{"id":21547,"date":"1979-01-30T00:00:00","date_gmt":"1979-01-29T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/s-k-gupta-anr-vs-k-p-jain-anr-on-30-january-1979"},"modified":"2017-08-26T14:21:09","modified_gmt":"2017-08-26T08:51:09","slug":"s-k-gupta-anr-vs-k-p-jain-anr-on-30-january-1979","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/s-k-gupta-anr-vs-k-p-jain-anr-on-30-january-1979","title":{"rendered":"S. K. Gupta & Anr vs K. P. Jain & Anr on 30 January, 1979"},"content":{"rendered":"
Supreme Court of India<\/div>\n
S. K. Gupta & Anr vs K. P. Jain & Anr on 30 January, 1979<\/div>\n
Equivalent citations: 1979 AIR 734, \t\t 1979 SCR (2)1184<\/div>\n
Author: D Desai<\/div>\n
Bench: Desai, D.A.<\/div>\n
           PETITIONER:\nS. K. GUPTA & ANR.\n\n\tVs.\n\nRESPONDENT:\nK. P. JAIN & ANR.\n\nDATE OF JUDGMENT30\/01\/1979\n\nBENCH:\nDESAI, D.A.\nBENCH:\nDESAI, D.A.\nKAILASAM, P.S.\nKOSHAL, A.D.\n\nCITATION:\n 1979 AIR  734\t\t  1979 SCR  (2)1184\n 1979 SCC  (3)\t54\n CITATOR INFO :\n RF\t    1987 SC1023\t (31)\n RF\t    1991 SC1289\t (14)\n\n\nACT:\n     Companies Act,  1956 (1  of 1956) Ss. 391 and 392-Scope\nof-Omission of the Original sponsor and substituting another\nwhether would change the 'basic fabric' of the scheme.\n     Words & Phrases-'Modify'and 'modifications'-meaning of.\n\n\n\nHEADNOTE:\n     The Companies Act, 1956 by s. 391 enables a member or a\ncreditor of  the company  or a\tcompany which is being wound\nup, its\t liquidator, to\t make an  application to  the  court\nproposing a  compromise or  arrangement between\t the company\nand its\t creditors or  any class  of  them  or\tbetween\t the\ncompany and  its members  or any  class of  them and seeking\ndirections of  the court  to convene a meeting of each class\nof creditors  and\/or each  class  of  members  to  whom\t the\ncompromise or  arrangement is  offered. On  the court giving\nthe directions,\t the meeting  would be convened in which the\nproposed scheme\t of compromise\tand\/or arrangement  would be\nsubmitted for consideration and each class will have to vote\nupon it\t and if\t the scheme  is accepted  by a\tmajority  in\nnumber representing  three fourths in value of the creditors\nor members  or class  of members as the case may be, present\nand voting  either in  person or  where proxy  is allowed by\nproxy, such  approved scheme  has to  be placed\t before\t the\ncourt for sanction of the court as envisaged in s. 391(2).\n     Under s.  392 of  the Act,\t the High  Court  which\t has\nsanctioned  the\t scheme\t has  the  power  to  supervise\t the\ncarrying out  of it  and to give directions in regard to any\nmatter or  to make  modifications in  it as  it may consider\nnecessary for  its proper  working.  But  if  the  court  is\nsatisfied that the scheme cannot work satisfactorily with or\nwithout modifications,\tit can\teither suo  motu  or  on  an\napplication  of\t any  person  interested  in  the  company's\naffairs order its winding up.\n     The   holding    company\tproposed    a\tscheme\t  of\ncompromise\/arrangement\tbetween\t  its  subsidiary   and\t the\nunsecured  creditors   of  the\t subsidiary  company.  After\nobtaining the  approval\t of  the  shareholders\tthe  holding\ncompany obtained  the sanction of the company court. A large\nnumber of  shares in  the subsidiary  company held by it and\nits claim  for a  sum of  Rs. 23  lacs recoverable  from the\nsubsidiary company  were transferred  by the holding company\nto the\tappellants. The appellants then applied to the court\nto make\t an appropriate\t modification and\/or  grant  further\ndirection for  implementing the\t scheme\t sanctioned  by\t the\ncourt in  respect of  the subsidiary company by substituting\nthem (the  appellants) in  place of  the holding  company as\nproponents of  the scheme.  The respondent in the mean while\nmade an application to the company court under s. 392 of the\nCompanies Act,\t1956 to\t hold that  the scheme sanctioned by\nthe court  could not  work satisfactorily  with\t or  without\nmodification and that, therefore, the court should\n1185\nmake an\t order of  winding up.\tThe  company  judge  allowed\nsubstitution of\t the appellants\t as proponents of the scheme\nand rejected  the respondents' application for winding up of\nthe subsidiary company.\n     On appeal\tby the\trespondents  under  s.\t483  of\t the\nCompanies Act  a Division  Bench held:\t(1) that  since\t the\nsubstitution of\t a new\tpropounder in a scheme sanctioned by\nthe court  in place  of the original propounder was a change\nof a basic nature which would not be comprehended within the\nmeaning of  the expression  \"modification\" in  s.  392\tand,\ntherefore,  the\t  company  judge   could  not  have  granted\nsubstitution  of   the\tpropounder  of\tthe  scheme  without\nreferring the  proposed modified scheme to the creditors who\napproved the original scheme, (2) that since the transfer of\nthe shares in favour of the appellants had not been effected\nin the\tcompany's registers, the appellants were not members\nof the\tsubsidiary, (3) that the debt owed by the subsidiary\nto the\tholding company was not assigned according to law in\nfavour of  the appellants  and,\t therefore,  they  were\t not\ncreditors and (4) that not being either members or creditors\nof the\tsubsidiary, the\t appellants had\t no locus  standi to\nmove an application under s. 392 for the modification of the\nscheme.\n     On the question whether the court had power to grant an\napplication under s. 392 of the Act.\n     Allowing the appeal,\n^\n     HELD: 1.  Though a\t large number  of provisions  of the\nCompanies Act,\t1956 are in pari materia with the provisions\nof Companies  Act, 1948\t of the\t U.K. there  is no provision\nanalogous to  s. 392  in the  U.K. Act.\t The court under the\nU.K. Act  has no  power to  modify the\tscheme either at the\ntime when  it is  offered for  its sanction  or at  any time\nsubsequent  thereto.  The  Parliament  has  in\tits  wisdom,\nconferred a  power of  wide amplitude  on the  High Court in\nIndia to  provide for  its  continuous\tsupervision  of\t the\ncarrying out  of compromise  and\/or arrangement and also the\nconsequential power  to make  the supervision  effective  by\nremoving  the  hitches,\t obstacles  or\timpediments  in\t the\nworking of  compromise or arrangement by conferring power to\ngive  such   directions\t for   the  proper  working  of\t the\ncompromise and\/or arrangement. [1193 D-F]\n     This power\t of widest  amplitude being conferred on the\nHigh Court  is a basic departure from the scheme of the U.K.\nAct in\twhich provision\t analogous to  s. 392 is absent. The\nsponsors of  the scheme\t under s.  206 of  the U.K. Act have\ntried to  get over  the difficulty  by taking  power in\t the\nscheme of  compromise or arrangement to make alterations and\nmodifications as proposed by the court. [1195 C]\n     In\t the  instant  case  the  scheme  is  essentially  a\ncompromise between  the company and its unsecured creditors.\nThe scheme  when sanctioned  does not  merely operate  as an\nagreement between the parties but has statutory force and is\nbinding\t not   only  on\t the  company  but  even  dissenting\ncreditors or members, as the cause may be. [1194 B-C]\n     J.K. (Bombay)  Pvt. Ltd.  v. New  Kaiser-I-Hind Spg.  &\nWvg. Co\t Ltd. & Ors.<\/a> etc., [1969] 2 SCR 866 at 891; referred\nto.\n1186\n     2. Section\t 391(1) by a specific and positive provision\nprescribes who\tcan move  an application  under it. Only the\ncreditor or  member of\tthat company  or a liquidator in the\ncase of\t a company  being wound\t up is\tentitled to  move an\napplication  proposing\t a  compromise\tor  arrangement.  By\nnecessary implication  any one other than those specified in\nthe  section   would  not   be\tentitled  to  move  such  an\napplication. [1194 D]\n     3. Sub-section  (2) of  s. 392 provides the legislative\nexposition as  to who  can move\t the court for taking action\nunder s.  392. Reference  to s.