Section 153 limitation: a scheme cannot sanction acts that are ultra vires the memorandum, so statutory alteration is required.

Section 153 of the Companies Act, 1929 cannot be used to validate or authorize acts that are ultra vires the company under its memorandum; the court refused to sanction a scheme that would effect the sale and transfer of the whole undertaking because such a change requires the specific statutory procedure for altering the memorandum. The court also exercised its discretion under section 153 despite shareholder opposition, finding no impropriety in directors' conduct and no basis to withhold sanction on discretionary grounds, but refused the petition solely because the proposed scheme sought to effect an ultra vires act.

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Issues: (i) Whether the Court should exercise its discretionary jurisdiction under section 153 of the Companies Act, 1929 to sanction the proposed arrangement despite opposition from shareholders; (ii) Whether the Court has jurisdiction under section 153 to sanction a scheme that effects the sale and transfer of the whole undertaking where such a sale is ultra vires the company under its memorandum of association.

Issue (i): Whether the Court ought, in the circumstances, to refuse to exercise its discretionary power under section 153 in favour of the petitioner.

Analysis: The Court considered the special factual matrix, including that the board comprised directors nominated by creditors and that the proposed scheme provided no benefit to shareholders. It noted established practice that the jurisdiction under section 153 is exercised without regard to the wishes of shareholders or classes of creditors who lack real interest in the assets. The Court found no impropriety or unfairness in the directors' conduct warranting refusal of the statutory discretionary relief.

Conclusion: The Court declined to refuse its discretionary jurisdiction; there was no basis to withhold sanction on the ground of impropriety or unfairness to shareholders.

Issue (ii): Whether an arrangement under section 153 can validate or effect an act that is otherwise ultra vires the company under its memorandum, specifically the sale and transfer of the whole undertaking.

Analysis: The Court examined the language and purpose of section 153 and relevant authority, noting that rights conferred by the memorandum may be overridden as to members by subsection 5 but found no authority permitting validation, by scheme, of an act which is otherwise ultra vires the company. The Court relied on prior authority to the effect that section-based schemes do not apply to arrangements which are ultra vires or which can only be effected by prescribed statutory procedures (for example, alteration of memorandum under specified provisions). The Court observed that the creation of a power to sell the whole undertaking is the subject of express provision for alteration of the memorandum (section 5(1)(f) of the Companies Act, 1929) and that permitting section 153 to effect such a change would circumvent statutory prescription.

Conclusion: The Court held that section 153 does not authorize sanctioning a scheme that effects an act otherwise ultra vires the company (here, sale of the whole undertaking); accordingly the petition was refused.

Final Conclusion: The Court refused the petition and made no order on the motion in the related action except as to costs; overall legal effect is that a scheme under section 153 cannot be used to authorize or validate acts outside the company's powers as defined by its memorandum, and the petition to sanction such a scheme was dismissed.

Ratio Decidendi: Section 153 of the Companies Act, 1929 cannot be invoked to validate or sanction an arrangement which effects an act that is otherwise ultra vires the company under its memorandum of association; alteration or conferment of new corporate powers must be effected by the statutory procedure specifically prescribed for altering the memorandum.

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