TMI Blog1949 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 to the New Bank of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable 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 to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for all or any of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permissible only when the company 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 alternati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the creditors only and that no arrangement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to implement the scheme as if they were 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 "pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in order to give effect to the scheme as is shown 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these sections will at once show that they are in terms applicable 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 collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression of material facts, that the majority has not been oppressed and that there 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties is pending in a particular Court, the parties instead of fighting out the matter 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case before Buckland, J., the application was somewhat in the nature of correcting a mistake that had crept 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 fic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the applications which are now before us have been made come under clause (3) above and it must be held that this Court 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 sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the amounts due to them are payable in priority to the claims of other creditors. Similar claims have been made in the case 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern and also to the case of a company in liquidation. Section 120 of the English Act was replaced by section 153 of the English Companies Act of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the question which arises in these proceedings. Again, section 153(2) authorises the Court to sanction the scheme 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 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 clashi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ims, and whereas section 59 empowers the Court to fix the amount of debt of a dissentient creditor after enquiry and adjudication. Section 153 of the Companies Act gives the 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 observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if it has power to enforce the terms of the bond than ordinary Courts can do in a suit filed to enforce the bond if that bond is assigned to a third party." Basing himself on the reasoning in Subramania 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t implicit in the provisions of section 153. Again, it is said that the Court has jurisdiction to make directions as are sought in these cases under section 90, Order 14, Rule 6 and Order 35, Rules 1 to 5 read 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neself is usually determined as capacity. For all these reasons, I find that provisions of the Code of Civil Procedure dealing with the powers of civil Courts to deal with matters that come up before them do not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the case under section 26 of the Companies Act can in the interests of justice direct a company to supply copy of the register of members of the company to a shareholder of the company. British India Corporation Ltd. v. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In connection with the last-mentioned argument counsel maintains that the scheme having been sanctioned is not open to any challenge. Reliance is placed in this connection on the rule laid down in Bowkelt v. Pullers United Electric Works [1923] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme is to be transferred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bare statement of fact that the Court had power to stay proceedings in execution, there is no reason given in that judgment to sustain that conclusion. Sections 153 and 169 give the Court, in the interval between the presentation of a petition and an order upon it, a discretionary power to restrain 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .J., said: " A further point is taken whether I have jurisdiction to entertain this application and make the order. It is suggested that the proper course to be followed is for the decree-holders to execute their decree, which I am told would be at Rangpur, when they could contend before the local Court that they were not bound by the 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the present directors carrying on the liquidation, should be followed. I am aware of the various English decisions on this point. I do not, however, think that these decisions apply to the facts of this case." Young, C.J., was of the view that a scheme of arrangement under section 153 of the Companies Act, 1913, was a proceeding in liquidation. Again, Tek Chand, J., in the same case basing 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any company with the exceptions stated therein. The learned Advocate-General, basing himself on the passage from Palmer cited above urged that the definition of "company" in section 153(6) is merely descriptive and intended to extend the definition of "company" given in section 2(2) so as to allow a scheme in respect of an unregistered company. In other words, he maintains that the phrase "liable to be wound up" is inter-changeable 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (3) by proceedings under section 153 of the Act and (4) by a sale of all or most of the shares to another company." This passage from Palmer's Company Law indicates that proceedings under section 153 of the Act come into being when a company finds itself embarrassed by something in its constitution prejudicial to the successful carrying on of its business or when it finds at an ends of its financial resources and needs further capital 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these considerations, it appears that the expression "liable to be wound up" used in section 153(6) cannot be regarded as synonymous with the expression "can be wound