\t 391 in sub s. (2) of s. 392\nmerely indicates  which compromise  or\tarrangement  can  be\nbrought before the court for taking action under s. 392. The\nreference to  s. 391  in sub-section  (2) of s. 392 does not\nmean that  all the  limitations or restrictions on the right\nof an  individual to move the court while proposing a scheme\nof compromise  or arrangement  have to be read in sub-s. (2)\nmerely because s. 391 is referred to therein. Unlike s. 391,\ns. 392\tdoes not  specify that\ta member or a creditor or in\nthe case  of a company being wound up, its liquidator, alone\ncan move  the court  under s.  392. The legislature uses the\nexpression 'any\t person, interested  in the  affairs of\t the\ncompany'  which\t has  wider  denotation\t than  a  member  or\ncreditor or  liquidator of a company. The ambit of the power\nto act under s. 392(2) is demonstrated by the provision that\nthe court can suo-motu act to take action as contemplated by\ns. 392(1)  or it  may act  on an  application of  any person\ninterested in the affairs of the company. [1195 F-H]\n     Mansukhlal v.  M. V.  Shah, [1976] 46 Company cases 279\nat 290-291; referred to.\n     4. If  the court  can suo motu act, it is immaterial as\nto who\tdrew the attention of the court to a situation which\nnecessitated  court's\tintervention.  Where  the  power  is\nconferred on the court to take action on its own motion, the\ninformation emanating  from whatever  source which calls for\ncourt's attention  can as  well be  obtained from any person\nwithout questioning  his credentials,  moving an application\ndrawing attention  of the court to a situation where it must\nact. The  court may decline to act at the instance of a busy\nbody but  if the  action proposed  to be taken is justified,\nvalid, legal  or called\t for the  capacity or credentials of\nthe person  who brought\t the situation\tcalling for  court's\nintervention is\t hardly relevant nor would it invalidate the\nresultant action  only\ton  that  ground.  When\t sub-s.\t (2)\nconfers power  on the  court to\t act on\t its own motion, the\nquestion of locus standi hardly arises. [1197 C-E]\n     In the  instant case  while examining  the question  of\nlocus standi  after considering\t the provisions contained in\nsub-s. (2)  the High  Court wholly over looked the important\nprovision therein  contained, that the High Court can act on\nits own motion. [1197 F]\n     5. Even  though section  391 and  392 are complementary\nthey operate at different stages and have to be harmoniously\nread. [1197 G-H]\n     6. Winding up meaning civil death of a company, must be\nthe ultimate  resort of\t the court. A living workable scheme\ninfusing life  into a sick unit is generally to be preferred\nto civil  death of  the company.  There is  no\twarrant\t for\ncircumscribing the  expression 'on  the application  of\t any\nperson interested  in the affairs of the company as to limit\nit to a member or a\n1187\ncreditor. If  the legislature used the expression 'member or\ncreditor' in  s. 391(1)\t and yet used an expression of wider\ndenotation 'any\t person interested  in the  affairs  of\t the\ncompany,' in s. 392(2), the legislative intention is clearly\nexposed in that any such person interested in the affairs of\nthe company  need not be limited or restricted to refer to a\nmember or creditor. [1198 G-1199 A]\n     In the instant case, there is enough evidence on record\nthat as\t between the  holding company and the appellants the\nsale of\t shares is  complete, and  that the debt owed by the\nsubsidiary to  holding company\thas  been  assigned  by\t the\nholding company\t to the appellants. The appellants therefore\nhave requisite\tinterest both  in the subsidiary company and\nthe scheme  in respect\tof it,\tso  as\tto  enable  them  to\nmaintain an  application under\ts. 392(2),  as being persons\ninterested in  the affairs of the company, and therefore the\napplication for\t modification by them is maintainable. [1200\nB-C]\n     7. The  High Court\t was in\t error in  holding that\t the\nappellants had\tno locus  standi to  maintain an application\nunder s.  392(1). The words 'modify' and 'modification' have\nbeen defined in s. 2(29) of the Act to include the making of\nadditions and  omissions. Section 2(1) defines 'altered' and\n'alteration' to include 'making of additions and omissions',\nwhile  'variation'   is\t defined  in  s.  2(31)\t to  include\n'abrogation'. The  definition of  cognate words\t is noted to\narrive at  a true  meaning of  the word\t 'modification'. The\nnoticeable feature  is that  it is  an inclusive definition,\nand where  in a definition clause he word 'include' is used,\nit is  so done\tin order to enlarge the meaning of the words\nor phrases  occurring in the body of the statute and when it\nis so  used, these  words or  phrases must  be construed  as\ncomprehending  not  only  such\tthings\twhich  they  signify\naccording to  their natural  import, but  also those  things\nwhich the  interpretation clause  declares that\t they  shall\ninclude. [1200 H, 1201 D-G, H-1202 B]\n     Dilworth v.  Commissioner of  Stamps, [1899]  AC 99  at\n105; Jobbins  v. Middlesex  County Council, [1949] 1 KB 142;\nIndira Nehru Gandhi v. Raj Narain<\/a> (1975) Suppl. SCC 1 at 97;\nKalva Singh  v. Genda  Lal,<\/a> [1976]  1 SCC 304 at 309; Cox v.\nHakes, [1890] 15 AC 506; referred to.\n     8.\t  According   to   the\t definition   'modify'\t and\n'modification' would  include the  making of  additions\t and\nomissions. In  the context  of s.  392 'modification'  would\nmean addition to the scheme of compromise and\/or arrangement\nor omission  therefrom solely  for the\tpurpose of making it\nworkable. [1203 B]\n     9. The  High Court\t misdirected itself when it resorted\nto  dictionaries   for\tthe   meaning  of   the\t  expression\n'modification' in  s. 392  when the said term was defined in\ns. 2(29) of the Act itself. [1203 A]\n     In the  instant case,  the scheme\tis one\tby  which  a\ncompromise is  offered to  the unsecured  creditors  of\t the\ncompany and  whoever comes  in as  sponsor would be bound by\nit.  Omission  of  the\toriginal  sponsor  and\tsubstituting\nanother one  would not\ttherefore, change the 'basic fubric'\nof the scheme. [1203 E]\n     10. The  court on\twhich a duty is cast by s. 392(1) to\nsupervise the working of compromise\/arrangement must examine\nthe bona  fides of  the person applying to be substituted as\nsponsor, his  capacity, his  ability, his  interest qua\t the\ncompany\t  and\t other\t relevant    considerations   before\nsubstituting one  sponsor for  another. In  a given  case an\napplication may be rejected if the\n1188\ncourt is  of the opinion that the sponsor is not one who can\nbe trusted with the implementation of the scheme. [1204 A-C]\n     In the  instant case  the appellants  have applied\t for\nsubstituting them  as sponsors of the scheme in place of the\nholding company.  They claim to have purchased 44,000 shares\nout of\t80,000 issued  and subscribed  equity shares  of the\ncompany. The  sponsor has  taken an  assignment of a debt of\nRs. 23 lacs which the subsidiary company owed to the holding\ncompany from  the holding  company.  The  only\tobjector  is\nrespondent holding 1,000 equity shares representing 1.25 per\ncent of\t the issued  and subscribed capital. In pursuance to\nthe court's  order notice  in  the  newspaper  was  inserted\ncalling\t  for\t objection   to\t   the\t  application\t for\nsubstitution\/modification. None\t including  the\t petitioning\ncreditor except the respondent lodged such an objection. The\nappellants agreed  to implement\t the scheme and undertook to\nprovide Rs. 3 lacs as liquid finance for implementation. The\nappellants therefore have a subsisting and vital interest in\nthe fate  and future  of the subsidiary company and they are\nthe appropriate\t persons who could and should be substituted\nin place  of the  original sponsor and there is no objection\nto granting their application. [1204 D-F, 1205 E, B]\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1217 of
\n1976.\n<\/p>\n
     Appeal by\tSpecial Leave  from the\t Judgment and  Order
\ndated 16-7-1976\t of the\t Delhi High  Court in Company Appeal
\nNo. 15\/76.\n<\/p>\n
     Y. S.  Chitale, K.\t R. Khaitan,  B. Mohan,\t and Praveen
\nKumar for the Appellants.\n<\/p>\n
     P. R.  Mridul, R.\tL. Roshan,  H. K.  Puri and Vijai K.
\nBahl for Respondent No. 1.\n<\/p>\n
     Pramod Dayal and S. K. Gupta for Respondent No. 2.
\n     R. M. Gupta and K. N. Bhat for Intervener\/Dena Bank.
