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TMI Blog1985 (8) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... earned company judge, vide orders dated September 27, 1983, appointed Shri B.R. Tul to act as chairman to hold the meeting who after doing the needful forwarded four reports to this court of the meeting of the secured creditors, preferred creditors, unsecured creditors and all the shareholders held separately on the same date, i.e ., December 7, 1983. The scheme was approved by all others except the secured creditors who rejected the same. In spite of the rejection of the scheme by the secured creditors, the petitioner moved this application under rule 79 of the Companies (Court) Rules, 1959 (hereinafter referred to as "the Rules"), for its sanction. A notice was ordered to be issued to the Union of India and a citation published in the newspapers inviting objections. Only Industrial Finance Corporation of India filed objections within the prescribed period. Thereafter, the Industrial Credit and Investment Corporation of India moved two applications, C. A. Nos. 36 and 37 of 1984, for condonation of delay and for permission to place on record its objections to the proposed scheme. Similarly, the Life Insurance Corporation of India, Punjab National Bank, State Bank of Patiala, Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 392 was concerned and no question as to whether who can make the application under section 391(1) in the case of a company in liquidation was under consideration before the Supreme Court. The words, "or in the case of a company which is being wound up, by the liquidator" did not signify that in the case of such company, the liquidator alone can move the application and instead contain an enabling provision authorising the liquidator as well to move the court, apart from any creditor or member of the company. A similar view was expressed by a Division Bench of the Travancore Cochin High Court in A. M. Muhammed Abdulla Tharaganar v. Official Liquidator, Cape Comorin General Traffic Co. Ltd., AIR 1952 Trav. Coch. 243 ; [1953] 23 Comp Cas 161 relying on a decision of the Madras High Court in Travancore National and Quilon Bank Ltd., In re AIR 1939 Mad. 318; [1939] 9 Comp. Cas. 14 (Mad.) in the following words (at p. 162 of 23 Comp. Cas.): "The introduction of the words ' in the case of a company being wound up, of the liquidator' is intended to provide an additional and riot an exclusive person who could make the application. If a company, or a member, or a creditor may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be placed for consideration before the judge for such orders as may be necessary. Mr. H. L. Sibal, the learned counsel for the applicant, did not dispute this proposition nor the fact that the proposed arrangement had not been approved by the requisite majority of all the creditors as required under section 391(2) but sought to raise two contentions. Firstly, that the representatives of the secured creditors were not duly authorised to take part in the meeting with the result that their rejection of the scheme cannot be said to be an act of secured creditors. So, it was contended that the scheme having been never opposed by the secured creditors, would be deemed to have been consented to by them. I do appreciate the ingenuity of the argument of the learned counsel but there is no scope of pleading an implied approval of the proposed agreement or compromise under section 391(2) of the Act. Instead, the said sub-section lays down in categorical terms that the proposed arrangement or compromise has to be approved by a conscious act by the requisite majority of creditors. If it is held that the secured creditors which are financial institutions were not represented by properly au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the consent by the secured creditors and hold that the same has been done mala fide or arbittrarily. Further, even if it is found that the consent has been withheld mala fide or arbitrarily, it would be wholly beyond the jurisdiction of the company judge either to sanction the scheme in spite of its disapproval by the secured creditors or to issue a mandate to them to reconsider the scheme and accord their sanction. Mr. Sibal, however, argued that the power would be implicit in the functions which a company judge has to perform and the court would be fully competent to sanction a scheme without the consent of the secured creditors or issue a mandate to them to reconsider the same and accord their sanction if the scheme is found to be fairly reasonable and for the benefit of the parties concerned. In my view, the contention is wholly devoid of any merit. As already discussed above, to invoke the jurisdiction under section 391 of the Act to sanction the proposed arrangement, it is a condition precedent that the same must have been approved by the requisite majority as laid down in section 391(2). Unless the scheme brought before the court was so approved, it will have no jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost negligible. The total assets of the company would be far less than its liabilities to the said institutions alone. If the scheme is sanctioned, it would necessarily mean that the whole of the public money belonging to the financial institutions and banks would also become a bad debt and a total loss to those institutions. The proposal of payment to the financial institutions thus being wholly inadequate, they could not possibly agree to such a scheme. Even if the financial institutions for some reason or other would have agreed to such a scheme, no court would have approved of the same. The other provisions of the scheme are also highly disadvantageous to the secured creditors but need not be discussed in detail as the above reason alone would be sufficient for them to reject the proposed arrangement. The argument of the learned counsel that the secured creditors have withheld the sanction to the proposed scheme mala fide or arbitrarily, therefore, has no basis and is wholly imaginary. Faced with this situation, Mr. Sibal urged that the court has ample power under section 392 of the Act to modify the scheme to make it workable and in exercise of that power, the scheme may b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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