1979 (1) TMI 195 - SC - Companies Law

Whether the appellants would be comprehended in the expression any person interested in the affairs of the company? Whether the appellants have become the members of the company or are the creditors of the company? Held that - The judgment of the Division Bench dated 16th July 1976 is set aside and the order of the company judge dated 26th April 1976 is restored . It may be mentioned that the appellants agree to implement the scheme. They undertake to bring Rs. 3 lakhs as liquid finance for implementing the scheme. The question of the know-how was examined by the company judge who has accepted their fitness to run the business and nothing was pointed out to us to depart from the same. Therefore viewed from any angle we see no objection to granting the application of the appellants for substitution/modification as sponsor of the scheme.

Issues Involved:
1. Locus Standi of the Appellants to Move an Application under Section 392.
2. Interpretation of the Term "Modification" under Section 392.
3. Substitution of the Sponsor of the Scheme and its Implications.

Issue-wise Detailed Analysis:

1. Locus Standi of the Appellants to Move an Application under Section 392:
The High Court held that the appellants had no locus standi to maintain an application for modification/substitution under Section 392 because they were neither members nor creditors of the company, IHI. The appellants argued that this restrictive approach ran counter to the power of widest amplitude conferred on the court under Section 392, which allows the court to act on its own motion or on the application of any person interested in the affairs of the company. The Supreme Court agreed with the appellants, stating that Section 392 uses the expression "any person interested in the affairs of the company," which has a wider denotation than just a member or creditor. The court emphasized that the power conferred on the High Court under Section 392 is of the widest amplitude to ensure the proper working of the compromise or arrangement. Therefore, the appellants, having purchased shares and taken an assignment of debt from DFM, were considered sufficiently interested in the affairs of the company to maintain the application.

2. Interpretation of the Term "Modification" under Section 392:
The High Court interpreted the term "modification" in a restrictive manner, suggesting it only meant minor or slight changes. The appellants contended that the words "modify" and "modification" are defined in Section 2(29) of the Companies Act to include making additions and omissions. The Supreme Court held that the definition of "modify" and "modification" should be applied as given in the statute, unless the context otherwise requires. The court found nothing in the context of Section 392 to suggest a departure from this definition. Therefore, the term "modification" in Section 392 includes making additions and omissions to the scheme of compromise and/or arrangement, allowing the court to substitute one sponsor for another if necessary for the proper working of the scheme.

3. Substitution of the Sponsor of the Scheme and its Implications:
The High Court concluded that the substitution of the sponsor of a scheme was a change of a basic nature, not comprehended by the term "modification" under Section 392. The Supreme Court disagreed, stating that the scheme is essentially a compromise between the company and its creditors or members, and not between the sponsor and the creditors or members. The court noted that the appellants had a subsisting and vital interest in the fate and future of IHI, having purchased shares and taken an assignment of debt. The court emphasized that the power to modify the scheme under Section 392 includes the power to substitute one sponsor for another, provided the new sponsor is found fit and competent. The court found no objection to granting the appellants' application for substitution/modification as the sponsor of the scheme, noting that the appellants had undertaken to bring Rs. 3 lakhs as liquid finance for implementing the scheme and were deemed fit to run the business.

Conclusion:
The Supreme Court set aside the judgment of the Division Bench and restored the order of the company judge, allowing the appellants' application for substitution/modification as the sponsor of the scheme with costs throughout.

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