Decree-Holder Status preserved: court expunges deeming clause that sought to bind pre-existing decree-holders to corporate scheme.

Persons who had obtained decrees before a scheme of arrangement was proposed remained decree-holders, not depositors, and therefore had no obligation to be bound by a subsequent sanctioned scheme that sought to deem them creditors; the Privy Council authority cited was inapplicable where the decree predated the agreement. The Court may expunge or modify parts of a sanctioned scheme if sanction was given without full appreciation of material circumstances or was per incuriam, and accordingly the deeming words were expunged and the petitioners were not bound; costs awarded against the company.

---

---

Issues: Whether persons who obtained decrees against a company before a scheme of arrangement was proposed and sanctioned under Section 153 of the Indian Companies Act are bound by a subsequent modification to the sanctioned scheme which purports to deem such decree-holders as creditors and bind them to the scheme, and whether the Court has jurisdiction to expunge those words from the sanctioned scheme.

Analysis: The petitioners had ceased to be depositors and had become decree-holders before any proposal or meeting concerning the scheme was made; they therefore had no obligation to attend the meeting that approved the scheme. The Privy Council decision cited (Raghubir Dayal v. Bank of Upper India Ltd.) dealt with depositors who obtained decrees after an agreement had been reached but before the Court's sanction, and is inapplicable where the decree predates the agreement. A meeting or a court-sanctioned scheme cannot, by simple definitional inclusion, convert decree-holders into depositors or bind them where their status had already changed. The Court may correct or modify a sanctioned scheme when the sanction was given without being fully apprised of material circumstances (per incuriam or insufficient explanation), and justice does not require the parties to pursue the point only through an execution action in a subordinate forum.

Conclusion: The words deeming those who had instituted suits and obtained decrees in respect of their deposits to be creditors and binding them to the scheme are expunged; the petitioners are not bound by that modification of the sanctioned scheme and the Court has jurisdiction to order the expunction. Costs are awarded against the company.

---