TaxTMI 
TaxTMI 
1949 (9) TMI 12
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....in such summary applications by creditors on a mere petition to adjudicate upon their rights under the scheme or their claim that they are not bound by the scheme. On enquiry I was told that there was a clause in each of the schemes sanctioned by the Court authorising this Court to entertain such applications and that it had been the practice of the Court to do so. I was still dubious as to whether the requisite majority of the creditors and/or members of the company could, by inserting a clause in a scheme, confer jurisdiction on the Court which it did not otherwise possess or whether the Court itself by sanctioning such a scheme could usurp a jurisdiction not otherwise vested in it. In view of the prevailing practice of the Court which, I felt convinced, should not be lightly interfered with, I thought it right that this important question should be heard and decided by a larger Bench and accordingly the present Bench was constituted. We also thought fit to request the learned Advocate-General to give us his assistance as amicus curiae which he has done in ample measures for which we are indeed indebted to him. The first scheme to be sanctioned by this Court was the one relating....
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....as payable in priority to other creditors. It was at best a patch up compromise. When the scheme, as it emerged from the meetings, came up before the Court for sanction, some of these persons, we are told, appeared in Court and opposed the scheme. Apart from other objections which were open to all other dissenting creditors these persons could, at that stage, take the objection which was peculiar to them, namely, that they formed a separate class of creditors whose interests were in conflict with those of depositors and other ordinary creditors and that separate meetings should have been convened for them and that that not having been done they were not bound by the scheme and consequently the scheme should not be sanctioned. At that stage the Court was only to decide whether it should sanction the scheme with or without modification or reject the scheme and that being the only issue before the Court and the special objection I have mentioned having been raised, the Court had to consider the general question whether persons who claimed to hold bank drafts or whose bills had been collected by the bank constituted a well defined and a separate class of creditors so as to be entitled ....
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....s and the scheme shall be subject to such directions and adjudications-16. The Bank shall furnish to the High Court, East Punjab, annual balance sheet with a report on the working on the scheme within one month from the formal adoption of the balance sheet-17. The appointment of auditors shall be subject to the approval of the High Court of East Punjab and it shall be open to the Court to appoint any additional auditor or auditors." We have been told that in all subsequent schemes same or similar clauses were inserted before they were sanctioned by the Court and the Court went on entertaining applications or mere petitions for adjudications upon all sorts of claims of priority or otherwise as matters arising out of the scheme. When the several applications for adjudicating upon the rights of the parties under or arising out of the scheme or otherwise came up before me as the Company Judge it occurred to me, apart from the illogicality in postponing until after the sanction the decision on a question which had to be decided before the scheme, that, when a scheme is sanctioned otherwise than in winding up proceedings and the Court does not retain its powers as the winding up Court o....
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....e matters set forth in clauses (a) to (f ) in sub-section (1) of that section. It will be noticed that these orders can only be made when the scheme is of the type mentioned in that section, from which fact and from the omission of any such provision from section 153 it must follow that in case of any other scheme the Court has no power after the scheme has been sanctioned to make any incidental, ancillary or consequential order. (g)Where the Insolvency Court sanctions a scheme of composition between the insolvent and his creditors the Presidency Towns Insolvency Act by section 30 expressly reserves to the Insolvency Court sanctioning the scheme the power to enforce it and by section 31 authorises the Court to set aside the scheme and read judge the debtor as insolvent. There are no such provisions in section 153 or in any other section of the Companies Act which may be applicable to a scheme, of the kind we are contemplating. This absence of provision in the Companies Act cannot but be regarded as significant. There may be difficulty in enforcing orders made by the Court on the applications that are now before us. Section 199 of the Companies Act provides that any order made und....
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....any is on the verge of being would up by reason of the existence of one or more of those circumstances or is being actually wound up. The special definition of "company" in sub-section (6) of section 153 indicates that a scheme cannot be proposed by any and every company as defined in section 2(2) but only by such of them as are liable to be wound up by reasons of its falling within one or more of the clauses of section 162. In other words the definition of "company" in sub-section (6) of section 153 is restrictive. An unregistered company may be wound up under section 271 but section 276 clearly provides that an unregistered company shall not be deemed to be a company under the Act except in the event of its being wound up and then only for the purposes of Part IX and, therefore, by virtue of this section there can be no scheme : with respect to an unregistered company. The conclusion is that a scheme can be proposed, under the Act, not with respect to all companies as defined in section 2 but only with respect to such of them as are liable to be wound up in the sense I have explained. The next step in the argument is that a scheme is an alternative mode of winding up, that is to ....
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....ngement could be entered into between the company and its members. The Act made no provision for a scheme in respect of a company which was being wound up by or under the supervision of the Court or which was not about to be or in course of being wound up at all. This inconvenience was to a certain extent removed by section 2 of the English Joint Stock Companies Arrangements Act, 1870 (33 and 34 Vic., C. 104) which read as follows:- "Where any compromise or arrangement shall be proposed between a company which is, at the time of the passing of this Act or afterwards, in the course of being wound up, either voluntarily or by or under the supervision of the Court, under the Companies Acts 1862 and 1867, or either of them, and the creditors of such company, or any class of such creditors, it shall be lawful for the Court, in addition to any other of its powers, on the application in a summary way of any creditor or the liquidator, to order that a meeting of such creditors or class of creditors shall be summoned in such manner as the Court shall direct, and if a majority in number representing three-fourths in value of such creditors or class of creditors present either in person or by....
