Sanctioned scheme binding cannot be varied by directors; attempted forfeitures invalid and appellants restored to contributories.

An amended scheme of arrangement, once sanctioned under the Companies Act, became binding on company, shareholders and creditors and fixed call dates and amounts; directors could not alter those terms or compromise individually without the Court's leave. Resolutions purporting to accelerate calls and effect forfeitures were inconsistent with the sanctioned scheme and therefore ultra vires and invalid. Ratification by creditors or shareholders could not validate such variations absent evidence of knowledge of illegality. Consequently appellants were restored to the register and placed on the list of contributories; appeals dismissed.

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Issues: Whether the appellants should be placed on the list of contributories notwithstanding the directors' purported forfeiture of their shares and removal of their names from the register.

Analysis: The Court considered the effect of the amended scheme of arrangement sanctioned by the Court under Section 153 of the Indian Companies Act and the powers of the company's directors thereafter. The scheme, once sanctioned, became binding on the company, its shareholders and creditors and fixed the dates and amounts of calls; those terms could not be altered by directors' resolutions or by compromises with individual shareholders without the Court's leave. The directors' resolutions of 18th January 1933 attempted to require payment of the whole 25% call by 26th February 1933 and to offer compromises altering scheme dates; those actions were inconsistent with clause 6 of the sanctioned scheme and thus ultra vires. The purported forfeitures effected pursuant to those resolutions and subsequent resolutions were therefore invalid. The Court also examined the contention of ratification by creditors and shareholders and held that, given the binding character of the sanctioned scheme, no variation could be validated by mere acquiescence; and, in any event, there was no evidence of knowledge of illegality necessary to constitute effective ratification.

Conclusion: The appellants were rightly restored to the register and placed on the list of contributories; the appeals are dismissed.

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