up" under the Act. But, it may be said, that if the expression "liable to be wound up" as used in section 153(6) of the Companies Act is interpreted as I have explained above, schemes of reconstruction and amalgamation of companies which are not liable to be wound up in the sense described 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 211 to 218, both inclusive, shall apply to every winding up, whether a members' or a creditors' winding up and, therefore, section 216 is not available to sustain the applications before us for the application of section 216 is expressly limited to matters arising in winding up. That being so, and considering the observations of Viscount Simon in Nokes v. Doncasler Amalgamated Collieries, Ltd. [1940] A.C. 1014; 11 Comp. Cas. 83 , I think that section 216, was not intended for giving 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 [192 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties to the litigation before the Court when the matter is left to the decision of the Court. In the second place, no matter can be left to the decision of a Court as distinct from the particular person who is presiding over the Court at that time. For the foregoing reasons, I find that when a scheme of arrangement which does not come within Sections 153A and 153B is sanctioned otherwise than in the course of winding up the Court sanctioning the scheme has no further seisin on the scheme and has no jurisdiction 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appoint any additional auditor or auditors. Thus these modifications became part of the scheme wherein three clauses were added and sub-clause( d ) of clause 3 was amended. Similar kinds of amendments were made at the instance of the learned Company Judge in the schemes of the other banks also. As far as we are told, these schemes are in operation and whenever any directions had to be obtained, this Court was approached and the directions were given and if any order had to be passed for the enforcement of the schemes that was 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 Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er until the application is finally disposed of. (6) In this section the expression 'company' means any company liable to be wound up under this Act and the expression 'arrangement' includes re-organization of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both those methods, and for the purposes of this section unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al business of which was in Australia, stopped payment and was ordered to be wound up in England. A scheme of reconstruction was proposed by which a new bank was to be established which was to defray the liabilities of the old bank with certain exceptions. The Judge directed meetings of the shareholders and creditors to be held in order to ascertain their wishes as to the scheme and as it was necessary that this should be done without delay he made an order directing a form of proxy to be sent by the Official Receiver by telegram to Australia appointing specified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction on the Court which it does not otherwise possess. I have discussed above the powers of the Court and I do not think that any such power could be conferred by consent of the parties which the Act itself does not give. It was then contended that section 153 provided an alternative mode of winding up and, therefore, the Court would retain its jurisdiction after the sanctioning of the scheme just as it would in a matter of winding up. This contention also I must repel. It is true that in one English case some such words were used which gave an impression that 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bankruptcy. The discharge of the bankrupt in such case was statutory and not conventional, and therefore by operation of law. Just so here, under the Act of 1870. The discharge of the company or contributories under Joint Stock Companies Arrangement Act, 1870, is by operation of law effected by the stay of actions imposed, after winding up order, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al [1932] 56 Bom. 16 , where similar observations were made implying that section 153 provides an alternative mode of liquidation. There the words "to substitute for the pending winding up" seem to have been missed. But then that was a case where a company was in voluntary liquidation and a scheme propounded by persons not coming within section 153 of the Companies Act which was rejected by the Court and an appeal was filed by the propounded of the scheme and they were not allowed to appeal as being persons who could not be heard against a winding up petition. And perhaps in that case the missing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the nature of an alternative mode of winding up is made clear from the fact that the old section 54 which dealt with the re-organisation of share capital now forms part of section 153 and that certainly is not a matter which concerns winding up. Not only this, there is a separate section dealing with arrangements made where there is a voluntary winding up and following that is section 216 of the Companies Act which gives the power to a liquidator, contributory or creditor to apply to the Court to determine any question arising in the winding up of a company. This power is missing in section 153. Similarly section 229 of 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is such that they are exposed to winding up." According to the learned Judge these words could not embrace every company, whatever its nature, for the winding up of which provision is contained in the Companies Act and would not include unregistered companies. In the Lahore case after a winding up petition had been filed, a scheme was presented by the company, against which objections were filed by one of the depositors who also supported the winding up. As the company was one of which the registered office had been transferred to Delhi in the Dominion of India, the company had according to the learned Judge become an unregistered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the provision corresponding to section 153 of the Companies Act is applicable to the case of foreign companies because a foreign company is a company liable to be wound up under the Act. Therefore, section 153 of the Companies