TMI Blog1985 (8) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... as incorporated on March 5, 1957. Its authorised share capital stood divided into ordinary shares, preference shares and unclassified capital. The preference shares are of one category, viz. , 5,000, 7 % preference shares of Rs. 1,000 each. The bank rate having risen considerably, the preference shareholders made requests to the company to remedy the situation by increasing the rate of the dividend payable and more particularly as the terms of the issue of the said preference shares did not provide for the redemption thereof. The board of directors of the petitioner-company thereupon decided to cancel the said preference shares and instead issue to the members of the petitioner-company holding preference shares, secured non-convertible deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 101 and section 391 of the Companies Act. On this petition being filed, an application was made to this court that in view of the Sachar Committee's Report and in view of the meetings held of the shareholders and in view of the balance-sheet of the company, the court may dispense with the procedure under section 101 of the Companies Act and approve the reduction of capital. On this application, this court examined the fiscal health of the company by scrutinizing the balance-sheets and took into consideration the resolutions passed both by the company's preference shareholders and the company's ordinary shareholders as also the fact that the issue of the intended debentures was subject to the sanction and approval of the Controller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in exchange of unsecured loan stock redeemable at a much later date is unfair. The objecting shareholders must show prejudice to their interests. The court cannot confirm a conditional reduction." Mr. Bulchandani submitted that in this case the petitioner company had failed to follow the procedure under section 101 and was hence not entitled to relief for the reduction of its capital. I am unable to accept this contention. The said section itself provides that the procedure may be dispensed with by the court if it thinks fit and proper. In the present case, as stated earlier, it was only after scrutinizing the fiscal health of the company and considering the ramifications of the scheme and considering the resolutions passed by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of the word "arrangement" in section 390 of the Act, Mr. Bulchandani relied upon the observations in Hindustan Commercial Bank Ltd. v. Hindustan General Electrical Corporation Ltd. [1960] 30 Comp. Cas. 367 (Cal.); AIR 1960 Cal 637, and the observations in another case in In re Chowgule Co. P. Ltd. [1972] TLR 2163. Mr. Bulchandani urged that in view of this, the petitioner would not be entitled to come under section 391 and hence no relief can be granted on this score. I am unable to accept this contention. The word "arrangement" as set out in section 390( b ) is an inclusive definition and contemplates all arrangements and not only reorganisation of the share capital. This is all the more clear, because the word used is "in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of them, and the second being that the petitioner is not liable to be wound up under the Act. Indeed, after reading the special resolution dated September 30, 1971, and the petition for confirmation of conversion, I do not see how the entire scheme could be regarded as a compromise or arrangement between the petitioner and its creditors or between the petitioner and its members. It is true that in view of the provisions of section 390( b ) of the Act, the expression 'arrangement' occurring in section 391 includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both those methods, but the word 'arrangement' used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities being obtained and granted in the matter in respect of which such sanctions or approvals shall be required. Hence, if such sanctions are not granted, the proposed scheme must fail. The question of the petitioner-company short circuiting the procedure for issue of debentures does not survive. In view of this discussion, what comes about is that there is no reason why this petition should not be made absolute. In the result, the petition is made absolute in terms of prayers ( a ), ( b ), ( c ), ( d ), ( e ), ( f ), ( g ), ( h ), ( i ) and ( j ) of the petition. Form of minute set forth in the schedule is hereby approved. The petitioner to pay the costs of the Regional Director of the Company Law Board at Bombay, quantified a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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