Winding-up share transfers may be validated, and transferees substituted in member and creditor lists for compromise meetings.

In a winding-up context, a bona fide share transfer under an arrangement may still be validated and registered where justice and fairness require it and the transaction is not prejudicial to the company or creditors; the court may require production of Reserve Bank permission for a non-resident transferee. The court also treated lawful transferees of shares and assigned debts as the proper members and creditors for voting in meetings convened under the compromise-and-arrangement procedure, with revised lists to reflect the substituted entitlements. Allegations that the proposed schemes were unworkable or unnecessary were insufficient to recall the meeting orders, and the statutory meeting process was allowed to proceed.

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Issues: (i) Whether the order directing meetings of shareholders and creditors for consideration of the proposed schemes of arrangement should be recalled on the ground that the schemes were alleged to be unworkable or unnecessary. (ii) Whether the transfer of shares under the agreement dated 28 November 1984 could be validated and registered in the register of members during winding up. (iii) Whether the transferees of shares and assigned debts could be treated as members and creditors for the purpose of voting in the meetings convened under section 391 of the Companies Act, 1956.

Issue (i): Whether the order directing meetings of shareholders and creditors for consideration of the proposed schemes of arrangement should be recalled on the ground that the schemes were alleged to be unworkable or unnecessary.

Analysis: The applications seeking recall were examined on the footing that the court had already directed convening of meetings under the statutory compromise and arrangement procedure. The challenge rested on alleged vagueness, changed circumstances and the suggestion that the meetings would serve no useful purpose. The court held that these were not sufficient grounds to withdraw the matter from the statutory process, particularly since the ultimate sanction of any scheme would still depend on judicial approval after the meetings.

Conclusion: The application to recall the meeting orders was rejected, and the meetings were directed to proceed.

Issue (ii): Whether the transfer of shares under the agreement dated 28 November 1984 could be validated and registered in the register of members during winding up.

Analysis: The court treated the agreement and the subsequent conduct of the parties as a bona fide commercial arrangement entered into and acted upon voluntarily. It held that the bar against transfer after commencement of winding up operates for the protection of the company and creditors, but the court retains discretion to validate a transfer where justice and fairness require it. The absence of some share certificates did not defeat relief, and the requirement of Reserve Bank approval was confined to the non-resident transferee. The statutory principles governing execution and registration of transfers were applied in a winding-up context, while refusing to treat the transaction as invalid merely because the company was in liquidation.

Conclusion: The transfer of shares was validated, subject to production of Reserve Bank of India permission by the non-resident transferee.

Issue (iii): Whether the transferees of shares and assigned debts could be treated as members and creditors for the purpose of voting in the meetings convened under section 391 of the Companies Act, 1956.

Analysis: The court held that the lists of members and creditors for the meetings should reflect lawful transfers already acted upon and admitted in the proceedings. The transferees, having acquired the shares and assigned debts under the arrangement and having paid substantial consideration, were entitled to be substituted in place of the original holders for the purposes of the meeting process. The earlier restriction on participation without voting was not maintained once the relationship between the parties had changed and the transfers were upheld.

Conclusion: The transferees were directed to be treated as members and creditors entitled to vote in the convened meetings, subject to the RBI permission condition for the non-resident transferee.

Final Conclusion: The court upheld the statutory meeting process, validated the agreed share transfers with a limited regulatory condition, and directed preparation of revised member and creditor lists so that the compromise and arrangement schemes could be considered on the basis of the corrected entitlement positions.

Ratio Decidendi: In a winding-up proceeding, the court may validate and register a share transfer if the transaction is bona fide, fair, and not prejudicial to the company or its creditors, and it may direct substitution in the members' and creditors' lists for the purposes of a scheme of arrangement.

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