Teja Singh, J.
1. An application under Sections 158 and 153A, Companies Act, was made to this Court by the Lakshmi Commercial Bank Limited, Ludhiana, a company incorporated under the Companies Act, praying that meetings of the depositors and members of the Bank be called, held and conducted, in such manner as the Court directed to consider a scheme of arrangement prepared by the directors of the company. Being satisfied that there were good reasons for accepting the prayer of the Bank, I ordered that the meeting of the directors and the members of the Bank be held at Delhi on 25-1-1948 and the wishes of the depositors and the members of the Bank be ascertained in respect of the scheme put forward by the management. The reports of the respective chairmen who presided over the meetings were that the scheme in question with slight modifications was adopted in the meeting of the depositors by overwhelming majority and in that of the members unanimously. When the case came up before me on 25th February for consideration of the scheme, only two of the depositors, namely Lakshmi Insurance Company and Mangal Singh objected to it. The counsel for the Lakshmi Insurance Company, whose objections were not in fact against the scheme but related to other matters, did not put in appearance on the subsequent dates. Mangal Singh has withdrawn his objections today and states that he would be perfectly satisfied, if the questions relating to the priority of his claim and the set off, to which he says he is entitled, are decided by the Court after the scheme has been approved. The counsel of the petitioner Bank has no objection to the procedure suggested by Mangal Singh. So the result is that the scheme as was finally adopted in both the meetings mentioned above may now be taken as acceptable to everybody concerned.
2. This however does not absolve the Court from considering the scheme on merits and deciding whether it should be given effect to. The words of Sub-section (2) of Section 153 are that
if a majority in number representing three-fourths in value of the creditors or class of creditors. or members or class of members, as the case may be, present either in person or 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 or the class of creditors, or on all the members....From this, it is clear that even if the scheme is passed in the meetings of creditors or members by the requisite majority, it can bind all the persons concerned, including the creditors and members, only if it is sanctioned by the Court. The words of the section leave no doubt that the sanction of the Court is not a formal matter. On the other hand, it appears to be the duty of the Court to go into the whole matter carefully and to find out (i) whether all the provisions of law and the directions of the Court itself in so far as they relate to the holding of the meeting the conduct of the proceedings of the meeting and the record of majority votes etc. have been fully complied with; and (ii) whether the scheme is in the interest of the company as well as in that of its creditors and should be given effect to. Reference in this connection may be made to the following observations made by Lindley L.J. in In re Alabama, New Orleans and Co. Ry. (1891) 1 Ch.213.
What the Court has to do is to see, first of all, that the provisions of the statute have been complied with; and, secondly, that the majority has been acting bonafide. The Court also has to see that the minority is not being overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly....take a view which can be reasonably taken by business men.Later on the learned Judge observed:
The Court must look at the scheme, and see whether the Act has been complied with,....and then see whether the scheme is a reasonable one or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve of it.In nother case, Scottish and Austiralian Chartered Bank (1893) 3 Ch.385, the same learned Judge held that the Court did not simply register the resolution come to by the creditors or the shareholders as the case may be.
3. The scheme in the present case has been formulated with the object of resuscitating the Bank, which appears to have suffered very heavily because of the abnormal conditions created by the division of the Punjab into two parts. One of the provisions of the scheme is that a certain percentage of the debts due to the, depositors and other creditors should be written off and in lieu thereof the creditors be allotted shares in the Bank. The second important provision is that the present management of the Bank should be maintained. As regards the first, since I am satisfied that both the meetings were properly held and all the directions given by me and all the relevant provisions of the law pertaining to the holding of the meetings etc. were complied with, I do not think I am justified in going into the reasons which led the creditors, who were present in the meeting, to agree to give up a part of their debts. I am strengthened in this view by the remarks made by Lindley, J. in the second of the two cases cited above. The learned Judge said:
While, therefore, I protest that we are not to register their decisions, but to see that they have been properly convened and have been properly consulted, and have considered the matter from a proper point of view, i.e., with a view to the interests of the class to which they belong and are empowered to bind, the Court ought to be slow to differ from them. It should do so without hesitation if there is anything wrong; but it ought not to do so, in my judgment, unless something is brought to the attention of the Court to shew that there has been some material oversight or miscarriage.4. As regards the main object underlying the scheme, i. e., the resuscitation of the Bank, I have my grave doubts whether this can be achieved. The money market has received a rude shock because of the unprecedented devastation that we have witnessed recently and the credit of a large majority of banking institutions has been injured. This must be particularly so in respect of the petitioner Bank and the other Banks who had to approach the Government for protection. In the circumstances, it is doubtful whether the petitioner Bank will be able to attract new business and a large number of people will be coming forth to entrust it with fresh deposits. At the same time, I cannot help observing that the directors of the Bank appear to me to be really serious in keeping the Bank alive and I am inclined to believe the assurance given by their counsel that they mean to make genuine efforts in this direction. On careful consideration of the detailed statements which the Secretary of the Bank made before me and the balance-Sheet and other paper that have been placed on record under my orders the impression that I have formed of the directors is that they Were very scrupulous in managing the affairs of the Bank at a very critical time. One thing, which struck me as very significant, is that though the directors were aware that the Bank was facing a real Crisis and there was the danger of the value of the assets of the Bank going down considerably, the majority of them allowed bulk of their deposits with the Bank to remain intact. I examined the Secretary regarding the expenses that the Bank hais incurred ever since it stopped business and I think that they are rather heavy. I even do not approve of the large sum of money that the Bank is alleged to have spent for legal charges and I am of opinion that either the management was careless in the matter or it was prevailed upon to spend heavily in order to get out of a situation which they regarded or were made to regard serious. In view, however, of the fact that I have been assured that the future expenses are going to be considerably reduced and the past conduct of the directors, I hold that the interest of the Bank as well as of the creditors require that the present management should be maintained. Moreover, the petitioner's counsel have agreed to abide by the conditions which I am going to lay down for the acceptance of the scheme and which will enable a representative of the creditors to take active part in, and the Court to keep a strict watch over the future working of the Bank.
5. The result is that, the scheme is accepted subject to the following conditions: (1) that in para 9 of the scheme the words 'the High Court of the East Punjab' will be substituted for the words 'competent Court'; (2) that in the note appended to the scheme the following words shall be added at the end 'by the High Court of the East Punjab;' (3) that the petitioner Bank will submit to this Court after every three months a report regarding the progress made (a) in the collection of the assets; (b) the amount of new business; and (c) the expenses incurred by the Bank over and above the usual expenses on the establishment; and (d) the total amount disbursed amongst the creditors during the period under report; (4) that a copy of the balance-sheet when ready and adopted by the members of the Company be submitted to this Court; (5) that the Auditors of the Bank be appointed with the approval of the Court. (6) that the present directors will co-opt with the approval of this Court one of the creditor's as a co-director with them and the said director will in addition to his ordinary duties supervise over the day to day working of to Bank.
6. The directors will submit their nomination to this Court within a month and the question relating to the remuneration of the co-opted director will be decided then.
7. As regards Mangal Singh's claim for priority and adjustment the Bank will put in their written report within a month when a date of hearing will be fixed and the parties will be informed of it.