The main legal point established in the judgment is that a scheme for financing a company's affairs may require approval from the shareholders, and the approved scheme by the Court must be accepted by the shareholders to be binding.

Lord Atkin:-

This is an appeal from the High Court of Judicature at Allahabad in a proceeding in the course of the winding up by the Court of the Union Indian Sugar Mills Company. On 28th May 1926, the winding up order was, made on a creditor's petition. The company carried on an extensive business and strenuous efforts were made by the share holders to save the concern. Eventually, alternative proposals were made by various financial houses either to buy the undertaking out and out or to advance on mortgage defined sums on the terms that the mortgagees managed the business for a term of years and recouped themselves out of the profits. In due course these proposals were laid before the Court by the liquidators for direction. The Court directed a meeting of shareholders to be held to decide whether they would accept the offers of Lala Har Kishin Lal or of Lala Kamlapat the appellants. Both parties had put forward a scheme to advance substantial sums on mortgage and both had alternatively offered to purchase at a named sum. It is clear that all parties concerned and the Court considered that they were acting under the provisions of S. 153, Companies Act 1913, which provides that where an arrangement is proposed between the company and its members or any of them, the Court may order a meeting of the members of the Company and if a majority of three-fourths in value present in person or in proxy at the meeting agree to any arrangement, the arrangement if sanctioned by the Court shall be binding on the members and the Company. The question was raised by Counsel for the liquidators whether in fact the proposals did amount to an arrangement between the Company and its members but for reasons to be given later this appears to their Lordships in the circumstances of this case immaterial. The proposal of the appellants Kamlapat as laid before this meeting was as follows :

That the applicant is willing to advance a sum of Rs. ten lacs to the above Company in liquidation on the terms annexed herewith and is also prepared to purchase it for rupees eleven lacs fifty thousand on the conditions mentioned therein.

1. Deposit of Rs. 1,50,000 today and Rs. 8,50,000 within a month of this date, which should be paid to creditors as early as possible the balance, if any, after paying the legal debts, to be returned to us.

2. The Company to be mortgaged to us at 8 per cent compound interest with six-monthly rests.

3. We to be the managing agents for ten years even if mortgage be paid off earlier, and to get all the advantages which the present managing director enjoys and to get 5 per cent commission on net profits only.

4. The mortgage with interest to be paid off first and then the share-holders to get the profit.

5. We to provide entire working capital against the goods of the Company at 8 per cant per annum.

6 The Company to be handed over to us as soon as we deposit the entire money.

7. The consent of the share-holders to be obtained to the above scheme.

8. In case the share-holders do not accept the scheme, we are willing to purchase the company at Rs. 11,50,000.

(Signed) Kamlapat.

(Signed) Ramakant Malaviya vakil for L. Kamlapat.

22nd November 1926.

The meeting of shareholders was duly held on 16th December 1926, and Kamlapat's scheme was accepted by a large majority. On 21st December the liquidators reported that they had received claims from creditors amounting to Rs. 10,61,168. On the same day the Court sat to consider the approval of Kamlapat's scheme. They found however, as they state in their judgment, that a new situation had been created by the liquidators'report, inasmuch as the previous proceedings had taken place under the impression of the Court as well as the previous persons interested, that the sum of Rs. 10,00,000 would fully satisfy all the creditors. Hopes were, however, held out that Kamlapat might increase their offers to advance 10,00,000, to 12,00,000. Bather than decide to reject the scheme or accept an offer for an out-and-out sale