Compromise and reconstruction principles support sanction of a scheme, with proxy voting upheld and interest terms modified.

The court held that section 153 of the Companies Act, 1913 empowered it to settle the proxy form for the creditors' meeting, so any inconsistent rule was inoperative and the proxy votes counted toward the statutory three-fourths majority. It further applied the principles for sanctioning a compromise or reconstruction: statutory compliance, bona fide approval by the majority, no coercion of the minority, and a scheme that reasonable business people could regard as beneficial and practicable. The reconstruction was approved, but only with reduced interest on the debentures and pre-preference shares, reflecting prevailing economic conditions.

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Issues: (i) whether the votes cast under the proxy form approved by the court were valid and whether the scheme had obtained the requisite statutory majority under section 153 of the Companies Act, 1913; (ii) whether the scheme for re-organisation of the company's capital ought to be sanctioned on the merits, with modifications as to the proposed rates of interest.

Issue (i): whether the votes cast under the proxy form approved by the court were valid and whether the scheme had obtained the requisite statutory majority under section 153 of the Companies Act, 1913.

Analysis: The court held that section 153 empowered the court to settle the terms of the proxy form to be used at the creditors' meeting. Any court rule inconsistent with that statutory power was held to be inoperative to the extent of the inconsistency. On the figures placed before the court, the scheme secured the support of three-fourths in value of the creditors present either in person or by proxy, whether or not one disputed proxy was counted.

Conclusion: The proxy votes were valid, the statutory majority was satisfied, and the objection to the scheme on this ground failed, in favour of the appellant.

Issue (ii): whether the scheme for re-organisation of the company's capital ought to be sanctioned on the merits, with modifications as to the proposed rates of interest.

Analysis: The court applied the principles governing sanction of a compromise or arrangement: compliance with the statute, bona fide conduct by the majority, absence of coercion of the minority by conflicting interests, and whether reasonable business people could regard the scheme as beneficial and practicable. The scheme was viewed as a legitimate reconstruction supported by the overwhelming majority of creditors and shareholders, and as preferable to compulsory liquidation. The court, however, held that the proposed debenture interest was too high in the prevailing economic uncertainty and that the rate of interest on the pre-preference shares should also be reduced correspondingly.

Conclusion: The scheme was fit to be sanctioned, but only as modified by reducing debenture interest to 5% during the currency of the issue and fixing pre-preference share interest at 7%, in favour of the appellant.

Final Conclusion: The appeal succeeded and the scheme of reconstruction was sanctioned with the specified modifications, the order under challenge being set aside.

Ratio Decidendi: In sanctioning a compromise or reconstruction under section 153 of the Companies Act, 1913, the court must ensure statutory compliance and bona fide approval, and should sanction a scheme that reasonable business people could regard as beneficial unless a substantial and principled objection shows it to be impracticable or unfair.

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