ANSWER 1

Section 230 of the Companies Act, 2013 lays down in detail the power of a company to make
compromise or arrangements with its creditors and members. Under this section, a company can
enter in to a compromise or arrangement with its creditors or its members, or any class thereof.

It is a mandate under Section 230(1)(a) of the Companies Act, 2013 to conduct the mandatory
meeting the members or class of members or creditors or class of creditors of the company
whose right is going to get affected under the proposed Scheme.

Section 230(6) provides that when a meeting is held in pursuance of Section 230(1), majority of
persons representing in value of creditors or class of creditors or members or class of members,
agrees to any compromise and if such compromise is sanctioned by the Tribunal by an order, the
same shall be binding on the company, all the creditors, members and class thereof.

A ‘Class’ cannot be pre-determined. In the case of Miheer H. Mafatlal v. Mafatlal Industries Ltd.
AIR 1997 SC 506, it was clarified that courts are not going to determine what will constitute a
‘class’. It is prerogative of the company to create class by proposing such kind of arrangement
where only one category within their group is going to get affected. Therefore, it is based on the
Scheme only that the ‘Class’ can be determined. 

The word ‘Class’ was interpreted by the Gujarat High Court in the case of State Bank of India v.
Engg. Majdoor Sangh [2000] 27 SCL 103 (Guj.), wherein the court observed that those who are
offered substantially different compromises each will form a different class. Even if there are
different groups within a class, the interests of which are different from the rest of the class or
who are to be treated differently in the scheme, such groups must be treated as separate classes
for the purpose of the scheme. The group styled as a class should ordinarily be homogeneous and
must have commonality of interest and the compromise offered to them must be identical.

Case Laws

In the case of In Land Steam Navigation Workers Union v. Rivers Steam Navigation Co. Ltd.,
1968 (38) Cal. Company Cases 99, the court held that if the creditors or any class of creditor’s
interest is not going to get affected pursuant to scheme, then such creditors are not allowed to
raise any objection if they have not been called for the meeting.

In the case of In Re Gujarat Lease Financing Ltd. (2002) 6 Comp. Law Journal 263 (Gujarat),
the factual matrix of the case was similar to the instant preposition. The following test need to be
satisfied in order to determine whether particular class of creditor is entitled to be called for
meeting:-

1. Whether the particular person qualifies as ‘Creditor’?

2. Whether they are creating any ‘Class of Creditor’?
3. Is there any effect on the rights of that particular class?
Court held that although Banks are creditors having separate class but there rights are not going
to be affected under the proposed scheme. Therefore, they are not entitled to be called for the
meeting.

The court observed that the company has not violated any legal provision by not calling Bank to
the meeting as their interest is not getting affected through this scheme. The company is only
required to meet and get approval of those creditors whose rights are going to get affected. The
class whose rights are not going to get affected are neither entitled to be called for meeting nor
oppose the approval given by other class of creditors whose rights are going to get affected.

Analysis

 The Act under Section 230(1) itself permits compromise between the company and a class of is
creditors and it is not necessary that the compromise must be between the company on the one
hand and all its creditors on the other hand.

Moreover, there is no questions of any illegal classification as the banks’ claim have a higher
status over the debenture holders; hence it cannot be said that the Banks and the debenture
holders belong to the same class. Therefore, there is no merit in the contention raised on behalf
of the Banks that the company has resorted to illegal classification.

It is logical for the company to not call the Bank to the meeting when the scheme of compromise
offered to the debenture holders does not even purport to affect the rights of the Banks, the
Banks have no right to oppose the scheme of compromise between the company and the
debenture holders.

The Court should be merely concerned with the question of legality, justness and fairness of the
scheme of compromise between the company and its debenture holders, as the proposed scheme
doesn’t affect the interest of Bank in any manner. Banks have nothing to do with the scheme and,
therefore they have no right to object to the scheme offered to the debenture.

The classification made by the company cannot be categorized as illegal as there is proper
rational for the classification followed by the Bank. The Company was justified in not calling the
Bank to the meeting as the company is required to obtain consent from only those class of
creditors whose interest will be affected under the scheme.

Since the scheme does not purport to take away the powers and rights of the Banks or give up or
waive their rights for the balance amount of the Bank, there is no question of obtaining the
approval of the Bank because their interest will remain intact even after the approval of the
scheme.