DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

2021-2022

FINAL DRAFT: Corporate Law

Topic: “POWERS OF TRIBUNAL IN RELATION TO COMPROMISE AND

ARRANGEMENTS”

SUBMITTED BY: SUBMITTED TO:

SIDHANT KAMPANI Dr. Visalakshi Vegesna

ROLL NO. 190101079 (SECTION A, 2024) ASSOCIATE PROFESSOR (LAW)

B.A. LLB (HONS.), SEMESTER VI Dr. RMLNLU, LUCKNOW

 ACKNOWLEDGEMENT

On the very outset of this project, I would like to extend my sincere and heartfelt obligations
towards all people that have helped me in this endeavour. I am forever indebted to Dr. Visalakshi
Vegesna for her continuous guidance and for being such a great mentor to me.

I am extremely thankful to the Librarian and the faculty present at the library who have enabled
me to pursue my research efficiently.

I also acknowledge with a great sense of reverence my gratitude towards my parents who have
supported me both morally as well as economically.

And last but not the least, my gratitude goes to all my friends and seniors who have directly or
indirectly contributed in helping me finish this project.

I also thank God Almighty without whom this project would never have achieved fulfilment.

Kartikay Agarwal,
190101079 (Batch of 2024).
 INTRODUCTION

Over the period of time, a business grows and expands itself. Companies can either internally
restructure the company, or amalgamate with some other company, in order to bring about a
change. This growth can be organic or inorganic depending on the way the business chooses to
grow. When the company grows over the time in the normal course of the business, this could
be through acquisition of new assets, replacement of old technologies that are there,
advancement of the technology by research and development, or by establishing new lines of
product growth, in such cases it is an organic growth.

The company can even have an inorganic growth, where it acquires another business which is
running, and through this it grows overnight. In such growth, there is no thing as advancement of
technology by research and development, rather, the company acquires shares of other business
or merges, and grows. Such combinations can be in the form of mergers, acquisitions, takeover,
amalgamations, etc. The inorganic form of growth is one of the form in which most of the
leading business over the world has grown.

Compromise is an amicable agreement between the parties in which they make mutual
concessions in order to solve the differences between them. Whereas, 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. Arrangement is a set and compromise is a subset of arrangement.

In this project, it will be my endeavour to highlight the power of the tribunal only in relation to a
Compromise and an arrangement between two entities as envisaged in Companies Act, 2013.

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 company and its creditors/any class of them, or b. a company and its members/any
class of them.

Distinction between Compromise and Arrangement: The word compromise has nowhere
been defined in the Companies Act. It basically connotes the settlement of a conflict by mutual
consent and agreement or through a scheme of compromise. Thus, for a compromise, there has to
be some dispute or conflict. On the other hand, the word arrangement has been defined under
section 230(1) of the Companies Act.

An arrangement has a wider connotation than compromise. The arrangement means re-
organizing the right and liabilities of the shareholders of the company without the existence of
some dispute. A company may enter into a compromise or arrangement to take itself out from
the winding-up proceedings.

Situations under which a company may call for a scheme of compromise:

 If in the normal course of business, it becomes impossible to pay all the creditors in full.
 Subsidiaries/Units cannot work without incurring losses.
 Where liquidation of the company may prove harsh for the creditors or members.

Situation under which a company may enter into arrangements:

 For the issue of new shares.

 For any variation in property.
 Conversion of one class of share to another.
 For reorganizing the share capital of the company.

PROCEDURE FOR COMPROMISE AND ARRANGEMENT UNDER THE COMPANY

LAW

After the enactment of the Companies Act, 2013, the procedure for mergers, acquisitions,
amalgamations and restructuring has been simplified by the new provisions. The Act of 2013 has
removed all the backdrops of the older legislation and is aimed to bring more transparency. It
allowed cross border mergers as well, increasing the horizons for the industries and making it
easier for them to expand. In order to speed up the process and to bring more transparency the
assistance of tribunal was invoked under the 2013 Act.
So below is the stepwise procedure for the scheme of compromise and arrangement:

1. Preliminary Stage (Preparation of Scheme): This is the first stage, in which a

detailed scheme is prepared by the members of the creditors. This scheme must
contain all the matters that are of substantial interest, it must also explain or show how
the scheme is going to affect the members, creditors and all the other companies. The
scheme must also disclose the material interest of the director. 

2. Application to Tribunal: As per the Companies Act, the application for the
Compromises and Arrangements can be filed before the tribunal, i.e, NCLT by any of
the following people: Firstly, Company, in case more than one company is involved,
joint application can be filed at the discretion of the companies. Secondly, Creditor /
Members / Liquidator (in case of winding up).The tribunal can also make the
application on a suo moto basis. 

3. Disclosures by applicant: The Company or any other person, by whom an

application is made under section 230(1), shall disclose to the Tribunal by affidavit
the following details:

(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;

(b) reduction of share capital of the company, if any, included in the compromise or
arrangement;

(c) any scheme of corporate debt restructuring consented to by not less than 75% of
the secured creditors in value, including: (i)  a creditor’s responsibility statement in
the prescribed form; (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 RBI, 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.

4. Tribunal looks into the application: Once an application proposing the scheme is

made, the tribunal will take a look as to whether the application is within the ambit of
Section 230-240. It is pertinent to note here that in this stage the tribunal is not
concerned with the merits of the application, it will only look as to whether the
application is within the ambit of the act or not. It will also see that the application is
accompanied by an explanatory statement. 

