Powers of the Tribunal in Sanctioning Scheme of Arrangement

The Tribunal has very wide powers in sanctioning or rejecting a scheme of compromise or arrangement, inter alia, including the following powers:
1. Power of the Tribunal to supervise or modify compromise or arrangement:  Where an order sanctioning a compromise or an arrangement has been made by the Tribunal it —
(i) shall have the power to supervise the carrying out of the compromise or the
arrangement; and

(ii) may at the time of making such order or at any time thereafter, give such direction in regard to any matter or make such modification in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement

(iii) may make required deletion in the clauses in the approved scheme and the same need not be brought to the shareholders again so long the deletion did not affect the scheme as conceived.

2. Power to make an order for winding up – If the Tribunal is satisfied that a compromise or arrangement sanctioned under section 230 cannot be worked satisfactorily with or without modification and the company is unable to pay its debts as per the scheme, it may make an order for winding up of the company. Such an order shall be deemed to be an order under Section 273.

In the case of CRB Capital Markets Ltd. v. RBI, it was also held that during the pendency of a winding-up petition if a viable scheme is formulated, the court is not prohibited in according to sanction to the scheme provided conditions specified in the proviso to section 231(2) are met.

3. Where the required majority has not approved the scheme, the question of the court (now Tribunal) sanctioning the scheme does not arise. This was held in the case of Komal Plastic Industries v. Roxy Enterprises.

4. If incorrect information were provided before the meeting, the court (now Tribunal) on receipt of correct information, has the power to order holding of the meeting on the basis of correct factual position was held in Travancore National & Quilon Bank, In re.

5. Power to issue an order for repayment of dues of individual creditors/depositors- The Delhi High Court in Smt. Promila v. DCM Financial Services has recognized that in extraordinary circumstances, the court (now Tribunal) can order for repayment by the company to individual creditors/ depositors e.g., on health ground or on the ground of old age.

6. Power to recall its order – The Court (now Tribunal) has the power to recall its order (passed ex parte) only if the intervener or party affected was able to satisfy that ex parte order passed under section 391 [now Section 230] was patently illegal, erroneous or passed under misconception or misrepresentation. The Delhi High Court in Bharti Mobinet Ltd., In re has affirmed Tribunal’s power to recall its order when it is proved that the order was obtained by committing fraud on the Court.

7. Power to look into commercial merit or demerit of a scheme – The Bombay High Court in Mather & Platt (I) Ltd., In re has pronounced that Court (now Tribunal) would not enter into commercial merits/demerits of a scheme especially when the scheme is passed by the overwhelming majority of shareholders after all the necessary material was placed before them. (However, when the fairness of a scheme is apparently suspect, the court may go into that.). On the issue of fairness of the scheme, if the Court (now Tribunal) is satisfied that the scheme is discriminatory and unfair, it can reject the scheme. It was so held in TCI Infrastructure Finance Ltd., In re.

In regard to the exercise of power by the Judge, the Supreme Court in State of West Bengal v. Pronob Kumar  has stated that prerequisites laid down under the Companies Act for passing order under
sections 391-394 [now Section 230/232] cannot be treated as empty formalities which can be thrown at the winds at the whims of the judge.

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