Power to Compromise or Make Arrangements with Creditors and Members (Section 230)
(a) Where a compromise or arrangement is proposed:
[Resolution is required to be filed in Form No. MGT-14 as per Section 117(3)(d)]
(b) The application to the tribunal to disclose by affidavit:
(c) Notice of the meeting called in pursuant to the order of the tribunal shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by:
(d) Procedural aspects relating to notice under Rule 15.3
Rule 15.3 states that the notice of the meeting pursuant to the order of the Tribunal to be given in Form No. 15.3, and shall be sent individually specifying therein,
(1) disclosure of nature and extent of interest and effect of compromise or arrangement on such interest of:
(2) Where there is no interest or there is no effect on such interest of any promoter, director or key managerial personnel, a statement to the effect that there is no interest or there is no effect of the scheme of compromise or arrangement on such interests of such persons.
(3) Investigation proceedings, if any, pending against the company or against any promoter, director or key managerial personnel of such company.
(4) Details of shareholding of directors, key managerial personnel and promoters of the company as on the date of making this statement and change in their shareholding in the last six months including the date on which and price at which change took place.
(5) Details of any No-objection(s), approvals or sanctions, if already received from the concerned authorities for the compromise or arrangement.
(6) Details of the availability of the following documents for obtaining extract from or for making copies of or for inspection by the members and creditors, namely:
(7) declaration to the effect that the scheme is in the best interests of the employees, creditors, debenture holders, members particularly non-promoter members and minority shareholders of the company, as detailed in the scheme.
(8) Status of approval(s) of regulatory or any other authority(ies), required, if any in connection with compromise or arrangement.
(9) The notice shall provide for the information required under sub Section (4) of Section 230 of the Act.
(e) Notice to provide for voting by themselves or through proxy or through postal ballot Sub-Section (4) of Section 230 states that a notice under Sub-Section (3) shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice:
(f) Any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement.
(g) Notice to be sent to the regulators seeking their representations Section 230(5) states that a notice under SubSection (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under Sub-Section (1) of Section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals.
(h) Approval and sanction of the scheme
Section 230 (6) states that when at a meeting held in pursuance of Sub-Section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company.
(i) Order of the tribunal sanctioning the scheme to provide for the Certain matters
An order made by the Tribunal shall provide for all or any of the following matters, namely:
(j) Compromise or arrangement is to be in conformity with the accounting standards No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under Section 133.
(k) Order of tribunal to be filed with the Registrar Section 230 (8) states that the order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.
(l) Tribunal may dispense with calling of meeting of creditors Section 230 (9) states that the Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
(m) Compromise in respect of buy back is to be in compliance with Section 68 As per Section 230 (10), no compromise or arrangement in respect of any buy-back of securities under this Section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of Section 68.
(n) Compromise includes takeover
Section 230 (11) states that any compromise or arrangement may include takeover offer made in such manner as may be prescribed. In case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
Power of the Tribunal to Enforce Compromise Or Arrangement (Section 231)
As per Section 231 (1) when the Tribunal makes an order under Section 230 sanctioning a compromise or an arrangement in respect of a company, it:
(a) shall have power to supervise the implementation of the compromise or arrangement, and
(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper implementation of the compromise or arrangement.
Sub-Section (2) states that if the Tribunal is satisfied that the compromise or arrangement sanctioned under Section 230 cannot be implemented satisfactorily with or without modifications, and the company is unable to pay its debts as per the scheme, it may make an order for winding up the company and such an order shall be deemed to be an order made under Section 273.