\n     The Judgment of the Court was delivered by
\n     DESAI, J-A\t private sector\t sick unit,  Indian Hardware
\nIndustries Ltd. (‘IHI’ for short), engaged in manufacture of
\nbuilders’ hardware,  now in  a state  of suspended animation
\nsince 1971,  awaits the\t outcome of this appeal for infusion
\nof life\t into it  simultaneously providing  a ray of hope to
\nprimarily the  workmen who  were rendered  jobless  and\t the
\nunsecured and  secured creditors  whose hard earned money is
\nlocked up in it.\n<\/p>\n
     A few  facts will put the problem raised in this appeal
\nin focus and proper perspective. M\/s. Delhi Flour Mills Ltd.
\n(‘DFM’ for  short) was\tthe holding company of which IHI was
\nthe subsidiary. Somewhere by the fall of 1971 functioning of
\nIHI came  to a\thalt and  the huge debt was mounting up with
\nthe spiraling of interest.\n<\/p>\n
1189<\/span><\/p>\n
As the\tshares of  DFM were  closely held  by  relations  of
\nrespondent No.\t1 referred  to as  ‘Jain group’ and as there
\nwere fratricidal  disputes in Jain family culminating into a
\nlitigation in  the High\t Court of  Delhi, IHI languished for
\nwant of\t attention. In\tthe meantime  M\/s. Indian Smelting &
\nRefining Co. Ltd. (‘petitioning creditor’ for short) filed a
\nwinding up  petition against  IHI in  1975 alleging that IHI
\nwas heavily  indebted and was unable to pay its debts as and
\nwhen they  became due.\tAfter the dispute in the Jain family
\nwas resolved somewhere in 1974, a situation emerged in which
\none R.\tP. Jain\t and the  members  of  his  family  acquired
\ncontrolling interest  in the holding company DFM. Once R. P.
\nJain came into saddle, the DFM as holding company proposed a
\nscheme\tof   compromise\/arrangement  between   IHI  and\t its
\nunsecured creditors  and after\tthe scheme was approved, the
\nproponent of the scheme submitted Company Petition No. 86\/74
\nto the\tCompany Court  for according  sanction to the scheme
\nand  by\t Order\tdated  15th  October  1975  the\t scheme\t was
\nsanctioned. Sometime  after the\t scheme was  sanctioned, DFM
\ntransferred its\t 44,000 shares\tof IHI\tand its claim to the
\ntune of\t Rs. 23\t lacs recoverable  from IHI,  to the present
\nappellants S.  K. Gupta\t and Mrs. Dropadi Gupta (referred to
\nas ‘appellants’\t hereafter). Thereafter the appellants filed
\nCompany Application  No. 193\/76 requesting the Court to make
\nappropriate modification  and\/or granting  further direction
\nfor effectively\t implementing the  scheme sanctioned  by the
\nCourt in  respect of  IHI by  substituting the appellants in
\nplace of  DFM as  proponents of the scheme and imposing upon
\nthem  the  liability  to  implement  the  scheme  under\t the
\nsupervision  of\t the  Court.  A\t little\t while\tbefore\tthis
\napplication was\t moved, respondent  K. P. Jain filed Company
\nApplication No.\t 190\/76 purporting to be under s. 392 of the
\nCompanies Act,\t1956, inviting\tthe Court  for\tthe  reasons
\nmentioned  in  the  application\t to  hold  that\t the  scheme
\nsanctioned by the Court cannot be worked satisfactorily with
\nor without  modification and  therefore an  order winding up
\nthe Company should be made.\n<\/p>\n
     The  Company  Judge  by  his  two\torders\tin  the\t two
\naforementioned applications  dated 26th\t April 1976  granted
\nthe application of the appellants and modified the scheme by
\nsubstituting the  appellants as proponents of the scheme and
\nsimultaneously rejected the application of the respondent K.
\nP. Jain for winding up the Company.\n<\/p>\n
     Respondent Jain  preferred two  appeals  being  Company
\nAppeals Nos. 15 and 15\/76 under s. 483 of the Companies Act.
\nBoth these  appeals came  up before  a Division Bench of the
\nDelhi High  Court, and\tthey were  disposed of\tby a  common
\njudgment. The Division
\n1190<\/span>
\nBench  was  of\tthe  opinion  that  substitution  of  a\t new
\npropounder in  a scheme\t already sanctioned  by the Court in
\nplace of  the original propounder of the scheme was a change
\nof a  basic nature  which would\t not be\t comprehended in the
\nexpression ‘modification’  as under  s. 392  and, therefore,
\nthe Company Judge could not have granted such a substitution
\nof the\tpropounder of  the scheme without referring back the
\nproposed modified  scheme to  the creditors who had approved
\nthe original  scheme. It  was further  of the  opinion\tthat
\nthough the  transfer of\t 44,000 shares of IHI held by DFM in
\nfavour of  the appellants  may be  complete as\tbetween\t the
\ntransferor and the transferee, the same would not clothe the
\nappellants with\t the right  of a  member unless\t their names
\nwere put  on the  register of  members maintained by IHI and
\nthat the  same having not been done, the appellants were not
\nmembers of  IHI. It was further of the opinion that the debt
\nowed by\t IHI to\t DFM was  not assigned\taccording to  law in
\nfavour of  the appellants  and,\t therefore,  they  were\t not
\ncreditors, and\tin view\t of the\t language of  s. 391  of the
\nCompanies Act,\tthe appellants\tbeing  neither\tmembers\t nor
\ncreditors of IHI, had no locus standi to move an application
\nunder s.  392 for  modification of the scheme because in the
\nopinion of  the Court  s. 391  controls s.  392 and either a
\nmember or a creditor or in the case of a company being wound
\nup,  a\t liquidator  alone   can  file\tan  application\t for
\nmodification. In  accordance with  this opinion,  the appeal
\npreferred by respondent No. 1 being Company Appeal No. 15\/76
\nchallenging the\t order of  the Company\tJudge which  granted
\nmodification\/substitution of  appellants as  proponents\t was
\nallowed\t and   the  application\t  of  the   appellants\t for
\nsubstitution was rejected.\n<\/p>\n
     The Division  Bench dismissed  Company Appeal No. 16\/76
\npreferred by  respondent  Jain\tagainst\t the  order  of\t the
\nCompany Judge  refusing to  make an  order for winding up of
\nthe  Company   observing  that\teven  while  dismissing\t the
\napplication for\t substitution of the present appellants, the
\nCourt was  not in  a position  to  come\t to  an\t affirmative
\nfinding that the scheme cannot be satisfactorily worked with
\nor without modification and the matter should be left to the
\nCompany Judge  as to  what future course of action should be
\ntaken in the matter.\n<\/p>\n
     The appellants  preferred the present appeal by special
\nleave against  the decision of the Division Bench in Company
\nAppeal\tNo.   15\/76   by   which   their   application\t for
\nsubstitution\/modification was rejected.\n<\/p>\n
     Mr. S. S. Ray, learned counsel for the appellants urged
\nthat the  Court committed  a basic error in holding that the
\napplication for
\n1191<\/span>
\nsubstitution\/modification was  not maintainable\t because the
\nappellants  were   neither  members  nor  creditors  of\t the
\nCompany,  IHI,\tthereby\t importing  a  narrower\t concept  in
\nrespect of  the locus  standi of  the present  appellants to
\nmove the Court under s. 392 which restrictive approach would
\nrun counter  to the  power of  widest amplitude conferred on
\nthe Court,  namely, even to make modification suo motu or on
\nthe application of a person interested in the affairs of the
\nCompany. He  further urged  that the appellate Court clearly
\nmisdirected itself  when it went in search of the meaning of
\nthe  expression\t ‘modification’\t in  s.\t 392  by  ransacking
\ndictionaries completely\t overlooking the  fact\tthat  in  s.
