CS Divesh Goyal

Two and half year passed, when MCA put into operation the Companies Act, 2013. But provisions concerning to Compromises, Arrangements and Amalgamations (hereafter read as “CAA”) were not in force due to non establishment of NCLT and NCLAT, non-avaibility of rules etc. CAA was going as per provisions of Companies Act, 1956 till 14.12.2016.

On 7th November, 2016 Central Government issued a notification for enforcement of section 230-233, 235-240, 270-288 etc w.e.f. 15th December, 2016. But still rules were not available till date for CAA.

MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. These rules will be effective from 15th December, 2016. Consequently, w.e.f. 15.12.2016 all the matters relating to Compromises, Arrangements, and Amalgamations (hereafter read as “CAA”) will be dealt as per provisions of Companies Act, 2013 and The Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.

Section relating to CAA is Section 230-233 and 235-240.

As per the latest rules below mentioned will be process of Compromise and arrangement.

1. Between whom the Compromise & [1]Arrangement can propose: Section 230(1)

  1. between a company and its creditors or any class of them; or
  2. between a company and its members or any class of them

2. Who can file the application for Compromise & Arrangement can propose: Section 230(1)

An application for Compromise & Arrangement can be file with Tribunal (NCLT) by followings:

  1. The Company or
  2. Creditor or
  3. Member of the Company, or
  4. In the case of a company which is being wound up, of the Liquidator.

Joint Application: Rule 3(2)

Where more than one company is involved in a scheme, such application may, at the discretion of such companies, be filed as a joint-application.

Conditions for serving of application, in situation [2]where application is not served by the Company: Rule 3(3)

Where the application is not filed by the Company then, Atleast 14 days before the date fixed for the hearing of the notice by the tribunal-

  • A copy of notice of admission and of the affidavit shall be served on the Company, or,
  • Where the company is being wound up, on its liquidator.

The applicant shall also disclose to the Tribunal in the application under sub-rule (1), the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme. Rule 3(4)

3. Format of Application

Application to the tribunal for Compromise & Arrangement will be submitted in form no. NCLT-1 along with following documents: Rule 3(1)

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 points Section 230(2)

– 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 [3]Corporate Debt Restructuring consented to by not less than seventy five per cent. of the secured creditors in value, including

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.

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.

4. Calling of Meeting by Tribunal:

Upon hearing of the application Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions / order as it may think necessary in respect meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as prescribed in rule 5 of CAA Rules, 2016 as follow:

i. Fixing the time and place of the meeting or meetings;

ii. Appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration;

iii. Fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means;

iv. Determining the values of the creditors or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held;

v. Notice to be given of the meeting or meetings and the advertisement of such notice;

vi. Notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230;

vii. The time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; and

viii. Such other matters as the Tribunal may deem necessary.

5. Notice of Meeting: The Notice of the meeting pursuant to the order of tribunal to be give in Form No. CAA-2. Rule 6

Person entitled to receive the notice The notice shall be sent individually to each of the Creditors or Members and the debenture-holders at the address registered with the company. Section 230(3)

Person authorized to send the notice:

  • Chairman of the Company, or
  • If tribunal so direct- by the Company or its liquidator or by any other person

Modes of Sending of notice:

  • By [4]Registered post, or by Speed post, orby courier, or
  • By e-mail, or by hand delivery, or by any other mode as directed by the tribunal

Documents to be send along with notice: The notice of meeting send with (i) Copy of Scheme of C&A and (ii) Following below mentioned details of C&A if not included in the said scheme:

a. Details of the order of the Tribunal directing the calling, convening and conducting of the meeting:-

  • Date of the Order;
  • Date, time and venue of the meeting.

b. Details of the company including:

  • Corporate Identification Number (CIN) or Global Location Number (GLN) of the company;
  • Permanent Account Number (PAN);
  • Name of the company;
  • Date of incorporation;
  • Type of the company (whether public or private or one person company);
  • Registered office address and e-mail address;
  • Summary of main object as per the memorandum of association; and main business carried on by the company;
  • Details of change of name, registered office and objects of the company during the last five years;
  • Name of the stock exchange (s) where securities of the company are listed, if applicable;
  • Details of the capital structure of the company including authorised, issued, subscribed and paid up share capital; and
  • Names of the promoters and directors along with their addresses.

c. Relationship in case of Combined Application: if the scheme of compromise or arrangement relates to more than one company, then the fact and details of any relationship subsisting between such companies who are parties to such scheme of compromise or arrangement, including holding, subsidiary or of associate companies.