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....re matters arising in winding up. This is how, I apprehend, the matter stood under the English Acts of 1862 and 1870. As long as those Acts were in force it was, therefore, only a truism to say that a scheme was an alternative mode of winding up. It was Vaughan Williams, J., who, in Re London Chartered Bank of Australia [1893] 8 Ch. 540, at p. 546, said:-"The scheme of arrangement under the Act of 1870 is-as I have had occasion to point out in several cases-an alternative mode of liquidation which the law allows the statutory majority of creditors to substitute for the pending winding up, whether voluntary or under the Court just as the Bankruptcy Act, 1869, allowed the creditors the substituted liquidation by arrangement under section 125, or composition under section 126 of that Act, for a pending banking bankruptcy."-The words "substitute for the pending winding up" and the words "substituted liquidation......for a pending bankruptcy" are important and clearly indicate that the scheme was a substitute or alternative to the winding up or bankruptcy which was actually pending. In the head-note of this case the reporter omitted the word "pending" and in later times Judges in Englan....
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....in the forms of the orders in Palmer to which I have referred. In such a case it may be possible for the winding up Court which sanctioned the scheme to entertain applications of the kind we have now before us. But when the company is not actually in liquidation but is about to be wound up in the sense that it has incurred the liability to being wound up under section 162, and a scheme is proposed in such circumstances, the scheme is an alternative mode of winding up only in the sense that it averts the winding up. If the company or the creditors or the members elect, out of two alternative remedies of liquidation and schema, to adopt the remedy by way of scheme, it cannot be permissible to claim the benefit of the provisions which are incidental or ancillary to the remedy by way of winding up which has been discarded. The company not being in actual liquidation the Court has not got the powers of the winding up and there can be no question of preserving those powers by the order sanctioning the scheme. To claim that on a scheme being sanctioned otherwise than in course of winding up, all the provisions of Part V of the Indian Companies Act, which apply to winding up, are attracted....
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.... only after the making of a winding up Order, e.g., Sections 184 to 187, 194, 195 and 196. Although in Sections 188 to 193 and in Sections 197 and 198 there is no mention of the making of a winding up order the language employed, namely, the use of the words liquidator or contributory, or distribution clearly indicates that those sections are also applicable only in case of winding up except perhaps section 197 which may be applied both before and after the making of an order of winding up. Sections 211 to 218 apply only in voluntary winding up and therefore section 216 is not available to support the present applications, for that section is expressly applicable only to matters arising in winding up. It is, therefore, clear there is no section in Part V, even if the provisions of that part could apply to proceedings outside that part, which can be called in aid and support these applications. The next argument is that the Court at the time of sanctioning the scheme could under section 153 of the Companies Act, go into the question of the rights of the bank draft holders or of persons whose bills had been collected by the Bank and there is nothing wrong if the Court postponed the ....
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....here has been nothing in the conduct of the company or its promotors or directors or officers which requires investigation. All these matters are to be considered by the Court only to enable itself to decide the only issue before it, namely whether the scheme as it has emerged from the meetings of the creditors and/or members should or should not be sanctioned. In order to ascertain whether the statute has been observed the Court must be satisfied that the meeting was properly convened and held. If the creditors have different interests and constitute separate classes then a general meeting of all creditors will not be the proper thing, for the views of a distinct class ought to be ascertained from the votes of that class only. A general meeting of all creditors may not protect the class interest as such. Therefore at the hearing for the sanction any creditor may appear and claim that he belongs to a special class of creditors and that the interest of that class has not been protected by the meeting which comprised all and sundry creditors and the Court will naturally have to enquire whether the body of persons making a similar claim as made by this objector do really form a separa....
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....tter may leave the mater to the particular Judge extra curusum curiae, i.e., authorising that particular Judge to give whatever decision he thought fit without following the strict and rigid rule of practice and procedure of the Court. This doctine can surely have no application if the persons to be affected are not actually present before the Court as parties when the matter is left to the Court. Nor can a matter be left to a Court as distinct from the particular person who is presiding over the Court at the time. The doctrine of extra curusum curiae cannot, in my judgment, be possibly invoked to support the provisions in paras. 3(d) and 15 of the scheme. An argument was sought to be founded on the decision in Subramania Ayyav v. Supparaya Pillai [1936] AIR 1936 Mad. 424. In that case Varadachariar, J., observed that although in the Provincial Insolvency Act there was no provision as the English Bankruptcy Act which was reproduced in 'Section 30 of the Presidency Towns Insolvency Act, nevertheless as the Provincial Insolvency Act was only a replica of the English Bankruptcy law, the Court should follow the English practice and enforce the scheme of composition. This part of the o....
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....pt into the scheme. In any case that decision was dissented from by Lort Williams, J., in Re Natore Kamala Bank, Ltd. [1937] AIR 1937 Cal. 124; 7 Comp. Cas. 178 See also In re Mymensingh Loan Office Ltd [1937] AIR 1937 Cal. 667 In the case before McNair, J., his Lordship did not give any reason whatever for his assuming jurisdiction. Indeed his Lordship's jurisdiction does not appear to have been seriously challenged at all. The decisions relied on, besides being instances where jurisdiction was exercised after the scheme has been sanctioned, throw no light on the question now in controversy before us and in the absence therein of any cogent reason I find it difficult to accept them as good and sound authority on the matter. Finally a forlorn attempt was made to save these applications by treating them as suits instituted in competent lower Courts and transferred to this Court in exercise of its extraordinary original civil jurisdiction, in order to do so there has to be actual proceedings in the competent subordinate Courts and a transfer cannot be founded on a fiction and extraordinary original civil jurisdiction cannot be exercised in the air. For the reasons stated above I am....
