Compromise and arrangement scheme must be fair, reasonable and practicable before meetings are convened under company law.

Directions under section 391 of the Companies Act, 1956 should issue only where the proposed compromise or arrangement is one that reasonable persons acting honestly and in a business-like manner could regard as fair, reasonable and capable of implementation. The court gave weight to the objections of major secured creditors holding more than half of the creditor value, since their concerns went to the practicability of the proposal itself. It also noted that the scheme was materially similar to an earlier plan already rejected as unworkable and raised serious doubts on implementation, including uncertain treatment of secured debts and objectionable treatment of workmen's claims. No directions were issued to convene the meetings.

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Issues: Whether directions should be granted under section 391 of the Companies Act, 1956 to convene meetings of shareholders and creditors for consideration of the proposed scheme of compromise and arrangement.

Analysis: For convening meetings under section 391, the scheme must be such as reasonable persons acting honestly and in a business-like manner could regard as fair, reasonable and capable of being implemented. The Court considered the opposition of the major secured creditors, whose claims represented more than half of the total creditor value, and noted that their objections went to the practicability of the scheme itself. The scheme was also found to be broadly similar to an earlier proposal that had already been rejected as unworkable. On its terms, the proposal created serious doubts about implementation, including uncertain treatment of the secured debts and objectionable treatment of workmen's claims.

Conclusion: The scheme was held to be neither reasonable nor practicable, and no directions were issued to convene the meetings.

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