Stay of Any Suit or Proceedings.

After an application for compromise or arrangement is made, the Court may at any time stay the commencement or continuation of any suit or proceedings against the company on such terms as it thinks fit, until the application is disposed of [Section 391(6)].

2. The Class must have been Fairly Represented. The Court must be satisfied that those who attended the meeting are fairly representatives of the class and that the statutory majority did not coerce, the minority in order to promote interest adverse to those of the class whom they purport to represent.

This requirement is, in part, an off-shoot of the first. As regards the majority, there are two requirements. The majority who vote in favour of the scheme must be first a majority in number of those members of the class (whether of creditors or shareholders) who are present and voting; and, second, it must be 3/4ths in value of the holding of such persons.

Thus, if there are 100 members voting, of whom (to take an extreme example) one member holds 901 shares and the remainder hold one each, the 99 shareholders holding one share each cannot force a scheme against the vote of the holder of the 901 shares, because they do not muster 3/ 4ths in value. Conversely, that shareholder and 49 of the others cannot force a scheme against the votes of the remaining fifty because there would not be a majority in number. The same principle applies to creditors.

It may be noted that the majorities are of those voting and not of those entitled to vote nor of those who are present-Re Bessemer Steel & Ordnance Co. [1875] 1 Ch. 0251. Thus, shareholders who are not present in person or by proxy, or who, although present, do not vote, may be ignored.

However, this is not the whole requirement because, in addition, the Court requires to be satisfied that the class is fairly represented. If, for instance, there were altogether one thousand shareholders holding ten thousand shares in all, the Court, it is unlikely would be satisfied by the statutory majority at a meeting at which ten members holding hundred shares in all were present and voted [Palmer’s Company Law, 24^th Edition, page 1146].

Petition of Majority In Guarantee Companies. Problems in computing this percentage are likely to arise in case of guarantee companies and others not having share capital. In such cases, it will be assumed that each shareholder holds one share in the company and the percentage is calculated accordingly:

3. The Scheme Should be Fair and Reasonable. Even on the face of the fact that a scheme of compromise or arrangement was approved by the requisite majority and without coercion on minority, the Court is not bound to confirm the scheme.

There is no doubt that the Court will be strongly influenced by a big majority vote”

provided the scheme is fair and equitable. The Court will not itself judge the commercial merits of the compromise or arrangement, which is the function of the class itself. But, the Court should not be taken to be a mere rubber stamp. The Madras High Court in Calicut Bank Ltd. V s. Devani Ammal AIR 1940 Mad. 621 observed “that the Court does not sit merely to see that the requirements of law have been complied with, nor does it simply register a resolution passed by the majority of shareholders or creditors. The

Court is bound to consider the proposal and decide whether they are fair and reasonable taking everything into consideration.”

Thus, if the Court concludes that there is “such an objection to it as that any reasonable man might say that he could not approve it”” then the Court may refuse to confirm the scheme. In a case where income tax or sales tax or similar other tax liability has arisen and has crystallised, the Court will not interfere in such a case so far as the incidence of tax on the company is concerned.

4. The Scheme Should be Bona Fide to Save the Company From Liquidation. I t should not be directed to set up a part or whole of the principal and interest of a particular class of its creditors:”

Powers of the Court

The Court has very wide powers in sanctioning or rejecting a scheme of compromise or arrangement. The Court shall have, inter alia, the following powers: