Shareholder meeting requirements in schemes cannot be wholly dispensed with, but prior unappealed procedural orders stand at sanction stage.

Under the Companies Act, 1956, the Court may regulate and relax procedural formalities for convening shareholder meetings in a scheme of arrangement or demerger, but it cannot dispense with the statutory requirement of holding a meeting altogether. A prior unappealed order dispensing with meetings was not treated as a nullity or reopened at the sanction stage. Objections based on family settlement, corporate veil and omission to refer to the settlement in the scheme were also rejected, as no sufficient basis was shown to invalidate the scheme. The scheme was therefore sanctioned and the demerger allowed to proceed subject to earlier directions and conditions.

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Issues: (i) whether the Court had power under the Companies Act, 1956 and the Companies (Court) Rules, 1959 to dispense altogether with meetings of shareholders for considering a scheme of arrangement and demerger; (ii) whether the prior order dispensing with meetings was liable to be treated as a nullity or set aside at the sanction stage; (iii) whether the objections based on family settlement, corporate veil and absence of reference to the settlement in the scheme defeated sanction.

Issue (i): whether the Court had power under the Companies Act, 1956 and the Companies (Court) Rules, 1959 to dispense altogether with meetings of shareholders for considering a scheme of arrangement and demerger.

Analysis: The statutory scheme under sections 391, 393 and 394 requires notice, disclosure, convening and holding of meetings, and prescribed procedural safeguards. While the Court may regulate the manner in which meetings are held and may relax procedural formalities in appropriate cases involving closely held or family companies, the mandate of holding a meeting cannot be completely displaced. The power to control the manner of the meeting does not extend to abolishing the meeting itself.

Conclusion: The Court held that it had no power to dispense altogether with meetings, though it could relax procedural formalities in suitable cases.

Issue (ii): whether the prior order dispensing with meetings was liable to be treated as a nullity or set aside at the sanction stage.

Analysis: The earlier order had been passed in separate proceedings and had attained finality, no appeal having been preferred. The Court also held that the order was not a nullity, since it had been made in the then prevailing judicial practice in appropriate cases of small or family-owned companies and was supported by existing precedent. The sanction stage was not the forum to reopen that order.

Conclusion: The challenge to the prior order failed and it was neither set aside nor treated as a nullity.

Issue (iii): whether the objections based on family settlement, corporate veil and absence of reference to the settlement in the scheme defeated sanction.

Analysis: The Court found no basis to lift the corporate veil. The family settlement did not have to be expressly recited in the scheme, and no member of the companies had come forward to oppose the scheme. The objectors were not shown to have a sufficient basis to invalidate the scheme on these grounds.

Conclusion: The objections were rejected and did not prevent sanction of the scheme.

Final Conclusion: The scheme of arrangement was sanctioned, the objections were dismissed, and the demerger was permitted to proceed with compliance with the earlier directions and conditions.

Ratio Decidendi: Under section 391 of the Companies Act, 1956 the Court may regulate and relax the procedure for convening and conducting meetings, but cannot dispense with the statutory requirement of holding a meeting altogether; however, a prior unappealed order made in the exercise of that discretion is not a nullity merely because it is later disputed at the sanction stage.

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