J. K. (BOMBAY) (P) LTD. versus NEW KAISER-I-HIND SPG. & WVG. CO. LTD. & ORS. ETC.

Citation: [1969] 2 S.C.R. 866 · Decided: 22-11-1968 · Supreme Court of India · Bench: J.M. SHELAT · Disposal: Dismissed

Cited by 5 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

866 
J. K. (BOMBAY) (P) LTD. 
v. 
NEW KAISER-I-HIND SPG. & WVG. CO. LTD. & ORS. ETC. 
November 22, 1968 
[J. M. SHELAT, V. BHARGAVA AND C. A. VAIDIALINGAM, JJ.] 
Companies Act I of 1956 Ss. 391, 392 & 433-Scheme under s. 391-
Scope and nature of-Effect on right of creditors and other parties-On 
scheme becoming unenforcetible if parties bound to operate it or Company 
to be wound up-Obligations undertaken by management 
to 'provide' 
finance for working company-If· unlimited obligation or only one in coin· 
1nercial sense, i.e., with prospect of making profits. 
Mortgage-Agreed to be executed under scheme in favour 
of un-
secured creditors-Not executed at date of winding up-If amounted to 
charge in presenti in favour of the creditors. 
On a winding-up petition being filed in respect of the tespondent com-
pany in June, 1965, a provisional liquidator was 
appointed, 
who took 
charge of the Cotton Textile Mills of the Company after they had stopped 
working. 
Thereafter an agreement was 
entered into in August, 
1965 
between the S group who owned the majority of equity shares in the 
company and the J group which agreed to buy the shares and to 
take 
over the management. 
'The agreement provided, inter alia, that 
after 
the J group took over, the Oimpany would execute a second legal mort-
gage of its fixed and other assets in favour of the S group and certain 
-Other unsecured creditors mentioned in Schedule B to the agreement in 
consideration of which those creditors agreed to receive interest at 'a 
nominal rate and receive repayment of their debts over a long period. 
The agreement also contained provision which contemplated the Com-
pany obtaining loans fro1n certain finarlcial institutions, the Central and 
State Governments and other persons 
and securing 
them by a prior 
charge over its fixed assets as well as liquid assets. 
After this agreement with the unsecured creditors and/ another with 
the workers union, the· Company submitted a scheme for the sanction 
of the High Court. By an order in February, 1966, a single Judge 
-0f the High Court approved the scheme which provided, inter tilia, for 
payments to various cat~gories of creditors within specified periods and 
for the execution of a second mortgage in favour of the Schedule B 
creditors; or alternatively for the execution of a debenture trust deed 
and the issue of debentures in their favour if sanction of the Controller 
of Capital Jssues could be obtained. 
It was also provided in clause ( 4) 
of the scheme that the J group "will provide the necessary :finance re-
quired for running the mi11s". 
The winding-up petition was then \Vith-
drawn. the provisional liquidator discharged and the J group took over 
the Comuany's management. 
The mills were restarted in April, 
1966 
and payments to various categories of creditors other than the Schedule 
B creditors were du1y made. 
However in view of certain disputes bet-
ween the tw6 groups, the company did not execute the mortgage or 
the proposed debenture trust deed in favour of the Schedule B creditors. 
The mills· contin'ued to work until June, 1967, but the management 
experienced various difficulties in raising adequate working finances, in 
·securing sufficient supplies of cotton. due to price rise following devalu-
ation. of the Rupee in 1966 and for various other reasons. 
In view of 
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J. K. LTD. v. KAISER SPG. CO. 
8 67 
these the mills were eventually closed down in June, 1967, and there-
after the Company and others filed a petition for its winding-up. How-
ever, the Company Judge in fhe High Court took the view that under 
clause ( 4) di the scheme the J group were bound not only to procure 
but to personally bring in the finance sufficient to work the mills. Hold-
ing that the scheme was workable he directed the J group to provide 
the necessary finance. 
He also directed the company to execute the de-
benture trust deed in favour of the un.secured cre.dilors in Schedule B. 
He therefore dismissed the winding-up petitions. In appeal, a Division 
Bench of the High Court held that the Company Jud!e was in error 
in giving the said directions and in dismissin,g the petirions for winding-
up. 
Accordingly, it allowed the appeals and ordered winding-up of the 
company. 
In appeal to this Court it was contended inter alia that the Appeal 
Court 
was in erro'r in 
setting 
aside 
the directions 
give

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