1919 (1) TMI 1 - HC - Companies Law

Summary

Issues: Interpretation of Section 153 of the Indian Companies Act regarding the binding nature of a compromise or arrangement between a company and its creditors.

In this judgment by the Bombay High Court, the issue at hand is the interpretation of Section 153 of the Indian Companies Act concerning the binding nature of a compromise or arrangement between a company and its creditors. The case involved a bank that closed its doors, and a customer who had a fixed deposit with the bank. The customer initiated legal proceedings to recover his money, while the bank's creditors met and approved a scheme under Section 153. The key question was whether the creditor was bound by the scheme approved by the majority of creditors before the Court's sanction. The Court of the Judicial Commissioner held that the agreement was binding from the date it was made, subject to subsequent Court sanction. The literal language of the section supported this view, as the compromise or arrangement was to be binding if sanctioned by the Court, based on the proceedings of the meeting. The judgment affirmed the lower court's decision, stating that the agreement takes effect from the date it is made, even before Court sanction, and dismissed the appeal with costs.

This judgment provides clarity on the timing of the binding nature of a compromise or arrangement under Section 153 of the Indian Companies Act. It emphasizes that the agreement between a company and its creditors becomes binding from the date it is reached, subject to subsequent Court sanction. The Court's sanction does not retroactively validate the agreement but rather ensures its future enforceability. The literal language of the section supports this interpretation, highlighting the importance of the meeting proceedings and majority approval in determining the binding nature of the arrangement. The judgment underscores the need for certainty and stability in financial arrangements, preventing a race between creditors and administrators by establishing the agreement's binding effect from the date of its creation.