Voluntary winding-up scope limits Section 251 composition schemes and leaves dissenting creditors unbound.

Section 251 of the Companies Act 1929 was construed as part of the voluntary winding-up provisions and not as extending to compulsory winding-up. The court held that an arrangement under that section must relate to a company properly about to be wound up, and that the word "arrangement" did not naturally include a compromise properly so called. On the facts, a composition that would have left the company solvent was outside section 251 and did not bind the dissenting creditor. The majority creditors' wishes were relevant, and the matter was left to stand over so that a scheme under section 153 could be considered.

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Issues: Whether a composition scheme entered into under section 251 of the Companies Act, 1929 was valid and binding where the company was not in voluntary winding-up and was not properly 'about to be wound up'.

Analysis: Section 251 was construed in the context of the winding-up provisions of the Companies Act, 1929 and the earlier corresponding enactments. The Court held that the section formed part of the group of provisions applicable to voluntary winding-up and did not extend to compulsory winding-up. The word 'arrangement' in section 251 was also treated as not naturally including a compromise properly so called. On the facts, the proposed composition by which the company would remain solvent was not an arrangement by a company 'about to be wound up' within the meaning of the section. The arrangement therefore did not bind the dissenting creditor. At the same time, regard was had to the wishes of the majority of creditors, and the proper course was to allow them an opportunity to consider a scheme under section 153.

Conclusion: Section 251 of the Companies Act, 1929 did not apply to the arrangement, and the composition was not valid or binding on the dissenting creditor. The petition was allowed to stand over to enable consideration of a scheme under section 153.

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