BANGODAYA COTTON MILLS LTD. v. STATE — 1973 DIGILAW 143 (CAL)

A. N. SEN, J. ( 1 ) AN application was made to this court under Section 392 of the companies Act for sanctioning a modification in the Scheme, which had earlier been sanctioned by this Court. The only modification that has been asked for is an extension of time for making Payment in terms of the Scheme originally sanctioned. The said application of the company came up for hearing before me and I made an order on the said application sanctioning the said modification on the 21st of this month. At the time when the said application come up for consider action, no body had appeared to oppose the said application. ( 2 ) MR. N. C. Roy Chowdhury, the learned counsel, thereafter mentioned the matter and wanted to make submissions on behalf of a creditor who has filed an affidavit in opposition to the said application for sanctioning the modification of the scheme. Mr. Roy Chowdhury submitted before me that as he was engaged in some other Court he unfortunately could not be present at the time when the said application was called on and disposed of. I gave Mr. Roy Chowdhury liberty to make his submissions. ( 3 ) PURSUANT to the said leave granted by me the matter was argued by Mr. Roy Chowdhury before me and Mr. Roy Chowdhury submitted that the Court should not have sanctioned the said modification. Mr. Roy Chowdhury argued that unless a fresh meeting of the creditors had been called and the modification had been accepted by the creditors concerned at a meeting this Court had no power to sanction any modification of the scheme. It is the argument of Mr. Roy Chowdhury that the scheme of arrangement is really in the nature of an agreement between creditors and the company and without considering the views of the creditors at a meeting the scheme cannot be modified by this Court. Mr. Roy Chowdhury is support of this submission has referred to the decision of the Judicial committee in the case of Sm. Pramila Debi and Ors. Vs. Peoples Bank of Northern India Ltd. , A. I. R. (1938) P. C. 284. In that case Judicial committee held that upon confirmation by the Court of a scheme become by virtue of section 153 of the companies Act binding upon the creditor, the shareholders and the company. Pramila Debi and Ors. Vs. Peoples Bank of Northern India Ltd. , A. I. R. (1938) P. C. 284. In that case Judicial committee held that upon confirmation by the Court of a scheme become by virtue of section 153 of the companies Act binding upon the creditor, the shareholders and the company. Its terms can thereafter only the varied by order of the Court after the variation had been approved at a meeting of the creditors and shareholders and it is not possible for the company or its directors or shareholders and it is not possible for the company or its directors or share holders whether by resolution or ratification or otherwise to alter the scheme. The judicial committee further held it was not possible for the company or its directors to vary the scheme under the guise of a compromise with a shareholder, as no variation or departure from the scheme would be validated by mere acquiescence of the shareholders or the creditors. ( 4 ) MR. Roy Chowdhury has also relied on the decision of this court in the case of Natore Kamala Bank Ltd. reported in A. I. R. (1937) Cal. 124. Lord Williams J. in this case has held that powers of the court under Section 153 are strictly limited and the court may either sanction or refuse to sanction a scheme approved by the company and its creditors or members and the court ha no power upon an application to alter the scheme which has been sanctioned by the court and agreed to at a meeting under section 153 without giving parties to the agreement an opportunity of considering the scheme in the way the court proposes. Mr. Roy Chowdhury has next contended that in any event no proper materials have been placed before the court for according sanction to the modification and there are no materials on the basis of which the court can come to a conclusion that the modified scheme can be worked properly. ( 5 ) MR. D. K. Mitra, Solicitor and Mr. Pallab Banerjee Solicitor appearing on behalf of two other creditors have submitted that sanction to the modification should not be accorded as no proper materials have been placed before the court. ( 5 ) MR. D. K. Mitra, Solicitor and Mr. Pallab Banerjee Solicitor appearing on behalf of two other creditors have submitted that sanction to the modification should not be accorded as no proper materials have been placed before the court. They have submitted that even if it be held the court has the power to accord sanction to the modification without calling a meeting of the creditors, the court in the facts of the instant case should direct a meeting of the creditors to be called to ascertain the views of the creditors before according sanction to the modification prayed for. ( 6 ) MR. S. C. Sen, learned counsel appearing on behalf of the company, has submitted that by virtue of the provisions contained in section 392 the court undoubtedly has the power to sanction the modification without directing a fresh meeting of the creditors. Mr. Sen has pointed out that the decisions which were relied upon by Mr. Roy Chowdhury were on the basis of the provisions contained in Section 153 of the earlier Act of 1913 and in the said Act there was no power of the court to modify a scheme. Mr. Sen has contended that the earlier section 153 corresponds more or less to section 391 of the present Act and Section 392 has now been introduced in the new Act with the specific purpose of conferring these special powers which the court did not have under the earlier Act. It is the contention of Mr. Sen that taking into consideration that large number of companies have gone into liquidation the legislature felt that it was necessary to clothe the court with these special powers in the larger interest of seeing that the schemes of compromise are properly worked out and that he companies which are under a scheme continue to function on the basis of the scheme as sanctioned or with some modification if it necessary or are wound up. Mr. Sen has further pointed out that under Sub-Section (2) special powers have also been conferred on the court which the court can even exercise suo moto. ( 7 ) MR. Sen's submission is that by virtue of the provisions contained in section 392 the earlier decisions have really no application now. Mr. Mr. Sen has further pointed out that under Sub-Section (2) special powers have also been conferred on the court which the court can even exercise suo moto. ( 7 ) MR. Sen's submission is that by virtue of the provisions contained in section 392 the earlier decisions