The main legal point established in the judgment is that a scheme of arrangement under Sections 391 to 394 of the Companies Act must be proposed by a company, creditor, member, or the liquidator, and must be genuine, bona fide, and in the best interest of the company and its creditors.

( 1 ) THE company petition is filed under Sections 391 to 394 of the Companies act, 1956 ('act' for short), with a request to sanction the scheme of arrangement so as to be binding on all the members, secured creditors and unsecured creditors of the respondent-company as well as the respondent-company in liquidation. The first petitioner is though a member of the company is not the propounder of the scheme. The second petitioner who seems to be the propounder of the scheme is neither the shareholder nor the creditor of the company in liquidation.

( 2 ) M/s. Surgical and Pharmaceuticals Company (Mysore) Limited, the company in liquidation was incorporated under the provisions of the companies Act, 1956 and prior to its winding up by this Court by an order made on 4-8-1980 in Co. P. No. 35 of 1978, was carrying on the business of manufacture and sale of surgical cotton, dressing bandage cloth and gauze cloth, etc. In view of winding up order, the official liquidator attached to this Court has become the liquidator of the company by virtue of the provisions of Section 449 of the Act and has taken over the assets of the company in liquidation.

( 3 ) THE State Bank of Mysore, the only secured creditor of the company in liquidation, after obtaining the permission of the Court to stand outside the winding up proceedings and after obtaining the leave of the court to continue to prosecute the suit filed by it against the company in liquidation for recovery of loans advanced by it to the company in liquidation and after obtaining the judgment and decree from the Trial court, has sold the movable assets of the company in liquidation and it appears, the sale proceeds are deposited in the Court.

( 4 ) PETITIONERS assert in this petition that the company in liquidation was only indebted to State Bank of Mysore, Davangere Branch, davangere, which was the sole secured creditor in a sum of Rs. 9,53,381/-, approximately an amount of Rs. 3,60,000/- to sundry creditors, and a further sum of Rs. 75,000/- to the ex-employees of the company in terms of the claim submitted by them to the official liquidator. It is further stated that the first petitioner has identified the second petitioner to revive the company in the interest of its shareholders and creditors (both secured and unsecured) by setting the aforesaid claims and to revive the company. It is also stated that the second petitioner is willing to settle the claims of both secured and unsecured creditors of the company in liquidation with a view to revive the company, in the event, the entire share capital of the company in liquidation is transferred to the second petitioner and his nominees.

( 5 ) PETITIONERS also assert that the only manner of settlement of the claims of the creditors of the company in liquidation, which are now pending with the official liquidator is by selling the assets of the company in liquidation and the sale of the assets by the official liquidator, may not result in the settlement of the entire dues of its creditors as the price that may be received may fall short of the total claim of the creditors. Therefore, since the second petitioner is willing to settle the entire claim of the creditors of the company 'as provided in the scheme of arrangement, it may not be necessary for the sale of assets of the company in liquidation to settle the dues of its creditors and that may not be in the interest of the shareholders, secured and unsecured creditors of the company in liquidation. Therefore, petitioners' state that by sanctioning the scheme of arrangement as propounded by the second petitioner, the company and its shareholders would be benefited by the revival of the company. A copy of the scheme of arrangement is produced before this Court.

( 6 ) THIS Court by its order dated 12-4-2000, had directed the petitioner-company to convene a meeting of the members and creditors (both secured and unsecured creditors) of the company for considering and if though