d. Disclosure about effect of C&A on material [5]interests of directors, Key Managerial Personnel (KMP) and debenture trustee

e. Details of Board Meeting:

  • The name of the directorswho did not vote or participate on such resolution
  • The name of the directorswho voted against the resolution and
  • The name of the directors who voted in favour of the resolution,
  • The date of the board meeting at which the scheme was approved by the board of directors

f. Explanatory Statement disclosing details of the scheme of compromise or arrangement including:

  • parties involved in such compromise or arrangement;
  • in case of amalgamation or merger, appointed date, effective date, share exchange ratio (if applicable) and other considerations, if any;
  • summary of valuation report (if applicable) including basis of valuation and fairness opinion of the registered valuer, if any, and the declaration that the valuation report is available for inspection at the registered office of the company;
  • details of capital or debt restructuring, if any;
  • rationale for the compromise or arrangement;
  • benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors and others (as applicable);
  • Amount due to unsecured creditors.

h. Disclosure about the effect of the compromise or arrangement on: Section 230(3)

  • Key Managerial Personnel;
  • Directors;
  • Promoters;
  • Non-Promoter Members;
  • Depositors;
  • Creditors;
  • Debenture holders;
  • Deposit trustee and debenture trustee;
  • Employees of the company:

h. Below Mentioned Details: Following below mentioned details

  • Investigation or proceedings, if any, pending against the company under the Act.
  • details of approvals, sanctions or no-objection(s), if any, from regulatory or any other governmental authorities required, received or pending for the proposed scheme of compromise or arrangement
  • a statement to the effect that the persons to whom the notice is sent may vote in the meeting either in person or by proxies, or where applicable, by voting through electronic means
  • A copy of the [6]valuation report, if any Section 230(3)

i. Details of avaibility of documents: Details of the availability of the following documents for obtaining extract from or for making or obtaining copies of or for inspection by the members and creditors, namely

  • Latest audited financial statements of the company including consolidated financial statements;
  • Copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been dispensed with;
  • copy of scheme of compromise or arrangement;
  • Contracts or agreements material to the compromise or arrangement;
  • The certificate issued by Auditor of the company 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 of the Companies Act, 2013; and
  • Such other information or documents as the Board or Management believes necessary and relevant for making decision for or against the scheme;

6. [7]Advertisement of Notice of Meeting: The Notice of the meeting shall be advertised in form No. CAA-2 at lease in one English Newspaper and in at least one vernacular language newspaper. it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company

  • Such Newspaper shall be published on the website of the company at least 30 days before the date fixed for meeting, as directed by tribunal. Section 230(3)
  • In case of Listed Company, such notice and other documents shall also be published on the website of SEBI and stock exchange, where securities of the Company are listed.

7. Notice to Statutory Authorities: Section 230(5) and Rule 8

A notice in Form No CAA-3 along with Copy of Scheme of C&A, the explanatory statement and Disclosures mentioned in point No.5 above, shall also be sent to followings:

  • The Central Government, The Registrar of Companies and The income-tax authorities, in all cases
  • The Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, and the stock exchanges, as may be applicable.
  • Other Sectoral Regulators or authorities, as required by Tribunal.

Notice shall be sent to the office of the authority after sending of notice to members or creditors of the Company by Registered post, or by Speed post, or by courier, or by hand delivery.

Representation by authority:

  • The authority desire to make any representation then shall sent to the tribunal within a period of 30 days from the date of receipt of such notice.
  • Copy of such representation shall simultaneously be sent to the concerned companies
  • In case of no representation within the 30 days then presumed that authority doesn’t have any representation

8. Voting:

The persons to whom the notice is sent may vote in the meeting either themselves or through [8]proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice. Section 230(4) Rule 9

Right of Objections: Section 230(4)

Any objection to the compromise or arrangement shall be made only by

  • Persons holding not less than 10% (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 statement

Other Conditions for C&A:

I. Copy of Compromise or arrangement to be furnished by the company:

The Company on the requisition of the creditors or members entitled to attend meeting shall furnish a copy of scheme of C&A and copy of statement required to furnish in section 230(2)(c) with in one day of requisition.

II. Affidavit of Service:

Liability to Service: The Chairperson appointed for the meeting of the company or other person directed to issue the advertisement and the notices of the meeting.