\n2(29)  of   the\t Companies   Act  the\twords  ‘modify’\t and
\n‘modification’ have  been defined  and it  is a\t well  known
\ncanon of  construction that  unless  the  context  otherwise
\nrequires, the definition of an expression given in a statute
\nshall govern  the meaning of the expression wherever used in
\nthe same  statute. It  was urged that the words “modify’ and
\n‘modification’ for  the purpose\t of s. 392 would include the
\nmaking of  additions and  omissions  and  according  to\t him
\nadditions and  omissions in  the context of s. 392 would and
\ncould only  mean additions  and omissions  to the sanctioned
\nscheme because\ts. 392 operates at a stage subsequent to the
\nsanctioning of\tthe scheme  under s.  391(2). It was further
\nurged that  if the  words ‘modify’  and ‘modification’ would
\ninclude\t additions  and\t omissions,  the  Court\t would\thave
\nplenary power  to substitute  one proponent for the other if
\nin the\topinion of  the Court  the scheme  cannot be  worked
\nsatisfactorily without the necessary modification and in all
\nsuch cases it would be imprudent to hold that the Court will
\nhave to fall back to the cumbersome procedure of s. 391 over
\nagain  delaying\t  for  a   considerable\t period\t  the  vital
\nrequirement of restarting a sick unit. It was submitted that
\nthe Court  committed a\tfallacy in  importing the concept of
\nConstitution while interpreting a provision of the Companies
\nAct.\n<\/p>\n
     Mr. Lal Narain Sinha on the other hand on behalf of the
\nrespondents, while  conceding that in an emergency the Court
\ncan act\t on the\t application of\t any person,  ordinarily the
\nCourt would  act on  the application of a member or creditor
\nof the\tCompany and  in this blurred area some light is shed
\nby the\tprovision contained  in Rule  87  of  the  Companies
\n(Court) Rules,\t1959. Proceeding  further, it was urged that
\nss. 391\t and 392  constitute a code and, therefore, if there
\nwas a qualification for proposing a scheme under s. 391, the
\nsame qualification  should be  read in\ts. 392 and any other
\napproach would\tbe self-defeating.  It\twas  submitted\tthat
\nviewed from  this angle,  only a  member or  a creditor\t can
\nmaintain an  application under\ts. 392 and as the appellants
\nare neither members nor
\n1192<\/span>
\ncreditors of  the Company,  they have  no  locus  standi  to
\nmaintain the  petition. He  further urged  that putting\t too
\nwide a\tconstruction on\t the expression ‘modification’ in s.
\n392(2) would  lead to  such a  startling result as could not
\nhave been  within the  contemplation of\t the legislature and
\nthat, therefore,  in order  to arrive  at a  true meaning of
\nword ‘modification’,  the Court\t should\t bear  in  mind\t the
\npurpose and  object behind  using the expression or enacting
\nthe provision  in which the expression is found. It was also
\ncontended that\tsubstitution of the original sponsor amounts
\nto repudiation\tof the\tcontract which the scheme represents
\nbetween the  proponent of  the scheme  and the\tCompany\t and
\nanother\t person\t cannot\t be  substituted  in  place  of\t the
\noriginal contracting party without the consent or affirmance
\nof the\tsecond party  to the contract and hence such a thing
\ncannot be  brought about  by way  of a modification under s.\n<\/p>\n
392. The  word ‘modification’ or ‘modify’, therefore, should
\nbe given  a restricted\tmeaning looking\t to the\t context  in
\nwhich it  is used  in s.  392 as  has been  done by the High
\nCourt.\n<\/p>\n
     Principal contentions advanced on either side turn upon
\nthe right  to make an application and the power of the Court
\nto grant  an application  under s. 392 of the Companies Act.
\nSection 392  finds its\tplace in  Chapter V of the Companies
\nAct    bearing\t  fascicules\t‘Arbitration,\t Compromise,
\nArrangements and  Reconstructions’. Section  391  enables  a
\nmember or  a creditor  of the  Company or a Company which is
\nbeing wound  up, its  liquidator, to  make an application to
\nthe Court  proposing a compromise or arrangement between the
\ncompany and  its creditors  or any  class of them or between
\nthe Company and its members or any class of them and seeking
\ndirections of  the Court  to convene a meeting of each class
\nof creditors  and\/or each  class  of  members  to  whom\t the
\ncompromise or  arrangement is offered. On the Court’s giving
\nthe directions,\t the meeting  would be convened in which the
\nproposed scheme\t of compromise\tand\/or arrangement  would be
\nsubmitted for consideration and each class will have to vote
\nupon it\t and if\t the scheme  is accepted  by a\tmajority  in
\nnumber representing  three fourths in value of the creditors
\nor members  or class  of members as the case may be, present
\nand voting  either in  person or  where proxy is allowed, by
\nproxy, such  approved scheme  has to  be placed\t before\t the
\nCourt for  sanction of\tthe Court as envisaged in s. 391(2).
\nThen comes s. 392 which may be reproduced in extenso:\n<\/p>\n
\t  “392. Power  of High\tCourt to enforce compromises
\n     and arrangements-(1)  Where a High Court makes an order
\n     under  section  391  sanctioning  a  compromise  or  an
\n     arrangement in respect of a company, it-\n<\/p><\/blockquote>\n
1193<\/span><\/p>\n
\t  (a)  shall have  power to  supervise the  carrying
\n\t       out of the compromise or arrangement; and\n<\/p><\/blockquote>\n
\t  (b)  may, at\tany time  of making such order or at
\n\t       any time\t thereafter, give such directions in
\n\t       regard\tto   any   matter   or\t make\tsuch
\n\t       modifications   in    the    compromise\t  or
\n\t       arrangement as  it may consider necessary for
\n\t       the  proper  working  of\t the  compromise  or
\n\t       arrangement.\n<\/p><\/blockquote>\n
\t  (2) If  the Court  aforesaid is  satisfied that  a
\n     compromise or  arrangement sanctioned under section 391
\n     cannot  be\t  worked  satisfactorily   with\t or  without
\n     modifications it  may, either  on its  own motion or on
\n     the application of any person interested in the affairs
\n     of the  company, make  an order winding up the company,
\n     and such  an order\t shall be deemed to be an order made
\n     under section 433 of this Act”.<\/p><\/blockquote>\n
     At the  outset it\tmay be mentioned that though a large
\nnumber of provisions of the Companies Act, 1956, are in pari
\nmateria with  the provisions  of Companies Act, 1948, of the
\nU.K. (‘U.K. Act’ for short), there is no provision analogous
\nto s.  392 in the U.K. Act. The Court under the U.K. Act has
\nno power  to modify the scheme either at the time when it is
\noffered for  its sanction or at any time subsequent thereto.
\nThe Parliament\thas in its wisdom, conferred a power of wide
\namplitude on  the High\tCourt in  India to  provide for\t its
\ncontinuous supervision\tof the\tcarrying out  of  compromise
\nand\/or arrangement  and also the consequential power to make
\nthe supervision effective by removing the hitches, obstacles
\nor impediments\tin the\tworking of compromise or arrangement
\nby conferring  power to give such direction in regard to any
\nmatter or  for making such modification in the compromise or
\narrangement as\tit may\tconsider necessary  for\t the  proper
\nworking of  the compromise  and\/or arrangement.\t Sub-s.\t (2)
\nconfers power on the Court to act under s. 392 either on its
\nown motion or on the application of any person interested in
\nthe affairs  of the company. What falls for consideration is
\nthe true  meaning of  the expression  ‘on the application of
\nany person interested in the affairs of the company’.\n<\/p>\n
     The High  Court was  of the opinion that the appellants
\nhave  no   locus  standi  to  maintain\tan  application\t for
\nmodification\/substitution of themselves as proponents of the
\nscheme with a liability to implement the scheme as they were
\nneither members\t nor creditors\tof the Company and according
\nto the\tHigh Court, if a scheme of compromise or arrangement
\ncannot be  proposed by\tany one except a member or creditor,
\nipso facto,  an application  for modification of such scheme
\nsanctioned by the Court under s. 391(2) could not be made by
\nany one other than a member or a creditor.\n<\/p>\n
1194<\/span><\/p>\n
     Section 391 envisages a compromise or arrangement being
\nproposed for  consideration by members and\/or creditors of a
\nCompany liable to be wound up under the Companies Act, 1956.
\nCompromise or arrangement has to be between creditors and\/or
\nmembers of  the Company and the Company, as the case may be.
\nIt was\talways open  to the Company to offer a compromise to
\nany of\tthe creditors or enter into arrangement with each of
\nthe members.  The scheme  in  this  case  is  essentially  a
\ncompromise between  the company and its unsecured creditors.
\nThe scheme  when sanctioned  does not  merely operate  as an
\nagreement between the parties but has statutory force and is
\nbinding\t not   only  on\t the  company  but  even  dissenting
\ncreditors or  members, as the case may be. The effect of the
\nsanctioned scheme is “to supply by recourse to the procedure
\nthereby prescribed  the absence of that individual agreement
\nby every member of the class to be bound by the scheme which
\nwould otherwise be necessary to give it validity” (see J. K.
\n(Bombay) Pvt.  Ltd., v.\t New Kaiser-I-Hind  Spg. &  Wvg. Co.