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....ourt has no jurisdiction to entertain any of them. These applications must therefore, be laid before the Company Judge to be disposed of in the light of the decision of this Full Bench. Although I have not been able, for reasons stated above, to support the practice that has heretofore been followed by this Court, I must say that that practice had the merit of providing a convenient forum for expeditious disposal of all disputes arising under or out of the scheme and saved the companies working under scheme sanctioned by the Court under section 153 as well as the creditors from long drawn litigations from Court to Court. In my judgment provisions should be made in our Companies Act enabling the Court sanctioning a scheme to make orders for enforcing the scheme and all other ancillary, incidental or consequential orders. It will now be for the legislature to consider the desirability of amending section 153 by introducing a sub-section on the lines of clause(f) of sub-section (1) of section 153A. Harnam Singh, J.-The question whether the High Court having sanctioned a scheme of arrangement under section 153 of the Companies Act, 1913, has jurisdiction to make directions and adjudi....
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....of the other banks. The claim petitions when they came up for preliminary hearing, my Lord the Chief Justice entertained doubts whether the Court having sanctioned a scheme of arrangement under section 153 of the Companies Act, 1913, has jurisdiction to entertain such claims and to adjudicate upon them and that being so, his Lordship ordered that the cases may be laid before a Full Bench of this Court. Now, I think it may not be undesirable in dealing with the question arising in these proceedings to examine the history of legislation on this point. In England at a very early stage in the history of joint-stock companies for trading and other purposes it was felt that companies are subject to business vicissitudes, and occasions arise at times in which it is found desirable to make a compromise or arrangement between a company and its creditors or some class of them, or between a company and its members, or some class of them. Now, prima facie, to bind the members of a class, whether of creditors or members to a compromise or arrangement in ralation to their individual rights, all the members of the class must concur in the compromise or arrangement; but this may be unpracticable....
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.... 1929 and section 153 of the Indian Companies Act, 1913, was amended in 1936 to bring it into line with section 153 of the English Act of 1929 and on a comparison of both the sections it will be seen that they are word for word the same. It appears from what is stated above that company legislation in India has followed the legislation in England. That being so, Courts in India are bound to follow the principles laid down in English Courts with regard to the same matter. In considering, therefore, the construction of section 153 of the Indian Companies Act, 1913, which is professedly based on the English enactment, and which it reproduces, almost word for word the language of the English enactment, and which relates to a branch of the law which is entirely English law, the Courts of India are in practice, if not in theory, bound by the decisions of the English Court of appeal. As stated above, the point that arises for consideration in these proceedings is whether the High Court sanctioning a scheme of arrangement under section 153 of the Indian Companies Act, 1913, has jurisdiction to make directions to the company concerned on the question of priorities and preferential payment....
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.... three-fourths in value of the creditors or class of creditors, or members or class of members, as the case may be, present either in person or by proxy at the meeting, agree to any compromise or arrangement. The powers of the Court under section 153(1) are limited to the matters stated therein. The Court may either sanction or refuse to sanction a scheme approved by creditors or members. Section 153(2) enacts condition as to the arrangement or compromise. It imposes no limits on the nature or character of the scheme. The one and only tacit condition is that what the Court is asked to sanction shall be reasonable and fair. Lindley, L.J., in Re Alabama New Orleans, Texas and Pacific, Railway Co. [1891] 1 Ch. 213, at pp. 238 and 239 said: "What the Court has to do is to see first of all, that the provisions of the statute have been complied with and, secondly, that the majority has been acting bona fide. The Court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting hon....
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.... Court no such power but merely deals with the class of creditors or the class of members as the case may be. That this is the correct view as to the powers of the Court under the Companies Act, 1913, 1 have no doubt for apart from principle the point is covered by authority. In In the matter of Mymensing Loan Office Limited AIR 1937 Cal. 667, Lort Williams, J., said :- "The powers of the Court under the Indian Companies Act are strictly limited to those given in specific sections, such as Sections 12, 38, 77, 153 and 162. Under section 153 it may order a meeting to be held to consider a scheme of arrangement and may grant or withhold sanction of such scheme. It cannot modify or alter or expunge any part of it without the consent of those who have agreed to it." That being the position of matters, it appears to me that section 153 does not empower the Court sanctioning the scheme to enquire into and adjudicate upon the nature and amount of the claim of any individual claimant. Having made these observations, I pass on to consider the contention that jurisdiction to enquire into priorities and preferential payments is implicit in section 153. In this connection reliance, is place....
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....amania Ayyar v. Supparaya Pillai AIR 1936 Mad. 424 counsel urges that the absence of a provision in the Companies Act, 1913, for the enforcement of a scheme of arrangement is wholly immaterial. I do not agree with him. In the first place compositions and schemes of arrangements under section 38 of the Provincial Insolvency Act, 1920, are made where a debtor, after the making of an order of adjudication, submits a proposal for a composition in satisfaction of his debts, or a proposal for a scheme of arrangement of his affairs. Section 38 enacts that if the Court approves the proposal, the terms shall be embodied in an order of the Court, and the order of adjudication shall be annulled and the provisions of section 37 shall apply, and the composition or scheme shall be binding on all the creditors so far as it relates to any debt due to them from the debtor and provable under the Act. Section 40 provides that if default is made in the payment of any instalment due in pursuance of the com position or scheme, or if it appears to the Court that the composition or scheme cannot proceed without injustice or undue delay, or that the approval of the Court was obtained by fraud, the Court ma....
