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TMI Blog1955 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... of the mortgaged property and to sell it in the event of non-fulfilment of the conditions mentioned in the deed. Repayment could not be made as agreed. On 12th February, 1954, Messrs. Jwala Prasad Radha Krishna, who claim to be the company's creditors but whose claim is denied by the company made an application for its compulsory winding up. In June, 1954, the Corporation exercised its right of taking possession of the company's property and entered into possession thereof. On 16th July, 1954. the present application was presented by the company. It may be pointed out at this stage that the paid-up capital of the company is about rupees eleven lakhs and its indebtedness exceeds rupees thirty-seven lakhs. From amongst the creditors the Corporation is a secured creditor. The Punjab National Bank is also a secured creditor in the sense that goods of an approximate value of rupees five lakhs have been pledged with the said bank. The Municipal Board of Lucknow is a secured creditor to the extent of rupees sixteen thousand and odd which amount it claims as taxes and which, according to its contention, is a charge on the property of the company under section 177 of the U.P. Municipali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received in court the company made an application for convening a meeting of the creditors so that the proposed scheme might be considered by them also. Then appeared on the scene a shareholder, Purshottam Das Maheswari, who, for the first time, came forward to object to the scheme. An order was, however, passed on 23rd December, 1954, directing the holding of the meetings of the creditors. The creditors were divided in four groups, viz., (i)secured creditors, i.e., the Corporation, the Punjab National Bank and the Municipal Board of Lucknow; (ii)employees of the company as owners of the provident fund; (iii)labour in respect of their wages; and (iv)other unsecured creditors. It may be stated at this stage that the Swadeshi Cotton Mills had by this time agreed to further raise the rent from Rs. 2,10,000 to Rs. 2,50,000. The meeting of the secured creditors was held on 13th March, 1955, that of the employees on 14th March, 1955, and that of the labour on 20th March, 1955. All of them passed resolutions approving of the salient features of the scheme but they made their consent conditional on the observance of certain conditions imposed by them. Each group wanted to add cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propose to discuss. The Industrial Finance Corporation was brought into existence by an Act of Legislature, viz., the Industrial Finance Corporation Act (XV of 1948), which was subsequently amended by Act XXVIII of 1952. As the preamble of the Act indicates, the Corporation has been created "for the purpose of making medium and long-term credits more readily available to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable." With this object in view the Industrial Finance Corporation advanced the loan to the company. Since the company failed to perform its obligations in respect of repayment of loan, the Corporation had power to take certain action against the company. This power is conferred by section 28 of the Act, and it consists in either taking over the management of the concern or of selling and realising the property pledged, mortgaged, hypothecated or assigned to the Corporation. It may be pointed out at this stage that it is nobody's case that the Corporation has taken over the management of the company. The power of granting a lease of the property of its de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of granting a lease. But Mr. Gupta contends that the Corporation has been given the power of granting loans and the power of granting a lease of the debtor's property is incidental to or consequential upon the exercise of the power of granting loans. With this contention also I am unable to agree. The power of making a lease of the debtor's property is neither incidental to nor consequential upon the power of granting a loan. On the contrary, it is a method of recovery of loan. In my opinion, clause (f) cannot be so construed as to include the power of granting a lease of the debtor's property. That is a special power which cannot be exercised unless it is specially conferred. It was next argued that the terms of the mortgage deed confer such power on the Corporation. The relevant portion of the deed conferring powers on the Corporation is as follows: "It shall be lawful for the Corporation to enter into and upon and take possession of the mortgaged premises and thenceforth quietly to possess, use and enjoy the same and receive the rents, income, profits and benefits thereof without interruption or hindrance by the company, the managing agents or by any person or persons whomsoev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although they have passed resolutions requesting the court to enforce the scheme at an early date, their resolutions, if analysed, lead to conflicting results. It is not possible to chalk out a scheme to which all of them agree. *** It was next contended by Mr. Gupta that I can modify the scheme as presented by the unsecured creditors and other bodies so as to evolve a workable scheme reconciling the conflicting claims of the different b6dies. It is to be seen whether I can do that. As I read section 153 of the Indian Companies Act, I interpret it to mean that it is open to the court, notwithstanding the fact that a scheme might have been unanimously agreed to by the creditors and the shareholders, to reject it if the requirements of the statute have not been complied with or the scheme is for any other reason unacceptable or unreasonable or the voting has not been proper or bona fide. If the court, however, finds that no such objection exists, it can sanction the scheme as passed by the creditors and the shareholders. I do not find any word in the language of sub-section (2) of section 153 which empowers the court to modify the scheme. The words "subject to such terms as the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council case of Kamalapat Moti Lal v. Union Indian Sugar Mills Co. Ltd AIR 1929 PC 256. In that case a body of shareholders had passed a certain resolution. Later on it was altered, and the loan the borrowing of which had been sanctioned by the shareholders was raised by a further sum of Rs. 62,000. The Privy Council held that such a scheme could not be sanctioned by the court. Their Lordships pointed out that possibly the shareholders, if told that the loan would be increased by Rs. 62,000, would not have agreed to the scheme. The view taken by the Calcutta High Court in the case of Mihirendra Kishore v. Brahmanbaria Loan Co. Ltd [1935] 5 Comp Cas 1 . is also to the same effect. There it was held that if a power has not been reserved in favour of the court to modify a scheme, the court cannot alter it. It must accept the scheme as passed. This case was followed in the cases of In re Jalpaiguri Banking & Trading Corporation AIR 1937 Cal 401 , and In re Mymensingh Loan Office Ltd [1937] 41 CWN 599. In this connection it is also useful to refer to a passage in Palmer's Company Precedents, Part 1,1951 Edition at page 1092. It runs as follows: "The scheme of arrangement usually contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held that the scheme should be altered to this extent that that class of creditors would not be bound by it. This did not mean altering the scheme. Another case relied upon by Mr. Gupta is that of In the matter of Peoples Bank of Northern India Ltd., [1932] 2 Comp Cas 283 . The remarks made by me in respect of the foregoing case apply to this ruling also, viz., that there is nothing to indicate whether or not power had been given to court to modify the scheme or whether there was any prohibition against modification. Lastly, reliance was placed on a sentence in Halsbury's Laws of England (Volume VI) in paragraph 1557 at page 772. It runs as follows: "The court may and often does impose conditions on its sanction to a scheme." This sentence may be an authority enabling a court to modify a scheme in the absence of a prohibition. But when an express prohibition has been made the case is different. As remarked earlier, the consent of the unsecured creditor was given on the understanding that the scheme, as' passed by them, was not to be modified by the court. Had they known that the scheme would be modified, they might have withheld their consent. Moreover, the points on which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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