[9]Above mentioned shall file an affidavit before the Tribunal at least seven days before the date fixed for the meeting or the date of the first of the meetings, as the case may be, stating that the directions regarding the issue of notices and the advertisement have been duly complied with.

SECOND STEP- Result of Meeting

III. Copy of Compromise or arrangement to be furnished by the company:

Method of Voting: The voting at the meeting or meetings held in pursuance of the directions of the Tribunal on all resolutions shall take place by poll or by voting through electronic means.

The report of the result of the meeting shall be in Form No. CAA.4 and shall state accurately

  • The number of creditors or class of creditors or
  • The number of members or class of members, as the case may be,
    • who were present and
    • who voted at the meeting either in person or by proxy, and
    • Where applicable, who voted through electronic means, their individual values and the way they voted.

IV. Report of the result of the meeting by Chairperson: – [10]The Chairperson of the meeting shall, within the time fixed by the Tribunal, or where no time has been fixed, within 3 (Three) days after the conclusion of the meeting, submit a report to the Tribunal on the result of the meeting in Form No. CAA.4.

V. Binding of approval: Section 230(6)

Where, at a meeting 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.

THIRD STEP- Order of Tribunal

After completion of the Voting and report of result of the meeting by the chairman to the tribunal next step will be confirmation of C&A form the Tribunal (NCLT).

VI. Petition for confirming compromise or arrangement Rule 15

The Company shall, within 7 (seven) days of the filing of the report by the Chairperson, present a petition to the Tribunal in Form No. CAA.5 for sanction of the scheme of compromise or arrangement. The petitioner will pray for the appropriate orders and directions from the Tribunal.

Right of Creditor to file the petition: Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid, it shall be open to any creditor or member as the case may be, with the leave of the Tribunal, to present the petition and the company shall be liable for the cost thereof.

VII. Notice of Hearing by Tribunal Rule 16; The Tribunal shall fix a date for the hearing of the petition.

Legal Responsibility of the Tribunal: The notice of the hearing of the petition shall also be served by the Tribunal ;

  • To the Objectors or
  • To Their Representatives under sub-section (4) of section 230 of the Act and
  • To the Central Government and
  • Other Authorities who have made representation under rule 8 and have desired to be heard in their representation.

Publication of the Notice:

The notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised or in such other newspaper as the Tribunal may direct, at least ten days before the date fixed for the hearing.

VIII. Order by Tribunal Rule 17;

Where the Tribunal sanctions the compromise or arrangement, the order shall be in Form No. CAA. 6. The order shall include such directions in regard to any matter or such modifications in the compromise or arrangement as the Tribunal may think fit to make for the proper working of the compromise or arrangement.

Filing of Order of Tribunal: Section 230(8) Rule 17(2)

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 copy of order, or such other time as may be fixed by the Tribunal.

Power of Tribunal

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. Section 231 Rule 22

SCHEDULE OF FEES
S. No. Sections of the Companies Act, 2013 Rule Number Nature of application or petition Fees
1. Sub-section (1) of Section 230 3 (1) Application for compromise arrangement and amalgamation. Rs. 5,000/-
2. Sub-section (2) of Section

235

Application by dissenting shareholders Rs. 1,000/-
3. Sub-section (2) of Section

238

29 Appeal against order of Registrar refusing to register

any circular.

Rs. 2,000/-

[1] Explanation.—For the purposes of this sub-section, arrangement includes a re-organization of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods

[2] In other words where the Company is not applicant.

[3] Scheme of Corporate Debt restructuring as referred in section 230(2)(c) means “a scheme that restructures or varies the debt obligation of a company toward its creditors”.

[4] It is hereby clarified that the service of notice of meeting shall be deemed to have been effected in case ofdelivery by post, at the expiration of forty eight hours after the letter containing the same is posted

[5]Explanation – For the purposes of these rules it is clarified that-

(a) the term ‘interest’ extends beyond an interest in the shares of the company, and is with reference to the proposed scheme of compromise or arrangement.

(b) the valuation report shall be made by a registered valuer, and till the registration of persons as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years.

[6] the valuation report shall be made by a registered valuer, and till the registration of persons as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years

[7] Where separate meeting of classes of creditors or members are to be held, a joint advertisement for such meetings may be given.

[8] Guidelines for proxy given in rule no 10.

[9] In case of default under this provision, the application along with copy of the last order issued shall be posted before the Tribunal for such orders as it may think fit to make

[10] Where there are separate meetings, the Chairperson of each meeting.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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