Section 391 scheme approval requires a properly convened meeting, statutory majority, and a feasible creditor classification.

Under section 391, a compromise or arrangement can be sanctioned only if the meeting is properly convened for a correctly constituted class and the proposal is approved at that meeting by the statutory majority. A modified scheme failed because the meeting departed from the court's directions, included persons outside the defined class, and did not secure the required three-fourths majority in value. Later letters and affidavits could not be used to alter votes after the meeting or reconstruct approval. The scheme was also refused as the creditor classification was defective and the proposed arrangement was not shown to be commercially feasible or reasonable.

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Issues: (i) Whether a scheme under section 391 could be sanctioned when the meeting was not convened and conducted in accordance with the court's directions and the requisite statutory majority had not approved the modified scheme. (ii) Whether the court could rely on subsequent letters and affidavits changing creditors' votes after the meeting to treat the modified scheme as approved. (iii) Whether the modified scheme was fit for sanction having regard to the classification of creditors and the feasibility and reasonableness of the proposed arrangement.

Issue (i): Whether a scheme under section 391 could be sanctioned when the meeting was not convened and conducted in accordance with the court's directions and the requisite statutory majority had not approved the modified scheme.

Analysis: The statutory scheme under section 391 requires that the class of creditors be properly identified, the meeting be held in the manner directed by the court, and the proposal be approved by a majority in number representing three-fourths in value of those present and voting. The rules governing compromise and arrangement reinforce that approval by the prescribed majority at a duly held meeting is a jurisdictional condition for any petition for confirmation. Here, the meeting held on the modified scheme departed from the original court order, included persons outside the class originally defined, and did not produce the requisite majority in favour of the scheme.

Conclusion: The modified scheme could not be sanctioned, and the application for confirmation was incompetent.

Issue (ii): Whether the court could rely on subsequent letters and affidavits changing creditors' votes after the meeting to treat the modified scheme as approved.

Analysis: The process under section 391 contemplates a completed voting exercise at the meeting itself, so that the statutory majority can be ascertained with finality. Allowing creditors to alter their position later would unsettle the jurisdictional basis of confirmation, invite uncertainty, and bypass the procedural safeguards designed to protect dissenting creditors. The court therefore could not reopen voting or reconstruct the majority on the basis of later letters and affidavits.

Conclusion: Subsequent changes of mind could not be used to validate the modified scheme.

Issue (iii): Whether the modified scheme was fit for sanction having regard to the classification of creditors and the feasibility and reasonableness of the proposed arrangement.

Analysis: Creditors with conflicting interests could not properly be clubbed together as a single class, and the scheme also treated inter-corporate depositors and subsidiary creditors in a discriminatory and uncertain manner. The proposed sources of funds were largely speculative, insufficient against the admitted indebtedness, and did not show a reasonable possibility of performance within the period promised. A scheme that cannot be supported as a practical commercial arrangement for the class concerned fails the requirement of reasonableness and feasibility.

Conclusion: The modified scheme was neither properly classed nor commercially feasible, and sanction had to be refused.

Final Conclusion: The appeals succeeded, the sanction of the modified scheme was set aside, and the company's proposal failed for want of statutory compliance and feasibility.

Ratio Decidendi: Under section 391, the court can sanction a compromise or arrangement only if the meeting is properly convened for a correctly constituted class and the proposal is approved at that meeting by the statutory majority; that requirement cannot be satisfied by later affidavits or letters changing votes after the meeting has concluded.

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