# SERVICES LIMITED v. B.P.L. LIMITED

- **Citation:** [2015] 2 S.C.R. 273
- **Court:** Supreme Court of India
- **Decided:** 2015-01-09
- **Case number:** Civil Appeal No. 2701 of 2006
- **Bench:** Anil R. Dave, Dipak Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/services-limited-v-b-p-l-limited-30342
- **Pages:** 57

## Headnote

Companies Act, 1956 - s.391 -
Compromise between
Company and its creditors -
Respondent-company
proposed a scheme involving its creditors - Application ul
B
c
s 391(1) by respondent-company seeking permission for
holding meeting for consideration of approval of the D
compromise -
Objection to, by one of the creditors
(appellant) denying applicability of the scheme on it on the
ground that it was not a secured creditor as its status as
secured creditor was changed in view of subsequent events
including the arbitration award which was passed on E
consent; and that in view of Order II r 2 CPC the arbitral
award operates as res judicata and hence proceedings
before Company Court were barred -
Company Judge
approved the scheme -
In Company appeal, Order of
Company Judge was upheld - On appeal to this Court,
F
held: The appellant-creditor would be bound by the scheme
approved by the Company Judge - The appellant-creditor
was a secured creditor and its status continued as such -
The cause of action before the Arbitral Tribunal and the
Company Court were different and hence the consent G
award passed by the arbitrator would not operate as res
judicata and Or II r2 would not apply - Even in view of
the principles engrained u/ss. 176 and 177 of the Contract
273
H
274
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A Act, proceedings before Company Court cannot be barred
holding that the respondent-company waived the
hypothecation by accepting the arbitral award - Code of
Civil Procedure, 1908 - Or. II r. 2 - Contract Act, 1872 -
ss. 176 and 177.
B
Dismissing the appeal, the Court
HELD: 1.1 Sub-Section (1) of Section 391
stipulates that a compromise or arrangement can be
proposed between a company or its creditor or any
C class of them or between a company and its members
or any class of them. It need not be between all the
creditors or all the members. Contextually, "class of
creditors" or "class of members" has a different
meaning and connotation. It gains significance when
D the question of approval of scheme under the Act arises
for consideration. While dealing with the approval of a
scheme, the Company Court is required to direct
holding of meeting of the said class of creditors or
members concerned and only when the scheme is
E approved by the majority in number representing 3/4th
in value by the class of creditors, or members present
either in person or through proxy, the same becomes
binding on the said class of creditors or members.
Once there is a voting and the 3141h majority has voted
F in favour of the scheme, it is binding on those who
have dissented and had voted against the scheme or
those who remained silent. [Para 19] [294-F-H; 295-AB]
G
Miheer H. Mafatlal v. Mafatlal Industries Ltd. 1996 (6)
Suppl. SCR 1 = (1997) 1 SCC 579 - relied on.
Employees' Union v. Hindustan Lever Ltd 1994 (4)
Suppl. SCR 723 = (1995) Supp (1) SCC 499 • referred
H to.
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 275
v. B.P.L. LTD.
Alabama, New Orleans, Texas and Pacific Junction A
Rly. Co. Re (1891) 1 Ch 213; Anglo-Continental Supply
Co. Ltd. Re (1922) 2 Ch 723 - referred to.
1.2 The purpose of the classification of creditors
has its significance. It is with this object that when a B
class has to be restricted, the principle has to be founded
on homogeneity and commonality of interest. It is to be
seen that dissimilar classes with conflicting interest
are not put in one compartment to avoid any kind of
injustice. For example, an unsecured creditor who has C
filed a suit and obtained a decree would not become a
secured creditor. He has to be put in the same class as
other unsecured creditors. (Para 26] [304-0-E]
Sovereign Life Assurance Co. Ltd. v. Dodd 1892 (2)
Q.B. 573 CA- referred to.
D
2. For Order II Rule 2 CPC to apply, the cause of
action in the cases should be similar and the bar of
constructive res judicata would not be applicable. The
consent award in an arbitral proceeding would not bar E
a suit for enforcement of the charge and it would not be
h

## Text

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(2015] 2 S.C.R. 273
INFRASTRUCTURE LEASING & FINANCIAL
A
SERVICES LIMITED
v.
B.P.L. LIMITED
(Civil Appeal No. 2701 of 2006)
JANUARY 09, 2015
[ANIL R. DAVE AND DIPAK MISRA, JJ.]
