1932 (7) TMI 10 - HC - Companies Law

Compromise & arrangement, Winding up - Appeals from orders and Power of Supreme Court to make rules

Summary

Issues Involved:
1. Validity of the proxy form approved by Sen, J.
2. Whether the statutory majority of three-fourths in value of the creditors agreed to the scheme.
3. Merits of the scheme and whether it should be sanctioned.

Detailed Analysis:

1. Validity of the Proxy Form Approved by Sen, J.
The issue revolves around whether the proxy form approved by Sen, J., was valid. The proxy form used at the meeting of creditors on December 11, 1931, was challenged by Mr. McDonnell on the grounds that it did not conform to the prescribed forms under rules 144 and 145 of the Companies Act. The court held that Sen, J., had jurisdiction under section 153 of the Companies Act to settle the terms of the proxy form. It was concluded that any rule of the court that fetters this jurisdiction is inconsistent with the Act and hence ultra vires. Thus, the votes cast by proxies appointed under the form approved by Sen, J., were deemed valid.

2. Whether the Statutory Majority of Three-Fourths in Value of the Creditors Agreed to the Scheme
The court examined whether the statutory majority under section 153(2) was achieved. The votes, including and excluding Mrs. Saigol, were analyzed. It was determined that even if Mrs. Saigol's vote was excluded, the statutory majority of three-fourths in value of the creditors present either in person or by proxy approved the scheme. Therefore, the first objection to the scheme failed.

3. Merits of the Scheme and Whether it Should be Sanctioned
The court assessed the scheme's merits and whether it should be sanctioned. The scheme aimed to convert depositors' cash holdings into debentures or pre-preference shares, thereby providing the company with fixed and more or less permanent capital. The court emphasized that its function was not to substitute its own scheme but to ensure that the statutory provisions were complied with, the majority acted bona fide, and the scheme was reasonable.

The court cited Lord Justice Lindley's observations, emphasizing that the court must see if the majority acted bona fide and whether the scheme was reasonable. The alternative to the scheme was the winding up of the company, which would be ruinous to the creditors. The court found that the scheme was a reasonable method to overcome the difficulties faced by the bank due to the partial collapse of the paddy market in Burma.

The court also addressed the future interest rates on debentures and pre-preference shares. It modified the scheme to fix the debenture interest at 5% for the entire period and reduce the interest on pre-preference shares to 7%. The objections raised by the respondents were found to be inconsistent and irrational. The court held that the scheme was feasible and should be sanctioned with the modifications indicated.

Conclusion:
The appeal was allowed, the order of Das, J., was set aside, and the scheme, as modified, was sanctioned. The costs of the liquidators in the court below were to be borne by the company, and the costs of the appeal were to be paid by the respondents.