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of <h1>Court affirms power of majority creditors in insolvency composition arrangements</h1> <h3>Serajgunj Loan Office Ltd. Versus Nilakantha Lahiri</h3> The Court upheld the validity and enforceability of a composition arrangement sanctioned under Section 153 of the Companies Act, emphasizing the ... Compromise and arrangement Issues:1. Validity and enforceability of a composition arrangement sanctioned by the Court under Section 153 of the Companies Act.2. Binding effect of the majority creditors' agreement on the minority creditors.3. Interpretation of Section 153 of the Companies Act regarding the power of the majority to bind the minority in insolvency circumstances.Detailed Analysis:1. The judgment pertains to the validity and enforceability of a composition arrangement sanctioned by the Court under Section 153 of the Companies Act. The case involved a banking corporation facing financial difficulties, which proposed a composition with its creditors instead of winding-up proceedings. The Court sanctioned the arrangement, which included provisions such as a ten-year moratorium on creditor payments and reduced interest rates. The respondent, a creditor, sought to execute a decree obtained before the majority of creditors accepted the arrangement. The Court held that the respondent was bound by the sanctioned arrangement, emphasizing that Section 153 confers extraordinary power on the majority in insolvency situations to ensure equitable distribution of assets.2. The judgment addresses the binding effect of the majority creditors' agreement on the minority creditors. It highlights that the Court's sanction of the arrangement aims to safeguard the minority's interests and prevent one class of creditors from unfairly benefiting over another. The Court emphasized that unsecured creditors who had obtained decrees against the company were considered part of the same class as those who had not, thus binding them to the sanctioned arrangement approved by the majority. The decision aligns with previous rulings and principles ensuring fair treatment of all creditors within the same class.3. The interpretation of Section 153 of the Companies Act regarding the power of the majority to bind the minority in insolvency circumstances was a crucial aspect of the judgment. The Court emphasized that while an arrangement or composition is typically binding on contracting parties, in insolvency scenarios, the legislature sacrifices the principle of varying contracts by empowering the majority to bind the minority for equitable asset distribution. The judgment underscored the importance of Court sanction to ensure reasonableness, compliance with statutory provisions, and protection of minority rights. By following precedent and legal principles, the Court upheld the validity of the sanctioned arrangement and its binding effect on all creditors within the same class, including those with existing decrees against the company.In conclusion, the judgment establishes the authority of the majority creditors in insolvency situations, emphasizes the importance of Court-sanctioned arrangements for equitable distribution, and clarifies the binding effect of such arrangements on all creditors within the same class.
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