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....ead with section 141 of the Civil Procedure Code, 1908. Section 141 of the Civil Procedure Code enacts:- "The procedure provided in this Code in regard to suits shall be followed, as far as it can be made applicable, in all proceedings in any Court of civil jurisdiction." Now, proceedings under the Indian Companies Act, 1913, may be said to be proceedings of the nature contemplated by section 141 of the Civil Procedure Code. Section 141, however, deals with procedure and procedure alone. It does not confer any substantive right, not expressly given elsewhere by the Code and the application of provisions of the Code of Civil Procedure dealing with substantive rights cannot be claimed merely on the strength of section 141. The provisions contained in section 90, Order 14, Rule 6, and Order 36, Rules 1 to 5 are not purely matters of procedure and that being so, it cannot be claimed that the Court acting under section 153 of the Companies Act, 1913, has all the powers which are conferred under the Code of Civil Procedure upon a Court of civil jurisdiction dealing with a suit. Again, it cannot be contended that a special case can be referred to a Court notwithstanding that the Court ....
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....pertain to the domain of procedural law and that being so section 90, Rule 6 of Order 14 and Rules 1 to 5 of Order 36 do not empower the Court sanctioning the composition or scheme of arrangement under section 153 of the Companies Act, 1913, to make directions of the type as are sought in the claim petitions before us. Then it is said that the High Court acting under section 153 of the Companies Act has inherent jurisdiction to enforce a scheme of arrangement sanctioned by it under section 153 of the Companies Act, 1913. The argument raised is that it is a fundamental principle of legal administration that where the law requires something to be done there must be in existence a Court that can directly order it to be done on the principle of ubi jus ibi remedium. Counsel cites British India Corporation, Ltd. v. Robert Menzies [1936] 58 988; 6 Comp. Cas. 250 , in support of the proposition advanced. The point that arose in that case was whether the company Judge has jurisdiction to order a company to deliver a copy of the register of members of the company to a shareholder of the company, though there was no express provision in the Companies Act empowering him to do so. On those fa....
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....Robert Menzies [1936] 58 All. 988; 6 Comp. Cas. 250 , does not, therefore, support the proposition advanced. It is, indeed, a truism that no legislative enactment can provide for all the cases that may arise, and it is an established principle that Courts must possess inherent powers, apart from the express provisions of the law, which are necessary to their existence and the proper discharge of duties imposed upon them by law. But it is equally true that Courts are not given, nor did they ever possess, an unrestricted and undefined power to make any order which they might consider was in the interests of justice. In the present case, the Court as found hereinafter having sanctioned a scheme of arrangement under section 193 not only becomes funcus officio but has no power to make orders as are sought in these cases as that would override the written text of the law embodied in section 153A(1). That being so, I find no force, on principle and authority, in the contention raised. Next it is said that schemes of arrangement under consideration make an express provision that the amounts held by the High Court of the East Punjab to be payable in priorty to the claims of other creditor....
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....923] 1 K.B. 160. The decision in that case was that the order sanctioning the scheme becomes binding not only on the creditors but also on the liquidators and contributories, so that whether the same be a valid one or not, a shareholder cannot afterwards question it. The decision in that case is no authority for the proposition that if the scheme of arragement purports to confer jurisdiction on a Court, which otherwise does not possess that jurisdiction, the jurisdiction of that Court cannot be challenged merely because the parties to a scheme of arrangement sanctioned under section 153 have conferred that jurisdiction on that Court. The question, then, is whether the Court having sanctioned a compromise or a scheme of arrangement under section 153 becomes functus officio or retains jurisdiction to enforce the scheme that has been sanctioned by that Court. My answer to this question is that the Court after sanctioning a compromise or a scheme of arrangement not falling under section 153A or section 153B does not retain jurisdiction to pass any order to enforce that compromise or that scheme of arrangement. As mentioned already section 30(2) of the Presidency Towns Insolvency Act, ....
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....ansferred to another company. In other words, the Legislature for good and sufficient reasons has not made any provision in the Act for the enforcement of a compromise or a scheme which is sanctioned under section 153 but does not come within section 153A of the Companies Act, 1913. From what is stated above, it would, therefore, appear that the Court sanctioning the compromise or arrangement, when that compromise or arrangement does not come within section 153A of the Companies Act, 1913, does not retain jurisdiction to make by any subsequent order provision inter alia for such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out. It is significant to notice in this connection that section 153A of the Indian Companies Act, 1913, which reproduces section 154 of the English Companies Act, 1929, was added by the Companies Amendment Act, 1936. That being so, the provisions of section 153A applicable to a compromise or a scheme of arrangement cannot be read into section 153 of the Companies Act, 1913, as being applicable to companies other than companies for the reconstructio....
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....estrain proceedings against the company, and Sections 268 and 273 give the same power to the Court to restrain proceedings against any contributory. Again Sections 171,265 and 274 peremptorily stay proceedings after an order has been made until the leave of the Court has been obtained to proceed with them. Now, section 153(5) empowers the Court to stay the commencement or continuation of any suit or proceedings against a company until the application under section 153(1) is finally disposed of. That being the situation the decision in Jalpaiguri Banking and Trading Corporation Ltd.'s case (supra ) has no warrant in law. Again in In the matter of Natore Kamala Bank Ltd's case (supra) , the scheme of arrangement was sanctioned by Ameer Ali, J., acting under the provisions of section 153 of the Companies Act, on 26th August, 1933. The petitioner who was a depositor in the Natore Kamala Bank, Limited, instituted a suit for the realisation of the sum of Rs. 425-5-0, being the deposit money. A consent decree was made on 21st June, 1933, whereby the bank was ordered to pay to the petitioner Rs. 87-2-6 within a month and a balance of Rs. 400 by two equal instalments in September/October, ....