Act when it was first enacted contained the provision that the expression 'company' in clause (1) would mean a company liable to be wound up. There can be no doubt that the Travancore National Bank though incorporated outside British India and therefore a foreign company, would be an unregistered company within the meaning of Sections 270 and 271 of the Act. An unregistered company is a company liable to be wound up under the Act. When the legislature 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning given to the word by section 380 of the Act. The Court can apparently approve a scheme of arrangement affecting English creditors of a foreign company. This is convenient, as it may be doubted whether creditors whose debts were incurred in England and who are domiciled and resident in this country could be bound by a scheme sanctioned by the Courts of a foreign country. See Antony Sibbs and Sons v. La Societe Industrialie Et Commerciale Des Metaux [1890] 25 Q.B. 399 ; New Zealand Loan Mercantile Agency Co. v. Morrison [1898] A.C. 543." But even if the argument addressed at the bar were correct, I do not see how that would help us in assuming jurisdiction which the Act itself 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 alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overeign Life Assurance Co. v. Dodd [1892] 2 Q.B. 573 , and it was submitted on the basis of this authority that it was open to the Court to determine whether a particular person belonged to a particular class within the scheme or not. This case does not in my opinion support any such contention. In this case an action was brought by a liquidator to recover a debt from a defendant who was a policy holder which had matued. Before the scheme was passed the persons who were summoned to the meeting under section 2 of the Joint Stock Companies Arrangement Act, 1870, were the policy holders of the company, and no separate meeting was sanctioned of those whose policies had, as distinct from those whose 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... next case quoted was Kamlapat Moti Lal v. Union Indian War Mills Co., Ltd [1929] AIR 1929 P.C. 256 and it was contended by the learned counsel that this case supported his contention because in this case the scheme had been sanctioned and a deed of conveyance was to be executed late. In the first place this is not what happened in this case What did happen was that because money was required to satisfy the creditors of the company against which a winding up order had been made and frantic efforts were being made by the shareholders to save the concern ultimately Kamlapat put forward a scheme whereby he offered to advance Rs. 10,000. As more money was needed, he freed to advance a further sum of Rs. 37.000 and liquidator'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the persons who entered into the arrangement." In this case a scheme was presented by a company not in the course of winding up and it was passed by a meeting on 25th June, 1938, but not in the exact form which had originally been proposed. Certain alterations were made and it was the altered scheme which came before the Court for sanction which was given by Ameer Ali, J., with the addition of certain modifications and conditions and on appeal it was held that such a modified scheme could not be sanctioned reliance being placed on Palmer's Company Precedents, Edn. 14, Part. I, p. 1236, where it was said: "The scheme of arrangement usually contains a clause empowering the company or its liquidator to assent to any modifications or conditions approved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsequent to this the lady started proceedings before Panckridge, J., asking that the words in para. (1) of the schedule set out in the scheme of arrangement which included decree-holders in the term "depositors" be expunged. In other words, she asked for those provisions in the scheme of arrangement which prevented her from executing her decree to be deleted. The Court of appeal held : "The Court sanctioning the scheme has jurisdiction to entertain an application, for an order modifying a scheme so as to expunge from the scheme certain words preventing the decree-holder from executing his decree." This case also goes counter to the view that I have mentioned above that before a scheme can be amended another meeting of the persons interested should be summoned to consider 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 tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained decrees." The learned Judge held that the Court had no power to modify or alter the scheme without the consent of those who had agreed to it and that the powers of the Court "were strictly limited to those given in specific sections such as Sections 12, 38, 77, 153 and 162." It was observed by him that to hold that the Court has power to expunge part of a sanctioned scheme without the consent of those persons whose agreement to the scheme was essential before it could be sanctioned at all would be contrary to all principles of fairness and justice. In Bombay also a similar view has been taken in In re Kanti Cement and Industrial Co. Ltd [1937] 7 Comp. Cas. 348 A further argument was raised that the Court will have inherent powers to give relief by summary orders. This was based on the analogy of 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 , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of insolvency, because under section 40 of the Provincial Act if a debtor does not pay in accordance with the scheme he can be readjudged. No power is vested in the Company Courts after the scheme is once sanctioned. Besides that the argument in the Lahore case that I have referred to above was that in England from where the whole law had been taken the power did exist and must, therefore, be presumed to exist in the Courts under the Provincial Insolvency Act also. In the present case under the English Companies Act no power has been shown to exist in English Courts and even if the Indian Act may be a copy of the corresponding sections of the English statute it cannot be said that by the mere analogy of the Insolvency Act 'such a power would be inherent in the Court under the Companies Act. I would like to point out that wherever 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 ..... 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