Scope of Compromise or arrangement in Companies Ordinance, 1984, Part 2
S J Tubrazy
A wholly owned subsidiary was a separate class, it is the responsibility of the applicant to see that, the class meetings are properly constituted. The majority shareholder being a wholly owned subsidiary of the outside purchaser for the shares, constituted a separate class, from the other shareholders in proceedings under section 284. What constitutes a class, invariably is a moot question. Company Court is required to examine the case of divergent stakeholders in a Company, may it be shareholders or creditors; or any class of either of them. Court has to find out if there is different classes’ inter se. Before sanctioning the scheme, Court must examine whether respective interest, of all the classes are taken due care of in equitable, just and fair manner. Broadly speaking and seemingly creditors may form one class and shareholder another. Language of section 284 demonstrates that, law recognized different classes amongst creditors and shareholders inter se. Each class of shareholders and or creditors may have different level and nature of rights and interest vis-a-vis company and even against each other. Creditors composing the different classes must show to the satisfaction of the Court that they have different and or conflicting interest distinct from the other.
Term ‘creditor’ is of wide connotation. In corporate parlance creditor is a class of person to whom company is indebted or owes a sum of money. Creditors may be preferential creditors, secured creditors and unsecured creditors. In the case in hand, it appears that last two categories of creditors are pitched against each other. The objections based on classification, jurisdiction or otherwise must be raised at the very earliest opportunity. Objections rose immediately on receipt of notice of proposed scheme of compromise or settlement are usually given due consideration. In case objections are not raised at the first available opportunity, same may not be considered by the Court.
“Class” in common parlance means a homogeneous section of people, grouped together, may be on account of common trade and common attribute, such as status, rank, and position or like. Person belonging to one class has number of common characteristic, which bind or classify them to form a kind of unit on account of commonality of interest. Creditor is a term of wide connotation, there may be various categories of creditors. For the purposes of section 284 there is no distinction between the unsecured creditors who may have filed • suits or obtained decrees and other unsecured creditors who may not have filed any proceeding nor obtained any decree.