TMI Blog1932 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... eing wound up, of the liquidator, order a. meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. "(2)If a majority in number representing 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 compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on all the members or class of members, as the case may be, and also on the company, or in the case of a company in the course of being wound up, on the liquidator and contributories of the company." The scheme is supported by Mr. Baldwin, the Chairman of a Committee of creditors appointed at a meeting of the creditors on the 22nd July 1931. Mr. Baldwin appears in person. The scheme is opposed by Mr. and Mrs. Hormasji, Mrs. Matilda Brown and Mr. C.F. Brown, who are represented by Mr. McDonnell, and also by Sir Henry Pratt, for whom Mr. Wiseham appears. A preliminary objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the scheme." Now, the reason why the learned Judge expressed this opinion with regard to the vote cast by the proxy of Mrs. Saigol was that on the 16th of December 1931, a letter from Mrs. Saigol was received by the company in Rangoon purporting to cancel the proxy form empowering her proxy to vote at the meeting of the 11th December, 1931, in favour of the scheme. I confess, with all due deference to Das, J., that I do not appreciate what the learned Judge meant by the passage in his judgment that I have cited; for with respect to the vote cast at the meeting on behalf of Mrs. Saigol the question to be determined is not whether it is safe or unsafe to allow that vote to count, but whether Mrs. Saigol's vote cast at the meeting in favour of the scheme by her proxy was valid or not. Mr. McDonnell admitted that if Mrs. Saigol's proxy was duly appointed Mrs. Saigol voted in favour of the scheme; thus the question to be determined in connection with the proxies who voted in favour of the scheme is whether the proxy form approved by Sen, J., was valid or not. Mr. McDonnell frankly, and, in my opinion, inevitably, further conceded that Sen J., has jurisdiction to prescribe and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of proxy prescribed under rule 144 so far as material, is in the following terms: "I ..of ..a creditor (or contributory) hereby appoint to be . general proxy to vote at the meeting of creditors (or contributories) to be held in the above matter on the day of .19 .or at any adjournment thereof. Dated this .day of 19 Signature of witness(Signed.) Address .." The learned Advocate for respondents Nos. 1 to 4 contended, notwithstanding that the court possessed jurisdiction under section 153 to settle the proxy form which was to be used at the meeting, that all proxy forms were invalid unless there were in the terms of the proxy form prescribed under rule 144, and it was urged that inasmuch as in the proxy form approved by Sen, J., there were inserted before the proxy form was sent out the words "Mr. A.C.J. Baldwin, I. E. S., of Rangoon whom failing Mr. Lawrence Dawson, Liquidator", the votes cast by each and every proxy appointed under the form approved by Sen, J., were invalid as contravening rule 144 and 145. That arguments has found favour with Das, J., who in his judgment observed : "It seems to me that the attention of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any length of time in a province of the Indian Empire without being aware that one of the great difficulties that stand in the way of the cultivator is that he has not enough credit or capital to work as a free man should. Any bank, such as Dawsons Bank, which has for its object the financing of cultivators on honest and reasonable terms in order to enable them to cultivate the land without undue harassment had anxiety, is performing a public service. But the success of such a bank depends largely upon the proceeds of the paddy crop from year to year. A number of persons have deposited money with the bank for fixed periods, and the money so deposited has mainly been invested by way of loan upon petty agricultural adventures. Of course, so long as there is agricultural prosperity in Burma, Dawsons Bank will be in a flourishing condition, and the normal variation in the crop from year to year will not seriously affect its stability. But in an agricultural country like Burma some temporary disaster, coincident perhaps with other transitory difficulties, may occur which for the time being will render the collection of the debts due by the cultivators to an agricultural bank a matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal in the form of deposits the depositors have been given the option of taking either debentures or pre-preference shares, thus enabling the company to obtain fixed and more or less permanent capital with which to carry on its business. This scheme has received the unanimous support of the present preference shareholders and ordinary shareholders, and also of an overwhelming majority of the creditors, and the liquidators now petition the court to sanction the scheme with such modifications (if any) as the court may think it right to impose. Now, what is the duty of the court in such circumstances ? It is certainly not the function of the court to substitute its own scheme for the scheme presented to it for sanction, and if the court is of opinion that unless some radical amendment i effected, or the scheme is fundamentally altered, it ought not to be sanctioned, it is the duty of the court to reject the scheme. As to the manner in which the court ought to approach the consideration of a scheme presented to it for sanction under section 153 after it has been approved by the statutory majority of the creditors, I desire to cite, and make my own, certain observations of Lord Just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive term; it means reasonably with regard to the particular circumstances of the case. What is reasonable in one case might be unreasonable in another. The reasonableness must be always regarded with reference to other alternatives. For instance, an arrangement giving a very small benefit to creditors, if the alternative were absolute ruin to the company and no benefit to the creditors, would I think be reasonable." Now, the alternative to this scheme is the winding up of the company and the closing down of the business of the bank, and if it is not common ground, in my opinion, it is not a matter capable of dispute or open to challenge that any sudden realization of the assets, or anything like a forced sale, would be ruinous to the creditors. In