TMI Blog1975 (9) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the statement annexed to the report filed in C.A. No. 7 of 1974. The chairman was required to give a report stating the values of the various persons who voted and the way they had voted. On adding the figures for the persons who voted for the scheme and those who voted against it turns out that the creditors voting for the scheme were of a value of about Rs. 7,95,000 and those voting against the scheme were of a value of about Rs. 2,95,000. However, the petitioner claims that some of the proxies of the persons voting at the meeting were defective and, therefore, the court should re-determine the, voting result by first determining the validity of the proxies. There are many difficulties in this case, preventing such a procedure being adopted and it is also unnecessary, as there are manifest objections to the adoption of the scheme by the court. And, many creditors have filed objections to the sanction of the scheme. This matter can be dealt with very shortly, without going into the objections in any detail. Firstly, the application under section 39!( i ) of the Act which resulted in the holding of creditors' meeting, shows a large number of defects which are, in my view, ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed creditors and it was then mentioned to the court that the disputed creditors had not been mentioned in the list, annexure "A". The chairman was told to get the names of such persons from the company. Further, the following observations were made : "It is obviously in the interest of the company as it may prevent any later disputes about the validity of the meetings. In its own interest, the company should try to get disputed creditors also served with the notice ". Unfortunately, the company adopted the attitude that it should not take steps to serve the allegedly disputed creditors and if excluded the entire set of Government creditors, and accordingly the entire set of creditors were not served with notices. Thus, the meetings were held by the chairman of the company, Mr. Jindra Lal, senior advocate, with the greatest difficulty". At the meeting, the secured creditors who met separately, rejected the scheme by an overwhelming majority. However, the unsecured creditors who were present voted in the manner set out earlier. It is very apparent that it is difficult to determine what is the correct value of the persons who supported the scheme and what, is the correct v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are dealing with the case in which there was only one scheme before the court and that scheme was to apply to secured creditors as well as Unsecured creditors. If the secured creditors have rejected the scheme, it obviously cannot bind them. I do not see how the scheme can bind the unsecured creditors, even if they are assumed to have voted for it. The scheme is one scheme covering all classes of creditors and obviously it has to be passed by all classes of creditors if it is to be binding. If the scheme was relating only to unsecured creditors then its rejection by the secured creditors would not make any difference. It would still be binding on the unsecured creditors. The provisions of section 391(2) are quite clear. A scheme must either be binding on all the creditors or it may be binding on some of the creditors. The provision is very harsh to the extent that if a majority of creditors passes a scheme consisting of 3/4ths majority, it also binds the minority. When separate meetings were called for one composite scheme covering both the secured and unsecured creditors it became absolutely necessary that both meetings should pass the scheme by a 3/4ths majority. To refer agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, belonging to the National Small Scale Industries, will be made available for making automobile steering wheels. The National Small Scale Industries is the owner of that machine and it was given to the company under a hire purchase agreement. Unfortunately, the company could not pay the hire purchase instalments and, hence, the hire purchase agreement was terminated. The assumption on which the present scheme is based is that the National Small Scale Industries would be willing to let the petitioner-company use this machine for the purpose of the scheme. If the secured creditors have not approved the scheme, it clearly means that the machine is not available, and, therefore, the whole basis and foundation of the scheme falls to the ground. Obviously, such a scheme cannot be upheld by the court. In the circumstances detailed above, it would not be necessary to go into many details regarding the present scheme, nor into the question whether the court finds it reasonable or convenient or in the interest of the creditors, or even whether it finds the scheme feasible. Those considerations could only arise if the scheme had been adopted by the creditors, and, particularly, the Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the manner provided by section 391(2), it is necessary to find out who are the creditors and also the amounts due to them. It is only after the various formalities have been completed and all the creditors have been given notices of the meeting, can it be determined whether 3/4ths of them have supported the scheme and, thereafter, the court can consider whether the scheme should be sanctioned. It must be kept in view that the effect of the sanction is to enable the company to avoid its immediate liability, by propounding a scheme for making payments to the creditors, which has to meet the approval of the creditors. The purpose of such scheme is to enable the creditors to make up their minds whether it is better to wind up the company, or to get their payments by way of the proposed scheme or arrangement. If the company does not disclose full and complete details of the creditors and chooses not to give notices to the creditors, then the creditors cannot exercise the right to vote which is safeguarded to them by sub-section (2) of section 391, and, consequently, the court is unable to find out whether a 3/4ths majority has passed the scheme. It is regrettable that this situati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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