The court affirmed authority under Section 391 to sanction a company reconstruction scheme that serves the interests of employees and creditors, emphasizing the need for fair and reasonable agreements among stakeholders.

1Star Tile Works Ltd., Kallai, Calicut was ordered to be wound up by order of this Court dated 23rd July 1976 passed in C.P. 11 of 1976. The Company itself had moved for such an order as it. found that it is unable to pay its debts. Besides some secured creditors there are large number of unsecured creditors among whom are the employees of the Company to whom arrears of salary, wages, Provident Fund and Gratuity are due. With the order for winding up all these employees were thrown out of employment and as a result their families have lost the means of their livelihood. The majority of these employees wanted to make an honest attempt to restart the Company and for that purpose contacted an expert in the line to find out how the Company can restart and carry on its business. After making the necessary investigations and enquiries a project report was prepared by that expert and handed over to the group of workers who contacted him. These workers also contacted the major creditors and shareholders to find out whether the creditors will be willing to accept the payment of a lesser sum and that over a period after the restart of the Company. It seems the creditors were very reasonable and agreed to wait for some time and to receive a sum lesser than due in full satisfaction. The major shareholders were also willing to assign their shares in favour of those workers who have come forward to make an effort to restart the Company. On these, a scheme was prepared to reconstruct the Company and by application No. 239 of 1977 filed under S.391 of the Companies Act the applicant -- an employee moved for an order to convene a meeting of the creditors and shareholders. By order dated 20th July 1977 the official liquidator was directed to prepare a list of the creditors -- secured and unsecured -- of the Company as disclosed by the books taken charge of by him. He submitted a list on 18th August 1977. The list contains the names of five secured creditors and 50 unsecured creditors to whom amounts are shown as due in relation to the business dealings of the Company. Besides them the list also contains the names of three Directors to whom money is due. The names of workers and staff to whom amount is due from the Company as gratuity, wage arrears and salary arrear, are also mentioned in the list. Since the amount due to these employees were not specified, by order dated 3rd November 1977 the Liquidator was directed to file a statement showing the amounts due to them. Such a statement with the list was filed by the Liquidator on 24th November 1977. A members' list was also submitted by the Liquidator along with the creditor's list. By my order dated 6th January 1978 a separate meeting of the creditors and members was directed to be held at the Registered Office of the Company at Calicut on 18th March 1978 to consider the scheme submitted to the court for sanction. By the same order Mr. P. K. Varghese, Advocate was appointed Chairman for both the meetings. Both the meetings were held as ordered on 18th March 1978 and two reports of the result of the meeting have been filed by the Chairman. It is stated in the report that slight modifications were suggested at the meeting and they were passed. The scheme as amended was unanimously approved by the creditors and the members and the reports contain a full text of the amended scheme which was passed by the creditors and the members.

2 Thereafter the applicant moved Company Application 272 of 1978 for an order to sanction the scheme. Notice of the application was given to the Liquidator, the Registrar of Companies and also to the Central Government as required by S.394A of the Companies Act. Notice of the hearing of the application was also published in the Mathrubhoomi daily dated 30th June, 1978 and Desabhimani dated 29th June 1978. The Regional Director, Company Law Board, Madras representing the Central Government submitted that the Central Government has no comments to make on the request of the a