these circumstances it is not unnatural that certain desultory and fantastic suggestions should from time to time have been made which (so far as I find them intelligible) are to the effect that it might be to the benefit of the creditors if the period for the liquidation of the bank's assets was extended by means of a moratorium, and the company in that way subjected to a lingering rather than a sudden death. I do not mean to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted in favour of the scheme. It is enough that the court should hold as we are prepared to hold that the view taken by the creditors as to the feasibility of the scheme is one "as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men." In one respect, however, we are of opinion that the scheme requires modification. We observe that the substratum of the scheme is that the price of paddy should not fall unduly below the rate of Rs. 100 for 100 baskets. The present price is stated to be Rs. 110 for 100 baskets, and the scheme is based upon on estimated price of Rs. 100 for 100 baskets. Upon that hypothesis it would not be unreasonable to surmise that the scheme can and will be carried through. Moreover, the view taken by the statutory majority of the creditors has been strengthened by the events that have happened, for in 1931-32, a year of un-presented depression, five per cent, interest on the deposits has been paid out of revenue. We think in such circumstances that it is not unreasonable that the rate of the debenture interest should have been fixed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein referred to, and also because the members of the committee were anxious so far as possible to compensate those depositors who might have wished to realize the capital that they had invested in the bank within a short period. But that is not the outlook of the business man, but of the utilitarian. In our opinion, having regard to the uncertainty in which the future of the agricultural industry of Burma is shrouded and the instability of paddy prices, the bank would not be justified in undertaking to pay interest on the debentures at a higher rate than 5 per cent, during the period in which the issue remains outstanding. This modification of the debenture interest will to some extent affect the rate of interest payable to the pre-preference shareholders, which we think ought to be 7 per cent, and not 7 per cent. The objections that have been raised to this scheme, in my opinion, are inconsistent, irrational and unreal. The respondent Sir Henry Pratt has expressed the opinion that the financial position of the bank is not unsatisfactory, and has made certain suggestions which he thinks, if followed, would, enable the creditors to realize their capital or a substantial portio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e replied that it was presented on behalf all his clients, and that Mr. Hormasji, has now changed his view as to the inability of the bank to meet its liabilities. It is a volte face on the part of Mr. Hormasji as complete as it is sudden. In my opinion the objection of the respondents to this scheme comes to nothing, and, so far from satisfying the court that the scheme is not a feasible arrangement that the court ought to sanction, the argument presented on behalf of the respondents, for what it is worth, tells in favour of the practicability of the scheme. For these reasons the appeal must be allowed, and the order of Das, J., set aside. The scheme modified in the sense that I I have indicated is sanctioned. As regards the costs in the court below the only order that we make is that the costs of the liquidators be borne by the company. As regards the costs of the appeal the costs of the liquidators will be paid by the respondents 20 gold mohurs. Cunliffe, J. I am of the same opinion, and on the technical point relating to the forms of proxy required I have nothing to add to what has been stated by my Lord. On the merits of the scheme, however, and on the attitude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 10 lakhs nearly 58 lakhs of debentures already being applied for. It was pointed out that immediately on issue the debentures would have some market value and also that on the voluntary liquidation being determined and reconstruction being completed, the company would be at liberty to resume its ordinary business and obtain fresh capital if necessary. Such then is the scheme regularly put forward by the statutory majority of the depositors; and it may be noted that it has always been stated throughout the record that a qualified chartered accountant was advising the committee throughout. It is interesting also to note that while a complaint on the part of the objectors was that no signed statements of either the chartered accountant or an expert in banking were before the learned Judge on the Original Side, yet when it was suggested by counsel for the liquidators that such statements were available, counsel for the objectors at once took strong exception to their being produced. The objectors represented before us by Mr. McDonnell and Mr. Wiseham had however no settled scheme of reconstruction to put forward as an alternative to the one above described. Originally the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of some class of creditors as such." The court is of course not a mere machine for registration. It will look into the proposed scheme much as a court of appeal will canvass, if asked to do so, the decision of a Jury, to ascertain if there was reasonable evidence to support their verdict; but it will, I think, always also prefer a living scheme to a compulsory liquidation bringing about an end to a company and, usually, without any hope of payment in full. I incline also to think that the onus of showing that any scheme is unreasonable would pritna facie fall on the objectors. I approve of the substantial reduction in debenture interest mentioned by my Lord and also of the slight reduction in the rate of interest on the new preference shares. Such a reduction will in my opinion, give greater freedom to the committee and to the liquidators in the furtherance of their new arrangement and an increased power to deal with unforeseen eventualities because the margin of liquid annual finance would be substantially enlarged. There are objections to every scheme and I can see objections in this one here, but they are not insuperable or fundamental objections; and I, therefore, pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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