Companies Act, 1956 - s.391 -
Compromise between
Company and its creditors -
Respondent-company
proposed a scheme involving its creditors - Application ul
B
c
s 391(1) by respondent-company seeking permission for
holding meeting for consideration of approval of the D
compromise -
Objection to, by one of the creditors
(appellant) denying applicability of the scheme on it on the
ground that it was not a secured creditor as its status as
secured creditor was changed in view of subsequent events
including the arbitration award which was passed on E
consent; and that in view of Order II r 2 CPC the arbitral
award operates as res judicata and hence proceedings
before Company Court were barred -
Company Judge
approved the scheme -
In Company appeal, Order of
Company Judge was upheld - On appeal to this Court,
F
held: The appellant-creditor would be bound by the scheme
approved by the Company Judge - The appellant-creditor
was a secured creditor and its status continued as such -
The cause of action before the Arbitral Tribunal and the
Company Court were different and hence the consent G
award passed by the arbitrator would not operate as res
judicata and Or II r2 would not apply - Even in view of
the principles engrained u/ss. 176 and 177 of the Contract
273
H
274
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A Act, proceedings before Company Court cannot be barred
holding that the respondent-company waived the
hypothecation by accepting the arbitral award - Code of
Civil Procedure, 1908 - Or. II r. 2 - Contract Act, 1872 -
ss. 176 and 177.
B
Dismissing the appeal, the Court
HELD: 1.1 Sub-Section (1) of Section 391
stipulates that a compromise or arrangement can be
proposed between a company or its creditor or any
C class of them or between a company and its members
or any class of them. It need not be between all the
creditors or all the members. Contextually, "class of
creditors" or "class of members" has a different
meaning and connotation. It gains significance when
D the question of approval of scheme under the Act arises
for consideration. While dealing with the approval of a
scheme, the Company Court is required to direct
holding of meeting of the said class of creditors or
members concerned and only when the scheme is
E approved by the majority in number representing 3/4th
in value by the class of creditors, or members present
either in person or through proxy, the same becomes
binding on the said class of creditors or members.
Once there is a voting and the 3141h majority has voted
F in favour of the scheme, it is binding on those who
have dissented and had voted against the scheme or
those who remained silent. [Para 19] [294-F-H; 295-AB]
G
Miheer H. Mafatlal v. Mafatlal Industries Ltd. 1996 (6)
Suppl. SCR 1 = (1997) 1 SCC 579 - relied on.
Employees' Union v. Hindustan Lever Ltd 1994 (4)
Suppl. SCR 723 = (1995) Supp (1) SCC 499 • referred
H to.
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 275
v. B.P.L. LTD.
Alabama, New Orleans, Texas and Pacific Junction A
Rly. Co. Re (1891) 1 Ch 213; Anglo-Continental Supply
Co. Ltd. Re (1922) 2 Ch 723 - referred to.
1.2 The purpose of the classification of creditors
has its significance. It is with this object that when a B
class has to be restricted, the principle has to be founded
on homogeneity and commonality of interest. It is to be
seen that dissimilar classes with conflicting interest
are not put in one compartment to avoid any kind of
injustice. For example, an unsecured creditor who has C
filed a suit and obtained a decree would not become a
secured creditor. He has to be put in the same class as
other unsecured creditors. (Para 26] [304-0-E]
Sovereign Life Assurance Co. Ltd. v. Dodd 1892 (2)
Q.B. 573 CA- referred to.
D
2. For Order II Rule 2 CPC to apply, the cause of
action in the cases should be similar and the bar of
constructive res judicata would not be applicable. The
consent award in an arbitral proceeding would not bar E
a suit for enforcement of the charge and it would not be
hit by Order II, Rule 2 CPC. In the present case, the
issue before the Company Court was quite different
than that was before the Arbitral Tribunal. True it is, it
has the status of a decree which is executable, as a F
decree having gone unchallenged, but the /is of framing
a Scheme under the Companies Act is of different
character. It could not have been directly or substantially
in issue before the Arbitrator. That apart, the status of
the appellant as a secured creditor has not changed. G
Therefore, the plea of resjudicata does not commend
acceptance. [Paras 35, 36 and 38] (317-E; 321-B-D]
S. Nazeer Ahmed v. State Bank of Mysore and Others
2007 (1) SCR 843 = (2007) 11 SCC 75 - relied on.
H
276
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A
Indian Bank v. Official Liquidator, Chemmeens Exports
(P} Ltd. and others 1998 (3) SCR 255 = (1998) 5 SCC 401
- distinguished.
Deva Ram v. lshwar Chand 1995 (4) Suppl. SCR 369
B =AIR 1996 SC 378; Ranganayakamma v. K.S. Prakash
2008 (9) SCR 297 = (2008) 15 SC 673; Harbans Singh
and others v. Sant Hari Singh and others 2009 (1) SCR
250 = (2009) 2 SCC 526; Palaniappa Chettiar v. Alagan
Chettiar AIR 1922 PC 228; Arjun Lal Gupta v. Mriganka
C Mohan Sur AIR 1975 SC 207; State of Madhya Pradesh
v. State of Maharashtra 1977 (2) SCR 555 = AIR 1977 SC
1466; Kewal Singh v. Mt. Lajwanti 1980 (1) SCR 854 =
AIR 1980 SC 161 - referred to.
Palmer's Treatise on 'Company Law, 251h edition;
D Halsbury's Laws of India, 2007, Vol. 27 - referred to.
