Sponsored
    Follow Us:
Sponsored

Simplified Overview of Section 230 of Companies Act, 2013: Full Provisions and Integration with the Companies (Compromise, Arrangements, and Amalgamations) Rules, 2016

Section 230 of the Companies Act, 2013, along with the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, outlines the procedures for companies seeking to implement compromises or arrangements with their creditors or members. Section 230(1) allows companies to propose schemes of arrangement, which the Tribunal can order meetings to consider. The section requires disclosure of the company’s financial status, auditor’s reports, and schemes approved by at least 75% of secured creditors. Applications must be submitted in Form NCLT-1, with rules detailing the procedures for notice, meeting conduct, and voting. Rule 3 stipulates documentation requirements, including disclosures of the scheme and creditor responsibility statements. The Tribunal oversees meetings, directing the procedures and ensuring compliance with the rules, including advertisement of notices and filing requirements. Section 230(4) and (5) address objections and regulatory notifications, while Section 230(6) and (7) confirm the binding nature of approved schemes and provide guidelines for their implementation. The Tribunal’s orders, including modifications, must be filed with the Registrar of Companies, ensuring transparent and effective execution of compromises and arrangements.

SECTION 230 OF COMPANIES ACT ,2013 READ WITH COMPANIES (COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS) RULES, 2016.

SECTION 230 (1)

(1) Where a compromise or arrangement is proposed—

a) between a company and its creditors or any class of them; or

b) between a company and its members or any class of them,

Tribunal may on application of company or creditor or member or liquidator where the company is being wound up order meeting of company or creditor or member or liquidator in manner directed by tribunal.

Explanation: – arrangement include reorganisation of capital by consolidation or division or both of share of different type.

SECTION 230(2)

Company or person who made application, shall disclose fallowing:

(a) material Fact, latest financial position, auditor’s report of Accounts of Company and any pendency of any investigation or proceeding against company.

(b) Reduction of Capital, if included in C/A (compromise or arrangement)

(c) scheme shall be consented by ≥75% se cured creditors, including

(i) a creditor’s statement in the specified form,

(ii) safeguards for other secured and unsecured creditors,

(iii) auditor’s report confirming the company’s post-restructuring fund requirements meet liquidity test based on Board estimates

RULE-3(1)

Application to NCLT Submitted in Form NCLT-1 with following: –

(i) notice of submission in Form NCLT-2.

(ii) Affidavit in Form NCLT-6.

(iii) Copy of scheme C/A disclosure as per section 230(2)

(iv) Fees Payable

RULE -3(2)

If multiple companies are involved in a scheme for which an application under sub-rule (1) is being filed, those companies may choose to file a joint application.
RULE -3(3)

If the company is not the applicant, a copy of the notice of admission form NCLT-2 and affidavit must be served on the company or its liquidator where the company is being wound up at least 14 days before the hearing date for the notice of admission.
RULE -3(4)

In the application under sub-rule (1), the applicant must also explain to the Tribunal how each group of members or creditors has been identified for scheme approval.
RULE -4

The creditor’s responsibility statement in Form CAA-1 must be included in the corporate debt restructuring scheme under section 230(2)(c)(i) of the Act.
RULE -5

Upon hearing the application under section 230(1) of the Act, the Tribunal shall, unless it dismisses the application, issue directions on:

(a) Identifying creditor or member classes or dispensing with meetings,

(b) Scheduling meetings,

(c) Appointing a chairperson and scrutinizer, setting terms including remuneration

(d) Setting meeting quorum and procedures, including voting methods,

(e) Determining creditor or member values for meetings,

(f) Notifying and advertising meeting notices,

(g) Notifying sectoral regulators or authorities,

(h) Specifying the Chairperson’s deadline to report meeting outcomes,

(i) Addressing any other necessary matters.

 

SECTION-230(3)

When a meeting is ordered by the Tribunal under subsection (1), notices must be sent to all creditors, members, and debenture-holders at their registered addresses. The notice shall include details of the proposed compromise or arrangement, a valuation report if available, and explanations on their impact on creditors, key managerial personnel, promoters, non-promoter members, debenture-holders, and any material interests of the Directors or debenture trustees, along with any prescribed matters.

