Case: M/S.Meghal Homes Pvt. Ltd Vs. Shree Niwas Girni K.K. Samiti

and sale. As we read Section 392 of the Act, it only gives power to the Court to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This is only a power that enables the court to provide for proper working of compromise or arrangement, it cannot be understood as a power to make substantial modifications in the scheme approved by the members in a meeting called in terms of Section 391 of the Act. A modification in the arrangement that may be considered necessary for the proper working of the compromise or arrangement cannot be taken as the same as a modification in the compromise or arrangement itself and any such modification in the scheme or arrangement or an essential term thereof must go back to the general meeting in terms of Section 391 of the Act and a fresh approval obtained therefor. The fact that no member or creditor opposed it in court cannot be considered as a substitute for following the requirements of Section 391 of the Companies Act for approval of the compromise or arrangement as now modified or proposed to be modified. In Miheer H. Mafatlal Vs. Mafatlal Industries Ltd. (supra), this Court had insisted that the procedural requirements of Section 391 must be satisfied before the court can consider the acceptability of a scheme even in respect of a Company not in liquidation. Therefore, we are not in a position to accept the argument on behalf of the respondents that the scheme now as modified by the decision of the Division Bench need not go back to the general meeting of the members in terms of Section 391 of the Act. We must also remember that at least before us there is serious objection to the modifications by one of the Somanis who are the promoters of the Company in liquidation and the sponsors of the arrangement and that objection cannot be brushed aside. 28. We find that the modifications proposed alters the position of the shareholders vis-à-vis the Company. Instead of the company reviving the spinning unit as recommended by the State Bank of India Capital Markets Limited, as adopted in the General Meeting, now the Company will have nothing to do with the mill lands and the whole of the mill lands will pass on to LBPL on LBPL paying a value of Rs. 97.50 crores to SCML and LBPL will start an industry of its own in that property. This cannot be considered to be a modification in the scheme necessary for the proper working of the compromise or arrangement. This is a modification of the scheme itself. Same is the position regarding the provision of replacing the resolution passed that if any surplus amounts are available, SCML would start a viable industry in any part of the State of Maharashtra, by a commitment that SCML would establish an industry in any part of the State of Maharashtra on an investment of Rs. 20 crores. This again is an obligation cast on the members of SCML and we are of the view that this cannot also be taken to be a modification which the Court can bring about on its own under Section 392 of the Act on the pretext that it is a modification necessary for the proper working of the compromise or arrangement. We have no hesitation in holding that in any event, the Division Bench of the High Court ought to have directed a reconvening of the meeting of the members of the Company in terms of Section 391 of the Act to consider the modifications and ensured that the approval thereof by the requisite majority existed. 29. In the view we have thus taken, we are satisfied that it is a fit case where we should set aside the decision of the Division Bench as also of the Company Court and remand the proceedings to the Company Court. The Company Court first will direct the sponsors of the scheme to call a meeting of the concerned in terms of Section 391 of the Act and seek an approval for the modifications now suggested by the Division Bench or that may be put forward at the meeting. If the requisite majority approves the modifications and the matter comes back to the Company Court, the Company Court will consider whether the compromise or arrangement put forward is one that deserves to be accepted in respect of a company which has been ordered to be wound up in the light of what we have indicated above and what the Division Bench had earlier indicated in its order dated 4.4.1995. 30. In addition to expanding and supporting the submission that in terms of Sections 391 to 393 of the Act, the court had the power to accept the compromise or arrangement even in respect of a company ordered to be wound up, independent of Section 466 of the Act and in that process the power to stay a winding up, learned Senior Counsel appearing for the Workers Union argued on behalf of the workmen that interference by this Court would further delay the benefits that would accrue to the workers under the arrangement now approved by the Division Bench and considering the long lapse of time, that would be unjust. Learned counsel highlighted the additional benefits that would accrue to the workers under the present scheme. Though, we do appreciate this aspect of the matter, having taken the view that the arrangement has to go back to the meeting of members, creditors, etc. of the company in terms of Section 391 of the Act and once it is adopted or adopted with modifications with the requisite majority at the meeting, the arrangement would require a fresh scrutiny by the Company Court thereafter, we cannot avoid interfering with the decision of the Division Bench on the ground put forward by learned Senior Counsel of benefit to the workers. 31.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]When a Company is ordered to be wound up, the assets of it, are put in possession of the Official Liquidator. The assets become custodia legis. The follow up, in the absence of a revival of the Company, is the realization of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers, and contributories of the company ultimately resulting in the death of the company by an order under Section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the Court has necessarily to see whether the Scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529A of the Act. Of course, the Court has to see to the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the Company in liquidationSection 392 of the Act,only gives power to the Court to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This is only a power that enables the court to provide for proper working of compromise or arrangement, it cannot be understood as a power to make substantial modifications in the scheme approved by the members in a meeting called in terms of Section 391 of the Act. A modification in the arrangement that may be considered necessary for the proper working of the compromise or arrangement cannot be taken as the same as a modification in the compromise or arrangement itself and any such modification in the scheme or arrangement or an essential term thereof must go back to the general meeting in terms of Section 391 of the Act and a fresh approval obtained therefor. The fact that no member or creditor opposed it in court cannot be considered as a substitute for following the requirements of Section 391 of the Companies Act for approval of the compromise or arrangement as now modified or proposed to be modified.