Scheme of arrangement binds decree-holding unsecured creditors when their rights remain the same class for collective decision-making.

A scheme of arrangement sanctioned under Section 153 of the Companies Act binds the minority once the statutory majority and court safeguards are satisfied. The court must be satisfied that the arrangement is reasonable, practicable and bona fide, and that distinct classes are properly treated without one class overriding another. Unsecured creditors who hold decrees are not, merely because of the decree, a separate class from other unsecured creditors where their rights against the company remain substantially the same for consultation and collective decision-making. The decree-holder was therefore bound by the sanctioned scheme, and independent execution could not proceed outside the composition accepted by the majority.

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Issues: Whether a creditor who had obtained a decree against the company before the creditors' meeting was bound by a scheme of arrangement sanctioned under Section 153 of the Companies Act, and whether decree-holders among unsecured creditors formed a separate class.

Analysis: Section 153 confers power on the majority of creditors, subject to court sanction, to bind the minority in a composition or arrangement. The court's safeguard is to ensure that the arrangement is reasonable, practicable, bona fide, and that distinct classes are properly treated without one class overriding another. Unsecured creditors who have obtained decrees are not, merely by reason of the decree, a separate class from unsecured creditors who have not obtained decrees, because their rights against the company remain substantially the same for the purpose of consultation and common decision-making under the scheme. Once the statutory requirements are satisfied and the arrangement is sanctioned, it binds all persons within the class represented by the majority.

Conclusion: The decree-holder was bound by the sanctioned scheme of arrangement, and the execution could not proceed independently of the composition accepted by the majority of creditors. The decision was against the respondent and in favour of the appellant company.

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