Judgment :- VEERASWAMI C. J. Original Side Appeal No. 9 of 1971 is from a judgment of Palaniswamy J., allowing certain company petitions under sections 391(2) and 394 of the Companies Act, 1956 "In my opinion, it also follows that what is described in the memorandum as the capital cannot be diverted from the objects of the society. It is, of course, liable to be spent or lost in carrying on the business of the company, but no part of it can be returned to a member so as to take away from the fund to which the creditors have a right to look as that out of which they are to be paid" * . Lord Watson's observations which warranted the conclusion of the House of Lords is also worth noting : "One of the main objects contemplated by the legislature, in restricting the power of limited companies to reduce the amount of their capital as set forth in the memorandum, is to protect the interests of the outside public who may become their creditors. In my opinion the effect of these statutory restrictions is to prohibit every transaction between a company and a shareholder, by means of which the money already paid to the company in respect of his shares is returned to him, unless the court has sanctioned the transaction. Paid-up capital may be diminished or lost in the course of the company's trading; that is a result which no legislation can prevent; but persons who deal with, and give credit to a limited company, naturally rely upon the fact that the company is trading with a certain amount of capital already paid, as well as upon the responsibility of its members for the capital remaining at call; and they are entitled to assume that no part of the capital which has been paid into the coffers of the company has been subsequently paid out, except in the legitimate course of its business." * The context of the decision makes it inapplicable to the facts before us. It is not every extinguishment of shares, as we are inclined to think, that is reduction in capital, unless the company continues to exist. Where by the process of arrangement the company itself is dissolved without winding up, it is hardly a case of reduction in capital as contemplated by the provisions of the Companies Act, 1956. It is not every extinguishment of shares, as we are inclined to think, that is reduction in capital, unless the company continues to exist. Where by the process of arrangement the company itself is dissolved without winding up, it is hardly a case of reduction in capital as contemplated by the provisions of the Companies Act, 1956. If the object of these provisions is to safeguard creditors who may rely on the capital structure and take a step in advancing money, or concluding other transactions in the company, the scheme in the instant case does not, in any way, defeat or affect it, for, the interests of the creditors have been fully safeguarded by the terms of the proposed amalgamation. We do not think that there is anything in In re St. James' Court Estate Ltd. to persuade us to take a different view. The first objection was rightly overruled.As to the second objection, it may be that payment of preference shares would be valid only in the case of winding-up of the company in accordance with the provisions of the Act. But it does not follow from it that there is a prohibition anywhere in the provisions of the Act from a scheme, as we have before us, providing for payment of preference shares in the course of amalgamation, resulting in the transfer of all the rights and liabilities of the amalgamating companies and the new company undertaking liability to all their creditors. As Palaniswamy. J. has rightly observed, the amalgamating companies are proposed to be dissolved without winding-up and, therefore, the provisions relating to winding-up are not attracted. In rejecting this objection as not tenable, we entirely agree with what Palaniswamy J. has stated. The appeal is dismissed. As the other appeals, stand on no different footing, they too are dismissed. Costs in none of them. In view of the dismissal of the appeals, the stay will stand dissolved.