Company reconstitution under section 153 must be legally capable of approval; liquidation completion can justify declining liquidator removal.

A court considering sanction of a company reconstitution under section 153 of the Companies Act, 1913 must first decide whether the proposal placed before it is legally capable of approval. It cannot sanction a materially different arrangement or cure an unlawful proposal by substituting a new scheme; where the resolutions contemplated reconstitution without liability to members and no lawful scheme was before the court, sanction was unsustainable and was set aside. Where liquidation had substantially been completed, with assets realised and liabilities discharged, removal of the liquidator could be refused as no longer necessary for the company's protection, while unresolved charges were left open for consideration at discharge.

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Issues: (i) Whether the court could sanction a reconstitution of the company under section 153 of the Companies Act, 1913 when the resolutions envisaged reconstitution without any liability on the members and no lawful scheme or arrangement was placed before it; (ii) Whether the petition for removal of the liquidator should be dismissed without adjudicating the charges on merits when the liquidation was substantially complete and the issue had become unnecessary for the protection of the company.

Issue (i): Whether the court could sanction a reconstitution of the company under section 153 of the Companies Act, 1913 when the resolutions envisaged reconstitution without any liability on the members and no lawful scheme or arrangement was placed before it.

Analysis: The resolutions approved by the members plainly contemplated a reconstitution free from any liability to the members. Such a proposal could not lawfully be given effect to. The court was required to decide that question before according sanction, because under section 153 it could not introduce a substantial alteration or substitute a different arrangement for that approved by the members. In the absence of any proper scheme or arrangement, and where the proposal as framed was not legally permissible, the court was bound to withhold approval rather than sanction a modified reconstitution.

Conclusion: The sanctioning order was unsustainable and was set aside. The appeal against sanction succeeded.

Issue (ii): Whether the petition for removal of the liquidator should be dismissed without adjudicating the charges on merits when the liquidation was substantially complete and the issue had become unnecessary for the protection of the company.

Analysis: The liquidation had substantially reached completion, with almost all assets realised and liabilities discharged, leaving only a balance in court. In that situation, removal of the liquidator was no longer necessary in the interests of the company. The charges were not finally decided on merits, and the right to agitate them at the time of discharge was kept open to safeguard the company's interests.

Conclusion: The dismissal of the removal petition was upheld, while the charges were left open for consideration at the liquidator's discharge.

Final Conclusion: The judgment set aside the order sanctioning reconstitution but maintained the dismissal of the application for removal of the liquidator, leaving the underlying charges open for future consideration.

Ratio Decidendi: A court sanctioning a compromise or arrangement under section 153 must determine in advance whether the proposal placed before it is legally capable of approval and cannot grant sanction by substituting a materially different arrangement; where liquidation is substantially complete, removal of the liquidator may be declined without deciding unresolved charges, leaving them open for later adjudication.

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