Scope of Section 391. The aid of the section may be invoked when it is not otherwise

Scope of Section 391. The aid of the section may be invoked when it is not otherwise possible to made some arrangement or compromise which would be in the interests of the company and the other party or parties to the arrangement. It can be used whether the company is a going concern or is in the course of winding up.

Exercise of the Court’s discretion

Before the Court sanctions a scheme, it will normally need to be satisfied on the

following matters:

1. The Statutory Provisions must have been Complied With. The Court must see

that the resolutions are passed by the statutory majority in value and number in accordance with the legislation at a meeting or meetings duly convened and held. In this regard, it may be noted that Section 391 contemplates a scheme between a company and its creditors or any class of them or between the company and its members or any class of them. Thus, where a scheme was agreed to by the company and its ordinary shareholders only, without interfering with the rights of the preference shareholders, the scheme was held to be valid even though a meeting of the preference shareholders was not called to ascertain their views-Mcleod & Co. V s. S.K. Ganguly [1975]45 Compo Cas. 563:

The Court shall not make any order sanctioning the compromise or arrangement unless it is satisfied that the company or any other party making the application has disclosed to the Court, by affidavit or otherwise, all material fact relating to the company, such as :

(a) the latest financial position of the company;

(b) the latest auditor’s report on the accounts of the company;

(c) whether any investigation or proceedings under Sections 235 to 251 are pending against the company, etc. (Proviso to Sub-section (2) of Section 391). “Further, an order made by the Court sanctioning the compromise or arrangement shall have no effect until a certified copy of the same is filed with the Registrar. Moreover a copy of every such order must be annexed to every copy of the Memorandum, issued after the filing of the certified copy of the order or, if the company has no Memorandum, to every copy of the instrument constituting or defining its constitution [Sub-sections (3) and (4) of Section 391].