\nLtd. &\tOrs.<\/a> etc.(1).  Further section\t391(1) itself  by  a
\nspecific and  positive provision  prescribes who can move an
\napplication under  it. Only  the creditor  or member of that
\ncompany or a liquidator in the case of a company being wound
\nup is entitled to move an application proposing a compromise
\nor arrangement.\t By necessary implication any one other than
\nthose specified in the section would not be entitled to move
\nsuch an application.\n<\/p>\n
     When a  scheme is being considered by the Court, in all
\nits ramifications,  for according its sanction, it would not
\nbe possible to com prehend all situations, eventualities and
\nexigencies that\t may arise  while implementing\tthe  scheme.
\nWhen a detailed compromise and\/or arrangement is worked out,
\nhitches and  impediments may  arise  and  if  there  was  no
\nprovision  like\t  the  one  in\ts.  392,  the  only  obvious
\nalternative would  be to  follow the cumbersome procedure as
\nprovided in  s. 391(1), viz., again by approaching the class
\nof creditors  or  members  to  whom  the  compromise  and\/or
\narrangement was\t offered to  accord their  sanction  to\t the
\nsteps to be taken for removing such hitches and impediments.
\nThis would  be unduly  cumbersome and  time  consuming\tand,
\ntherefore, the\tlegislature in its wisdom conferred power of
\nwidest amplitude  on the High Court under s. 392 not only to
\ngive  directions  but  to  make\t such  modification  in\t the
\ncompromise and\/or  arrangement as  the\tCourt  may  consider
\nnecessary, the\tonly limit  on the  power of the Court being
\nthat such  directions can  be given and modifications can be
\nmade  for  the\tproper\tworking\t of  the  compromise  and\/or
\narrangement. The purpose underlying s. 392 is to provide for
\neffective working  of the compromise and\/or arrangement once
\nsanctioned and
\n1195<\/span>
\nover   which\tthe   Court    must   exercise\t  continuous
\nsupervision[see s.  392(1)], and  if over a period there may
\narise obstacles,  difficulties\tor  impediments,  to  remove
\nthem, again,  not for  any other  purpose but for the proper
\nworking of  the compromise  and\/or arrangement.\t This  power
\neither to give directions to overcome the difficulties or if
\nthe  provisions\t  of  the   scheme  themselves\t create\t  an
\nimpediment, to modify the provision to the extent necessary,
\ncan only be exercised so as to provide for smooth working of
\nthe  compromise\t  and\/or  arrangement.\tTo  effectuate\tthis
\npurpose the  power of widest amplitude has been conferred on
\nthe High Court and this is a basic departure from the scheme
\nof the\tU.K. Act  in which  provision analogous to s. 392 is
\nabsent. The  sponsors of the scheme under s. 206 of the U.K.
\nAct have tried to get over the difficulty by taking power in
\nthe scheme  of compromise or arrangement to make alterations
\nand  modifications   as\t proposed  by  the  Court.  But\t the
\nLegislature foreseeing\tthat a complex or complicated scheme
\nof compromise  or arrangement  spread over a long period may
\nface unforeseen\t and unanticipated  obstacles, has conferred
\npower of  widest amplitude  on the  Court to give directions
\nand if\tnecessary, to  modify  the  scheme  for\t the  proper
\nworking\t of   the  compromise\tor  arrangement.   The\tonly
\nlimitation on  the power of the Court, as already mentioned,
\nis that\t all such  directions that  the Court  may  consider
\nappropriate to\tgive  or  make\tsuch  modifications  in\t the
\nscheme, must  be for  the proper  working of  the compromise
\nand\/or arrangement.\n<\/p>\n
     Sub-section (2)  provides the legislative exposition as
\nto who\tcan move  the Court  for taking action under s. 392.
\nReference to s. 391 in sub-s. (2) of s. 392 merely indicates
\nwhich compromise  or arrangement  can be  brought before the
\nCourt for  taking action  under s.  392. The reference to s.
\n391 does  not mean  that all the limitations or restrictions
\non the\tright of  an individual\t to  move  the\tCourt  while
\nproposing a  scheme of\tcompromise or arrangement have to be
\nread in\t sub-s. (2)  merely because  s. 391  is referred  to
\ntherein. Unlike\t section 391, s. 392 does not specify that a
\nmember or  creditor or\tin the case of a company being wound
\nup, its\t liquidator, can move the Court under s. 392. On the
\nother hand,  the legislature uses the expression ‘any person
\ninterested in  the affairs  of the  company’ which has wider
\ndenotation than\t a member  or creditor\tor liquidator  of  a
\ncompany. In  fact, the\tambit of  the power  to act under s.
\n392(2) can  be gauged  from the\t fact that the Court can suo
\nmotu act  to take  action as contemplated by s. 392(1) or it
\nmay act\t on an\tapplication of\tany person interested in the
\naffairs of the Company.\n<\/p>\n
1196<\/span><\/p>\n
     In this  context the  observations of  the Gujarat High
\nCourt, extracted  hereunder, in Mansukhlal v. M. V. Shah,(1)
\ncan be\treferred to with advantage as it precisely lays bare
\nthe ambit and width of Court’s power under section 392:\n<\/p>\n
\t  “The framers\tof the\tcompany law  in\t India\thave
\n     conferred statutory  powers on  the High  Court to make
\n     such modifications\t in the compromise or arrangement as
\n     the Court may consider necessary for the proper working
\n     of the  compromise and  arrangement. The  power of\t the
\n     widest amplitude  has been conferred on the court under
\n     section 392(1)  (b) and  the width and the magnitude of
\n     the power\tcan be\tgauged from the language employed in
\n     section  392   (1)\t (a)  which  confers  a\t sort  of  a
\n     supervisory role  on the  court during  the period\t the
\n     scheme  of\t  compromise   or   arrangement\t  is   being
\n     implemented. Reading clauses (a) and (b) of sub-section
\n     (1) of  section 392, it appears that Parliament did not
\n     want the  court to\t be functus  officio as\t soon as the
\n     scheme of\tcompromise and\tarrangement is sanctioned by
\n     it. The  Court has\t a continuing  supervision over\t the
\n     implementation   of    compromise\t and\tarrangement.