3. The provisions u/ss. 176 and 177 of Contract
Act, 1872 when read in a conjoint manner clearly
establish that a pledge does not get extinguished and,
E in fact, continues even when the pawnee has sued
and recovered a part of the debt without enforcement
of the pledge or the security. As per Section 176, when
the pawnor makes default in making the payment, the
pawnee may bring a suit upon the debt or promise and
F retain the good(s) pledged as a collateral security. A
pawnee has both collateral and concurrent rights and
can institute a suit for the purpose of realization of the
said debt or promise while retaining the goods as a
collateral security. Section 176 also makes it clear that
G it is the discretion of the pawnee and it gives an option
to him and merely because pawnee has filed a suit for
recovery, that would not affect or destroy the charge
or the right of the pawnee in respect of a pledged
goods or the collateral security. Thus, it is within the
H domain of discretion of pawnee to file a suit for
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 277
v. B.P.L. LTD.
recovery of a debt and yet retain the collateral security A
or pledged goods. It would not bar or prohibit a pawnee
from subsequently selling the pledged goods or the
collateral security. Though there is a difference between
a hypothecation and a pledge, yet it is an accepted
legal principle that hypothecation is treated as a subB
species of pledge and virtually has the same legal
effect. The arbitral award in the present case was
passed on consent and from the same it would be
inappropriate to deduce that the hypothecation stood
annulled. [Para 41 and 42] [323-G; 324-A, G-H; 325-AC
F]
Firm Chunna Mal Ram Nath v. Firm Moo/ Chand Ram
Bhagat AIR 1928 PC 99; Jagad Bandu Chatterjee v. Nilima
Rani (1969) 3 SCC 445; Lal/an Prasad v. Rahmat Ali and D
another 1967 SCR 233 =AIR 1967 SC 1322; Gu/amhusain
Lalji Sajan v. Clara D'Souza AIR 1929 Born. 471; Nim
Chad Babu v. Jagabandhu Ghose [1894] 22 Ca. 21; and
Mahalinga Nadar v. Ganapathi Subbien [1902] 27 Mad.
528 - referred to.
Dawson's Bank Limited v. Nippon Menkwa Kabushiki
Kaisha 62 IA 100, 108 - referred to.
4. The appellant shall remain as a secured creditor,
E
for it was registered as such under the Registrar of F
Companies. The formalities for creating the charge
having duly followed, the Division Bench has referred
to the Form No. 8 and 13 and also adverted to the
power of Registrar to make entries of satisfaction and
release, as provided under Sections 138 and 139 of G
the Act. It has also expressed the view that in the
absence of any proceeding, the status of the company
as a secured creditor continues. Therefore, the
appellant cannot be treated as an unsecured creditor
and it is not permissible for him to put forth a stand H
278
SUPREME COURT REPORTS
(2015) 2 S.C.R.
A that it would not be bound by the Scheme that has
been approved by the Company Judge. [Para 44 and
46] [328-8-D,F]
K. V George v. Secretary to Government, Water and Power
B Department 1989 (1) Suppl. SCR 398 =AIR 1990 SC 53
- referred to.
Jitendra Nath Singh v. Official Liquidator and ors. 2012
(13) SCR 339 = (2013) 1 SCC 462; Lonankutty v. Thomman
c
and Another 1976 (0) Suppl. SCR 74 = (1976) 3 SCC 528
- cited.
Case Law Reference
1989 (1) Suppl. SCR 398
referred to
para 11
[)
AIR 1928 PC 99
referred to
para 16
(1969) 3 sec 445
referred to
para 16
2008 (9) SCR 297
referred to
para 16
E
2012 (13) SCR 339
cited
para 16
1976 (0) Suppl. SCR 74
cited
para 17
2009 (1)' SCR 250
referred to
para 17
1996 (6) Suppl. SCR 1
relied on
para 20
F
(1891) 1 Ch 213
referred to
para 23
(1922) 2 Ch 723
referred to
para 24
1994 (4) Suppl. SCR 723
referred to
para 24
G
1892 (2) Q.B. 573 CA
referred to
para 25
1995 (4) Suppl. SCR 369
referred to
para 29
AIR 1922 PC 228
referred to
para 31
H
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 279
v. B.P.L. LTD.
AIR 1975 SC 207
referred to
para 31
A
1977 (2) SCR 555
referred to
para 31
1980 (1) SCR 854
referred to
para 31
1998 (3) SCR 255
distinguished para 34
B
2007 (1) SCR 843
relied on
para 35
5 Born. L.R. 689
referred to
para 40
62 IA 100, 108
referred to
para 40
c
1967 SCR 233
referred to
para 42
AIR 1929 Born. 471
referred to
para 43
[1894] 22 Ca. 21
referred to
para 44
[1902] 27 Mad. 528
referred to
para 44
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
2701 of 2006
From the Judgment and Order dated 17-01-2006 of E
the High Court of Kerala at Ernakulam in Company Aopeal
No. 5 of 2005
Shyam Divan, Sanjiv Sen, Mohd. Himaytullah, Gaurav
Goel, Manasi Kumar, Abhinav Malhotra, Anirudh Gupta,
F
Mahesh Agarwal, E.C. Agrawala for the Appellant.
