Section 230: Power to compromise or make arrangements with creditors and members
This section is for the power to compromise or make arrangements with creditors and members, allowing companies to restructure their debts or capital with the approval of the Tribunal.
The section, clause by clause
What the section says
In plain terms
(1)Where a compromise or arrangement is proposed— (a) between a company and its creditors or any class of them; or
The Tribunal can order a meeting of creditors or members to discuss a proposed compromise or arrangement between a company and its creditors or members, on application by the company, creditor, member, or liquidator.
(1)(b)between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator,1[appointed under this Act or under the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as the case may be,] order a 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 the Tribunal directs.
explanationExplanation.—For the purposes of this sub-section, arrangement includes a reorganisation 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)The company or any other person, by whom an application is made under sub-section (1), shall disclose to the Tribunal by affidavit—
The company or applicant must disclose all material facts, including the company's financial position, auditor's report, and any pending investigations, to the Tribunal by affidavit.
(2)(a)all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;
(2)(b)reduction of share capital of the company, if any, included in the compromise or arrangement;
(2)(c)any scheme of corporate debt restructuring consented to by not less than seventy-five per cent.
(2)of the secured creditors in value, including—
(2)(c)(i)a creditor’s responsibility statement in the prescribed form;
(2)(c)(ii)safeguards for the protection of other secured and unsecured creditors;
(2)(c)(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;
(2)(c)(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
(2)(c)(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.
(3)Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub- section (1), a notice of such meeting 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 a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed:
A notice of the meeting, along with a statement disclosing the details of the compromise or arrangement and a valuation report, must be sent to all creditors, members, and debenture-holders, and also placed on the company's website and sent to relevant authorities.
provisoProvided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed:
provisoProvided further that where the notice for the meeting is also issued by way of an advertisement, 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.
(4)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: Provided that 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.
The notice must provide that persons can vote in the meeting or by postal ballot within one month, and that objections can only be made by persons holding at least 10% of the shareholding or 5% of the total outstanding debt.
(5)A notice under sub-section (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 (12 of 2003), 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.
The notice and documents must also be sent to the Central Government, income-tax authorities, Reserve Bank of India, and other relevant authorities, which must make any representations within 30 days.
(6)Where, 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 1[appointed under this act or under the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as the case may be,] and the contributories of the company.
If a majority of persons representing three-fourths in value of the creditors or members agree to the compromise or arrangement, and it is sanctioned by the Tribunal, it will be binding on the company, creditors, members, and contributories.
(7)An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:—
The Tribunal's order can provide for matters such as conversion of preference shares, protection of creditors, and variation of shareholders' rights, and must be accompanied by a certificate from the company's auditor.
(7)(a)where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;
(7)(b)the protection of any class of creditors;
(7)(c)if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect to under the provisions of section 48;
(7)(d)if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall abate;
(7)(e)such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement: Provided that 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.
(8)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.
The company must file the Tribunal's order with the Registrar within 30 days of receipt.
(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 ninety per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
The Tribunal can dispense with calling a meeting of creditors if at least 90% in value agree to the scheme of compromise or arrangement.
(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.
No compromise or arrangement for buy-back of securities can be sanctioned unless it is in accordance with the provisions of section 68.
(11)Any compromise or arrangement may include takeover offer made in such manner as may be prescribed:
A compromise or arrangement can include a takeover offer, which must be made in a prescribed manner, and in the case of listed companies, in accordance with Securities and Exchange Board regulations.
provisoProvided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
(12)An aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit. Explanation.—For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.
An aggrieved party can make an application to the Tribunal in the event of any grievances with respect to the takeover offer, and the Tribunal can pass an order as it deems fit.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Ins. by Act 31 of 2016, s. 255 and the Eleventh Schedule (w.e.f. 15-11-2016).
- 1. Ins. by Act 31 of 2016, s. 255 and The Eleventh Schedule (w.e.f. 15-11-2016).
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.