The court emphasized that the approval of a scheme by shareholders and creditors does not bind the court, and it is the court's duty to examine the proposals and decide whether they are fair and reasonable.

Leach, C.J.

1. These appeals arise out of an order passed by Gentle J. rejecting a scheme put forward by the directors of the Calicut Bank Limited under Section 153, Companies Act, and directing the compulsory winding up of the company. It has been conceded here, as it was conceded below, that if the scheme is not one which the Court can sanction, a compulsory winding up order must necessarily follow. The appellants are the directors and they are supported by a number of creditors. The company was registered in 1908. Its head office was at Calicut and it had thirteen branches in British India, one at Cranganore in the State of Cochin and another at Colombo. Its issued capital was Rupees 2,77,280 divided into 27,728 fully paid up shares of Rs. 10 each. As the result of a run on the bank it was compelled to close its doors on 16th August last year. The day before the closing of the doors the directors filed a petition in this Court asking for the sanction of the scheme with which Appeal Ho. 75 is concerned. On 19th August a petition for the compulsory winding up was filed by the respondents and on the 30th of that month Gentle J. appointed provisional liquidators, who on 31st October presented a report which shows that the companys liabilities amount to Rs. 15,58,830 and its realizable assets to Rs. 10,52,955 leaving a deficit of Rupees 5,05,874. It is common ground that this report accurately states the position of the Bank.

2. The report also shows that certain directors, their friends and relations had obtained advances from the bank to the extent of Rs. 5,19,372 of which Rs. 4,54,611 is considered to be irrecoverable. The figures in the provisional liquidators report do not take into account the position in Cranganore nor in Colombo. The reason for this is that the officials of the bank failed to present statements showing the state of affairs at these two branches and we are informed by the learned advocate who appears for the official liquidators who were appointed on the passing of the winding up order that the information has not even yet been received. It is alleged that after the date of the appointment of the provisional liquidator a sum of Rs. 17,000 was withdrawn by the manager of the bank from the funds at Cranganore and Colombo and this matter is being investigated by the Master.

3. The scheme which the directors desire the Court to sanction is not a scheme of reconstruction but is really a scheme for the voluntary liquidation of the bank spread over a number of years, and if adopted it would only give the depositors part of what is due to them. Broadly speaking the proposals so far as the depositors are concerned are these : (1) The depositors to be paid two annas in the rupee with interest at the contract rate up to 15th August 1938 as and when their deposits fall due; after that date interest on fixed deposits to be three per cent., on savings bank deposits two per cent, and on sums on current accounts one per cent; (2) the depositors to be paid eight annas in the rupee spread over a period of four years (two annas each year) with interest at the rate of three per cent, per annum; (3) the depositors to convert two annas in the rupee into fully paid up shares of the company; (4) four annas in the rupee to be written off "provisionally," but the only hope of restoration being the collection of debts considered to be bad or doubtful. The scheme also provides that the share-holders are to give up twelve annas in the rupee of their paid up capital to be set apart as part of the provision for bad and doubtful debts." Considering that the loss on the business amounts to nearly twice the capital this is a remarkable provision. The scheme further provides that the share-holders are to forgo their rights in the reserve fund. According to the books the reserve fund amounts to Rs. 1,29,500 but the report of the provisional liquidators shows - and here again it is accepted as disclosing the true position - that no fund