V. Giri, Roy Abraham, Anunaya Mehta, Krishna
Pradeep (For Himinder Lal) for the Respondent.
The Judgment of the Court was delivered by
G
DIPAK MISRA, J. 1. BPL Limited, the respondent
herein, was incorporated under the Companies Act, 1956
(for brevity 'the Act") and on 16.4.1963, certificate of
incorporation in the name of the company as British
H
280
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A Physical Laboratories India Pvt. Ltd. was issued. The
company became deemed public company and the word
"Private" stood deleted with effect from 24.3.1981.
Subsequently, the name of the company was changed to
BPL Limited and fresh certificate of incorporation was
B issued by the Registrar of Companies on 16.3.1992. In the
year 1982 the company had diversified its activities into
Consumer Electronics, Colour Television Receivers, Black
and White TV Receivers and Video Cassettes Recorders.
The company embarked on various diversifications,
C expansion programmes and had facilities for manufacture
of television, Alkaline batteries, colour monitors, etc. It also
entered into the arena of manufacturing of refrigerators
and electronic components through associate companies
and had grown into a diversified group with multiple
D products and services. Due to manifold reasons, the
company faced cash flow constraints which adversely
affected its operations. It suffered a loss of Rs.287.8 crores
in the last 18 months for the period ending on 30.09.2003
as there was decline of sales of goods. Due to the said
E loss, the debt of the company increased to 1494.57 crores
as on 31.03.2003. As many a international brand had
entered into the Indian market, the respondent company in
order to keep pace with the technological advancement in
the field of business initiated a comprehensive restructuring
F of its operations which primarily involved rejuvenating its
main business through a joint venture with "Sanyo Electric
Co. Ltd.", Japan and accordingly entered into a shareholder
agreement. In terms of the agreement the BPL had to
transfer its existing CTV business undertaking to the joint
G venture constituting BPL brand for CTV business
manufacturing services, marketing and distribution. Both
the companies BPL and Sanyo had equal partnership in
the ratio 50:50 in the joint venture. The CTV business was
valued at Rs.368 crores and BPL was required to invest
H approximately Rs.46 crores in the joint venture company
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 281
v. B.P.L. LTD. [DIPAK MISRA, J.]
and to receive a net cash inflow of Rs.322 crores. Initially, A
BPL proposed a scheme of arrangement which was finally
modified and in the said scheme various business
institutions and banks were involved. There were 36
creditors whose names featured in the scheme.
B
2. After approval of the scheme the respondent filed
an application under Section 391 ( 1) of the Act read with
Rule 9 the Companies (Court) Rules, 1959 seeking
permission for holding a meeting for consideration for
approval of compromise or arrangement proposed to be C
made between companies and the creditors. The second
prayer had been made for orders governing the procedures
to be complied with. There were 15 respondents. After the
application was filed forming the subject matter of MCA
No. 84 of 2004 notices were issued and many financial D
institutions filed their counter affidavits/objections. The
present appellant, Infrastructure Leasing & Fin. Services
Ltd., which was the 81h respondent, filed its counter-affidavit
and in it, had raised objections to the prayer for stay of
various proceedings before number of forums including
E
Debt Recovery Tribunal, etc. on the foundation that the
Memorandum of Association of the company does not
authorise it to enter into any arrangement as proposed;
that the scheme concealed more than it revealed, for when
such a drastic transformation was taking place it was
F
imperative that there had to be exhaustive disclosure; that
the application filed under Section 391 of the Act was
totally silent as to how and on what basis the valuation of
Rs.368 crores had been arrived at, which agency had done
the valuation and at whose instance the valuation was G
done; that the scheme did not mention whether the BPL
had any other option to raise the capital when retaining
CTV business; that no detailed information had been
furnished in the application or in the proposed scheme of
arrangement as to on what basis the various percentage H
282
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A payments which were proposed to be made to the
unsecured creditors were arrived at by the company; and
that the company court had no jurisdiction to stay the
criminal prosecution under exercise of its power under
Section 391 (6) of the Act.
B
3. BPL filed a reply stating, inter alia, that very purpose
of Section 391 (6) of the Act is that till effective consideration
of the scheme and finalization of the scheme under Section
391 of the Act there has to be a stage of abeyance from
C all aspects so that the Company Court can examine the
workability of the same and grant requisite relief. As regards
the non-disclosure by BPL, it was asserted that the
disclosure had been adequately made, for what was
proposed to be transferred to the joint venture company
0 was the colour television business of the BPL and brand
associated with it and the residual company would retain
the other business of the group such as medical electronics,
batteries, components, etc. It was also put forth that Price
Water House Coopers (PWC) was appointed by the ICICI
E at the instance of all lenders and PWC had assessed that
the residual company could sustain a debt to the extent of
Rs.480 to 520 crores and the report submitted by PWC
was already in possession of the lenders including 8th
respondent therein. It was alleged as the operation had
F been stagnated for a period of two years the valuation
made by the PWC was absolutely fair.
