TMI Blog2012 (8) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Hon'ble Supreme Court in Meghal Homes (P.) Ltd.[ 2007 (8) TMI 447 - SUPREME COURT] , it is now well settled that if a Company desires to modify a sanctioned scheme despite the same not being necessary for the proper working thereof, the Company cannot do so under any other provisions except by following the required procedure prescribed u/s 391 of the Companies Act. As submitted on behalf of the Regional Director, even on facts no case is made out for recalling of the order sanctioning the scheme. The reason cited by the Company for seeking to recall the order sanctioning the scheme is essentially that the Scheme is not workable and is adversely affecting the interests of the Companies. Apart from the fact that this can hardly be a ground for seeking cancellation of the scheme at this stage, not a single piece of evidence is produced before this Court to show that the contracts already entered into by the Demerged Company with their clients have been cancelled by the said clients or that they have refused to allow the Resulting Company to execute and complete the said contracts. There is nothing produced on record to even show that any of the proposed clients have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of contracts were to be taken in the Resulting Company. The balance of the business will remain with the Demerged Company. 4. After the Scheme was framed and filed in this Court for sanctioning of the same, the said Scheme was sanctioned by this Court on 25th June, 2010. Thereafter the Applicants intimated the said fact to the Registrar of Companies by filing form No. 21 under the Companies Act giving notice about the said order dated 25th June, 2010 to the Registrar of Companies. One of the Applicant Companies viz. Unique Delta Force Security Pvt. Ltd. also filed Form 23 with the Registrar of Companies for changing its name to Sumeet Delta Force Pvt. Ltd. and a Certificate dated 31st August 2010 confirming the change of name was issued by the Registrar of Companies. All other directions passed by this Court such as payment of cost of ₹ 10,000/- to the Regional Director was also complied with. The Applicants contend that they realised at certain stage that the Scheme sanctioned is not giving the desired results and advantages to both the Companies and it was realised by the management that the same is prejudicial to the interest of shareholders and creditors. 5. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed creditors were dispensed with as rights of the creditors are not affected. If the sanction granted to the scheme is rejected/set aside, the rights of the creditors, whether secured or unsecured will remain intact. It is therefore submitted that it is in the interest of justice to recall and/or set aside the order allowing the Scheme Petitions dated 25th June, 2010. In support of his submission that this Court under Section 392 of the Companies Act has the power to revoke/recall the order dated 25th June, 2010, the learned Advocate appearing for the Applicants has relied on the decision of the Hon'ble Supreme Court in S.K. Gupta v. K.P. Jain [1979] 3 SCC 54 and decisions of this Court in the matter of Scheme of Compromise/Arrangement between the Creditors of Bedrock Ltd., In re [1998] 17 SCL 385 (Bom.) and L.A. Chaugule v. New Kaiser-I-Hind Spinning Weaving Co. Ltd. [1968] 2 Comp. LJ 28 (Bom.). The learned Advocate appearing for the Applicants also submitted that this Court also has inherent powers to recall an order sanctioning a scheme under Section 391 and/or 394 of the Companies Act. In this connection he relies on an unreported decision of this Court (Dharmadhikari J.) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that even on facts no case is made out by the applicants for recalling of the order of the sanctioned scheme. The Applicants have sought cancellation of the scheme on the ground that it is not workable and is adversely affecting the interest of the Companies. It can hardly be a ground for seeking cancellation of the scheme at this stage when averments exactly contrary to the submissions now made were made in the Petition while seeking sanctioning of the scheme. Mr. Mehta submitted that if the scheme is not workable then the Company can certainly seek directions/modifications from this Court in order to make it workable. It cannot cancel the scheme on this ground. 11. I have considered the submissions advanced on behalf of the Applicants as well as the Regional Director. I have also perused the case law cited by the learned Advocates appearing for the parties. The order sanctioning of a compromise or an arrangement in respect of a company is made by the Court under Section 391 of the Companies Act, 1956. The power of the Court to enforce the compromise and arrangement which is sanctioned under Section 391 of the Companies Act is prescribed/set out under Section 392 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the Court is satisfied that the compromise or arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications, the Court can suo motu or on the Application of any person interested in the affairs of the Company make an order winding up the Petition. In fact, in view of the decision of the Hon'ble Supreme Court in Meghal Homes (P.) Ltd. (supra), it is now well settled that if a Company desires to modify a sanctioned scheme despite the same not being necessary for the proper working thereof, the Company cannot do so under any other provisions except by following the required procedure prescribed under Section 391 of the Companies Act. Paragraphs 54 and 55 of the said decision are relevant and reproduced hereunder: 54.... 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 member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the court. However, the next paragraph holds the key to the judgment that the basic fabric of the scheme ought not to be changed. The limit on the powers of the Court to modify by way of even additions or omissions as contemplated is that the basic fabric of the Scheme cannot be changed; and according to the said decision, even before a court could embark upon a mission of suggesting modifications it has to first determine what modifications are necessary to make the compromise or arrangement workable Any such determination first has to arrive at a conclusion that the Scheme has become unworkable in its entirety or in a portion thereof. Arrangements, by their very nature are complex processes involving many elements that may or may not work. In fact in S.K. Gupta 257 this court recognized that to be the very reason why the legislature in India has given such a power to the courts; and such power can be exercised only to order those minimal modifications that would bring the aspect that is not working into a functional zone, with the proviso that at any rate such a modification cannot lead to a change of the basic fabric of the Scheme. 320. What does the expression basic fabri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the Applicant Companies but on the world at large. One of the Applicant Companies viz. Unique Delta Force Security Pvt. Ltd. also filed Form No.23 and changed its name. In these circumstances the contention of the Applicants that they did not act on the Order of this Court sanctioning the Scheme is not sustainable. 16. The submission advanced on behalf of the Regional Director that the order sanctioning the scheme cannot be recalled on principles analogous to order 23 of the Code of Civil Procedure since the scheme has already become effective and certain rights are vested under the scheme, in my view is also correct. In this context, paragraphs 12 and 22 of the decision of the Hon'ble Supreme Court in R. Rathinavel Chettiar (supra) are relevant and reproduced hereunder: 12. What is essential is that the matter must have been finally decided so that it becomes conclusive as between the parties to the suit in respect of the subject matter of the suit with reference to which relief is sought. It is at this stage that the rights of the parties are crystallised and unless the decree is reversed, recalled, modified or set aside, the parties cannot be divested of their right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the said case are materially different from those in the present case. From the aforesaid order of Dharmadhikari J. it is apparent that in that case the companies concerned had not filed Form 21 with the Registrar of Companies. It is also apparent that nothing had been done in pursuance of the order sanctioning the Scheme. As such the Scheme had not come into effect. It was in the light of these facts and as observed by the Learned Judge in paragraph 7 of the decision in facts peculiar to this case that this Court allowed the application for recall of the order sanctioning the Scheme. As observed by me, the facts of this case are very different. In the circumstances the aforesaid decision in Topworth Steels Power (P.) Ltd. (supra) is of no assistance to the Applicants. 18. As submitted on behalf of the Regional Director, even on facts no case is made out for recalling of the order sanctioning the scheme. The reason cited by the Company for seeking to recall the order sanctioning the scheme is essentially that the Scheme is not workable and is adversely affecting the interests of the Companies. Apart from the fact that this can hardly be a ground for seeking cancellatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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