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Issues Involved:
1. Scheme under Section 391 of the Companies Act to revive a company in liquidation. 2. Reduction of share capital under the proposed scheme. 3. Adequacy of shareholder representation and consent. 4. Compliance with statutory provisions. 5. Ultra vires activities under the scheme. 6. Protection of dissenting shareholders. 7. Appropriate order: stay or rescind winding up. Issue-wise Detailed Analysis: 1. Scheme under Section 391 of the Companies Act to revive a company in liquidation: The petitioners, shareholders of the Colaba Land and Mill Co. Ltd., proposed a scheme under Section 391 of the Companies Act to revive the company, which was ordered to be wound up in 1969. The company had no liabilities, with assets worth about Rs. 29,00,000. The scheme involved restarting the company using surplus assets, with a revised issued, subscribed, and paid-up capital of Rs. 4,90,000 divided into 49,000 fully paid-up equity shares of Rs. 10 each. 2. Reduction of share capital under the proposed scheme: The official liquidator raised concerns that the scheme might involve a reduction of share capital, requiring compliance with Rule 85 of the Companies (Court) Rules. The court determined that since the capital was being created from surplus funds after full repayment to shareholders, it did not constitute a reduction of share capital. Even if it did, the company had substantially complied with the procedures under Sections 100 to 102 of the Companies Act, as the scheme was approved by more than three-fourths of the shareholders present and voting. 3. Adequacy of shareholder representation and consent: The official liquidator noted that only 62% of shareholders were present at the meeting, and their views might not represent all shareholders. The court held that under Section 391, once the scheme is approved by the requisite majority, it becomes binding on all members, irrespective of their individual consent. The scheme was approved by the majority, making it binding on all shareholders. 4. Compliance with statutory provisions: The court emphasized the importance of compliance with statutory provisions, proper representation of the class affected by the scheme, and ensuring the arrangement is reasonable. The scheme complied with these requirements, as it was approved by the requisite majority and provided adequate protection for dissenting shareholders. 5. Ultra vires activities under the scheme: The official liquidator argued that the scheme involved activities not contemplated under the existing objects clause of the company's memorandum of association, particularly the manufacture of chemicals. The court clarified that the scheme did not require sanctioning an ultra vires act, as the company would continue dealing in immovable properties and could amend its memorandum of association in accordance with the law if it wished to pursue other business activities. 6. Protection of dissenting shareholders: The court found the original provisions for dissenting shareholders inadequate. The scheme was amended to allow dissenting shareholders to sell their shares at Rs. 50 per share to Sudarshan Loyalka, with a guarantee from Vasant Investment Corporation. A security deposit of Rs. 1 lakh was provided to ensure payment. This amendment provided adequate protection and a fair price for dissenting shareholders. 7. Appropriate order: stay or rescind winding up: The court preferred a permanent stay of winding-up proceedings over rescinding the winding-up order. This approach aligns with established practice and allows shareholders to seek relief more easily if aggrieved by the reconstituted company's actions. The scheme was sanctioned with the order to stay winding up permanently, allowing the company to be taken out of liquidation. Conclusion: The scheme for the reconstruction of Colaba Land and Mill Co. Ltd. was sanctioned with modifications to protect dissenting shareholders and ensure compliance with statutory provisions. The winding-up proceedings were permanently stayed, and the company was allowed to resume business under the new scheme.
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