Section 391 convening stage limits merits review, while interested parties may still be heard in appropriate cases.

At the stage of directions under section 391(1) of the Companies Act, 1956, the Court ordinarily confines itself to convening meetings and does not adjudicate the merits of the proposed scheme, though it may refuse directions where the summons is plainly unsustainable or contrary to law. The proceeding is ex parte in form, but interested parties may be heard in appropriate cases under the Rules. Objections going to the scheme's merits are generally for creditors and shareholders at the meetings and for the sanction stage, so the summons should not be dismissed on that basis alone.

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Issues: (i) Whether an application under section 391(1) of the Companies Act, 1956 for directions to convene meetings is to be treated as ex parte, and whether interested parties can be heard at that stage; (ii) whether the Court can examine and reject the proposed scheme at the stage of issuing directions for convening meetings; (iii) whether the summons for directions deserved dismissal on the facts of the case.

Issue (i): Whether an application under section 391(1) of the Companies Act, 1956 for directions to convene meetings is to be treated as ex parte, and whether interested parties can be heard at that stage?

Analysis: Rule 67 of the Companies (Court) Rules, 1959 provides that the summons for directions is ordinarily moved ex parte, subject to the limited exception in rule 68. Rule 69, however, contemplates hearing on the summons and enables the Court to make such directions as it thinks fit. The hearing power was read as permitting the Court, in the exercise of inherent jurisdiction, to hear interested parties whose rights or convenience may be affected by the proposed meetings.

Conclusion: The proceeding is ex parte in form, but the Court may hear interested parties at that stage in appropriate cases.

Issue (ii): Whether the Court can examine and reject the proposed scheme at the stage of issuing directions for convening meetings?

Analysis: The stage under section 391(1) is for convening meetings and not for adjudicating the merits of the scheme. The consultative purpose of the meeting would be frustrated if the Court were to prejudge the scheme before creditors and members express their views. At the same time, the Court retains the power under rule 69 to refuse directions if the application is patently unsustainable or in clear contravention of law. The merits of the scheme are ordinarily to be considered after the meetings and at the sanction stage.

Conclusion: The Court should not go into the merits of the scheme at the stage of convening meetings, though it may refuse directions in a clear case.

Issue (iii): Whether the summons for directions deserved dismissal on the facts of the case?

Analysis: The objections raised were found to concern the merits of the scheme and matters suitable for consideration by creditors and shareholders at the meetings. Prior consultations and objections from some creditors did not justify denial of the statutory process for convening meetings. The applicant was therefore entitled to have the scheme considered by the relevant classes in the manner contemplated by the Rules.

Conclusion: The summons was not liable to be dismissed and directions for convening the meetings were issued.

Final Conclusion: The application succeeded and the statutory process for consideration of the scheme by separate meetings of the concerned classes was permitted to proceed.

Ratio Decidendi: At the stage of directions under section 391(1) of the Companies Act, 1956, the Court ordinarily confines itself to convening the meetings and does not adjudicate the merits of the scheme, though it may refuse directions where the summons is plainly unsustainable or contrary to law.

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