Continuing supervisory power over sanctioned schemes allows modification for proper working, but creditors cannot claim interest beyond final scheme terms.

A sanctioned scheme under section 391 acquires statutory force, but the High Court retains continuing supervisory jurisdiction under section 392 to modify the scheme for its proper working and to give effect to a compromise, including a change in the mode of payment to the Income-tax Department. The sanctioned scheme governed the creditors' rights once it became final, and they could not claim interest contrary to its terms. Interest was unavailable because the scheme did not provide for it and the limited statutory conditions for interest were not met. The proposed arrangement and bank guarantee were accepted as workable, while leaving the creditors' substantive entitlement under the original scheme intact and payable in full.

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Issues: (i) Whether the court had power under section 392 to modify the sanctioned scheme and give effect to the compromise between the petitioners and the Income-tax Department. (ii) Whether the creditors were entitled to claim interest on their dues, and whether the proposed arrangement and bank guarantee could be accepted while preserving their rights.

Issue (i): Whether the court had power under section 392 to modify the sanctioned scheme and give effect to the compromise between the petitioners and the Income-tax Department.

Analysis: A scheme sanctioned under section 391 acquires statutory force, but section 392 confers continuing supervisory power on the High Court to direct the working of the compromise or arrangement and to make such modifications as may be necessary for its proper working. The court is not rendered functus officio merely because the scheme has been sanctioned. The compromise placed before the court altered only the mode of payment to the Income-tax Department and did not disturb the substantive position of the creditors under the earlier scheme.

Conclusion: The court had jurisdiction to modify the sanctioned scheme and to accept the compromise insofar as it facilitated its proper working.

Issue (ii): Whether the creditors were entitled to claim interest on their dues, and whether the proposed arrangement and bank guarantee could be accepted while preserving their rights.

Analysis: The sanctioned scheme did not provide for payment of interest to the creditors, and the creditors had not challenged that scheme. Once the scheme became final, their rights stood governed by its terms. Rule 179 permits interest only in the limited contingency of surplus after full payment of claims, and the circumstances for such interest were not shown. The court also found that the creditors would be paid in full under the modified arrangement, that the official liquidator's apprehensions regarding the bank guarantee were unfounded, and that the guarantee and transfer mechanism could be used to implement the scheme effectively.

Conclusion: The creditors were not entitled to any additional interest, and the proposed arrangement with the bank guarantee was able for implementation of the scheme while leaving the creditors' substantive entitlement unchanged.

Final Conclusion: The application was accepted in substance, the earlier scheme was modified to the extent necessary to give effect to the compromise with the Income-tax Department, and the creditors' entitlement under the original scheme remained intact and was to be satisfied in full.

Ratio Decidendi: Under section 392, the High Court retains continuing supervisory jurisdiction over a sanctioned scheme of compromise or arrangement and may modify it for proper working, but creditors cannot claim interest contrary to the final terms of the sanctioned scheme unless the statutory conditions for such interest are satisfied.

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