TMI Blog1974 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... , jute cuttings, jute rejections, hemp, cotton, etc. After incorporation, the company commenced its business of manufacturing jute goods and also dealt in raw jute and jute goods of various kinds and carried on such business till March,1943. In that year the company's mills were requisite by the Government of India. The company at that time had a mill known as Craig Jute Mills situated at Jagatdal. Barrackpore, in the District of 24 parganas The company was a lessee under different landlords in respect of he ands on which the mill was situated and other adjoining lands of a total area of 72.09 acres of land. At all material times Mcleod Co.Ltd. (appellant No. 1) was the managing agent of the company and also the managing agent of another jute company known as Alliance Jute Mills Co. Ltd., which was in occupation of adjoining lands comprising an area of 72.09 acres. By notifications dated December 19, 1946, and March 23, 1947, the Government of India acquired under the Defence of India Rules 1939, the ands of the company together with all its buildings and machinery at' the factory at Jagatdal, as also the land and factory of Alliance Jute Mills Co Ltd The Central Government r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions granted by the court the meeting was ultimately held on December11,1971, and the scheme proposed was approved by the ordinary shareholders of the company. Thereafter, an application for sanction of the scheme by the court was moved and by a judgment and order dated November 21, 1972, this application was dismissed with costs. Aggrieved by this order of dismissal the appellants have preferred this appeal. Appearing on behalf of the appellants, Mr. Nag contended that there has been an improvement in the situation for the manufacture of jute goods and also for trade in jute and jute goods, and the prospects of business in manufacture of jute and jute goods are very bright. He also contended that the majority of holders of equity shares of the company were desirous of reviving the company and resuming its business according to the memorandum of association of the company. The company, it was contended, was and still is a solvent concern and had substantial assets and even after providing for the claim for excess payment by the Central Government, substantial assets would be left with the company to carry on business. It was argued that under the memorandum and articles of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in exercising its discretion whether or not to sanction a scheme the court treats it as cardinal that its function does not extend to usurping the views of the members or creditors. The court's duty, according to the learned author, is to see that the scheme is a reasonable one and if the court is of opinion that there is such objection that any reasonable man might say that he would not approve it, the court might refuse to confirm the scheme. Reliance was placed by Mr. Nag on a decision of the House of Lords in Scottish Insurance Corporation Ltd. v. Wilsons and Clyde Coal Co. Ltd. [1949] 1 All. ER 1068 (HL). In that case, under a Nationalisation Act, the colliery assets of the company were transferred to the National Coal Board with the result that the company could no longer pursue the objects for which it was incorporated. At an extraordinary general meeting of the company a resolution was passed for reduction of capital by returning the whole of the paid up capital of the preference stock-holders and also for extinguishing such preference shares. The preference stock-holders objected to the reduction on the ground that it deprived them prematurely of a 7% investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were ordinary shareholders who had really no interest in the company's assets and a scheme had been approved by the creditors and all those who were really interested in the assets, the ordinary shareholders would be able to say that it should not be carried into effect unless some terms were made with them. " Our attention was also drawn to a passage in Gore-Browne on Companies, new edition, pages 873-874, for the proposition that it was upon the applicant for sanction of the scheme to determine what class of members and creditors are to be summoned to any meeting as constituting a class and also that in sanctioning a scheme the court might ignore the fact that a class had not consented if it be proved that upon an immediate distribution of the assets none would be available for that class. Mr. S. B. Mookherjee, appearing for the respondents, contended that under the provisions of section 391 (2) of the Act the court's jurisdiction to sanction a scheme was conditional upon approval of the scheme by the members of the company of all different classes being obtained in accordance with the statutory prescribed majority. He argued that the jurisdiction of the court under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval obtained to the scheme. Such a proposition cannot be upheld having regard to the clear language in section 391(1) of the Act. The rights of the preference shareholders of the company, such as they are, remain where they are and are not intended to be interfered with. Keeping in mind the provisions of the memorandum of association of the company and its amended articles, it must be held that the preference shareholders have no right to the surplus assets of the company in the hands of the liquidators, and if with these funds the ordinary shareholders of the company wish to revive the company without in any way curbing the rights of preference shareholders, whatever they are, it cannot in our view be said that the court had no jurisdiction to sanction the scheme, merely because a meeting of the preference shareholders was not called and held, and their views on the scheme were not ascertained. The next contention of counsel for the respondents was that the scheme involved a reduction of share capital, inasmuch as the capital structure of the company would be the investment to be made by holders of ordinary shares only, leaving out the capital that the preference shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould, therefore, be appropriate alteration and amendment of the memorandum and articles of association of the company, to indicate the new capital structure of the company proposed in the scheme. Our attention was drawn by Mr. Mookerjee to a Bench decision of this court in Hindusthan Commercial Bank Ltd. v. Hindusthan General Electric Corporation [1960] 30 Comp. Cas. 367 (Cal.) . In that case it was held that, where the court called upon to sanction a scheme of arrangement found that it was called upon also to confirm a reduction of capital, the court was bound to follow and observe the formalities which it ought to follow and observe in the case of confirmation of reduction of capital. This decision, in our view, is of no assistance to Mr. Mookeriee as there is no reduction of share capital as such of the company. But, what has happened is that the company has repaid the capital of both the preference and ordinary shareholders of the company, and is proposing to carry on business under the scheme with the surplus now in the hands of the liquidators. The amount now in the hands of the liquidators, which would ultimately go to the company if the scheme is sanctioned, is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of nearly Rs. 11,00,000 without issuing 50% of the ordinary shares of the company. In repelling this contention of counsel for the respondents, Mr. Nag diew our attention to paragraph 9( b ) of the affidavit affirmed on behalf of the company by Allen Cook Fotheringham on March 29, 1972. It has been proposed on behalf of the company that, if intimation of acceptance is not received as contemplated by clause 5 of the scheme, the balance of the ordinary shares not issued shall not be dealt with by the directors in exercise of the powers conferred by clause 5 of the scheme, without leave and direction of this court. In our view, the directors of the company ought not to be allowed to deal with, the balance of the ordinary shares without an order of court obtained for that purpose. There is one other matter, however, which must be taken note of in dealing with the scheme. It is obvious that the memorandum of association and the articles of association of the company remain as they were at the time of commencement of the voluntary liquidation. The memorandum and the articles, as they stand, contemplate two classes of shareholders, namely, preference shareholders and ordinary sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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