RULE -6(1)

When a meeting for any class of creditors or members is directed by the Tribunal, the notice must be in Form CAA-2 and sent individually to each creditor or member, as specified in section 230(3) of the Act.
RULE -6(2)

The notice must be sent by the appointed chairperson, the company (or its liquidator), or another person as directed by the Tribunal. It should be sent by registered post, speed post, courier, email, hand delivery, or another method specified by the Tribunal, to each recipient’s last known address at least 1 month before the meeting date.

Explanation: -Service of the meeting notice is considered complete 48 hours after the letter is posted.

RULE -6(3)

The notice to creditors and members must include a copy of the scheme of compromise or arrangement if it’s not already part of the notice

(i)Details of the Tribunal’s order for calling and conducting the meeting.

(a) Date of the Order

(b) Date, Time and Venue of the Meeting

(ii) details of the company including:

(a) Corporate Identification Number (CIN) or Global Location Number (GLN) of the company,

(b) Permanent Account Number (PAN),

(c) name of the company,

(d) date of incorporation,

(e) type of the company (whether public or private or one-person company),

(f) registered office address and e-mail address,

(g) Summary of the company’s main purpose and business activities according to the memorandum of association,

(h) details of change of name, registered office and objects of the company during the last five years,

(i) name of the stock exchange (s) where securities of the company are listed, if applicable,

(j) Details of the company’s capital structure, including authorized, issued, and paid-up share capital; and (k) names and addresses of the promoters and directors.

 

(iii) If the compromise or arrangement involves multiple companies, include details of their relationships, such as holding, subsidiary, or associate connections.

 

(iv) The date of the Board meeting where the scheme was approved, including names of directors who voted for, against, or did not participate in the resolution.

 

(v) explanatory statement disclosing details of the scheme of compromise or arrangement including:

(a) Parties involved.

(b) For mergers: appointed date, effective date, share ratio, and other terms.

(c) Valuation summary: basis, fairness opinion, and inspection details.

(d) Capital or debt restructuring details.

(e) Rationale.

(f) Benefits to the company and stakeholders.

(g) Amount owed to unsecured creditors.

 

(vi) disclosure about the effect of the compromise or arrangement on:

(a) key managerial personnel,

(b) directors,

(c) promoters,

(d) non-promoter members,

(e) depositors,

(f) creditors,

(g) debenture holders,

(h) deposit trustee and debenture trustee,

(i) employee of the company.

 

(vii) Disclosure about effect of compromise or arrangement on material interests or directors, Key Managerial Personnel (KMP) and debenture trustee.

 

(viii) investigation or proceedings, if any, pending against the company under the Act.

(ix) Information on where to find the following documents for members and creditors:

(a) Latest audited financial statements, including consolidated ones;

(b) Copy of Tribunal’s order for convening or dispensing with the meeting;

(c) Copy of scheme of compromise or arrangement;

(d) Contracts relevant to the compromise or arrangement;

(e) Auditor’s certificate confirming the scheme’s accounting treatment aligns with section 133 of the Companies Act, 2013;

(f) Any additional relevant documents or information deemed necessary by the Board or Management.

(x) Information on any required approvals, sanctions, or no-objections from regulatory or government authorities, including those received or pending.

 

(xi) A statement informing that notice recipients may vote in person, by proxy, or electronically if applicable.

RULE -7

The notice under section 230(3) must be advertised in Form CAA-2 in one English and one vernacular newspaper with wide circulation in the state of the company’s registered office, or as directed by the Tribunal. It should also be posted on the company’s website, SEBI’s website, and the relevant stock exchange’s site at least 30 days before the meeting.

If separate meetings for different classes are held, a joint advertisement is allowed.

 

SECTION 230(3)

Provides further the meeting notice is advertised, it must specify the time frame within which copies of the compromise or arrangement will be available for free at the company’s registered office.
SECTION 230(4)

A notice under sub-section (3) must state that recipients can vote in the meeting either in person, by proxy, or by postal ballot on the compromise or arrangement within 1 month of receiving the notice.

