Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

RESEARCH PROJECT ON

[PROCEDURE OF COMPROMISE AND ARRANGEMENT UNDER SECTION 230

OF COMPANIES ACT, 2013]

For

COURSE ON ‘CORPORATE LAW – II’

Submitted by

[Mansi Maurya]

[B.Com. LL.B/2016-17/30]

Academic Session: 2018-19

Under the Guidance of

Mr. Shail Shakya

Asst. Prof. in Law

Faculty of Law

Dr. Shakuntala Misra National Rehabilitation University, Lucknow

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my faculty Mr. Shail Shakya Sir
for assigning me this project on the topic “Procedure Of Compromise And Arrangement
Under Section 230 of Companies Act, 2013” which helped me in doing a lot of research
and I came to know about so many new things. I am really thankful to him.

Secondly, I would also like to thank my parents and friend who helped me a lot in finishing
this project within the limited time. I am making this project not only for marks but to also
increase my knowledge.

MANSI MAURYA.

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 TABLE OF CONTENT
1. Introduction.................................................................................................................4
2. Meaning of Compromise................................................................................................4
3. Meaning of Arrangement..............................................................................................4
4. Procedure of Compromise And Arrangement Under Section 230 of Companies Act,
2013............................................................................................................................5-8
5. Conclusion.....................................................................................................................9
6. Bibliography.................................................................................................................10

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Introduction
Chapter XV (Section 230 to 240) of Companies Act, 2013(the Act) contains
provisions on ‘Compromises, Arrangements and Amalgamations’, that covers
compromise or arrangements, mergers and amalgamations, Corporate Debt
Restructuring, demergers, fast track mergers for small companies/holding subsidiary
companies, cross border mergers, takeovers, amalgamation of companies in public
interest etc.,.

Meaning of compromise
Compromise means an amicable settlement of differences by mutual concessions by the
parties to dispute or difference by agreeing not to try it out. Compromise may be defined as
an arrangement terminating a dispute between parties as to the rights of one or more of them,
or modifying the undoubted rights of a party which he has difficulty in enforcing.1

Compromise is a scheme of give and take in a dispute. It presupposes the existence of a

dispute over some matter, because question of compromise does not arise at all unless there is
some dispute over some matter. A fair, reasonable and just compromise demands

i) surrender of some rights with compensation

ii) measure of accommodation, on both side, of all the parties to it.

iii) It become beneficial to all the parties.

In short compromise means settlement or adjustment of claims in dispute by mutual

concessions.

Meaning of Arrangement

Arrangement involves reorganization of share capital of a company. It includes

reorganization and rearrangement of share capital of a company without the existence of any
dispute,

i) by the consolidation of shares of different classes or

ii) by the division of shares into shares of different classes or

iii) by both these methods

1
Sneath v. Valley Gold Ltd. [1893] 1 Ch. 447.

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Procedure Of Compromise And Arrangement Under Section 230
of Companies Act, 2013

Step 1:- Making application to the NCLT

In order to comply with Step 1, the members, creditors, shareholders, liquidators and
company itself may make an application in Form NCLT-1 to the National Company Law
Tribunal [NCLT] for compromise and arrangement accompanied by the following
documents2:-
a) A notice of admission in Form No. NCLT-2
b) An affidavit in Form no. NCLT-6

c) A copy of Scheme of C&A

d) A disclosure in form of affidavit including following points3 

– All material facts relating to the company, such as-

I. . the latest financial position of the company,

II. the latest auditor’s report on the accounts of the company and
III. the pendency of any investigation or proceedings against the company

– Reduction of share capital of the company, if any, included in the compromise or

arrangement.

e. Any scheme of Corporate Debt Restructuring consented to by not less than seventy five
percent of the secured creditors in value, including-4

I. A Creditor’s Responsibility statement in the form No. CAA-1.

II. safeguards for the protection of other secured and unsecured creditors;
III. report by the auditor that the fund requirements of the company after the corporate
debt restructuring as approved shall conform to the liquidity test based upon the
estimates provided to them by the Board;
IV. where the company proposes to adopt the corporate debt restructuring guidelines
specified by the Reserve Bank of India, a statement to that effect; and
V. a valuation report in respect of the shares and the property and all assets, tangible
and intangible, movable and immovable, of the company by a registered valuer.

2
Rule 3(1), Companies (Compromise and Amalgamation) Rules, 2016.
3
S. 230(2), The Companies Act, 2013.
4
S. 230(2) (c), The Companies Act, 2013.

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f) The applicant shall also disclose to the Tribunal in the application, the basis on which each
class of members or creditors has been identified for the purposes of approval of the scheme.