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.... scheme. Not only would it be embarrassing to throw the burden of deciding the point upon the local subordinate Court but I see no reason for justice being done in this matter by an extremely round-about method, at the time when the notice of the scheme of the proposed meeting was given the petitioners had ceased to be depositors. They were fully justified in not attending the meeting. The meeting, I conceive, though sanctioned by the Court, had no right by a mere definition to include the petitioners within the scope of depositors, any more than a company would have the right by definition to include its general trade creditors, and in my opinion the petitioners are not bound by the scheme. The scheme having been sanctioned by the Court doubtless per in curiam or because the circumstances were not sufficiently explained to the learned Judge, the applicant's only remedy, in my judgment, is to come to this Court to have the scheme modified." Now, the rule laid down in this case must be considered as overruled by the decision of the Court sitting in appeal in Mahindra Kishore Dutt v. Brahmanbaria Loan Co., Ltd. [1934] AIR 1934 Cal. 816; 5 Comp. Cas. 1 It is true that the decision in ....
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....ing himself on the rule in In re London Chartered Bank of Australia [1893] 3 Ch. 540 said : "Section 153 of the Indian Companies Act makes provision not merely for schemes for the 'resuscitation' or 'reorganisation' of companies, but it also provides for 'schemes of arrangements' which in the words of Vaughan Williams, J., (used in reference to the corresponding section of the English Act) provide an alternative mode of liquidation, which the law allows the statutory majority of creditors to substitute for winding up, whether voluntary or under the Court." Now, the decision given in In re London Chartered Bank of Australia1 was under section 2 of the Joint Stock Companies Arrangement Act, 1870. As stated above, the Joint Stock Companies Arrangement Act, 1870, was confined to cases relating to liquidation and in fact providing an alternative or substitute in cases where it was applicable for the ordinary method of winding-up of the company under the Companies Act. The law has since been changed and a going company as well as a company in liquidation can now apply under section 153 of the English Companies Act, 1929, for a scheme of arrangement. That being so, the learned Advocate-G....
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....hangeable with the expression "can be wound up." Now, liability has a legal connotation. Salmond in his celebrated work on Jurisprudence, Edn. 10, at p. 364 says :-"Liability or responsibility is the bond of necessity that exists between the wrongdoer and the remedy of the wrong. This vinculum juris is not one of mere duty or obligation; it pertains not to the sphere of ought but to that of must. It has its source in the supreme will of the state, vindicating its supremacy by way of physical force in the last resort against the unconforming will of the individual. A man's liability consists in those things which he must do or suffer, because he has already failed in doing what he ought. It is the ultimatum of the law." Again, in In the matter of the Indian Companies Act VII of 1913 and of the Traders Bank, Ltd., Lahore [1949] AIR 1949 Lah. 48, Cornelius, J., said: "The expression 'liable' in a legal context importing sanctions, can only be understood to mean a state of being exposed or contingently subject to such sanctions. To take a simple example from the criminal law the mere fact that a punishment is prescribed for a particular offence does not render every person subject to ....
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.... to work the undertaking. Reconstruction and amalgamation, therefore, according to Palmer, are necessary only in the situation described by him at p. 564 of his work on Company Law. Again, considering the provisions of Insolvency law as obtaining in England and India, we come to the same conclusion. Section 38 of the Provincial Insolvency Act, 1920, provides for compositions and schemes of arrangement where a debtor after the making of an order of adjudication, submits a proposal for a composition in satisfaction of his debts, or a proposal for a scheme of arrangement of his affairs. Next it is urged that the definition of "company" in section 153(6) is descriptive and intended to extend the definition of "company" given in section 2(2) so as to allow a scheme of arrangement in respect of an unregistered company as stated in Palmer's Company Precedent, Edn. 15, Part II, pp. 1904-1905. As at present advised, I do not agree with this proposition. An unregistered company may be wound up under section 271. Section 276 provides that an unregistered company shall not, except in the event of its being wound up, be deemed to be a company under the Act, and then only to the extent provide....
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....bed above would not come within section 153 of the Companies Act, 1913. That may be so. But this does not mean that merely because a company which is not liable to be wound up cannot propose a scheme for its reconstruction under section 153 of the Companies Act, the expression "liable to be wound up" may be regarded as synonymous with the expression "can be wound up". Though the question is one of some difficulty and is untouched by any English or Indian authority I know the conclusion to which we must come. The decision of the question is, however, not necessary for the disposal of these cases, and therefore, reserving the point for my further consideration I shall assume for the purpose of these cases that a scheme can only be proposed under section 153 when the company is liable to be wound up under section 162 of the Act and proceed to consider the powers of the Court in that situation. The only argument that can be raised is that proceedings under section 153 being an alternative mode of winding up the Court can make directions as are sought in these cases under section 216 of the Act. The final step in the argument is that a scheme under section 153 being a provision to aver....