\n     Unenvisaged,   unanticipated,    unforeseen   or\teven
\n     unimaginable hitches,  obstruction and  impediments may
\n     arise in  the course  of implementation  of a scheme of
\n     compromise\t and   arrangement  and\t if  on\t every\tsuch
\n     occasion, sponsors\t have to  go  back  to\tthe  parties
\n     concerned for seeking their approval for a modification
\n     and then  seek the approval of the court, it would be a
\n     long-drawn out, protracted, time-consuming process with
\n     no\t guarantee   of\t result\t and  the  whole  scheme  of
\n     compromise and  arrangement may  be  mutilated  in\t the
\n     process. Parliament  has, therefore  thought it  fit to
\n     trust the\twisdom of  the court  rather than go back to
\n     the interested  parties. If  the parties  have  several
\n     times to  decide the  modification with  the democratic
\n     process, the  good part of an election machinery apart,
\n     the dirt  may step in, the conflicting interests may be
\n     bought and\t sold, and, in the process, the whole scheme
\n     of compromise  and arrangement  may be  jettisoned.  In
\n     order, therefore, to guard against this eventuality and
\n     situation, which  is clearly  envisageable,  Parliament
\n     has conferred  power on  the court,  not only  to\tmake
\n     modifications even\t at  the  time\tof  sanctioning\t the
\n     scheme, but  at any  time thereafter  during the period
\n     the scheme is being implemented. Conceding that, before
\n     the  Court\t  sanctions  the  scheme,  it  partakes\t the
\n     character of an emerging contract between the
\n1197<\/span>
\n     company and  the creditors\t and members; once the court
\n     approves  it,  it\tbecomes\t a  statutorily\t enforceable
\n     contract even on dissidents, with power in the court to
\n     modify, amend  or correct\tor revise  the contract\t the
\n     outer periphery  or the  limit on the power being that,
\n     after  testing  it\t on  this  anvil  of  probabilities,
\n     surrounding circumstances\tand the\t prevalent state  of
\n     affairs, it  can be  done for the proper working of the
\n     compromise and  arrangement, and  subject to this limit
\n     on the  Court’s power,  the power\tseems to be absolute
\n     and of  the widest\t amplitude and it would be unwise to
\n     curtail it by process of interpretation”.<\/p><\/blockquote>\n
     If the  Court can\tsuo motu act, it is immaterial as to
\nwho drew  the attention\t of the\t Court to  a situation which
\nnecessitated  Court’s\tintervention.  Where  the  power  is
\nconferred on  the Court to take action on its own motion the
\ninformation emanating  from whatever  source which calls for
\nCourt’s attention  can as  well be  obtained from any person
\nwithout questioning  his credentials,  moving an application
\ndrawing attention  of the Court to a situation where it must
\nact. Undoubtedly,  the Court  may  decline  to\tact  at\t the
\ninstance of  a busy  body but  if the  action proposed to be
\ntaken is justified, valid, legal or called for, the capacity
\nor credentials\tof the\tperson\twho  brought  the  situation
\ncalling for  Court’s intervention  is  hardly  relevant\t nor
\nwould it  invalidate  the  resultant  action  only  on\tthat
\nground. Therefore,  when sub-s.\t (2) confers  power  on\t the
\nCourt to act on its own motion, the question of locus standi
\nhardly arises.\tThe High  Court while examining the question
\nof locus  standi, after\t combing the  provision contained in
\nsub-s.\t(2),   wholly  overlooked  the\timportant  provision
\ntherein contained  that the  High Court\t can act  on its own
\nmotion. It  was, however,  said in  passing that  sub-s. (2)
\nenables the Court to wind up the Company and, therefore, the
\nCourt may act on its own motion or on the application of any
\nperson interested  in the  affairs of  the company  not\t for
\nmodifying the  scheme or  for any directions but for winding
\nup the\tcompany. But when the Court is required to act under
\ns. 392(1), the limitations and restrictions imposed upon the
\nCourt under s. 391(1) must be read in section 392(1) because
\nthe  sections\tare  complimentary   to\t each\tother.\tThis
\nsubmission overlooks  the  two\tdifferent  stages  at  which
\nsections  391\tand  392   operate  though   they   may\t  be
\ncomplimentary to each other. Two sub-sections of s. 392 have
\nto be harmoniously read and sub-s. (2) clearly indicates the
\npower of  Court to  take action suo motu while taking action
\nunder sub-s.  (1). Again  this approach is inconsistent with
\nthe language  employed in  s. 392(2)  in that  the Court can
\nwind up the company
\n1198<\/span>
\nunder s.  392(2) if  and  only\tit  is\tsatisfied  that\t the
\ncompromise and\/or  arrangement sanctioned  by it  cannot  be
\nsatisfactorily worked  with or\twithout\t modifications.\t The
\nCourt has  to reach  an affirmative conclusion before acting
\nunder s.  392(2)  that\tthe  compromise\t and\/or\t arrangement
\ncannot be worked satisfactorily with or without modification
\n(see J.\t K.  Bombay  P.\t Ltd.)\t(supra).  It  follows  as  a
\ncorollary that\tif the\tcompromise  or\tarrangement  can  be
\nworked as  it is  or by making modifications, the Court will
\nhave no\t power to  wind up the Company under s. 392(2). Now,
\nif the\tarrangement or\tcompromise can\tbe  worked  with  or
\nwithout modification,  the Court must undertake the exercise
\nto find\t out what  modifications are  necessary to  make the
\ncompromise or  arrangement workable and that it can do so on
\nits  own   motion  or  on  the\tapplication  of\t any  person
\ninterested in  the affairs  of the  Company. If\t such be the
\npower conferred\t on the\t Court, it is difficult to entertain
\nthe  submission\t  that\tan  application\t for  directions  or
\nmodification cannot  be entertained  except when  made by  a
\nmember or  creditor. It\t would whittle down the power of the
\nCourt in that it cannot do so on its own motion.\n<\/p>\n
     Mr. Sinha\treferred to  Rule 87  of  Companies  (Court)
\nRules and urged that it throws some light on the question as
\nto at  whose instance  the Court  can act  under s. 392. The
\nrule is\t procedural in\tcharacter and  at any  rate the rule
\ncannot circumscribe  the power\tconferred  by  the  section.
\nHence rule 87 is of no assistance.\n<\/p>\n
     Assuming that  the Court  would not act on its own, the
\nnext question  is: could  it act  under\t s.  392(1)  on\t the
\napplication of\tany person  interested in the affairs of the
\nCompany ?  Now, if  the Court  under  s.  392(2)  can  order
\nwinding up  of the  company on the application of any person
\ninterested in  the affairs  of the company who need not be a
\nmember or  a creditor,\twe fail\t to see how the Court cannot
\nact on\tthe application\t of such  a person interested in the
\naffairs of  the Company either to give directions or to make
\nmodifications so  as to\t make the  compromise or arrangement
\nworkable. Winding  up meaning civil death of a company, must
\nbe the\tultimate resort\t of the\t Court.\t A  living  workable
\nscheme infusing\t life into  a sick  unit is  generally to be
\npreferred  to\tcivil  death   of  the\tcompany.  There\t is,
\ntherefore, no  warrant for circumscribing the expression ‘on
\nthe application\t of any\t person interested in the affairs of
\nthe company’  as to  limit it  to member or creditor. If the
\nlegislature used  the expression  ‘member or creditor’ in s.
\n391(1) and  yet used  an expression of wider denotation ‘any
\nperson interested  in  the  affairs  of\t the  company’,\t the
\nlegislative intention  is clearly  exposed in  that any such
\nperson interested  in the affairs of the company need not be
\nlimited or restricted to refer to a
\n1199<\/span>
\nmember or  creditor. It\t would, therefore,  be necessary  to
\nascertain whether  the appellants  would be  comprehended in
\nthe expression\t‘any person interested in the affairs of the
\ncompany’.\n<\/p>\n
     At one  stage there  was a\t threatened long argument to
\nascertain whether  the appellants have become the members of
\nthe company  or\t are  the  creditors  of  the  company.\t The
\nappellants  contended  that  they  and\ttheir  friends\thave
\npurchased 44,000 equity shares of IHI from its former holder
\nDFM and\t they have  also taken\tan assignment of the debt in
\nthe amount  of Rs.  23 lacs  owned by  IHI to  DFM from DFM.
\nRespondent Jain\t contended that\t the assignment is not valid
\nas it  fails to\t comply with  s.  130  of  the\tTransfer  of
\nProperty Act  and as the names of the appellants are not put
\non the register of IHI, they have not acquired the status of
\nmember of  IHI and,  therefore, they being neither creditors
\nnor members  of IHI,  they have no locus standi, to maintain
\nthe application under s. 392.\n<\/p>\n
     The stand\ttaken by  respondent Jain  in this behalf is
\nwholly ambivalent.  Sometime after the scheme was sanctioned
\non 15th\t October  1975,\t the  appellants  assert  that\tthey
\npurchased the  44,000 equity shares of IHI from DFM and they
\nsimultaneously\ttook  assignment  of  the  debt.  Thereafter
\nrespondent Jain\t filed Company\tApplication  No.  190\/76  in
\nwhich he  sought a  direction under s. 392(2) for winding up
\nthe Company.  In inviting  the Court to grant his prayer for
\nwinding up  the Company, the averment made is that since the
\nsanction of  the scheme\t by the\t Court,\t DFM  has  sold\t its
\ninterest to  Shri S.  K. Gupta\tand  others  who  wanted  to
\noperate the  scheme as if they were the substitutes for DFM.
\nAnother averment  is that  DFM was  not entitled to sell its
\nshares\tbecause\t  it  was  the\tpropounder  of\tthe  scheme.
\nTherefore, the\traison d’etre  for  moving  the\t application
\nunder s. 392(2) was the sale of shares of IHI held by DFM to
\nthe  appellants.   When\t  the\tappellants   filed   Company
\nApplication No.\t 193\/76 under  s. 392(1),  in order  to show
\ntheir newly acquired or subsisting interest in the scheme so
\nas to  enable them  to move the application under s. 392, it
\nwas averred that the appellants have purchased 41,800 shares
\nof IHI\tfrom DFM  and the  balance of  holding of DFM to the
\ntune of\t 2200 equity  shares  have  been  purchased  by\t the
\nnominee of  the appellants.  It is  further averred that the
\namount standing\t in the name of DFM in the books of IHI also
\nbeen taken  over by  the appellants. While replying to these
\naverments in  the application, respondent K. P. Jain in para
\n16 of his counter affidavit dated 29th March 1976 has stated
\nthat ‘there  is some  understanding or agreement between the
\nDelhi Flour Mills Co. Ltd. and Shri S. K. Gupta for the sale
\nof the shares held by Delhi Flour Mills Co. Ltd., in the IHI
\nand I have referred to
\n1200<\/span>
\nit in  my application  CA. 190\/76′. If the very alleged sale
\nof the\tshares by DFM to the appellants gave cause of action
\nto respondent  Jain to\tmaintain  an  application  under  s.
