Sections 391 to 394 of the Companies Act deals with the scheme of arrangement. It is a complete code. The scheme of arrangement is to be approved by the court. The Court does not interfere with the scheme if the provisions of the Act relating to the scheme are duly fulfilled. The Company Court is having inherent powers in sanctioning the scheme. The ambit, scope and power of the Company Court while approving and sanctioning the scheme is duly elaborated by the Supreme Court in ‘Miheer H Mafatlal V. Mafatlal Industries Limited’ – (1996) 23 CLA 1 (SC). The broad contours of such jurisdiction have emerged:
- The sanctioning court has to see to it that all requisite statutory procedures for supporting such a scheme has been complied with and that the requisite meeting as contemplated by Section 391(1)(a) have been held;
- That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by Section 391 (2);
- That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just fair to the class as whole as to legitimately blind even the dissenting members of that class;
- That all the necessary material indicated by Section 391(1)(a) is placed before the voters at the concerned meetings as contemplated by Section 391(1);
- That all the requisite material contemplated by the provision of section 391(2) of the Act is placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same;
- That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view of to satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same;
- That the company court has also to satisfy itself that members or class of members or creditors or class of creditors as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent;
- That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant;
- Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.
The aforesaid parameters of the scope and ambit of the jurisdiction of the company court which is called upon to sanction a scheme of compromise and arrangement are not exhaustive but only broadly illustrative of the contours of the court’s jurisdiction.