have really no application now. Mr. Sen has also drawn my attention to the provisions contained in Rules 86 and 87 of the companies (court) Rules, 1959. Mr. Sen has submitted that section 392 of the present Act and the said provisions in the Rules clearing indicate that the court has the power to accord sanction to a modification in a scheme already sanctioned without directing a fresh meeting of the creditors. Mr. Sen has next contended that in the facts of the instant case no meeting of the creditors should be directed as the modified scheme has been properly advertised in the newspapers and there is really no opposition from the majority of the creditors. Mr. Sen points out that the creditors who earlier opposed the sanction of the scheme are the only creditors who now appear to oppose this modification. Mr. Sen has submitted that the materials on record clearly go to indicate that the company has now started functioning and now will be in a position to implement the scheme. Mr. Sen has submitted that the installment will fall due in the month of June and the ability or otherwise of the company to pay the installment which will fall due in the month of June, 1973 will clearly indicate whether the company can honour the modified scheme. ( 8 ) IN my opinion, on a true construction of Section 392 this court undoubtedly has the power to accord sanction to any modification of a scheme which has already been sanctioned by the court without directing a fresh meeting of the creditors to be called. The decisions relied on by Mr. Roy Chowdhury are of no assistance. The said decisions are based on the provisions contained in section 153 of the Act of 1913. Section 392 of the present Act makes substantial changes in the legal position and the said section expressly authorises the court to sanction a modification in a scheme which has already been sanctioned by the court. ( 9 ) SECTION 392 is as follows : ?392. Section 392 of the present Act makes substantial changes in the legal position and the said section expressly authorises the court to sanction a modification in a scheme which has already been sanctioned by the court. ( 9 ) SECTION 392 is as follows : ?392. Power of High Court to enforce compromises and arrangements (1) Where a High Court makes an order under Section 391 sanctioning a compromise or an arrangement in respect of a company, it (a) shall have power to supervise the carrying out of the compromise or arrangement; and (1) may, at the time of making such order or at anytime thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the court aforesaid is satisfied that a compromise or arrangement sanctioned under Section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company , and such an order shall be deemed to be an order made under Section 433 of this Act. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made the commencement of this Act under section 153 of the Indian Companies Act, 1913, sanctioning a compromise or an arrangement. ? sub-Section (b) of Section 1, clearly provides that the court at any time after sanctioning a compromise or an arrangement in respect of a company may, make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. In according the sanction the court may in its discretion consider it necessary to ascertain the wishes of the creditors and may direct a meeting of the creditors and may direct a meeting of the creditors to be convened for that particular purpose. In according the sanction the court may in its discretion consider it necessary to ascertain the wishes of the creditors and may direct a meeting of the creditors and may direct a meeting of the creditors to be convened for that particular purpose. It is however not obligatory on the court, and even without directing any such meeting to be called the Court undoubtedly has the power and jurisdiction to accord sanction to a modification in a scheme whether in the facts of a particular case the court will direct a meeting of the creditors to be called before according its sanction to the compromise or not will essentially depend on the facts of the particular case. The provisions contained in the Rules 86 and 87 in my view also support this construction. Sub-Section (2) which provides that the court even on its own motion can make an order winding up the company, if the court is satisfied that a scheme can not be worked satisfactorily with or without modification, also indicates, to my mind, that the power conferred on the court under Sec. 392 can be used by the court without consulting the wishes of the creditors or the contributories. The Legislature has though it fit to confer these special powers on the court under Sec. 392 and it is essentially for the court to decide on the facts of a particular case as to whether and how the said powers should be exercised. I am therefore of the opinion that the first contention of Mr. Roy Chowdhury that the court does not have any power to accord sanction to any modification to a scheme which has already been sanctioned without directing a fresh meeting is not sound. I am clearly of the opinion that by virtue of the provisions contained in the present Act the court enjoys such power. ( 10 ) IN the fact of the instant case I do not also consider it necessary to direct a meeting of the creditors before according sanction. The modification has already been advertised in various newspapers. Majority of the creditors have not appeared and therefore, I can reasonably infer that the majority of the creditors do not have any objection to this particular modification. The modification, as I have already noted, is not also of a very serious nature. The modification has already been advertised in various newspapers. Majority of the creditors have not appeared and therefore, I can reasonably infer that the majority of the creditors do not have any objection to this particular modification. The modification, as I have already noted, is not also of a very serious nature. The modification only relates to an extension of time for making the payment in terms of the scheme. Taking into consideration the industrial climate of the State I am of the opinion that the said modification asked for by the company will be in the interest of the creditors and also of the company and the scheme is likely to work satisfactorily with this modification. The materials on record go to indicate that he company has started functioning and the company has obtained substantial finance from financial institutions. I am therefore of the opinion on the materials on record that the sanction should be accorded to the modification. The order that I have previously made will therefore stand. Sanction accorded in respect of modification of the scheme.