\n392(2) praying\tfor an\torder for winding up of the company,
\nwhat greater  ambivalence could\t it  disclose  when  it\t was
\ncontended on  his behalf that the sale has not taken place ?
\nThere is  enough evidence  on record  as is evident from the
\naffidavit  filed   by  DFM  that  as  between  DFM  and\t the
\nappellants  the\t  sale\tis  complete.  Similarly,  there  is
\nevidence in  the affidavit that the debt owned by IHI to DFM
\nhas been  assigned by  DFM to the appellants. In the face of
\nthis express  position adopted\tby Jain, would it not clothe
\nthe appellants\twith necessary\tinterest both in the company
\nIHI and the scheme in respect of it, so as to enable them to
\nmaintain an  application under\ts. 392(2)  ? Appellants\t are
\ncertainly persons  interested in the affairs of the company.
\nFor this  additional reason the application for modification
\nby them is certainly maintainable.\n<\/p>\n
     In the aforementioned circumstances we are not inclined
\nto examine  a very  serious contention\traised by Mr. Mridul
\nwho appeared  at a later stage of hearing for the respondent
\nJain that  unless names\t of the\t appellants are\t put on\t the
\nregister of  IHI they  do not  become  members\tand  as\t the
\nassignment on which the appellants rely does not comply with
\nthe requirements  of s. 130 of the Transfer of Property Act,
\nthe assignee’s\ttitle to  the debt  assigned has  not become
\ncomplete, and,\ttherefore, the\tappellants are not creditors
\nof IHI.\t We may in passing say that the factum of assignment
\nor the\tsale of shares was never seriously questioned but we
\nare prepared to proceed on the assumption that even if it be
\nso,  in\t  the  circumstances   herein  discussed   and\t the
\nambivalence  of\t  respondent  Jain   the  appellants   could
\ncertainly be said to be persons sufficiently interested both
\nin the\tcompany IHI and the scheme in respect of it so as to
\nbe able to maintain an application under s. 392(1).\n<\/p>\n
     Lastly in this connection it must be remembered that if
\nDFM whose  scheme  was\tsanctioned  and\t not  challenged  by
\nrespondent Jain,  started implementing\tthe scheme and after
\ngetting\t into  the  saddle  by\tconstituting  the  Board  of
\nDirectors as  desired by  it, it  could have transferred its
\nshares to appellants and appellants could have as well taken
\nover management\t and implemented  the scheme  and no one, at
\nany rate,  Respondent Jain  holding only 1000 equity shares,
\ni.e. 1.25% of the issued capital, could have objected to it.
\nThe objection  at this\tstage is  equally futile. Therefore,
\nwith respect,  the High\t Court was  in error in holding that
\nthe  appellants\t  had  no   locus  standi   to\tmaintain  an
\napplication under s. 392(1).\n<\/p>\n
     The next  important contention  is that  the sponsor or
\npropounder of a scheme is such an integral part of the whole
\nscheme or an impor-\n<\/p>\n
1201<\/span><\/p>\n
tant element of the ‘basic structure’ of the scheme that its
\nsubstitution changes,  alters or amends the scheme in almost
\nits entirety  and such\ta thing\t cannot be  done by  way  of
\nmodification under  s. 392.  The word ‘modification’ must be
\ngiven, according to the respondent and according to the High
\nCourt, a  restricted and  narrow meaning.  The\tHigh  Court,
\nafter reaching the conclusion that propounder of a scheme is
\n‘the very life blood and soul of the scheme and on his going
\nout the scheme itself becomes lifeless and inert’, proceeded
\nto examine  the connotation  of the  word ‘modification’  as
\nused in\t s. 392\t and after  referring to  various dictionary
\nmeanings, reached  a conclusion that the context and setting
\nin which  the word  is used,  it would\tonly means  a “small
\nadjustment a  minor or\tslight change,\ta  qualification  or
\nlimitation, alteration\tof  a  subordinate  character”,\t and
\nsubstitution of\t a sponsor  of a  scheme is  of such a vital
\nnature altering,  in the  opinion of  the  High\t Court,\t the
\n‘basic\tstructure’   of\t the   scheme  that   such  a  three
\ndimensional change  would not  be comprehended\tin the\tword
\n‘modification’\tas   used  in\ts.  392.  In  reaching\tthis
\nconclusion the\tHigh Court  referred to the meaning assigned
\nto  the\t word  ‘modify’\t in  various  dictionaries  such  as
\nWebster, Black’s  Law Dictionary,  et el.  Unfortunately the
\nHigh Court  completely overlooked the obvious that the words
\n‘modify’ and ‘modification’ have been defined in s. 2(29) of
\nthe Companies Act as under:\n<\/p>\n
\t  “2. Definitions-In  this Act,\t unless the  context
\n     otherwise requires-\n<\/p><\/blockquote>\n
\t  (29) “Modify” and “modification” shall include the
\n\t       making of additions and omissions”.<\/p><\/blockquote>\n
     It may also be mentioned that s. 2(1) defines ‘altered’
\nand  ‘alteration’   to\tinclude\t  making  of  additions\t and
\nomissions, while  ‘variation’ is  defined  in  s.  2(31)  to
\ninclude ‘abrogation’.  The definition  of cognate  words  is
\nnoted by  us to\t arrive\t at  a\ttrue  meaning  of  the\tword
\n‘modification’.\t The   High  Court  nowhere  refers  in\t its
\njudgment to  the definition  of ‘modify’  and ‘modification’
\ngiven in  the very  statute and\t proceeded  to\texamine\t the
\ncontent and  meaning of\t the word used in a provision in the
\nsame statute  which, unless  the context otherwise requires,
\nmust bear  the same  meaning as\t set out  in the  definition
\nsection.\n<\/p>\n
     The noticeable feature of this definition is that it is
\ninclusive definition  and where\t in a  definition clause the
\nword ‘include’ is used it is
\n1202<\/span>
\nso done\t in order  to enlarge  the meaning  of the  words or
\nphrases occurring  in the body of the statute and when it is
\nso used,  these\t words\tor  phrases  must  be  construed  as
\ncomprehending  not  only  such\tthings\twhich  they  signify
\naccording to  their natural  import, but  also those  things
\nwhich the  interpretation clause  declares that\t they  shall
\ninclude (see Dilworth v. Commissioner of Stamps). Where in a
\ndefinition section  of a statute a word is defined to mean a
\ncertain thing,\twherever that  word is used in that statute,
\nit shall  mean what  is stated\tin the definition unless the
\ncontext otherwise  requires. But  where the definition is an
\ninclusive definition,  the word not only bears its ordinary,
\npopular and  natural sense whenever that would be applicable
\nbut it\talso bears  its extended  statutory meaning.  At any
\nrate, such  expansive definition  should be  so construed as
\nnot cutting  down the  enacting provisions  of an Act unless
\nthe phrase  is absolutely  clear in  having opposite  effect
\n(see  Jobbins\tv.  Middlesex  County  Council).  where\t the
\ndefinition of  an  expression  in  a  definition  clause  is
\npreceded  by   the  words   ‘unless  the  context  otherwise
\nrequires’, normally  the definition  given  in\tthe  section
\nshould be  applied and\tgiven effect to but this normal rule
\nmay, however,  be departed from if there be something in the
\ncontext to  show that  the definition  should not be applied
\n(see Khanna,  J. in  Indira Nehru  Gandhi v. Raj Narain). It<\/a>
\nwould thus  appear that\t ordinarily one has to adhere to the
\ndefinition and\tif it  is an  expansive definition  the same
\nshould be adhered to. The frame of any definition more often
\nthan not is capable of being made flexible but the precision
\nand certainty  in law  requires that  it should\t not be made
\nloose and  kept tight as far as possible (see Kalva Singh v.
\nGenda Lal).\n<\/p>\n
     Is there  anything in  the context and setting in which
\nthe word  ‘modification’ is  used in s. 392 to indicate that
\nthe legislature\t has not  used the  expression assigning the
\nmeaning to  the word as set out in the definition clause? At
\nleast nothing was pointed out to us. Undoubtedly, as pointed
\nout by\tLord Hershell  in Cox v. Hakes, that for the purpose
\nof construing any enactment it is right to look, not only at
\nthe provision  immediately under  construction, but  at\t any
\nothers found  in connection  with it  which may\t throw light
\nupon  it,  and\tafford\tan  indication\tthat  general  words
\nemployed in it were not intended to
\n1203<\/span>
\nbe applied  without some  limitation. Even with this caution
\nwe find\t nothing in  s. 392 or reading s.392 with s. 391, to
\ncut down  and restrict\tthe meaning as has been attempted by
\nthe High Court completely ignoring the definition section.\n<\/p>\n
     According to the definition ‘modify’ and ‘modification’
\nwould include  the making of additions and omissions. In the
\ncontext of  s. 392 ‘modification’ would mean addition to the
\nscheme\tof   compromise\t and\/or\t  arrangement  or   omission
\ntherefrom solely  for the  purpose of  making  it  workable.
