S. K. GUPTA & ANR. versus K. P. JAIN & ANR.

Citation: [1979] 2 S.C.R. 1184 · Decided: 30-01-1979 · Supreme Court of India · Bench: P.S. KAILASAM · Disposal: Appeal(s) allowed

Cited by 6 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
i c 
D 
E 
F 
G 
H 
ils4 
S. k. GUPTA & ANR· 
v. 
K. P. JAIN & ANR. 
January 30, 1979 
(P. S. KAILASAM, 0. A. DESAI AND A. D. KOSHAL, JJ.] 
Con1panies Act, 1956 (1 of 1956) Ss. 391 and 
392--Scope of--V111ission 
of the original spo11sor arid substituting another whether 
J;:oufd 
chan!}e 
the 
'basic fabric' of the schen1e. 
Words & Phrases-'Modify' a11d '111odifications'-lvlea11i11:; of. 
The Companies Act, 1956 by s. 391 enables a member or a creditor of the 
company or a 
company which 
is 
being wound up, 
its 
liquidator, 
to 
make. an 
application 
to 
the 
court 
proposing 
a 
compromise 
c:r 
arrangement between the company and its creditors or any class of them 
or between the company and its n1embers or any class of them and seeking 
directions of the court to convene a meeting of each class of creditors and/or 
each clo.ss of members to v.·hom the compromise or nrrangement is offered. On 
the court giving the directions, the n1eeting \Vould be convened in which the 
proposed scheme of compron1ise and/or arrangement would be submitted for 
consideration and each class will have to vote upon it and if the schen1e is 
accepted by a majority in nun1ber representing three 
fourths in value of the 
creditors or members or class of members as the cuse may be, present and 
voting either in person or where proxy is allowed by proxy, such approved 
sl'.'heme has to be placed before the court for sanction of the court as envisageJ 
ins. 391(2). 
Under s. 392 of the Act, the High Court which has sanctioned the sche1nc 
has the power to supervise the carrying out of it and to give directions in 
regard to any tnatter or to make modifications in it as it may consider necessary 
,/._ 
for its proper working. 
But if the court is satisfied that the scheme cannot --
work satisfactorily with or without modifications, it can either suo motu or 
on an application of any person interested in the con1pany's affairs order its 
\1.'inding up. 
The holding company proposed a 
scheme 
of 
con1pron1ise/arrangen1ent 
bet\\'een 
its 
subsidiary 
and 
the 
unsecured 
creditors 
of 
the 
subsi-
diary 
company. 
After 
obtaining 
the 
approval 
of 
the 
shareholders 
the 
holding company obtained 
the sanction of 
the co1npuny court. 
A 
large number of shares in the subsidiary compl.\ny held by it and its claim 
for a sum of Rs. 23 lacs rec.overable from the subsidiary company were tran-;-
ferred 
by 
the 
holding 
company to the appellant~. The appellants then 
applied to the court to make lln <tppropriate n1odification and/or grant further 
direction for implen1enting the schen1e sanctioned by the court in respect of 
the subsidiary company by substituting the1n (the appellants) in place of the 
holding company as proponents of the scheme. 
The re~pondent in the mean-
whiL~ nlade an application to the company court under s. 392 of the Compa-
nies Act, 1956 to hold that the scheme sanctioned by the court could not work 
sati5factorily with or without modification and that, therefore, the court should 
' 
• 
S. K. GUPTA V. K. P. JAIN. 
1185 
make an order of windin~ up. 
The company jud~e allowed substHution of 
"· 
the appellants as proponents of the scheme and 
rejected 
the 
re~pondents' 
1.pplication for winding up of the subsidiary company. 
On appeal by the respondents under s. 483 of the Companie~ _Act a Divi-
sion Bench held: (1) that since the substitution of a new propounder in a 
schen1e sanctioned by the court in place of the orii::inal propounder was 
a 
change of a basic nature which would not be comprehended within- the me,~n-
Bt 
ing of the expression "modification" in s. 392 and, there(ore,_ the 
company 
judge could not havi: granted substitution of the propounder of the scheme 
without referring the proposed modified scheme to the creditor!.Jho approvCµ 
the original scheme, (2) that since the tranafer of the share! in favour of the 
appellants had not been effected in the company's registers, 
the 
appe\}ant! , 
wete not members of the subsidiary, (3) that the debt owed by the_ subsidiary 
to the holding company was not assigned tJ:ccording to law in favour of. the, 
Q ~ 
appellants and, therefore, they were not creditors and (4) ·that 
not bei,ng 
either 
members 
or 
creditors 
of 
the 
subsidiary, 
the 'appellants had no 
locus standi to move an appli<.IJ{ion under s. 392 for the modification of the 
scheme. 
On the question whether the court had power to grant an application under 
s 392 of the Act. 
I>, 

Excerpt shown. Read the full judgment & AI analysis in Lexace.