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....iving directions for the enforcement of a scheme of arrangement under section 153. Next, it would appear from an examination of section 153 itself that the proceedings under section 153 of the Act are not in the matter of the winding up of a company. Section 153 was amended by the Companies (Amendment) Act, 1936, when sub-sections (3), (4), (5) and (7) were added to section 153. Now, if the proceedings under section 153, Companies Act, 1913, were in the matter of the winding up of a company, the addition of sub-section (7) was not necessary. Sub-section (7) was, however, added for it was laid down in Viramgam Spinning and Manufacturing Co. Ltd. v. Industrial Bank of Western India Ltd [1925] AIR 1925 Bom. 442, that there was no appeal under section 202 of the Act from an order made under section 153 on an application by a company which was not in the course of being wound up and to remove that defect sub-section (7) gave a right of appeal in such cases. In this connection reference infer alia may be made to the decision in Mymensingh Loan Office, Limited [1937] AIR 1937 Cal. 667. This alone would show that proceedings under section 153, Companies Act, 1913, were not in the matter o....
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....on or power as the Company Court to entertain any application for enforcing the scheme, or modifying the scheme or to adjudicate upon the rights of parties arising under or out of the scheme and parties claiming under the scheme must assert their rights in such proceedings as may be permissible in law. Kapur, J.-This is a reference made by the Honourable the Chief Justice sitting as a Company Judge and the facts which have given rise to it may be shortly stated as follows. After the partition of the Punjab, several banks had to shift to what 13 now called East Punjab and to Delhi. Because of the partition, the position of their assets were very considerably affected and in the first instance there was a moratorium proclaimed by the Central Government and then these companies entered into arrangements with the creditors under section 153 of the Companies Act. Several schemes were presented. Civil Original No. 5 of 1947 was the case of the Lakshmi Commercial Bank Ltd., Civil Original No. 12 of 1947 of the Commercial Bank of India Ltd., Ludhiana, and Civil Original No. 1 of 1948 of the New Bank of India Ltd. These matters were heard by the then Company Judge, Achhru Ram, J., and we ....
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.... done. When the matter came before the Honourable the Chief Justice sitting as a Company Judge he doubted this procedure and referred to this Full Bench the question, whether, after a scheme has been sanctioned by this Court, this Court retains any jurisdiction to give directions or pass orders for the enforcement of the scheme or any part thereof. In support of the contention that the Court retains the power both for the purpose of giving directions and for the enforcement of the provisions of the scheme several arguments were addressed by the learned advocates who appeared in the case. It was in the first instance submitted that what the learned Company Judge Achhru Ram, J., did was what was variously described as a partial sanction to the scheme and the final sanction was to be given later or it was a sanction with a condition which was contained in the amendments suggested by the Court and incorporated in the original scheme as given above. With great respect to the learned advocates I am unable to agree with this contention. Section 153 runs as follows: - "153. (1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or bet....
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....red creditors. (7) An appeal shall lie from any order made by the Court exercising original jurisdiction under this section to the authority authorised to hear appeals from the decisions of the Court." As I understand the Act, it provides a machinery both where there is and where there is not a winding up proceeding in progress. In the first instance, an application is made to the Court to direct meetings of creditors or different classes of creditors and of members or class of members to be held to consider the proposed scheme. For the different meetings the court usually appoints different chairmen and the resolutions of the meetings require to the passed by three-fourths majority in value of those who are present in person or by proxy and vote and after the requisite majority has been obtained a petition is then presented to the Court to sanction the scheme and if it is approved an order is made by the Court sanctioning the scheme. The Court has to scrutinise the scheme and then if it finds it to be fair and reasonable and made in good faith it will sanction it if it could reasonably be supposed by sensible business people to be for the benefit of general class of members or t....
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....ified persons to vote for or against the scheme at the London meeting; the proxy papers were to be executed by the creditors in Australia and deposited at the offices of the company at the principal cities in Australia not later than three days previous to the meeting in London and the particulars and numbers of the proxies for and against the scheme were to be telegraphed to the Official Receiver. This being done, it was found that the statutory number of creditors including the Australian creditors were in favour of the scheme but without the Australian proxies the requisite majority was not there. This scheme was sanctioned by Vaughan Williams, J., and on appeal the Court of Appeal affirmed the judgment. In sanctioning the scheme Vaughan Williams, J., said : "But although I give my sanction to the scheme, it is only a provisional sanction ; I shall make a final order, and I shall give no direction whatever to the Official Receiver as to handing over the assets of the old bank to the new bank until I am satisfied as to the constitution of the new bank, as to its articles of association and as to its corporate existence." Now as I read this judgment, it is no authority for the p....
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....hat arrangements under section 153 were in the nature of alternative mode of winding up, but as I shall show later the observations of the learned Judge who decided that matter have not been correctly followed. I may here give the history of the matter. The English Companies Act of 1862 was not found sufficient to meet the needs of the companies and for that purpose in 1870 an Act called the Joint Stock Companies Arrangement Act was passed by Parliament. It was "an Act to facilitate compromises and arrangements between creditors and shareholders of Joint Stock and other companies in liquidation." Section 2 of the Act provided: "Where any compromise or arrangement shall be proposed between a company which is, at the time of the passing of this Act, or afterwards in the course of being wound up, either voluntarily or by or under the supervision of the Court, under the Companies Acts, 1862 and 1867, or either of them and the creditors of such company or any class of such creditors, it shall be lawful for the Court, in addition to any other of its powers, on the application in a summary way of any creditors, or the liquidator, to order that a meeting of such creditors or class of cred....
