Fair and reasonable reconstruction may be sanctioned and winding-up stayed to enable implementation under court supervision.

The scheme of reconstruction met statutory prerequisites: convened creditor and member meetings, required notices, and submission of official liquidator financials; the court applied the test of bona fides of the majority, adequacy of information to classes, and whether an intelligent and honest member might approve, and sanctioned the scheme as fair and reasonable. The court also held that it has power to stay winding-up proceedings pending revival where dissolution has not occurred, may permit the company to carry on business during the stay subject to official liquidator report and supervisory conditions, and granted a limited stay to enable implementation.

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Issues: (i) Whether the scheme of reconstruction placed under section 391 of the Companies Act, 1956 is fair and reasonable and should be sanctioned by the court; (ii) Whether, after a winding-up order, the court has power under section 466 of the Companies Act, 1956 to stay winding-up proceedings and permit reconsideration/revival for the purpose of sanctioning and implementing a reconstruction scheme.

Issue (i): Whether the proposed scheme of reconstruction satisfies statutory requirements and is fair and reasonable for sanction under section 391 of the Companies Act, 1956.

Analysis: The statutory prerequisites were complied with: meetings of creditors and members were convened and voted, notices were given including to the Registrar and Central Government, and the official liquidator filed the financial statements and auditors' report as required by the proviso to section 391(2). Authorities establish the test that the court must verify compliance, bona fides of the majority, adequacy of information given to classes, and whether the scheme is one that an intelligent and honest member might reasonably approve. The scheme provides for transfer of shares to workers, agreed compromises by major creditors with deferred and reduced payments, and undertakings as to liabilities; the scheme was unanimously approved by creditors and members and supported by a project report indicating commercial feasibility.

Conclusion: The court sanctioned the scheme under section 391 of the Companies Act, 1956; the scheme is fair and reasonable and sanctioned (in favour of the appellant).

Issue (ii): Whether the court, after making a winding-up order, can stay winding-up proceedings under section 466 of the Companies Act, 1956 so as to permit revival or reconstruction of the company.

Analysis: Section 466 permits the court to stay winding-up proceedings wholly or for a limited time on application and proof that proceedings ought to be stayed; such power necessarily permits the company to be allowed to carry on business during the stay. The company had not been dissolved and no dissolution steps had been taken; the court may require the official liquidator's report before exercising the power. Precedent supports staying a winding-up order in comparable circumstances. The court exercised its power to stay winding-up proceedings for a limited period and directed supervisory conditions for implementation of the sanctioned scheme.

Conclusion: The court has power under section 466 of the Companies Act, 1956 to stay winding-up proceedings and to permit revival for the purpose of implementing a reconstruction scheme; such a stay was granted (in favour of the appellant).

Final Conclusion: The combined effect is that the sanctioned reconstruction scheme is approved and the court has stayed winding-up proceedings for a limited period to enable implementation, subject to court supervision and conditions for transfer of shares, election of new directors, and further orders as necessary.

Ratio Decidendi: Where statutory requirements for convening and informing creditors and members are satisfied and the majority acted bona fide with adequate information, the court may sanction a fair and reasonable reconstruction scheme under section 391 of the Companies Act, 1956, and may, under section 466, stay winding-up proceedings to permit implementation, subject to supervision under section 392.

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