\nReading s.  392 by  substituting the  definition of the word
\n‘modification’ in  its place, if something can be omitted or
\nsomething can  be added\t to a  scheme of  compromise by\t the
\nCourt on  its own  motion or  on the application of a person
\ninterested in  the affairs  of the  company for\t the  proper
\nworking of  the compromise  and\/or arrangement,\t we  see  no
\njustification for  cutting down\t its meaning by a process of
\ninterpretation and  thereby whittle  down the  power of\t the
\nCourt to  deal\twith  the  scheme  of  a  compromise  and\/or
\narrangement for\t the purpose of making it workable in course
\nof its continued supervision as ordained by s. 392 (1).\n<\/p>\n
     Strictly speaking, omission of the original sponsor and
\nsubstituting another one would not change the ‘basic fabric’
\nof the\tscheme. The  scheme in\tthis case  is one by which a
\ncompromise is  offered to  the unsecured  creditors  of\t the
\ncompany and  whoever comes  in as  sponsor would be bound by
\nit. Undoubtedly\t a sponsor of the scheme enjoys an important
\nplace in  the scheme  of compromise  and\/or arrangement\t but
\nbasically  the\t scheme\t is  between  the  company  and\t its
\ncreditors or  any class\t of them,  or the  company  and\t its
\nmembers or any class of them, and not between the sponsor of
\nthe scheme and the creditor or member. The scheme represents
\na  contract  sanctified\t by  Court’s  approval\tbetween\t the
\ncompany and the creditors and\/or members of the company. The
\ncompany may  as well  be in  charge  of\t directors  and\t the
\nimplementation of  the scheme may come through the agency of
\ndirectors but  that would  not lead  to the  conclusion that
\nduring the  working of\tthe scheme  the directors  cannot be
\nchanged. If  the scheme\t has to be ultimately implemented by
\nthe company  as part  of its  contract and yet its directors
\ncan be\tchanged according to its Articles of Association, we
\nsee no\tdifference in  the  situation  where  a\t sponsor  is
\nrequired to  be changed\t in the facts and circumstances of a
\ncase. Therefore, it is not possible to accept the submission
\nthat as\t and by\t way of modification one sponsor of a scheme
\ncannot be substituted for another sponsor.\n<\/p>\n
1204<\/span><\/p>\n
     We may  not be  understood to say for a moment that the
\nCourt can  appoint any\tone as sponsor. The Court on which a
\nduty is cast by s. 392(1) to exercise continuous supervision
\nover the  working of the compromise and\/or arrangement must,
\nin order to effectively discharge its duty, examine the bona
\nfides of  the person  applying to be substituted as sponsor,
\nhis capacity,  his ability, his interest qua the company and
\nother  relevant\t  considerations  before   substituting\t one
\nsponsor for  another. In  a given case an application may be
\nrejected as  the Court is of the opinion that the sponsor is
\nnot one\t who can  be trusted  with the implementation of the
\nscheme but  that is  entirely a\t different thing from saying
\nthat the  Court has  no power to make such a substitution as
\nand by way of modification of a compromise or arrangement.\n<\/p>\n
     Now to  the facts\tof the\tcase.  The  appellants\thave
\napplied for  substituting them\tas sponsors of the scheme in
\nplace of DFM. They claim to have purchased 44,000 shares out
\nof  80,000  issued  and\t subscribed  equity  shares  of\t the
\ncompany. As  stated  earlier,  between\tthe  transferor\t and
\ntransferee of  the shares,  the transfer  of the  shares  is
\ncomplete  and\tnot  even   seriously  objected\t to  by\t the
\nrespondent as  pointed out  hereinbefore.  The\tsponsor\t has
\ntaken an  assignment of a debt of Rs. 23 lacs which IHI owed
\nto DFM\tfrom the  creditor  DFM.  A  gain,  as\tbetween\t the
\ntransferor and\ttransferee the\tassignment is  complete. The
\nonly objector  is respondent  holding  1,000  equity  shares
\nrepresenting 1.25  per cent  of the  issued  and  subscribed
\ncapital. An advertisement was directed to be inserted by the
\norder  of   the\t Court\tin  newspapers\tin  respect  of\t the
\napplication  for   substitution-modification  made   by\t the
\nappellants inviting  every one\tinterested in the company or
\nin the\tscheme of  compromise and\/or arrangement to come and
\nlodge\tobjection,   if\t  it   was   so\t  desired,   against
\nsubstitution\/modification prayed  by  the  appellants.\tNone
\nincluding the  petitioning creditor  except  the  respondent
\nJain has  lodged such  an objection. This procedure was also
\nfollowed by  the Gujarat  High Court in Mansukhlal’s (supra)
\ncase and by referring to that part of the judgment, the High
\nCourt held  that judgment  itself is  an authority  for\t the
\nproposition that  substitution of  the sponsor\tis  a  vital
\nchange of  a basic nature and cannot be ordered by the Court
\nacting under s. 392 and must be referred to a meeting of the
\ncreditors or  members. With  respect, this  is\tnot  a\tfair
\nreading of  the judgment.  At pages  290-291, the  scope and
\nambit of  the power  of the  Court under  s.  392  has\tbeen
\nprecisely set  out and\tit is  concluded that  the power  to
\nmodify would  comprehend the power to substitute one sponsor
\nfor the other if he is found otherwise fit and competent. As
\nan additional string to the bow, it was observed, as it
\n1205<\/span>
\nis being  done here  also, that\t no one\t has come forward to
\nobject to the substitution and that would further strengthen
\nthe hands of the Court. Such observation cannot be construed
\nto mean\t that the  Court lacks\tthe power  to  make  such  a
\nmodification without  reference back to the creditors and\/or
\nmembers, as  the case  may be.\tIn the\tbackground of  these
\nunimpeachable facts  the conclusion  is inescapable that the
\nappellants have\t a subsisting and vital interest in the fate
\nand future  of IHI  and they are the appropriate persons who
\ncould and  should be  substituted in  place of\tthe original
\nsponsor.\n<\/p>\n
     In passing\t it was\t said that  the fate  of the company
\nshould not  be placed in the hands of the appellants and the
\nlack of\t bona fides  of the  appellants becomes\t discernible
\nfrom the  fact that  they tooth\t and nail  opposed the\tvery
\nscheme which  they now\tseek to\t implement. This is hardly a
\nrelevant consideration.\t A creditor  may come  and oppose  a
\nscheme being  implemented by  some person  and\tyet  may  be
\ninterested in  taking over  the affairs of the company. This
\ncould  hardly  be  treated  as\ta  disqualification  of\t the
\nappellants.\n<\/p>\n
     Lastly it may be mentioned that the appellants agree to
\nimplement the  scheme. They undertake to bring Rs. 3 lacs as
\nliquid finance\tfor implementing the scheme. The question of
\nthe know-how  was examined  by the  company  Judge  who\t has
\naccepted their\tfitness to  run the business and nothing was
\npointed out to us to depart from the same. Therefore, viewed
\nfrom  any  angle,  we  see  no\tobjection  to  granting\t the
\napplication of\tthe appellants for substitution\/modification
\nas sponsors of the scheme.\n<\/p>\n
     Accordingly, the  judgment of  the Division Bench dated
\n16th July  1976 in Company Appeal No. 15\/76 is set aside and
\nthe order  of the  Company Judge  dated 26th  April 1976  in
\nCompany\t Application  No.  193\/76  is  restored\t with  costs
\nthroghout.\n<\/p>\n
N.V.K.\t\t\t\t\t     Appeal allowed.\n1<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India S. K. Gupta & Anr vs K. P. Jain & Anr on 30 January, 1979 Equivalent citations: 1979 AIR 734, 1979 SCR (2)1184 Author: D Desai Bench: Desai, D.A. PETITIONER: S. K. GUPTA & ANR. Vs. RESPONDENT: K. P. JAIN & ANR. DATE OF JUDGMENT30\/01\/1979 BENCH: DESAI, D.A. BENCH: DESAI, D.A. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-21547","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nS. K. Gupta & Anr vs K. P. 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