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....er, by section 87 of the Act of 1862, and, during voluntary liquidation by an order for a stay under section 138 in the case of any action being brought. The effect of this stay coupled with the stay of the winding up proceedings excepting so far as necessary for carrying out the scheme of arrangement, is to discharge the company and contributories from further liability." The learned Judge goes on to say: "It seems to me, also, that it is unnecessary at all events in a case where the arrangement is arrived at pending a winding up by the Court or under supervision, as distinguished from a mere voluntary winding up to introduce into the order sanctioning the scheme any express words staying proceedings by creditors by action, or discharging contributories from further liability beyond that imposed by the scheme, because this is necessarily implied by the sanction by the Court of the scheme disposing of the whole of assets of the company; but if those who ask for a reservation of rights against sureties wish to have an express order to stay, I do not know that there is any objection to this being done." I have quoted the words of Vaughan Williams, J., in extenso because it appears t....
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....ssing words might not be of much significance. In a more recent case In re Travancore National and Quilon Bank Ltd [1939] AIR 1939 Mad. 318, at p. 327; 9 Comp. Cas. 1 4, Venkataramana Rao, J., also observed that "a scheme under section 153 provides an alternative mode of winding up." In that judgment also the words mentioned above have been missed. Now section 153 is in Part IV which deals with management and administration and not Part V which deals with liquidation. That this is an important matter in interpreting this section is supported by the observations of Viscount Simon, L.C., in Nokes v. Doncasler Amalgamated Collieries Ltd. [1940] A.C. 1014, at 1021; 11 Comp. Cas. 83 , where dealing with section 154 of the English Act which is equivalent to section 153A of the Indian Act the learned Lord Chancellor said: "It is further argued on behalf of the respondents that section 154 constitutes a new and simpler machinery for the transfer of the undertaking of an old company to a new company, which thus acquires the undertaking without the necessity of the transferor company going into liquidation. As the Master of the Rolls observed in his judgment, the word 'transfer' is not a w....
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.... the Companies Act which deals with the application of insolvency rules in winding up of insolvent companies and section 230 which deals with priorities and preferential payments and section 231 which deals with fraudulent preferences are not applicable to schemes under section 153 of the Companies Act. It cannot be said that while the scheme is being worked anybody can come to the Court to provide his debts or claim priority or to get any fraudulent preference avoided as is possible under the above sections in the case of winding up proceedings. According to Palmer, Company Law, 18th Edition, p. 471, by section 154 (of the English Act), the Court may provide for the transfer of the company's business and the dissolution of the company without winding up and other incidental matters. Another argument in favour of this section not being in the nature of a winding up is that section 153 is a self contained Act and sub-clause (7) provides for appeals against orders passed under that section. If it was a matter in winding up section 202 of the Companies Act would have been sufficient to give power of appeal against such orders. In my opinion, therefore, this is not an alternative mod....
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....ed company in West Punjab. On the meaning of this expression "liable to be wound up" it was held that section 153 would have no application to an unregistered company unless an order for winding up had first been made and this was because of section 276 of the Act the relevant portion of which runs as follows: "An unregistered company shall not except in the event of its being wound up, be deemed to be a company under this Act, and then only to the extent provided by this part" (Part IX of the Act). Relying on this and on a decision of the Court of Appeal in Rudow v. Great Britain Mutual Life Assurance Society [1881] 17 Ch. D. 600 , it was held that the effect of section 276 of the Act was "to confine the mischief of section 153 to unregistered companies such as satisfy the condition of being wound up". But as the words underlined (here italicized) had, in that English case, been interpreted in the wider sense of extending to a time prior to the making of the winding up order but subsequent to the petition for the winding up the proceedings taken in accordance with section 153 were competent under the law. Now there is a difference of opinion between Rangoon and Bombay as to the e....
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....ature itself has defined the expression 'company' and has given it a wide signification, there is no reason for excluding a foreign company from its purview." The history of the section also shows that there has been a continuous liberalisation of section 153 so as to provide for as many eventualities as may arise for the purposes of arrangements and com promises in different circumstances including re-organisation, amalgamation and reconstruction. If the meaning of the words were as was suggested at the bar then the repeal of section 54 of the Companies Act and its re-arrangement in section 153(6) would have been meaningless. If I may say so with respect, the only way in which the word company as used in Sections 6(2), 153 (6), 271 and 276 of the Act can be reconciled with the quotation from Palmer referred to above is by interpreting the expression "liable to be wound up" in the manner that I have suggested above. The learned Advocate-General in reply referred us to Palmer's Company Precedents, Part II, pages 904-5 which has given the meaning of the expression "Company" as used in section 153(5) of the English Act which is corresponding to section 153(5) of the Indian Companies....
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....self does not give us. Merely because section 153 is an alternative mode of winding up or the words "liable to be wound up" mean that it is a company which has made itself liable to be wound up under section 162, cannot mean either that it is wound up and, therefore, the powers given under the winding-up part will be available to the Court, or it is a company which is about to be wound up or in the course of being wound up and make the provisions of section 216 applicable. If there are two alternative methods and one of them is chosen, it does not mean that the powers available under one can be used in the case of the other nor can liability to be wound up mean about to be wound. It was then contended that under section 153 of the Companies Act, the Court retains the power to give directions, to correct mistakes and to pass orders in order to enforce the scheme. The learned counsel were asked by the Bench whether the Court would have jurisdiction if a clause such as clause 15 of the amended scheme was not in the scheme. One learned Advocate submitted that the Court would not have such jurisdiction but another learned Advocate who argued later said that the Court would have the pow....
