Scheme of arrangement voting and revival tests upheld, with lawfully transferred interests counted for statutory majority and sanction

In sanctioning a scheme of arrangement, the Court treated lawfully transferred shares and credits as valid for voting purposes and held that the statutory majority test under the Companies Act, 1956 must be applied practically by reference to the persons or claims represented at the meeting. On that basis, objections to the chairman's conduct, transferred interests, and isolated authorisation defects did not defeat approval. The Court also applied the settled sanction test of compliance, fair representation, commercial viability, and public interest, and accepted the modified revival scheme as adequately disclosed and bona fide. Competing schemes and procedural objections were rejected, and revival of the company was directed under supervisory control.

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Issues: (i) Whether the scheme of arrangement was approved by the requisite statutory majority of shareholders and creditors, and whether the voting objections relating to transferred shares, transferred credits, and the chairman's treatment of the meeting could defeat the approval. (ii) Whether the scheme, as modified, was commercially viable, fairly disclosed, and in the public interest so as to warrant sanction despite objections to the competence of the propounders, the lack of a project report, and other procedural objections.

Issue (i): Whether the scheme of arrangement was approved by the requisite statutory majority of shareholders and creditors, and whether the voting objections relating to transferred shares, transferred credits, and the chairman's treatment of the meeting could defeat the approval.

Analysis: The approval of a scheme under Section 391(2) of the Companies Act, 1956 depends on the statutory majority of the class affected. The Court held that the earlier orders validating the transfer of shares and recognition of transferred credits had become final, and the transferees were entitled to be treated as shareholders and creditors to the extent of the transfers lawfully effected. It further held that, in a meeting where poll is taken, the expression "number" must be understood in a practical manner to include the number of persons or claims represented, and not a bare headcount divorced from the voting value and the representational effect of valid transfers. On that footing, the resolution supporting the scheme satisfied both the numerical and value requirements. Objections based on the register of members, the absence of formal authorisation in isolated cases, and the attempt to re-open matters concluded by earlier orders were rejected.

Conclusion: The scheme met the requisite statutory majority and the voting objections failed.

Issue (ii): Whether the scheme, as modified, was commercially viable, fairly disclosed, and in the public interest so as to warrant sanction despite objections to the competence of the propounders, the lack of a project report, and other procedural objections.

Analysis: The Court applied the settled tests for sanction of a compromise or arrangement: compliance with statutory requirements, fair representation of the affected class, and whether a reasonable business person would approve the arrangement. It found that the company was a sick unit, that the proposed revival would preserve the undertaking and employment, and that the modified scheme had the support of the Central Government and the Official Liquidator. The Court rejected objections that the scheme was not supported by a project report, that the propounders lacked locus or corporate form, or that disclosure was insufficient, holding that the broad financial position and the material facts were adequately before the Court and that the scheme could be effectively supervised after sanction. The Court also held that the objections were not bona fide in light of the prior conduct of the objector and the finality of earlier orders.

Conclusion: The modified scheme was sanctioned, the rival schemes and related objections were rejected, and revival of the company was directed with consequential supervisory and implementation directions.

Final Conclusion: The Court approved the modified revival scheme, rejected the competing schemes and objections, recalled the winding-up order, and directed implementation under Court supervision through a management committee.

Ratio Decidendi: In sanctioning a scheme of arrangement, the Court may recognise lawfully transferred shares and credits for voting purposes, treat "number" in the statutory majority test as the number of persons or claims represented, and prefer revival where the arrangement is bona fide, commercially viable, and in the public interest.

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