Step 2:- Issue of notice for the meeting to all of creditors (or any class of them) and
members (or any class of them) by the NCLT

A notice shall be sent to all of creditors (or any class of them) and members (or any class of
them) at their registered address with statement disclosing the details of compromise and
arrangement, effects of compromise and arrangement on directors, creditors, promoters and
non-promoter members and shall also be uploaded on SEBI and stock exchange (if listed
company) and shall also be published in newspaper and shall also by advertisement. 5 The
notice shall also be sent to central government, the income-tax authorities, RBI, SEBI,
registrar, respective stock exchanges, official Liquidator, CCI and other such authorities
which may be affected by compromise and arrangement and shall make representation within
30 days from the date of receipt of such notice.6

Step 3:- Meeting of creditors (or any class of them) and members (or any class of them)

The notice of the meeting pursuant to the order of tribunal to be given in Form No. CAA-2.
The NCLT shall conduct the meeting with creditors (or any class of them) and members (or
any class of them) for compromise and arrangement. Majority of three-fourths of the
creditors (or any class of them) and members (or any class of them) shall vote for or against
the scheme of compromise and arrangement through proxy or postal ballot.

Step 4:- Minutes of the meeting and Objection to scheme of compromise and
arrangement.

If 90% or more than value of creditors have consented to the scheme by way of an affidavit,
then creditors meeting shall be dispensed.7 And step 3 is not necessary.

5
S. 230 (3), The Companies Act, 2013.
6
S. 230 (5), The Companies Act, 2013, Rule 8, Companies (Compromise and Amalgamation) Rules, 2016.
7
Rules relating to Compromises, arrangement, amalgamation and capital reduction notified, 2 (2016) available
at http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-MCA-Rules-on-compromise-and-arrangements-
4.pdf last seen on 10/04/2019.

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Any objection to the compromise or arrangement shall be made only by persons holding not
less than ten percent 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 statement8.

Step 5:- Petition for approval of scheme of compromise and arrangement shall be filed
by company to NCLT.

Company shall file petition in Form No. CAA.5 to the NCLT for the approval of the scheme
of Compromise and Arrangement within 7 working days of completing Stage 4. The
petitioner will pray for the appropriate orders and directions from the Tribunal.

Step 6:- Communication of approval of the scheme by the NCLT to the Company.

The NCLT shall communicate the approval of the scheme of Compromise and arrangement
filed in NCLT-1 and shall direct the company to file scheme of compromise and
arrangement. NCLT may 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.

Step 7:- Filing of approved scheme by company to Registrar

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 and that shall become the effective date of compromise
and arrangement.9

Step 8:- Compromise binding on all members and creditors

Once a compromise is sanctioned by the tribunal, it becomes binding on all the creditors and
members. In case of a company, which is being wound up, on the liquidator and
contributories of the company. The tribunal is not bound to sanction, the compromise or
arrangement unless it is satisfied that all material facts are disclosed relating, to the financial
position of the company, its latest auditor's report, etc.

8
CORPORATE RESTRUCTURING &INSOLVENCY available at
https://www.icsi.edu/media/portals/0/CORPORATE%20RESTRUCTURING.pdf last seen on 10/04/2019.
9
S. 230 (6), The Companies Act, 2013.

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Step 8:- Registrar shall implement, file new record

Registrar shall direct the company to implement the approved scheme of compromise and
arrangement, file new records and shall give information of such scheme to necessary
regulators such as SEBI, RBI, etc.

STEP 9:- Failure in implementing the scheme of Compromise and arrangement

Registrar shall communicate to NCLT if fails to implement the scheme of compromise and
arrangement by creditors (or any class of them) or members (or any class of them).

Step 10:- NCLT shall order the company for compulsory winding-up.

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 273.10

10
S. 231 (2), The Companies Act, 2013, Rule 22, Companies (Compromise and Amalgamation) Rules, 2016.

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Conclusion

We can therefore say that the scheme holds a position of sanctity once it receives the sanction
of the tribunal and cannot be disturbed unless there is a substantive law issue involved. The
scheme shall also bind the outsider unless his substantial interests are at stake. It should not
just be in the interest of creditors, members and the company itself, but it should also not be
against public interest.

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 Bibliography

Primary Sources:

 The Companies Act, 2013.

 Dr. G.K. Kapoor and Sanjay Dhamija, Company Law, (20th ed., 2017).
 Prachi Manekar, Insides into the New Company Law, (2013).
 Companies (Compromise and Amalgamation) Rules, 2016.

Secondary Sources:
 Divesh Goyal, Compromises, Arrangements and Amalgamations under Companies
Act, 2013 available at https://taxguru.in/company-law/compromises-arrangements-
amalgamations-companies-act-2013.html Last seen 10/04/2019.
 Rules relating to Compromises, arrangement, amalgamation and capital reduction
notified, 2 (2016) available at http://www.in.kpmg.com/taxflashnews/KPMG-Flash-News-
MCA-Rules-on-compromise-and-arrangements-4.pdf last seen on 10/04/2019.
 CORPORATE RESTRUCTURING & INSOLVENCY available at
https://www.icsi.edu/media/portals/0/CORPORATE%20RESTRUCTURING.pdf last seen
on 10/04/2019.
 https://blog.scconline.com/post/2017/02/16/the-companies-compromises-
arrangements-and-amalgamations-rules-2016/

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