G
4. Be it stated, some of the respondents filed affidavits
supporting the scheme and some others opposing the
same, from many an angle.
5. The learned Company Judge taking note of the
factual matrix, the submissions advanced at the Bar, the
proceeding before the ORT and the criminal cases, referred
to the maintainability of the scheme and came to hold that
H the application preferred under Section 391 (1) was
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 283
v. B.P.L. LTD. [DIPAK MISRA, J.]
maintainable; that the court had the jurisdiction to consider A
the application filed under Section 391 (1) of the Act, even
for the purpose of convening a meeting of its creditors and
its jurisdiction was not affected solely because an
application had been filed before the Debt Recovery
Tribunal; that the company Court in exercise of power B
under Section 391 (6) has no jurisdiction to stay the criminal
proceeding initiated under Section 138 of the N"egotiable
Instrument Act or the proceeding pending before the Debt
Recovery Tribunal under Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest C
Act, 2002; that it is for the creditors at the first instance to
consider the scheme proposed and only the approved
scheme by the required majority is to be considered by the
court for grant of sanction under Section 391 (2) of the
Act; that there is a distinction between Section 391 (1) and
D
391 (2) of the Act regard being had to the language
employed therein and if the contentions mentioned in the
proviso to sub-Section (2) of Section 391 of the Act had to
be considered at the stage of Section 391 (1) that will
amount to reading the latter provision to the earlier one;
E
and that the distinction which has been set forth in various
sub-Sections have to be appositely understood because
there are various phases till the scheme is approved and
each stage has its own room to operate. After so stating
the court referred to the stand of the 81h respondent and
F
came to hold as follows:-
"49. The 81h respondents among other things also
taken up the contention that at all material times
they were only an unsecured creditor of the
applicant-Company and according to them, they
are wrongly impleaded in C.A. No. 1718/2004.
Accordingly to them, the short-terms loan was
granted on terms and conditions agreed upon by
the parties and on a reading of Clause 15 of the
G
H
284
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A
terms and conditions security to be created by the
Hewlett Packard (India) Ltd. through an ascrow
account which will separately open. According to
them, no account was opened subsequently and
no amount was channelised through the account
B
as contemplated by the mechanism prescribed.
Hence, no security was created in favour of the Sth
respondent. These conditions were raised in an
additional affidavit filed by the 81h respondent. The
applicant-company has also filed an additional
C
affidavit answering those conditions. In the
additional reply affidavit filed on 24/1 /2005 the
applicant-company has averred that the contention
that they are only unsecured creditors was raised
during agreement and the affidavit was also filed
D
during the course of arguments. The applicantCompany took copies of the documents creating
charge in favour of the gth respondent. They have
produced Annexure-X hypothecation deed which
is executed in 2001. Copies of Form No. 8 return
E
dated 1.1.2001 and Form No. 13 return dated
1.1.2001 filed with the Registrar of Companies
are produced as Annexures-Y and Z. AnnexuresAA in a copy of the letter ILES (81h respondent)
dated 4.7.2001. It is the contention of the applicant
F
that from the above it is clear that there is a charge
in respect of he specified assets of the applicantcompany in favour of the 81h respondent. AnnexureX is an unattested deed of hypothecation executed
by the Applicant in favour of the 81h respondent.
G
The applicant is described as "Borrower". This is
a hypothecation deed creating exclusive charge
involving all monies and right, title and interest, to
be received from and or payable by Hewlett
Packard Ltd., towards sale of colour monitors, to
H
the borrower as security for the said facility
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 285
v. B.P.L. LTD. [DIPAK MISRA, J.]
arranged by the Sth respondents as security for
the payment by the borrower of the balance
outstanding. Annexure-Y is Form No.8 filed by the
applicant-Company under Section 125 of the
Companies Act. The hypothecation deed executed
by the applicant-Company in favour of the 8th
respondent is an instrumental creating a charge
and amount secured is contained as Rs. 150
millions. It shows that the above charge was
registered with the Registrar of Companies as per
the provisions of the Companies Act. Annexure-Z
is From No. 13 in which the amount secured is
shown as Rs. 150 million. Annexure-AA is the letter
of consent by the 8th respondent which shows that
the 8th respondents has offered for providing shortterm loan facility upto Rs. 150 million and the
term loan facility is enclosed in the Annexure. The
loan facility availed by them to the BPL Ltd. is
also to be considered as part of the abovementioned facility. Annexure-AA attached therein
would show that the lender is 8th respondent and
the borrower is BPL Ltd. and the purpose for which
the loan advanced is to meet working capital
requirements and the security offered is first and
exclusive charge ~n receivables of Hewlett Packard
(India) Ltd. It is also seen that the applicantCompany has to undertake to complete all
formalities towards creation of charge and the
escrow arrangement within 30 days from the date
of disbursement. The proposal made even as per
the Scheme of Arrangement is to apply to all
existing charge holders and 8th respondent is one
such charge holder, to whom the Scheme is
extended.
