1978 (10) TMI 123 - HC - Companies Law

Company Membership of, Shares Power, to issue of at discount, Power to comprmise or make arrangements with creditors and members, Winding up Avoidance of transfer, etc., after commencement of

Summary

Issues:
1. Interpretation of Section 391 of the Companies Act regarding the right to propose an arrangement during liquidation.
2. Determination of membership status for maintaining an application under Section 391.
3. Evaluation of the proposed scheme under Section 391 for re-starting a company in liquidation.

Interpretation of Section 391:
The judgment addressed the interpretation of Section 391 of the Companies Act concerning the right to propose an arrangement during liquidation. The official liquidator contended that only the liquidator could frame an arrangement once a company is being wound up. However, the court disagreed, stating that the provision does not limit the rights of creditors or members to make an application during liquidation. Reference was made to relevant rules and prior cases to support the view that the liquidator is an additional, not exclusive, person who can apply under Section 391 during liquidation.

Membership Status for Application:
The official liquidator argued that the applicants, who had surrendered their share certificates, were no longer members of the company in liquidation and thus could not maintain the application under Section 391. The court rejected this argument, emphasizing that surrendering share certificates does not automatically cease membership. It highlighted the definition of a member under the Companies Act and noted that the applicants' names remained on the register of members, indicating their continued membership status.

Evaluation of Proposed Scheme:
The official liquidator contended that the proposed scheme did not align with Section 391 as it did not involve changes in creditor or shareholder rights. However, the court clarified that Section 391 encompasses all arrangements between a company and its members, not limited to creditor rights. It noted that since all creditors had been paid off, the proposed scheme by some members to re-start the company was within the scope of Section 391. The court deemed the application maintainable under Section 391 and approved the proposal to be presented to the members for consideration, allowing the court to later assess its viability based on the members' interests.

In conclusion, the judgment clarified the interpretation of Section 391, affirmed the membership status of the applicants, and validated the proposed scheme for re-starting the company in liquidation under Section 391 of the Companies Act.