1. This judge's summons dated 4th February, 1976, is taken out under section 392(2) of the Companies Act, 1956. Its object is that the company having failed to implement the scheme sanctioned by Rege, J. by his order dated 30th September, 1975, whereunder the company had agreed to pay unsecured creditors in the manner provided thereunder, the company be wound up.
2. Some of the salient features of the scheme can be borne in mind at the outset. Firstly, the company was required to set apart and keep deposited with their attorneys, Messrs. Ambubhai and Diwanji, a sum equivalent of the 20 per cent. of the adjustable amount as well as the amount of interest within a period of three months from the date of confirmation of the scheme which means that this amount was to be deposited by the 31st December, 1975. This amount was to be distributed among the unsecured creditors on pro rata basis within 14days from the date of the deposit. Thus, the distribution of the amount among the unsecured creditors was to be completed by the middle of January, 1976. Secondly, the company agreed and assured to continue its export business. Thirdly, the directors of the company agreed to deposit with the Prothonotary and Senior Master of this court, their share certificates in the company, within a period of four weeks from the confirmation of the scheme, i.e., this was to be done by the end of October, 1975. Fourthly, the directors of the company agreed and undertook to give necessary guarantee to the prothonotary and Senior master to implement the scheme and to pay the amounts under the scheme and to pay the amounts under the scheme. These guarantees were to be given within week from the date of confirmation of the scheme. This means by the end of the first week of October, 1975.
3. The applicant's attorneys, by their letter, dated 13th December, 1975, addressed to the company's solicitors, inquired of the company as to whether the company had given guarantee to the company had given guarantee to the Prothonotary and Senior Master to implement and to pay to the unsecured creditors the amount payable under the scheme and whether they had deposited the necessary share certificates in respect of the shareholdings of the directors of the company as also whether they had carried out the provisions of clauses 6, 8 and 9 of the scheme. But the company did not choose to give any reply. This was followed by a reminder dated 7th January, 1976, and it was pointed out that the company and its directors had committed breach of the undertakings given to this court and had failed to furnish the necessary information. It was also pointed out that if the relevant information was not given on or before 9th January, 1976, proceedings, inter alia, to wind up the company would be adopted. This also had no effect on the company. It is in these circumstances that the present judge's summons has been taken out by the applicant who is an unsecured creditor. He had given a loan of Rs. 6000 for a period or six months which fell due for repayment on 11th August, 1972, with interest thereon at the rate of 15 per cent. per annum. He was a party to the scheme.
4. Sections 392 gives to enforce compromises and arrangements Sub-section (1) thereof invests the court with power to supervise the carrying out of the compromise or arrangement and to do other things for the proper working of the compromise or arrangement. In cases in which the court either is satisfied that the compromise or arrangement cannot be worked out satisfactorily, the court either on its own initiative or on the application of any person interested in the affairs of the company can order under the winding up of such a company. A winding-up order under sub-section (2) of section 392 shall be deemed to be an order under section 433 of the Companies Act. The purpose of sub-section (2) of section 392 is that where the court is satisfied that a scheme sanctioned under section 391 cannot be satisfactorily accomplished, the court ought to wind up such a company. The fact that parliament equips the court with power to come into action of its own motion indicates that the court should not allow the sanctioned scheme cannot be worked out satisfactorily with or without modifications being made in it, the court must close that chapter by winding up. The court exercises supervisory powers over the carrying out into reality the schemes sanctioned by it. If any difficulties arises in the working out of a scheme, the court can modify the same, so that its purpose can be achieved for the mutual advantage and benefit of the company the class of its creditors or members who are parties to it.
5. Mr. Kapadia, the learned counsel for the applicant, has taken me through the affidavit in support and on a reading thereof, I am satisfied that the scheme sanctioned by this court on 26th September, 1975, cannot be worked out satisfactorily. The statements made in the affidavit remain uncontroverted. No argument was addressed in opposition by Mr. Chhatrapati, the learned counsel for the company. However, Mr. Chhatrapati, while applying for adjournment, had stated that the company no longer finds it beneficial to carry on the export business. He also pointed out that the export business was beneficial because it resulted in drawback benefits given by the Government of India. The export orders with the Bulgarian Government have also come to an end. According to him, these developments took place in February/ March, 1975. In these circumstances, the company desires to come forward with another scheme. We have noted that the company had agreed to continue its export business at the time when the scheme was confirmed on 30th September, 1975. Pausing here, it is clear that at the time when the scheme was sanctioned by this court, the company's directors knew very well that the export business was a dead ball. They deliberately created a wrong and false impression on the minds of the unsecured creditors about continuing the company's export business. This was related to the export orders of Rs. 34,07,000 and earning of lakhs of rupees from such export business. It is reasonable to take the view that in this manner confidence was created in the unsecured creditors at the time of ushering in the scheme. The position before me is that the main purpose on which the said scheme was sanctioned by this court is gone. That was its substratum. It stands destroyed. The share certificates of the directors have not been deposited with the prothonotary and Senior Master of this court within four weeks which expired by the end of October, 1975. The directors of the company also did not give the necessary guarantees to the Prothonotary and Senior Master within a week of the a week of the passing of the order which was the end of the first weeks of October, 1975. The directors of the company also did not give the necessary guarantees to the Prothonotary and Senior Master within a week of the passing of the order which was the end of the first week of October, 1975. All the paramount consideration of the scheme have been breached. It seems that there was no sincerity of purpose from the start of the scheme. The company has given no explanation for not depositing share certificates. Nothing has been done by the directors after the sanctioning of the scheme. What is done is to apply for an adjournment at the hearing of the present summons, so that the company can present another scheme. In these circumstances, I am of the view that the scheme cannot be worked out satisfactorily and it is just and equitable that the company be wound up.
6. In the result, the summons are made absolute in terms of prayer (a), (b) and (d).
7. Mr. Chhatrapati applies for costs of the company to come out of the assets of the company. The question of costs of the company is reserved till Wednesday, 10th March, 1976, to enable Mr. Chhatrapati to make his submissions on this point.
8. Shri Daulatram Gyanchand Jaisinghani, who is a creditor of the company to the extent of Rs. 6000, had supported this judge's summons and submitted that in view of the stay granted by this court under section 391(6) of the Companies Act, he is unable to proceed with his suit in the Bombay City Civil Court. Now that scheme does not exist and order for winding up has been passed, the embargo in commencing or continuing suits or proceedings against the company automatically stands lifted.