Broad reading of scheme of arrangement upheld for restructuring share premium account and setting off losses under company law.

A scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 was treated as capable of covering a reorganisation involving set-off of irrecoverable loans and advances and carried forward losses against the company's share premium account. The expression "arrangement" was read broadly with the inclusive definition in section 390(b), and the restructuring was considered permissible despite sections 78 and 100 dealing with reduction of capital and share premium. The Court also noted compliance with the Companies (Court) Rules, strong shareholder approval, and the absence of prejudice to creditors, charge holders, or the public interest, and sanctioned the scheme.

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Issues: Whether a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 could validly provide for setting off irrecoverable loans and advances and carried forward losses against the share premium account of the company.

Analysis: The expression "arrangement" in section 391, read with the inclusive definition in section 390(b), was treated as of wide import and capable of covering a reorganisation affecting the share premium account. The Court accepted that although section 78 and section 100 deal with reduction of capital and share premium, the proposed restructuring could still be achieved through a scheme of arrangement. Reliance was also placed on the Companies (Court) Rules, including rule 85, and on the fact that the scheme had been overwhelmingly approved by the equity shareholders and unanimously by the preference shareholders. The Court further noted the absence of any demonstrated prejudice to creditors, charge holders, or the public interest.

Conclusion: The scheme of arrangement was held to be maintainable under sections 391 to 394 and was sanctioned.

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