50. In the light of the above facts, I do not find
A
B
c
D
E
F
G
H
286
SUPREME COURT REPORTS
[2015] 2 S.C.R.
A
any merit in the contention that the Scheme
proposed will not cover the gth respondent or that
they are not secured creditors, to whom the
Scheme will not apply. "
8
6. Be it stated, the court did not accept the contention
that the scheme could not be worked out on the ground
that the scheme was entitled to be amended either in the
meeting or even subsequently by the Court and it was not
the stage to suggest any amendment and accordingly
C contentions raised by the respondents in that regard were
kept open.
7. On the basis of the aforesaid analysis, the Company
Judge held that MCA No. 84/2004 was maintainable and
other applications seeking grant of stay were sans merit
D and accordingly dismissed the same. Certain applications
were kept to be considered at a later stage. The prayer of
the respondents that they were not covered by the scheme
proposed by the amendment and they are not secured
creditors was rejected. Ultimately the Company Judge
E issued the following directions:-
F
G
H
"54. M.C.A. No. 84/2004 is allowed. It is ordered
that a meeting of secured creditors (working Capital
Lenders and Term Lenders) be convened and held
at the Registered office of he Applicant Company
at Palghat on 16.04.2005 at 2.00 P.M. for the
purpose of considering and if thought fit, approving
with or without modification of he compromise/
arrangement proposed as Annexure-G as modified
by Annexure-N to be made between the Company
and the creditors abovenamed.
55. Mr. Justice T. V. Ramakrishnan, a Retired
Judge of the High Court is appointed as the
Chairman for the Meeting
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 287
v. B.P.L. LTD. [DIPAK MISRA, J.]
56. Notice convening the above meeting shall be
A
published in all editions of Economic Times, Indian
Express and Malayala Manorama giving 21 days
clear notice.
xxx
xxx
xxx
58. That the value each member/creditor shall be
in accordance with the books of the Company
and in case of dispute, the Chairman shall
determine the value."
8. Being aggrieved by the aforesaid order, the 81h
respondent filed Company Appeal No. 5 of 2005. Before
B
c
the appellate Court, it was contended that Section 391 of
the Act, although refers to the power of companies _to
make arrangements with creditors and members, such D
compromise could have only been possible between a
company and its creditors or any class of them, and when
an application was filed before the court, where it had
been possible to find out that the arrangement was not
intended to be made with a homogeneous class, the court E
should have accepted the objection so raised. It was also
urged, ignoring the same, a binding order, could not have
been issued. It was contended that the meeting was
proposed to be held between the company and its secured
creditors and even if it was to be presumed that the
F
appellant initially was a secured creditor, it had been
disrobed of the said status consequent to subsequent
developments, including an arbitration award, well before
the application came to be filed in the court.
9. The appellant argued that though as required by G
the hypothecation deed, Form Nos. 8 and 13 thereof had
been submitted before the Registrar of Companies, yet ncr
further action was taken by BPL Ltd. to fulfil the agreed
arrangement between the parties. It was asserted that as H
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A per the deed of hypothecation, the borrower was obliged
to open an escrow and no-lien account with a designated
bank, and was to undertake to deposit all the receivables
from Hewlett Packard India Ltd. in the said escrow account
only, however, no escrow account had been opened and
B the agreed arrangement remained only on paper. The
escrow mechanism was the essence of the agreement,
but it had never been put into operation and, therefore, it
was not permissible for BPL Ltd. to contend that the
appellant was a secured creditor and the original claims of
C the appellant could not have been watered down.
10. The next contention that was advanced in the
company appeal was that even if it could have been
assumed that because of the hypothecation deed, at one
0
point of time, the appellant could have been considered as
a secured creditor, the position had changed because of
the arbitration award which has been passed on consent.
Emphasis was laid on the fact that there was an agreement
recorded in the award that the criminal proceedings would
E not be pursued and more importantly it was a settlement
of money claim and nothing remained in respect of the
claims on hypothecation, which originally had been entered
into by the parties. Thus, the status of a secured creditor
thereby irrevocably had been metamorphosed. Relying on
F the authority Deva Ram v. /shwar Chand1, a submission
was advanced that on principles gatherable from Order II,
Rule 2, of CPC, after the award had come into existence,
it would not have been possible for the appellant to pursue
his claims on the basis of the hypothecation deed, for the
rights of the parties got crystallised to a pure and simple
G money claim, and hence, the security earlier offered and
created had lost its relevance and transformed itself to a
decree debt.
H
1.
AIR 1996 SC 378
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 289
v. B.P.L. LTD. [DIPAK MISRA, J.]
11. Apart from the above contentions, it was also A
propounded that the appellant deemed to have relinquished
rights of hypothecation security and being a party to the
proceedings, BPL Ltd. could not have turned round and
put forward a technical contention that the appellant
continued to be a secured creditor. To buttress the said
B
stand, reliance was placed upon the dictum laid down in
K. \/. George v. Secretary to Government, Water and
Power Department2.
