Court approves scheme modification for creditor payment, dismisses objections, orders bank guarantee.

The court approved the modification of the scheme to include a compromise between the petitioners and the Income Tax Department, ensuring full payment to creditors and the tax department. Creditors were not entitled to interest post-sanction as the scheme did not provide for it. The court clarified its authority under Section 392 of the Companies Act to supervise and modify the scheme, dismissing objections from the official liquidator. A bank guarantee of Rs. 61 lakhs was ordered to be furnished within a week, and the scheme was to be enforced immediately with the court retaining jurisdiction for any implementation issues.

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Issues Involved:
1. Modification of the scheme sanctioned on December 15, 1975.
2. Payment of interest to creditors.
3. Validity of the compromise between the petitioners and the Income Tax Department (I.T. Dept.).
4. Role and authority of the official liquidator.
5. Provision of bank guarantee and its solvency.
6. Application of Section 392 of the Companies Act.
7. Inclusion of interest in costs, charges, and expenses.

Detailed Analysis:

1. Modification of the scheme sanctioned on December 15, 1975:
This application under Section 392 of the Companies Act seeks modifications to the scheme approved by the court on December 15, 1975. The company came under liquidation on May 10, 1968, and a scheme for payment of outstanding claims was approved. The scheme was modified by the court and became operative after the dismissal of an appeal on September 24, 1979. The present compromise between the petitioners and the I.T. Dept. only addresses the payment of income-tax dues and proposes changes to the mode of payment to the I.T. Dept. without affecting creditors' claims.

2. Payment of interest to creditors:
Creditors claimed interest from May 10, 1968, on their dues. The official liquidator opposed the modifications, arguing that creditors are entitled to 12% interest, which would amount to about 90 lakhs. The petitioners contended that the sanctioned scheme did not contemplate interest payments and that creditors, having consented to the scheme, cannot now claim interest. The court held that the scheme, having statutory force, does not provide for interest payments, and creditors cannot claim interest post-sanction.

3. Validity of the compromise between the petitioners and the I.T. Dept.:
The compromise between the petitioners and the I.T. Dept. was filed before the Division Bench and led to the withdrawal of the appeal. The court emphasized that the scheme dated December 15, 1975, remains intact for creditors, and the compromise only modifies the mode of payment to the I.T. Dept. The court found the compromise beneficial for all concerned parties, ensuring full payment to creditors and the I.T. Dept., and facilitating the company's exit from liquidation.

4. Role and authority of the official liquidator:
The official liquidator opposed the modifications, claiming that the court became functus officio after sanctioning the scheme and cannot entertain further modifications. The liquidator also raised concerns about the bank guarantee's solvency and the involvement of the Additional Registrar. The court clarified that under Section 392, it has ample powers to supervise and modify the scheme and that the official liquidator's objections were unfounded.

5. Provision of bank guarantee and its solvency:
The official liquidator objected to the bank guarantee being in favor of the Additional Registrar instead of himself. The court dismissed this objection, stating that it has the discretion to appoint any responsible officer to assist in supervising the scheme. The petitioners were ordered to furnish a bank guarantee of Rs. 61 lakhs within a week to ensure full payment to creditors.

6. Application of Section 392 of the Companies Act:
Section 392 empowers the court to supervise the carrying out of a sanctioned scheme and make necessary modifications. The court cited precedents affirming its jurisdiction to modify schemes post-sanction and emphasized that it is not functus officio. The court has continuing supervision over the implementation of the scheme and can make modifications to ensure its proper working.

7. Inclusion of interest in costs, charges, and expenses:
The official liquidator argued that interest should be included in costs, charges, and expenses. The court held that the sanctioned scheme did not provide for interest payments and that creditors are not entitled to interest. The expression "costs, charges, and expenses" includes various administrative expenses but not interest on creditors' dues.

Conclusion:
The court approved the present arrangement between the petitioners and the I.T. Dept., finding it beneficial for all parties. The scheme dated December 15, 1975, was modified to incorporate the new arrangement, ensuring full payment to creditors and the I.T. Dept. The petitioners were ordered to furnish a bank guarantee of Rs. 61 lakhs within a week, and the scheme was to be enforced forthwith. The court retained jurisdiction to resolve any inconsistencies or ambiguities in the scheme's implementation.

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