Section 391 of the Companies Act, 1956, empowers a company to make a compromise or arrangement with its creditors or members. This section is significant as it provides a legal framework for restructuring a company’s debts or capital structure, often used in mergers, demergers, or during financial distress. The statutory test requires the company to propose a scheme of arrangement, which must be approved by a majority in number representing three-fourths in value of the creditors or members present and voting. The scheme must then be sanctioned by the National Company Law Tribunal (NCLT). The burden of proof lies on the company to demonstrate that the scheme is fair and reasonable. Practically, this section is crucial for companies seeking to reorganize their financial affairs efficiently, providing a court-sanctioned method to bind all stakeholders to the agreed terms.