12. The aforesaid contentions were resisted by the C
counsel for the BPL that the order passed by the learned
company Judge was absolutely flawless; that the stand
that the appellant was no more a secured creditor because
of the award passed between the parties was totally devoid
of any merit; that the scheme or arrangement was approved
D.
in the meeting of the secured creditors held by the
Chairman and the appellant company had been issued a
substantial sum but it had refused to accept the same;
that the appellant remained a secured creditor for all legal
purposes and hence, it was bound by the scheme in
E
question.
13. The Division Bench adverted to the deed of
hypothecation executed by the BPL in favour of the
appellant company and opined that the appellant-company
had failed to take follow up action to get an escrow account;
F
that the formalities relating to creation of charge had been
duly followed; that in the arbitration award there was no
reference that BPL had agreed to lift the charge created;
in the absence of the agreed position that the charge be
got lifted, and the appellant continued to be a secured G
creditor and passing of the arbitration award did not create
any change in the status.
2.
AIR 1990 SC 53
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A
14. The Division Bench appreciating the contentions
further came to hold that the appellant was a secured
creditor after the hypothecation deed was executed; that
once the charge had been created it continued to bind the
parties till steps were regressed; and that the finding
B recorded by the learned company Judge was
unexceptionable. That apart, the Division Bench also took
note of the fact that the persons who had to be adversely
affected were not parties to the appeal. Being of the view,
it dismissed the appeal. The said judgment and order are
C the subject matter of assail in this appeal.
15. We have heard Mr. Shyam Divan, learned senior
counsel for the appellant and Mr. V. Giri, learned senior
counsel for the respondent.
D
16. It is submitted by Mr. Divan that that once an
arbitral award has been passed on consent between
the parties it extinguishes the status of the appellant
as a secured creditor and it stands on a different
footing altogether. It is further urged that the
E registration as a secured creditor does not bind the
appellant and, more so, when the arbitral award has
come into existence. It is his submission that after
the parties settled by way of arbitration, the conceptual
requisites of a secured creditor became non-existent.
F Learned serior counsel would further put forth that
the hypothecation had never become operational as
is evident from various documents on record and
hence, the analysis made by the High Court is
absolutely fallible. It is contended that once the deed
G of hypothecation is not fructified, mere registration as
a secured creditor with the Registrar of Companies
would not confer on the appellant the status of a
secured creditor and, in any case, the said registration
would not bind it.· it is canvassed by him that once
H the appellant has accepted the award as passed by
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 291
v. B.P.L. LTD. [DIPAK MISRA, J.]
the arbitrator, it operates as res judicata against the A
respondent company to treat the appellant company
as a secured creditor. That apart, urges the learned
senior counsel, the principles inherent in Order II, Rule
2 would be attracted and the High Court has
completely erred by totally brushing it aside. The B
learned senior counsel, to support his submissions
raised by him, has referred to various provisions of
the Companies Act and placed reliance on the
authorities in Firm Chunna Mal Ram Nath v. Firm
Moo/ Chand Ram Bhagat3, Jagad Bandu Chatterjee C
v. Nilima Rani4, Indian Bank v. Official Liquidator,
Chemmeens Exports (P) Ltd5., Ranganayakamma
v. K.S. Prakash 6 and Jitendra Nath Singh v. Official
Liquidator and ors. 7
17. Mr. Giri, learned senior counsel appearing for
the respondent, resisting the aforesaid proponements,
would submit that the arbitral award, whether passed
D
on consent or on contest, has the status of a decree
but such a decree does not extinguish the charge and E
thereby does not disrobe the status of a secured
creditor. Learned senior counsel would contend that
despite the relinquishment made by the appellant, it
would not take away the legal status conferred by it
in ·law. Emphasis has been laid on the issue of F
registration before the Registrar under Sections 138
and 139 of the Act and how the record establishes
that the status and the arbitral award will not change
the registered status. It is contended by Mr. Giri that
G
3.
AIR 1928 PC 99
4.
(1969) 3 sec 445
5.
(1998) 5 sec 401
6.
(2008) 15 SC 673
7.
(2013) 1 sec 462
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A by no stretch of imagination, the principle of
resjudicata would apply to the case at hand, for the
proceedings are of different nature. He would also
urge that the lis would not be hit by the bar created
under Order II, Rule 2 of the CPC. Learned senior
B counsel has commended us to the decisions in
Lonankutty v. Thomman and Another, Harbans
Singh and others v. Sant Hari Singh and others9,
and Indian Bank v. Official Liquidator, Chemmeens
Exports (P) Ltd. and others 10 .
c
18.
From the narration of facts and the
contentions which have been highlighted, it is clear that
two facts are beyond dispute. First, the appellant stands
registered as a secured creditor of the respondent company
0
on the record of the Registrar of Companies under the Act;
and second, the arbitral tribunal has passed an award on
the basis of consent and it has the status of a decree
which is executable in law. Keeping in view these two
undisputed facts, we have to appreciate the rival
E submissions raised at the Bar. In this context, reference to
relevant portions of Sections 391 and 393 of the Act would
be appropriate. They are as follows:
F
G
"391. (1) Where a compromise or arrangement is
proposed-
( a) between a company and its creditors or any
class of them; or
(b) between a company and its members or any
class of them;
8.
