Firm Chunna Mal Ram Nath v. Firm Moo/ Chand Ram v. Mahalinga Nadar v. Ganapathi Subbien [1902] 27 Mad

Judgment

2 S.C.R. 273 INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED v. B.P.L. LIMITED (Civil Appeal No. 2701 of 2006) JANUARY 09, 2015 [ANIL R. DAVE AND DIPAK MISRA, JJ.] A B c Companies Act, 1956 - s.391 - Compromise between Company and its creditors - Respondent-company proposed a scheme involving its creditors - Application ul 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 In Company appeal, Order of approved the scheme - 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 D 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 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 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-A B] F 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 to. H 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, 25 1h edition; D Halsbury's Laws of India, 2007, Vol. 27 - referred to. F E

#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, 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 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 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 G 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 sub- B 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-A- C 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. E Dawson's Bank Limited v. Nippon Menkwa Kabushiki Kaisha 62 IA 100, 108 - referred to.

#4. The appellant shall remain as a secured creditor, 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.