Separate class meetings required for materially distinct creditor rights; absence of class approval prevents sanction of the scheme.

Section 153 demands that creditors whose rights are materially distinct be treated as separate classes and given separate meetings and class-majority approval; decree-holders and similar creditors were held to constitute such a separate class. Because no separate meeting or separate class approval was obtained for those creditors, the statutory procedure under Section 153 was not complied with and the proposed scheme of arrangement cannot be sanctioned in its present form. The court applied principles on creditor classification and class-majority consent, concluding absence of separate class approval invalidates sanction of the compromise.

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Issues: Whether the proposed scheme of arrangement can be sanctioned where decree-holders and other creditors constitute a separate class under Section 153 of the Indian Companies Act and no separate meeting of that class has been held.

Analysis: Section 153 allocates the power to compromise to creditors and members and contemplates classification of creditors with separate meetings and separate three-fourths majorities for each class. Authorities interpreting equivalent provisions under English law and prior decisions establish that creditors whose rights are materially different (for example, decree-holders or holders of matured claims versus depositors or holders of unmatured claims) form separate classes whose interests may be divergent. Where such separate classes have not had separate meetings, the statutory procedure for approval is not complied with and the requisite separate class consent cannot be treated as given.

Conclusion: The scheme of arrangement is not sanctioned because decree-holders and similar creditors constitute a separate class under Section 153 and no separate meeting or separate class approval was obtained.

Final Conclusion: The proposed compromise cannot be approved in the present form as the statutory requirement of separate class meetings and approvals under Section 153 has not been satisfied.

Ratio Decidendi: Where creditors fall into materially distinct classes, Section 153 requires separate meetings and class-majority approval for a scheme of arrangement; absence of such separate class approval invalidates sanction of the scheme.

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