RULE -9

The recipient of the notice may vote in the meeting, either in person or electronically, on the adoption of the scheme of compromise and arrangement within 1 month of receiving the notice.
RULE -10(1)

Voting by proxy is allowed if the proxy form, signed by the person entitled to vote, is filed with the company’s registered office at least 48 hours before the meeting.
Rule -10(2)

If a body corporate is member or creditor or designates a representative for the meeting, a certified copy of the board resolution authorizing this representative must be submitted to the company’s registered office at least 48 hours before the meeting.
RULR -10(3)

Minors cannot be appointed as proxies.
RULE -10(4)

A proxy for a blind or illiterate member or creditor may be accepted if the member or creditor has signed or marked it in the presence of a witness, who must also provide their description and address. All other insertion shall be made in presence of this witness.
RULE -10(5)

A proxy for a member or creditor who does not know English may be accepted if executed as above and the witness certifies that the proxy was explained in a language known to the member or creditor, with the member’s or creditor’s name written in English below the signature.

 

SECTION 230(4)

Provided objections to the compromise or arrangement can only be made by those holding at least 10% of the shares or having outstanding debt of at least 5% of the total debt, as per the latest audited financial statement.
SECTION 230(5)

A notice under sub-section (3) with all prescribed documents must be sent to the Central Government, income-tax authorities, Reserve Bank of India, Securities and Exchange Board, Registrar, relevant stock exchanges, Official Liquidator, Competition Commission of India, and other affected regulators. These entities have 30 days from receipt to make any representations; otherwise, it is assumed they have none.

RULE -8(1)

For sub-section (5) of section 230, the notice must be in Form CAA-3 and include a copy of the scheme of compromise or arrangement, the explanatory statement, and disclosures under rule 6. It should be sent to:

(i) The Central Government, Registrar of Companies, and Income-tax authorities in all cases,

(ii) The Reserve Bank of India, Securities and Exchange Board of India, Competition Commission of India, and stock exchanges, as applicable,

(iii) Other sectoral regulators or authorities, as required by the Tribunal.

RULE –8(2)

The notice to the authorities listed in sub-rule (1) must be sent immediately after notifying the members or creditors, using registered post, speed post, courier, or hand delivery.
RULE -8(3)

If these authorities wish to make representations under sub-section (5) of section 230, they must send them to the Tribunal within 30 days of receiving the notice and simultaneously send a copy to the concerned companies. If no representation is received within 30 days, it is assumed that they have no objections.
RULE -5

(g) notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230.
RULE-12(1)

The chairperson or person responsible for issuing the advertisement and notices must file an affidavit with the Tribunal at least 7 days before the meeting, confirming compliance with the directions for issuing notices and advertisements.
RULE 12(2)

If there is a default in filing the affidavit, the application, along with a copy of the last order, will be submitted to the Tribunal for further orders.
SECTION 230(6)

If, at a meeting held under sub-section (1), a majority representing three-fourths in value of the creditors or members (or their classes) vote in favour of a compromise or arrangement, and it is sanctioned by the Tribunal, it will be binding on the company, all creditors or members (or their classes), and, if the company is being wound up, on the liquidator and contributories.

RULE -13(1)

Voting at meetings held under Rule 5 must be conducted by poll or electronically.
RULE -13(2)

The report on the meeting results, in Form CAA-4, must detail the number of creditors (or classes of creditors) present, those who voted in person, by proxy, or electronically, including their individual values and voting outcomes.
RULE -14

The chairperson (or each chairperson in the case of separate meetings) must submit a report on the meeting results to the Tribunal in Form CAA-4 within 3 days after the meeting’s conclusion, or within the time specified by the Tribunal if provided.
RULE -15(1)

If the compromise or arrangement is approved by members or creditors, with or without modifications, the company (or its liquidator) must file a petition with the Tribunal in Form CAA-5 within 7 days of receiving the chairperson’s report for sanctioning the scheme.
RULE -15 (2)

For compromises or arrangements related to company reconstruction or amalgamation, the petition should request appropriate orders and directions under section 230 and section 232 of the Act.
RULE -15(3)

If the company fails to file the petition, any creditor or member may, with Tribunal permission, file it instead, and the company will be liable for the associated costs.
RULE -16(1)

The Tribunal will set a date for the petition hearing, and notice of the hearing must be advertised in the same newspaper as the meeting notice or another newspaper as directed by the Tribunal, at least 10 days before the hearing.
RULE –16(2)

The Tribunal will also serve notice of the hearing to the objectors or their representatives, the Central Government, and other authorities who have made representations and wish to be heard.
SECTION 230(7)

An order by the Tribunal under sub-section (6) may address the following:

(a) If the compromise involves converting preference shares into equity, preference shareholders must be given the option to either receive arrears of dividend in cash or accept equity shares equivalent to the dividend value.

