Compromise at creditors' meeting binding from meeting date, subject to subsequent court sanction; creditor held bound.

Whether a creditors' compromise approved by the requisite majority binds all creditors from the meeting date was resolved by construing the statutory phrase to mean the agreement is binding from the date it is arrived at at the meeting, subject to later judicial sanction; if the Court subsequently refuses sanction the compromise becomes without effect. The HC applied this construction of the statutory language to uphold the lower court's view and dismissed the appeal, resulting in the creditor being bound by the meeting-approved arrangement pending sanction.

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Issues: Whether a compromise or arrangement agreed at a meeting of creditors (approved by the requisite majority) becomes binding on creditors from the date of that meeting, subject to subsequent sanction by the Court, even where a creditor obtains a decree before the Court's sanction.

Analysis: The Court examined Section 153 of the Indian Companies Act and its language which provides for calling a meeting and states that if a majority in number representing three-fourths in value of the creditors present at the meeting agree to a compromise or arrangement, then the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors. The Court construed the phraseology to mean that the agreement becomes binding from the date it is arrived at at the meeting, subject to later judicial sanction; if the Court subsequently refuses sanction the agreement is without effect. The Court also noted the practical necessity of this construction to prevent a race among creditors and administrators and relied on the interpretation adopted by the Court below.

Conclusion: The compromise or arrangement agreed by the requisite majority at the creditors' meeting is binding from the date of the meeting, subject to subsequent sanction by the Court; consequently the appeal is dismissed and the view of the Court below is affirmed (i.e., the creditor was bound).

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