5. Conveyance of Meeting: Once the tribunal sees the application, it issues a notice for
the conveyance of the meeting of the creditors and the members of the company
within 21 days. It must be noted that, if the scheme is not going to have any adverse
effect on any party, then the tribunal can also avoid the call for the meeting. The class
meeting of separate class is called and 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
separate meeting for the subclass of a class is allowed.

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.

6. Presentation of the outcome of the Meeting before the Tribunal: Once the scheme
is approved by the members or creditors or the liquidator (in case of a winding
company) in the meeting, the report of the meeting must be presented before the
tribunal within seven days of the meeting. The report must show the confirmation of
the scheme of compromise or arrangement.
7. Commencement of Hearings: After the submission of the report the tribunal shall fix
a date for hearing. Such data must be notified in the newspaper through advertisement.
Such advertisement must be notified before 10 days of the hearing.

8. Sanction of Cases: The tribunal shall after hearing all the objections and concerns of
all the parties, if it is deemed fair and reasonable to the tribunal then the tribunal may
sanction the compromise or arrangement. 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  by means of
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 a consent of 75% of secured creditors

n 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 class have been fairly represented.
Moreover as was laid out in the case of Miheer H Mafatal v. Mafatal Industries, 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.

9. Registration of the Scheme with Registrar: Once the scheme is sanctioned by the

Tribunal, a certified copy of the order shall be filed with the ROC (Registrar of
Company) within 14 days from such sanction order

POWERS AND DUTIES OF THE TRIBUNAL

Before understanding the powers and duties of the tribunal (National Company Law Tribunal), it
must be understood as to why be the sanction of tribunal important. There are several reasons
which necessitate the sanction of the Tribunal; a few of them are listed below:

1. Once the scheme is approved by the Tribunal, the company is bound to abide by it,
any avoidance or deviance from the same may bring legal consequences.

2. If the tribunal won’t have interfered, the majority might have suppressed the
minority’s right; so Tribunal ensures adequate representation of the minority.

3. Tribunal also has supervisory power, so at any time if NCLT is of the view that the
scheme is not in the interest of the member, it may order to modify the scheme or may
order winding-up.

The tribunal is empowered with a wide range of powers by the virtue of Section 231. The
tribunal has the sole authority either to approve or to reject the scheme of compromise or
arrangement. If the tribunal approves the compromise or arrangement, in such a case it further
has the following powers:

1. To supervise/monitor the carrying out of the proposed scheme.

2. To modify/amend the scheme to achieve the best result.

3. To order winding up of Company, if it is deemed to the tribunal that the scheme is

not workable in the interest of the Company or its member.

Apart from the above powers, the tribunal is also bound by certain duties: So, whenever the
tribunal sanctions a scheme, it must make sure that the following factors had been complied
with. 

1. That the scheme is within the provisions of the Companies Act.

2. The tribunal must make sure that the class of people, who were to be adversely
affected by the scheme, are fairly being represented in the meeting.
 3. The proposed scheme must be reasonable; it should not have any adverse effect on
society.

CONCLUSION

The Companies Act 1956 was required to be replaced with a new legislation due to the changes
in the needs of the corporate sector. The Act of 2013 is a broad and widely worded piece of
legislation which ensures shareholders’ protection as well as growth of the company. It also
introduces the concept of fast track mergers or out of court approach which used to be a very
tedious and cumbersome exercise for the companies. This is a move to encourage small sized
companies to restructure themselves via the merger route. The four pillars holding the foundation
of the Companies Act 2013 are accountability, procedural simplification, disclosure and
unification across various regulatory authorities. The simple process of submitting documents
before the court registrar is now a multi-party affair with a series of documents. Corporate
houses will now necessarily have to deal with multiple authorities – income tax, RBI, SEBI,
central government and CCI – as opposed to single-window clearance.

There is a need to strike the right balance between proper regulation and over-regulation and
adhere to the principles of corporate governance and corporate democracy.
 REFERENCES

Statutes

 Companies Act, 1956.

 Companies Act, 2013.
 The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

Case Laws

 Miheer H. Mafatlal v. Mafatlal Industries Ltd, AIR 1997 SC 506.

 Saraswathi Industrial Syndicate v. CIT, Haryana (1991) 70 Com Cases 184, 188 : AIR
1991 SC 70 : 1990 Supp (1) SCC 675 : (1990) 3 Comp LJ 200
 Foss vs Harbottle 2 Hare 461, 67 ER 189.

Other references
 Dr. N.V. Paanjape, Company Law, Central Law Agency, 10th Edition, 2020.

 Mergers Regime under Company Act, Mondaq.

 CS Divesh Goyal, Mergers and Amalgamation under Companies Act, Tax Guru.

 Lokesh Jain, Tax Guru, Compromises, Arrangements and Amalgamation: A detailed

Analysis, https://taxguru.in/company-law/compromises-arrangements-amalgamations-
detailed-analysis.html.

 Tina Saha, Taxdose.com, Power of Tribunal to enforce compromise or arrangement,

https://www.taxdose.com/power-of-tribunal-to-enforce-compromise-or-arrangement/.

 MHRD, COMPROMISE, ARRANGEMENT, RECONSTRUCTION, AMALGAMATION

AND MERGER OF COMPANIES,
https://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/Law/04._Corporate_law/
16._Compromises,_arrangements,_reconstruction,_amalgamation_and_mergers_of_compani
es_/et/5676_et_16_ET.pdf.