TMI Blog1950 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... not been given to the creditors in Pakistan. Section 153 of the Indian Companies Act deals with the right of companies to enter into a compromise or arrangement, ( a ) between itself and its creditors or any class of them, or ( b ) between itself and its members or any class of them. The procedure is as follows: First of all an application has to be made to the court for leave to call a meeting or meetings ( a ) of the shareholders or the class of shareholders, where the arrangement is intended to be between the company and the shareholders or a class of them; or ( b ) of creditors, where the compromise or arrangement is intended to be made between the company and the creditors or any class of them. "Where there are different classes, separate meetings of each class must be held. After the meeting is held, if a majority in number representing three-fouths in value of the class of creditors or members present either in person or by proxy at the meeting agree to the compromise or arrangement, the matter is brought before the court for its sanction. The matter is then dealt with by the court and if sanctioned, the scheme or compromise becomes binding on the shareholders or the class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. (See Buckley on The Companies Acts, 12th Ed., page 411). It must be noticed that section 153 (2) allows the decision of the majority to bind the minority and therefore it is incumbent on the court to see that that decision does not act oppressively on the minority. The principles have been enunciated in the leading case of: In re Alabama, New Orleans, Texas and Pacific Junction Railway Co., which has been followed ever since. The net result of the cases, as I understand them, is that in sanctioning a scheme the court must see that it is a reasonable scheme and it is a practicable scheme. It is clear that the court cannot confirm a scheme which has not been sanctioned by the majority as required by section 153 (2). In other words, the sanction of the majority is prerequisite for confirmation of the scheme by the court. Before the passing of the Banking Companies Act, 1949 (subsequently amended by the Act of 1950), the law, as I have stated above, was applicable to the cases of banks as well, incorporated under the Companies Act. But the Banking Companies Act imposes a further condition in respect of schemes which relate to banks and that condition is enacted in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation, without being sanctioned as required under section 153 (2), the court is not entitled to confirm it, because the court has no jurisdiction to grant sanction to such a scheme. Of course, if the changes made by the Reserve Bank are nominal only, then these observations will not apply. In other words, the changes made by the Reserve Bank which deprive the court of its jurisdiction must be substantial changes. In this case what has happened is this. There were preliminary directions given. Meetings were held and a scheme was sanctioned by the majority under section 153 (2) of the Companies Act. But that scheme was modified by the Reserve Bank. The scheme sanctioned by the majority has been set out in the judgment of Bachawat, J., and it is not necessary for me to set that out in this judgment except a few clauses to show as to how the Reserve Bank has modified the scheme as sanctioned by the majority: "10.( a )The Board of Directors will be reconstituted. There will be seven directors of whom four will be elected by the depositors, and three by the shareholders. ( b )The depositors' directors will he elected by the depositors having claims over Rs. 100 as on the 9th day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of clause 10 has been deleted. Sub-clause ( e ) has been changed to sub-clause ( d ) and the words "of whom two should be depositors' directors" have been inserted after the words three directors at the beginning. The following new clause has been added to the scheme: "12. If the bank is at any time unable to fulfil its obligations under the scheme within the stipulated periods it shall submit a report to the court for such action as the court may deem fit." These changes are substantial changes and we think that the scheme that was presented to the court was not the scheme that was sanctioned by the requisite majority under section 153 (2). On this ground alone this court would be justified in refusing the scheme and the order of Bachawat, J. can be sustained. But we have gone into the merits of the case and we are of opinion that on the merits the scheme should not be sanctioned. As I have said, the scheme must be a reasonable one and a practicable one, The position of the bank as set out in the affidavit of its Secretary used in these proceedings is, for the sake of convenience, reproduced below: The position as on 31st December, 1949: Liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther interesting sums which make up the said figure of Rs. 44,95,000. For example "( i ) Debts considered good in respect of which the bank is fully secured ... Rs.13,13,613-2-3 ( ii ) Debts considered good in respect of which the bank holds no security other than the debtors' personal security ... Rs.13,29,500-13-8" The bank, it seems, advanced on personal security more money than it advanced on security of property. It appears from the balance sheet that there are ( a ) "debts owing by directors or officers of the bank or any of them either severally or jointly with other persons" ( b ) "debts due by companies or firms in which the directors of the bank or interested as directors, partners, etc.", ( c ) "loans including temporary advances made to directors or managers or officers of the company." On these heads, the sums amount to about rupees three lacs. In the course of the hearing we asked if the directors or officers of the bank who owe money to the bank were prepared to bring the money into court forthwith. There was no answer. No director or officer came forward to repay his debt. From our experience, we k ..... X X X X Extracts X X X X X X X X Extracts X X X X
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