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....e policies had not, matured. The defendant who belonged to the latter class claimed a set-off and it was held that such persons formed a class of creditors distinct from those whose policies had not matured; that a separate meeting of such class ought to have been held under the Act in order to make the arrangement binding upon the members of that class and therefore, such a person could claim a set-off. Now this is very different from saying that the Court retains after sanctioning a scheme the power as a Company Court to adjudicate upon whether a particular person does or does not belong to a particular class of creditors or members. This was an ordinary action on a debt brought by the liquidator no doubt and the only question to be decided was whether the debtor was bound by the scheme or not and, if he was not, whether he could claim a set-off. This case does not support the argument that after the scheme is passed a Company Court can determine whether a particular person is or is not bound by the scheme because of his belonging to one class of creditors or the other. The next case relied upon by the learned counsel was Booth v. Walkden Spinning and Manufacturing Co. Ltd [1909....
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....iquidator's charges of Rs. 62,ooo. On this footing, the scheme went forward and the Court appears to have approved of the scheme in principle, and after the terms of the conveyance were examined by a person named it was to be submitted to the Court for its consideration and sanction and subsequently the Court did sanction the scheme. On appeal it was held by their Lordships of the Privy Council that the shareholders had not rented to the extra burden of Rs. 62,ooo and the scheme as amended must be sent for approval to the shareholders. If anything, it just proves that the Court could not sanction any amendment without the assent of the shareholders being taken. Some Indian cases were pressed in support of the argument by the learned counsel, the first one being In the matter of Dewargunj Bank and Industry Ltd. [1935] 5 Comp. Cas. 72 This was a judgment delivered on 5th March, 1934. It is contrary to a decision in a subsequent case of the Court of appeal Mahindra Kishore Dutt v. Brahmanbaria Loan Co. Ltd. [1935] 5 Comp. Cas. 1, decided by Costello and Lort-Williams, JJ., which must be taken to have overruled it, at least by implication. Dewargunj Bank's case (supra) was a case of d....
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....roved or imposed by the Court, and the clause is sometimes qualified, e.g., by adding the words 'and by the trustees for the debenture holders". The paragraph then continues thus: "In the absence of any such clause it is more than doubtful whether the Court can sanction a modified scheme or impose conditions which must operate by way of modification." I most respectfully agree with the view of the Court of appeal. The next case cited by the learned counsel was a judgment of McNair, J., In re Jalpaiguri Banking and Trading Corporation Ltd. [1936] 6 Comp. Cas. 399 There the learned Judge gave an injunction in favour of the Company restraining the decree holder from executing his decree. In the course of his judgment the learned Judge said : "There is no doubt that section 153 contemplates the type of arrangement which has been come to in this case and not merely a compromise or arrangement come to in or after a winding up order has been passed and it provides in clear language that when such compromise has been sanctioned by the Court, such compromise shall be binding on the creditors. Mr. Banerji has already one decree of this Court given against his contention that he was not boun....
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.... it and only then can the Court sanction or refuse to sanction, which is supported by the observations of Lord Atkin in Kamlapat Moti Lal v. Union Indian Sugar Mills Co., Ltd. [1929] AIR 1929 P.C. 256, where it was said :-"The accepted scheme provided for an advance of ten lacs : the new scheme evolved by the new situation provided for a further advance of Rs. 62,000.........the approval of the meeting was not taken as is usual in carefully drawn scheme subject to modifications to be approved by the Court. Their Lordships find it impossible to hold that the amended scheme had been approved by the shareholders at the meeting on 16th December or that the shareholders impliedly assented to an increased advance of Rs. 62,000." In another Privy Council case Smt. Premila Devi v. Peoples Bank of Northern India Ltd [1939] 9 Comp. Cas. 1 , it was held that "upon confirmation by the Court of a scheme of arrangement, that scheme becomes by virtue of section 153 binding upon the creditors, the shareholders and the company. Its terms can thereafter only be varied by order of the Court after the variation had been approved at meetings of the creditors and shareholders." In view of the decisions ....
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.... the Provincial Insolvency Act and it was submitted that in spite of the fact that in the Provincial Insolvency Act there was no such express provision, it still possessed the power to enforce a composition and scheme of arrangement arrived at. Reliance was placed for this on a judgment of Varadachariar, J., in Subramania Ayyar v. Supparaya Pillai [1936] AIR 1936 Mad. 424, and on Nizam Khan v. Hukam Chand [1942] ILR 1942 Lah. 330 wherein it was held that the Insolvency Court continues to have jurisdiction after an annulment of adjudication following a composition under section 38 of that Act or on an annulment under section 43 of that Act. In the former case a surety bond was furnished under a composition scheme and it was held that the court had the power to enforce the terms of the bond because an annulment under section 39 did not put an end to the jurisdiction of the Insolvency Court over all the parties. Reliance was in this case placed, firstly, on Raj Raghubar Singh v. Jai Indra Bahadur Singh [1919] 42 Sec. 158, which lays down that the Court to which a bond has been given had prima facie power to enforce it. It was further said (reliance being placed on various rulings refe....
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....ever Legislature wanted to give express power to the Court to exercise a particular power it has done so in specific words. I may refer here to sub-clause (f) of clause (1) of section 153-A and Sections 14, 33, 53 and several other sections. An argument which was pressed with some force was that the words of section 153 make it clear that the Court will have to decide as to what are the different classes of members or creditors and who could be included in each different class. As an example, it was submitted that if a person before the scheme is sanctioned comes to the Court and complains that although he is a preferential creditor notice sent to him is as if he was an ordinary unsecured creditor and it was contended that in that case it will be incumbent on the Court to decide (i) as to whether he is a creditor of that class and (ii) whether he has or has not got a notice to attend the meetings of the class to which he belongs. It may be necessary for the Court to decide for the purpose of complying with the statute to see whether different classes of persons who form distinct classes within the statute have held their respective meetings or not and if an occasion did arise and ....