Class composition and creditor voting under company schemes depend on rights, not redemption dates or unpaid preference dividend.

A separate class of preference shareholders arises only where their rights are so dissimilar that they cannot reasonably consult together; a different redemption date alone does not create a separate subclass, so no separate meeting was required. Unpaid preference dividend did not confer a right to attend or vote in the creditors' meeting, because that right operates in member meetings and preference capital is not debt. The earlier sick company rehabilitation did not bar the scheme once the company's net worth turned positive and it ceased to be treated as sick. In sanction proceedings, the court applies a supervisory test of statutory compliance, adequate disclosure, fairness to the class as a whole, and absence of illegality or public policy concerns; the scheme met that standard.

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Issues: (i) Whether the Government of India, as holder of preference shares redeemable at a different date, formed a separate sub-class requiring a separate meeting; (ii) whether unpaid preference dividend entitled the Government of India to vote in the creditors' meeting under the company scheme provisions; (iii) whether the scheme was barred by the earlier rehabilitation under the sick company law; and (iv) whether the scheme was unfair or unsupported by the requisite disclosure and therefore incapable of sanction.

Issue (i): Whether the Government of India, as holder of preference shares redeemable at a different date, formed a separate sub-class requiring a separate meeting.

Analysis: The broad principle applied was that a separate class arises only where the rights of the group are so dissimilar that they cannot reasonably consult together and take a common view of their common interest. Mere difference in the time of issue or redemption date of preference shares does not, by itself, create a different class. The scheme offered identical terms to all preference shareholders, and their interests were affected in the same manner.

Conclusion: The Government of India did not constitute a separate sub-class, and no separate meeting was required.

Issue (ii): Whether unpaid preference dividend entitled the Government of India to vote in the creditors' meeting under the company scheme provisions.

Analysis: The voting right attached to unpaid preference shares was held to operate only in meetings of the company, meaning meetings of members, and not in meetings of creditors. The valuation mechanism for such voting rights was linked to paid-up equity capital, whereas creditor meetings proceed on the basis of debt value. Since preference share capital is not debt, the statutory framework did not support participation by preference shareholders in the creditors' meeting.

Conclusion: The Government of India had no right to attend or vote in the creditors' meeting.

Issue (iii): Whether the scheme was barred by the earlier rehabilitation under the sick company law.

Analysis: Once the company's net worth became positive and the specialised board formally recorded that it had ceased to be a sick industrial company, the protective regime under the sick company law no longer continued. The earlier rehabilitation arrangement did not remain indefinitely operative merely because some obligations created under it, such as redemption of preference shares, were still outstanding.

Conclusion: The company was no longer under the sick company regime, and there was no legal bar to the scheme on that ground.

Issue (iv): Whether the scheme was unfair or unsupported by the requisite disclosure and therefore incapable of sanction.

Analysis: The court's role in sanctioning a scheme is supervisory, not appellate. The court must ensure compliance with statutory procedure, proper notice and disclosure, relevant material before the voters and the court, absence of illegality or public policy violation, and that the scheme is just, fair and reasonable to the class as a whole. The scheme had overwhelming support in the meetings, the latest financial material did not disclose any adverse feature, and the objections turned largely on individual commercial interests rather than any demonstrated unfairness to the class.

Conclusion: The scheme was neither unfair nor procedurally defective, and sanction was justified.

Final Conclusion: The scheme of amalgamation satisfied the statutory and equitable requirements for court sanction, and the appeals failed.

Ratio Decidendi: In sanction proceedings for compromise or arrangement, the court intervenes only to ensure statutory compliance, adequate disclosure, and that the scheme is fair to the class as a whole, while respecting the commercial wisdom of the majority unless the scheme is shown to be unfair, illegal, or contrary to public policy.

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