Court supervisory role cannot substitute creditors' approval; scheme remitted for reconsideration and outsider security deposit preserved.
Where meetings of creditors and contributories approved a compromise scheme, the court must exercise only supervisory oversight and may not decline or substitute implementation by preferring a creditor's alternate financier or reject the scheme for the implementer's non appearance without proper consideration; the District Judge's refusal on that ground was set aside and the matter remitted for decision in accordance with law. Separately, a deposit furnished by an outsider as security for performance cannot be appropriated as litigation costs payable to parties; the order directing expenditure of that deposit was set aside and the deposit must be retained to serve its intended purpose.
Issues: (i) Whether the learned District Judge was correct in rejecting a scheme sanctioned by meetings of creditors and contributories under section 153 of the Indian Companies Act; (ii) Whether the Rs. 1,000 deposited by an outsider to secure performance of the proposed scheme could be expended as ordered by the District Judge.
Issue (i): Whether the learned District Judge erred in rejecting the scheme sanctioned by the meetings of creditors and contributories under section 153 of the Indian Companies Act.
Analysis: The Court examined the facts that the scheme had been passed by meetings of both creditors and contributories, that the proposed implementer had participated in earlier proceedings and subsequently sought reinstatement, and that the Government which was a creditor had not opposed the scheme at the meeting but later sought to substitute its preferred financier. The Court noted that the decision as to acceptance and implementation of a scheme under section 153 lies with the contributories and creditors and that the court's role is supervisory; modifications ordered by the District Judge should be reconsidered by that judge in accordance with law.
Conclusion: The District Judge's rejection of the scheme on the ground of the alleged non-appearance of the proposed implementer was erroneous; the matter is remitted to the District Judge for decision in accordance with law.
Issue (ii): Whether the Rs. 1,000 deposited by the proposed implementer could be expended as directed by the District Judge.
Analysis: The Court considered the nature of the deposit as a security by an outsider to ensure implementation of the proposal and observed that such a deposit could not be treated as a confiscation payable to parties to the liquidation; liability for litigation costs normally lies with the company or parties to the litigation and not with an outsider who furnished a deposit to secure performance.
Conclusion: The portion of the District Judge's order directing expenditure of the Rs. 1,000 deposit is set aside and the deposit is to be retained to meet the purpose for which it was made.
Final Conclusion: The appeal is allowed in part: the case is remanded to the District Judge to decide the scheme in accordance with law and the appellate court's observations, the order directing expenditure of the deposit is set aside, and interim status quo ante is to be maintained pending further proceedings before the District Judge.
Ratio Decidendi: Where a scheme under section 153 has been approved by meetings of creditors and contributories, the court's supervisory role does not permit substituting a creditor's preferred financier or rejecting the scheme for the implementer's non-appearance without proper consideration; an outsider's deposit given to secure performance cannot be appropriated as costs against that outsider.
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