(b) Protection for any class of creditors.

(c) If shareholders’ rights are varied, it must be implemented according to section 48.

(d) If the arrangement is approved by creditors, any related proceedings before the Board for Industrial and Financial Reconstruction will be discontinued.

(e) Any other matters, including exit offers to dissenting shareholders, deemed necessary by the Tribunal for effective implementation.

Provided The Tribunal will not sanction the compromise or arrangement without a certificate from the company’s auditor confirming that the proposed accounting treatment complies with section 133’s accounting standards.

RULE -17(1)

If the Tribunal sanctions the compromise or arrangement, the order will include directions or modifications needed for its proper implementation.
RULE -17(2)

The order must be filed with the Registrar of Companies within 30 days of receipt, or within a timeframe set by the Tribunal.
RULE -17(3)

The order must be in Form CAA-6, with any necessary variations.
SECTION 230(8)

The order of the Tribunal shall be filed with the registrar by the company within a period of 30 days of the receipt of the order.

RULE -21

Under sub-section (7) of section 232 of the Act, every company subject to an order under sub-section (3) of section 232 must file a statement in Form CAA-8 with the Registrar of Companies, along with the specified fee, within 210 days from the end of each financial year, until the scheme is fully implemented.

 

SECTION 230(9)

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 90% value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
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 of Act.
SECTION 230(11)

Any compromise or arrangement may include takeover offer made in such manner as may be prescribed:

Provided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities Exchange Board of India.

RULE -3(5)

A company member must apply for a takeover arrangement under section 230(11) if they and others together hold at least three-fourths of the company’s shares and want to acquire more shares.

Explanation I: “Shares” include equity shares with voting rights and any securities like depository receipts with voting rights.

Explanation II: This rule does not apply to share transfers through contracts, arrangements, or statutory requirements.

6. A takeover arrangement application must include:

(a) A valuation report from a registered valuer, detailing:

(i) The highest price paid for shares in the past year;

(ii) The fair price of shares based on valuation factors like return on net worth, book value, earnings per share, and industry averages.

(b) Details of a new bank account where at least half of the total takeover offer amount is deposited.

SECTION 230(12)

An aggrieved party can apply to the Tribunal regarding grievances related to takeover offers of unlisted companies in the prescribed manner. The Tribunal may then pass any order it deems appropriate.

Explanation: Section 66 does not apply to the reduction of share capital resulting from a Tribunal order under this section.

RULE -22

After sanctioning a compromise or arrangement, the Tribunal may, on its own or at the request of an interested party, order the company or its liquidator (if the company is being wound up) to submit a report on the arrangement’s progress within a timeframe set by the Tribunal. Based on this report, the Tribunal may issue further orders or directions as deemed appropriate.
RULE -23(1)

The company, any creditor or member, or the liquidator (if the company is being wound up) may apply to the Tribunal at any time after the compromise or arrangement order for clarification on any issues related to its implementation.
RULE -23(2)

The application will first be reviewed by the Tribunal to provide directions on notices and advertisements, if needed.
RULE -23(3)

The Tribunal may then issue orders and directions, including modifications to the compromise or arrangement, as it deems necessary for proper implementation.
RULE -24(1)

During proceedings, if the Tribunal believes that a petition, application, evidence, or statement should be filed as an affidavit, it may order this in a manner it deems appropriate.

RULE -24(2)

The Tribunal may issue directions or orders and dispense with prescribed procedures to facilitate the implementation of a scheme of arrangement, compromise, or restructuring, except for matters specifically outlined in the Act.

 

Sponsored

Author Bio


My Published Posts

Understanding SEBI Regulation 5A on Takeovers and Delisting View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Sponsored
Search Post by Date
November 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
252627282930