a scheme of reconstruction.

Issue (i): Whether the workers could be treated as creditors so as to invalidate the scheme for want of notice or representation at the creditors' meeting.

Analysis: The scheme did not purport to compromise or settle individual wage claims of workmen, and no worker came forward as an individual creditor with a specific monetary claim within the scheme proceedings. The workers' objections were directed mainly to protecting employment and preserving the effect of their settlement, but the court treated those matters as outside the immediate scope of a scheme under section 391. The modification made by the court ensured that employees not absorbed would receive lawful dues and admissible compensation, so the absence of notice to workers as such did not vitiate the proceedings.

Conclusion: The workers were not treated as creditors for the purpose of invalidating the scheme, and the objection based on want of notice failed.

Issue (ii): Whether a Government company is excluded from the operation of section 391 of the Companies Act.

Analysis: The statutory scheme of the Companies Act applies to Government companies unless a specific exclusion is shown. The provisions defining a Government company and regulating its working did not remove such companies from the ambit of section 391. The corporate form remained legally effective, and the fact that the transferor and transferee were Government companies did not make the arrangement a sham or deprive the court of jurisdiction to sanction it.

Conclusion: A Government company is not excluded from section 391, and the objection was rejected.

Issue (iii): Whether the scheme fell within section 394 of the Companies Act as a scheme of reconstruction.

Analysis: The scheme, read as a whole, contemplated transfer of assets and liabilities to a new company, continuation of business through the transferee, and eventual closure of the transferor company. On the substance of the arrangement, the court treated it as a reconstruction and not a mere transfer dehors section 394. The terminology of reconstruction is construed by the substance of the arrangement rather than by formal labels, and the facts here satisfied that description.

Conclusion: The scheme fell within section 394 as a scheme of reconstruction.

Final Conclusion: The sanctioned scheme was upheld, the appeal failed, and the order of sanction was maintained, while certain questions relating to the industrial dispute settlement and closure were left open.

Ratio Decidendi: A scheme under section 391 may validly be sanctioned in respect of a Government company, and where the arrangement in substance transfers the undertaking to a new company and reconstitutes the business, it may be treated as a reconstruction within section 394 even if ancillary industrial relations questions are left for decision in proper proceedings.

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