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1919 Supreme(SC) 5
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT HALDANE, VISCOUNT CAVE, LORD PHILLIMORE, SIR JOHN EDGE, AND MR. AMEER ALI.
RAGHUBAR DAYAL - Appellant
Versus
BANK OF UPPER INDIA, LIMITED (IN LIQUIDATION) - Respondents
On Appeal from the Court of the Judicial Commissioner of Oudh.
Decided On : Jan. 31. 1919.
Important Points
Subject
Company Law - Corporate Restructuring
Act Referred
Headnote
Facts of the case:
A customer had a fixed deposit with a bank which suspended payments. The customer filed a suit for recovery of the deposit and interest. Subsequently, a meeting of creditors was held where a majority agreed to a proposed arrangement for the bank to resume business. The customer obtained a decree for payment after the creditors' meeting but before the court sanctioned the arrangement. Upon applying for execution of the decree, the bank objected on the ground that the customer was bound by the sanctioned arrangement.
Findings of Court:
The customer is bound by the arrangement as the decree was granted after the meeting at which the resolution and the scheme were agreed upon, even though the court's sanction was granted later.
Issues: Whether a creditor who obtained a decree after the creditors' meeting but before the court's sanction of a scheme of arrangement under Section 153 of the Indian Companies Act is bound by such arrangement.
Ratio Decidendi: Under Section 153, the compromise or arrangement, once agreed upon by the requisite majority, is binding from the date of the agreement, provided it is subsequently sanctioned by the Court. The words "if sanctioned by the Court" indicate a condition for the agreement to be effective, not the date from which it begins to operate. This interpretation prevents a race between creditors to obtain decrees before the court's formal sanction.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
-
company law
-
corporate restructuring
- compromises and arrangements
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corporate restructuring
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practice and procedure
- execution of decrees
Solicitors for appellant:T. L. Wilson & Co. Solicitors for respondents: Torr & Co.
Judgement
Appeal from a judgment and decree of the Court of the Judicial Commissioner (September 16, 1915) modifying a decree of the Subordinate Judge of Lucknow.
On May 31, 1913, the appellant deposited with the respondent bank the sum of Rs. 25,000, which under the terms of the deposit he was entitled to withdraw on or after November 30, 1914. On October 8, 1914, the respondent bank suspended payment.
On December 21, 1914, an extraordinary meeting of the shareholders adopted a proposed arrangement dealing with the rights of the creditors with a view to the bank resuming its business, and resolved to apply to the Court under s. 153 of the Indian Companies Act for its sanction. An application was accordingly made on December 21 to the High Court at Allahabad, and on December 23 that Court ordered that a meeting of the creditors be held at Meerut, the headquarters of the bank, to consider the proposed arrangement, notice to the various classes of creditors being provided for.
Meanwhile, on December 19, 1914, the appellant, after giving 24 hours notice requiring repayment of his deposit, filed a suit to recover the principal and interest in the court of the Subordinate Judge of Lucknow.
7 Law Rep. 46 Ind. App. 135 ( 1918- 1919)
Raghubar Dayal V. Bank of Upper India, Limited 18
The meeting of the creditors was held on March 4, 1915, when a majority in number representing three-fourths in value of those present (as provided by s. 153) agreed to the proposed arrangement. The appellant received due notice of the meeting, but was not an assenting party to the scheme.
On April 17, 1915, the Subordinate Judge made a decree in the appellants suit for the recovery of the deposit and interest; and on May 7, 1915, the appellant applied to the Subordinate Judge to execute the decree by attachment of the property of the bank.
On June 2, 1915, the High Court at Allahabad sanctioned the arrangement under s. 153.
On July 3, 1915, the respondent bank appeared before the Subordinate Judge and objected to the appellants application for execution of his decree, contending that he was bound by the arrangement; the Subordinate Judge dismissed the application for execution.
On appeal to the Court of the Judicial Commissioner, the view of the Subordinate Judge was affirmed save as to the costs awarded to the appellant in his suit, which it was pointed out was instituted before the application to the High Court to sanction the arrangement.
A voluntary winding-up resolution was passed by the shareholders of the respondent bank on June 13, 1917, and was duly confirmed and notified.
1919. Jan. 31. De Gruyther K.C. and Dube for the appellant. The appellant having obtained a decree before the scheme was sanctioned was entitled to execute it; he had not assented to the scheme and was not bound by it. Upon the proper construction of s. 153 of the Indian Companies Act, 1913, a scheme when sanctioned has not a retrospective effect.
Dunne K.C. and OGorman for the respondents were not called upon.
The judgment of their Lordships was delivered by
VISCOUNT HALDANE. If this was a difficult case their Lordships would take time before formulating their report ; but the case appears to them to be one of no difficulty.
Sect. 153 of the Indian Companies Act provides that " Where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them, the Court may on the application in a summary way of the company, or of any creditor or member of the company, or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors, or class of creditors, or of the members of the company, or class of members, as the case may be, to be called, held, and conducted in such a manner as the Court directs."
Then by the second part of the section " If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members or class of m