(1976) 3 sec 528
9.
(2009) 2 sec 526
H
10. (1998) 5 sec 401
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 293
v. B.P.L. LTD. [DIPAK MISRA, J.]
the Court may, on the application of the company
A
or of any creditor or member of the company, or
in the case of a company which is being wound
up, of the liquidator, order a meeting of the creditors
or class of creditors, or of the members or class
of members, as the case may be, to be called,
8
held and conducted in such manner as the Court
directs.
(2) If a majority in number representing threefourths in value of the creditors, or class of
creditors, or members, or class of members as
the case may be, present and voting either in
person or, where proxies are allowed under the
rules made under Section 643, by proxy, at the
meeting, agree to any compromise or arrangement,
the compromise or arrangement shall, if sanctioned
by the Court, be binding on all the creditors, all
the creditors of the class, all the members, or all
the members of the class, as the case may be,
and also on the company, or, .in the case of a
company which is being wound up, on the liquidator
and contributories of the company:
Provided that no order sanctioning any compromise
or arrangement shall be made by the Court unless
the Court is satisfied that the company or any
other person by whom an application has been
--made under sub-section (1) has disclosed to the
Court, by affidavit or otherwise, all material facts
relating to the company, such as the latest financial
position of the company, the latest auditor's report
on the accounts of the company, the pendency of
any investigation proceedings in relation to the
company under Sections 235 to 251, and the like."
xxxxx
xxxxx
. xxxxx
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"393. (1) Where a meeting of creditors or any
class of creditors, or of members or any class of
members, is called under Section 391,-
(a) with every notice calling the meeting which is
sent to a creditor or member, there shall be sent
also a statement setting forth the terms of the
compromise or arrangement and explaining its
effect, and in particular, stating any material
interests of the directors, managing directors,
managing agents, secretaries and treasurers or
manager of the company, whether in their capacity
as such or as members or creditors of the company
or otherwise, and the effect on those interests, of
the compromise or arrangement, if, and insofar
as, it is different from the effect on the like interests
of other persons; and
(b) in every notice calling the meeting which is
given by advertisement, there shall be included
either such a statement as aforesaid or a
notification of the place at which and the manner
in which creditors or members entitled to attend
the meeting may obtain copies of such a statement
as aforesaid."
19. Sub-Section (1) of Section 391 stipulates that a
compromise or arrangement can be proposed between a
company or its creditor or any class of them or between
a company and its members or any class of them. It need
not be between all the creditors or all the members.
G Contextually, "class of creditors" or "class of members"
has a different meaning and connotation. It gains
significance when the question of approval of scheme under
the Act arises for consideration. While dealing with the
approval of a scheme, the Company Court is required to
H direct holding of meeting of the said class of creditors or
INFRASTRUCTURE LEASING & FIN. SERVICES LTD. 295
v. B.P.L. LTD. [DIPAK MISRA, J.]
members concerned and only when the scheme is A
approved by the majority in number representing 3/41h in
value by the class of creditors, or members present either
in person or through proxy, the same becomes binding on
the said class of creditors or members. Once there is a
voting and the 3/41h majority has voted in favour of the
B
scheme, it is binding on those who have dissented and
had voted against the scheme or those who remained
silent.
20. While analyzing the scope and ambit of the powers C
of the Company Court in respect of Section 391 and 393
of the Act and the role of the Court a two-Judge Bench in
Miheer H. Mafatla/ \/. Mafatlal Industries Ltd. 11 has
observed thus:-
"Before sanctioning such a scheme even though
approved by a majority of the concerned
creditors or members the Court has to be
satisfied that the company or any other person
moving such an application for sanction under
sub-section (2) of Section 391 has disclosed all
the relevant matters mentioned in the proviso to
sub-section (2) of that section. So far as the
meetings of the creditors or members, or their
respective classes for whom the Scheme is
proposed are concerned, it is enjoined by
Section 391 (1)(a) that the requisite information
as contemplated by the said provision is also
required to be placed for consideration of the
voters concerned so that the parties concerned
before whom the scheme is placed for voting can
take an informed and objective decision whether
to vote for the scheme or against it. On a
conjoint reading of the relevant provisions of
11. (1997) 1 sec 579
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Sections 391 and 393 it becomes at once clear
that the Company Court which is called upon to
sanction such a scheme has not merely to go by
the ipse dixit of the majority of the shareholders
or creditors or their respective classes who might
B
have voted in favour of the scheme by requisite
majority but the Court has to consider the pros
and cons of the scheme with a view to finding
out whether the scheme is fair, just and
reasonable and is not contrary to any provisions
C
of law and it does not violate any public policy.
This is implicit in the very concept of
compromise or arrangement which is required to
receive the imprimatur of a court of law.