The court's interpretation of Section 391 (2) of the Indian Companies Act, 1956, and its holding that the majority required for sanctioning a scheme of arrangement must be of persons who were present and who took part in the voting.

( 1 ) THIS is an application under Section 391 of the Indian Companies Act, 1956, for sanction of a scheme of arrangement involving re-organisation of the share capital of the company. The company was incorporated in June 1945 with an authorised capital of Rs. 50 lakhs divided into 3,75,000 ordinary shares of Rs. 10 each, 10,000, 5 per cent cumulative participating preference snares of Rs. 100/- each and 50,000 deferred shares of Rs. 5 each. The total paid up capital of the company is Rs. 29,20,300 comprising of 1,89,985 ordinary shares of Rs. 10 each, 8,452 preference shares of Rs. 100 each and 35,050 deferred shares of Rs. 5 each. The company carries on the business of manufacturers, exporters and importers of radios, radiograms, gramophones, refrigerators and various electrical goods and equipments. It has its factory at Karampura in Bihar. Although the company was started with the blessings of a very rich financial and managing agents, Karamchand Thapper and Brothers, and has secured the services of foregin technicians, its career has not been a prosperous one. Since 1948 it sustained loss in its business and in 1956 the proportion of the loss assumed such a huge magnitude that the company has been forced to seek the assistance of the court for the purpose of putting it on a stable financial basis so that it may hope to meet brighter days in the future years.

( 2 ) ON 14-2-1957 the company held 3 separate meetings of the different classes of shareholders and on the same day the company also held a general meeting of all the shareholders. At these meetings resolutions were passed sanctioning a proposal for reduction of capital by decreasing the nominal value of the different classes of shares and certain other resolutions for reorganisation of the share capital consequent on the reduction of the capital were also passed. The reduction was to the effect that the nominal value of each preference share of Rs. 100 each was reduced to Rs. 30, the nominal value of each ordinary share of Rs. 10 was reduced to Rs. 2 and the nominal value of each deferred share of Rs. 5 was reduced to Re. 1.

( 3 ) THE resolution sanctioning the reorganisation was to the effect that the preference and deferred shares would be extinguished and there was to be only one class of shares being ordinary shares of Rs. 10 each. New ordinary shares of the value of about Rs. 28 lakhs were to be issued for raising further capital and for

reducing the claim of the managing agents who were creditors to the extent of about Rs. 75 lakhs by allotting them 12 lakhs worth of shares in the fresh issue. The managing agents also agreed to give up Rs. 13 lakhs of their claim after the scheme is sanctioned and they also agreed to pay about Rs. 5 lakhs and odd being the entire claim to the sundry creditors of the company. Some difficulty was obviously felt as to the legality of that part of the scheme which extinguished the preference shares altogether, and so at the meeting of the different classes of the sharesholders held on December 11, 1957 pursuant to the direction of this court, modification of this, part of the scheme and the consequent re-adjustment and recasting of the scheme was proposed and was carried. It is this modified scheme which has now come up before the court for sanction.

( 4 ) THE functions and duties of the court in the matter of sanctioning of schemes are well-known. Any scheme which is fair and reasonable and made in good faith will be sanctioned if it could reasonably be supported by sensible people to be for the benefit of each class of the members or creditors concerned (In re Alabama New Orleans, Texas and Pacific Junction Railway Co. , 1891-1 Ch. 213, 239, 243 and In re English Scottish and Australian Chartered Bank, 1893-3 Ch. 385 ). It is also the duty of the Court to see that the resolutions were passed by the statutory majority. (Section 391 (2) of the Indian Companies Act 1956) (See In re Dorman Long and Co. 1934-1 Ch.