1974 (7) TMI 77 - HC - Companies Law

Court denies scheme of compromise for liquidated company due to major creditor opposition, deeming it unreasonable and impracticable.

The court rejected the application to convene a meeting for a scheme of compromise and arrangement between a company under liquidation, creditors, and ... Compromise and arrangement Issues:Permission to convene meeting for scheme of compromise and arrangement between a company under liquidation, creditors, and members.Analysis:The judgment revolves around an application seeking permission to convene a meeting of shareholders and creditors to consider a scheme of compromise and arrangement between a company under liquidation and its creditors and members. The applicant, a creditor of the company, requested the court to allow the meeting. However, the scheme faced opposition from two secured creditors, namely the Gujarat State Financial Corporation and the State Bank of Saurashtra. These creditors argued that the scheme was neither reasonable nor practicable. The court noted that the company had been wound up, and the official liquidator was in the process of selling the company's assets. The two secured creditors had agreed to the sale, subject to certain conditions. The court highlighted the substantial dues owed to these creditors and their opposition to the scheme.The judgment referred to legal precedents such as In re Alabama, New Orleans, Texas and Pacific Junction Railway Company and Indian Crescent Bank Ltd., emphasizing the need for schemes to be reasonable and capable of implementation. The court considered the objections raised by the secured creditors, whose combined value represented a significant portion of the total creditors. The court concluded that convening a meeting of creditors would be futile due to the substantial opposition from key creditors. The court highlighted specific objections to the scheme, including proposals regarding the conversion of preferential shareholding, treatment of loan capital, and repayment terms for the creditors. The court also noted objections from the labor force regarding compensation and gratuity. Ultimately, the court found the scheme unreasonable and impracticable, especially considering the strong opposition from the two major secured creditors.In light of the significant objections and lack of feasibility, the court rejected the application to convene the meeting of shareholders and creditors. The judgment emphasized the importance of considering the interests of all stakeholders and ensuring the practicality and reasonableness of any proposed scheme. The court's decision was based on the substantial opposition from key creditors, indicating that the scheme was unlikely to garner the necessary support for approval.