The court retains discretion to refuse sanctioning a reconstruction scheme despite majority approval, particularly when misfeasance by directors and financial impracticality are evident.

1. This is an appeal by the Official Liquidators of a private limited company called "the Pioneer Dying House Limited" from the judgment of the learned District Judge Poona, sanctioning a scheme for reconstruction of the company. The facts leading to this appeal may be stated thus :

2. In 1941, a partnership firm by the name of "Pioneer Dying House" was formed for the purpose of dyeing, printing and processing Calico cloth. It consisted of three partners, D. B.Phatak, G. G. Ketkar and C. S. Phatak. On 1st of November, 1946, the firm was transformed into a Private Limited Company with an authorised capital of Rs. 5,00,000. D. B. Phatak was appointed a Managing Director of the company, while the two other partners. G G. Ketkar and C. S. Phatak were appointed Directors. On the 10th of November 1952, a petition for winding up of the company was filed by two creditors of the company. Harihar Ramkrishna Karandikar and Anandibai Karandikar. On the 2nd of February 1954, D. B. Phatak presented a scheme for reconstruction of the company, but the attempt to revive the company was given up as the scheme could not be worked out. On the 13th of August 1954, the learned District Judge, Poona, ordered the company to be wound up.

3. The company had constructed a building called 'Pioneer House' on the Laxmi Road. Poona D. B. Phatak, the Managing Director of the Company, made a claim that the building was of his private ownership and therefore, on the 6th of June 1955, the Official Liquidators filed Civil Suit No. 835 of 1955 against him and another person for a declaration that the building as well as the land under it were of the ownership of the company. The trial Court held by its judgment, dated the 24th of July 1956, that the building belonged to the company but the land under the building belonged to D. B. Phatak. The Official Liquidators did not challenge that part of the decree which was against the company but D. B Phatak filed Appeal No. 537 of 1956 in the District Court, Poona, to challenge the correctness of the decision that the building belonged to the company. By his judgment, dated the 24th of April 1959, the learned Extra - Assistant Judge, Poona, dismissed the appeal and confirmed the decree of the trial Court. D. B. Phatak filed Second Appeal No. 925 of 1959 in this Court against the decree of the District Court, but that appeal was withdrawn during the hearing of this appeal.

4. On the 2nd of November 1957, that is after the trial Court delivered its judgment in Suit No. 835 of 1955, the Official Liquidators filed a misfeasance summons against D. B. Phatak and others on the basis of the finding recorded by the trial Court that the Managing Director was guilty of fraud. That finding formed the subject - matter of the second appeal filed by the Managing Director in the High Court but as stated earlier, the appeal was withdrawn.

5. On the 12th of September 1964, that is more than ten years after the winding up order was passed, an application was filed in the District Court. Poona, by five persons propounding a scheme under S.153 of the Indian Companies Act, 1918, for the reconstruction of the company. Three of the five sponsors of the scheme are creditors of the company, while the two others Gopal Ganesh Ketkar and Achyut Dattatraya Phatak are the Directors of the company. Ketkar is a near relative of the Managing Director, while Achyut Dattatraya Phatak is the son of the Managing Director. Both of them are also said to be the creditors of the company.

6. Staled briefly, the following proposals are contained in the scheme :
(a) That the leasehold rights in the vacant plot of about three acres at Yerandavana, belonging to the company be sold to two persons, Lieutenant Colonel S. S. Pandit and K. D. Joshi for Rs. 1,85,000.
(b) That the value of the shares held by the shareholders of the company be reduced from Rs. 1,47,000 to Rs. 14,700.
(c) That the creditors of the company be paid a dividend of twenty - five paise from out of the sale