Scheme of arrangement cannot validate an ultra vires disposal of a company's undertaking under its memorandum.

A scheme of arrangement was not to be refused merely because shareholders objected where they had no real beneficial interest in the insolvent company's assets and the scheme had been approved in the statutory manner. The Court also stated that section 153 of the Companies Act 1929 does not let a company do by arrangement what its memorandum does not permit: an arrangement cannot validate an ultra vires act. Because the proposed scheme depended on the sale and transfer of the whole undertaking, and the memorandum gave no power to sell the undertaking as a going concern, sanction was refused.

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Issues: (i) Whether the Court should refuse sanction to the proposed scheme of arrangement on the ground that it was unfair to shareholders and that the directors ought not to have assisted the creditors without securing a benefit for them; (ii) Whether a scheme under section 153 of the Companies Act, 1929 can be sanctioned when it includes a transaction which is ultra vires the company and beyond the powers conferred by its memorandum of association.

Issue (i): Whether the Court should refuse sanction to the proposed scheme of arrangement on the ground that it was unfair to shareholders and that the directors ought not to have assisted the creditors without securing a benefit for them.

Analysis: The shareholders had no real interest in the assets of the insolvent company, and the scheme had been approved in the manner contemplated by the statute. The jurisdiction to sanction arrangements had historically been exercised without regard to the wishes of shareholders lacking any beneficial interest in the property to be dealt with, and the Court found no impropriety in the directors supporting the scheme for the benefit of creditors alone.

Conclusion: The objection based on alleged unfairness to shareholders failed, and sanction could not be refused on that ground.

Issue (ii): Whether a scheme under section 153 of the Companies Act, 1929 can be sanctioned when it includes a transaction which is ultra vires the company and beyond the powers conferred by its memorandum of association.

Analysis: The Court held that section 153 does not authorise a company to do by arrangement what it could not otherwise do under its memorandum. A compromise or arrangement may bind dissentients where the statute so provides, but it does not validate an act otherwise ultra vires. Since the proposed scheme involved the sale and transfer of the whole undertaking, and the company had no memorandum power to sell its entire undertaking as a going concern, the scheme necessarily depended on an act beyond corporate powers. The statutory provision for alteration of the memorandum and the absence of any authority to use section 153 as a side wind to confer new powers supported refusal of sanction.

Conclusion: The scheme could not be sanctioned because it was integral to an ultra vires transaction outside the company's corporate powers.

Final Conclusion: The petition for sanction failed because the proposed arrangement impermissibly sought to carry out an ultra vires disposal of the company's undertaking, although the Court rejected the separate complaint of unfairness to shareholders.

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