Section 230 of the Companies Act, 2013, lays down that a scheme of arrangement can be proposed by a liquidator of a company, undergoing liquidation by applying to the National Company Law Tribunal (“NCLT”), to seek sanction for a scheme of arrangement. COMPROMISE Compromise is an amicable agreement between the parties in which they make mutual concessions to solve the differences between them. ARRANGEMENT The arrangement is the process by which the share capital of the company is reorganised either by consolidation or division of the shares or doing both. COMPROMISE AND ARRANGEMENT Compromise is a narrower set of things, whereas Arrangement is a larger set of things. As per Section 230 of the Companies Act, 2013, Compromises and Arrangements can take place between: a. a company and its creditors/any class of them, or b. a company and its members/any class of them As per the said Act, the application for the Compromises and Arrangements can be filed before the tribunal, i.e, NCLT by any of the following people: Company In case more than one company is involved, the joint application can be filed at the discretion of the company. • Creditor • Members • Liquidator (in case of winding up) Based on the application received by the Tribunal by Company/Creditors/Members/Liquidator, it orders a meeting of the class involved. The class meeting of the separate class is called. Clubbing of the classes is not allowed. Only if a separate or a different type of compromise is offered to a subclass of a class, then a separate meeting for the subclass of a class is allowed. However, as per Section 230, the tribunals does not look into the matters of entitlement of brands, trademarks, names, etc, until and unless there are some implications. Else these are the matters of civil court. If at the meeting, at least 3/4th of the members/creditor either in value or number, agree to compromise or arrangement, either in person or by postal ballot, then the compromise or arrangement will be binding on all credits/class of creditors or members/class of members. In those cases, where the company is being wound up by the liquidator or by contributors of the company, then the compromise or arrangement will be binding on all credits/class of creditors or members/class of members. Once the scheme of arrangement is finalised and accepted by a different class of people it goes to the tribunal then the tribunal looks into it. After which the Tribunal has to act in a supervisory capacity and then the scheme. In case an arrangement regarding de-mergers has been finalised, it will be binding on all the creditors, irrespective of whether they agreed or not. Before sanctioning the scheme, the tribunal has to check if the statutory provisions have been complied with. It has to be satisfied that the company has submitted to the tribunal the following information using an affidavit: 1. All material facts relating to the company’s financial status, audit reports, pending investigations if any 2. Reduction of share capital included in the compromise/arrangement 3. Any scheme of re-structuring which has the consent of 75% of secured creditors and value 4. A statement, if the company proposes to adopt any debt restructuring guidelines as per RBI 5. Valuation report of properties both tangible and intangible by a registered valuer. The tribunal further needs to check if all the classes have been fairly represented. Moreover as was laid out in the case of Miheer H Mafatal v. Mafatal Industries (1997), the tribunal needs to make sure that the scheme is fair and reasonable. This case lays out the various points according to which the tribunal checks the scheme.
