PRESENTATION ON COMPROMISE

& ARRANGEMENT

By
CS Mahesh Athavale
[email protected]
OLD PROVISIONS UNDER
COMPANIES ACT 1956
 Companies Act, 1956 – [Sec 391-394]
- Section 391 was a COMPLETE CODE BY ITSELF
- The scope of this section 391 was very wide.
- A comprehensive section, which includes
- Merger
- Demerger
- Reverse Merger
- Compromise with Creditors
- Restructuring, including Re-organisation of the share capital of a company by way of consolidation or
division of the shares (into different classes) and both;
- Composite Scheme, which may include
(i) Change of Name
(ii) Change in Objects Clause
(iii) Reduction of Capital
(iv) Sale, lease etc., of the Company’s Property u/s 293
(vi) Others
Companies Act, 1956 – [Sec 391-394]
Procedural Aspects

Finalization of documents relating to Merger

Scheme of Amalgamation

Valuation

Board meeting for approval of scheme

Company summon for Direction

Companies Act, 1956 – [Sec 391-394]
Procedural Aspects
Minutes of Order-Direction By Court

Company summon for petition

Hearing – Minutes of Order

Submission to RoC/RD/OL

Service of Notice to various Authorities

Companies Act, 1956 – [Sec 391-394]
Procedural Aspects
Final Hearing

INC-28

Scheme related compliances & Adjudication of Stamp Duty

 New Provisions-Companies Act 2013
COMPROMISES, ARRANGEMENTS
AND AMALGAMATIONS

• On 7th November, 2016 Central Government issued a notification for enforcement of

section 230-233, 235-240, of Chapter XV of Companies Act 2013 w.e.f.
15th December, 2016.

• MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016. These rules have
become effective from 15thDecember, 2016. Consequently, w.e.f. 15.12.2016 all the
matters relating to Compromises, Arrangements, and Amalgamations (hereafter read
as “CAA”) are being dealt with as per provisions of Companies Act, 2013 and
The Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.
 Power to make compromise or make
arrangement with Creditors and Members
Section 230(1) Companies Act 2013
Between whom the Compromise & Arrangement can be proposed?

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

ii. between a company and its members or any class of them
 Section 230(1) Companies Act 2013
Who can file the application for Compromise & Arrangement ?
• An application for Compromise & Arrangement can be filed with Tribunal (NCLT)
by:
i. The Company or
ii. Creditor or
iii. Member of the Company, or
iv. In the case of a company which is being wound up, by the Liquidator.
Tribunal may on application order a meeting, to be held and conducted in the
manner Tribunal Directs
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.
 Section 230(2) of Companies Act 2013

Applicant shall disclose to the Tribunal by affidavit-

a) 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
b) Reduction of share capital of the company , if any, included in
compromise or arrangement.
 Section 230(2) of Companies Act 2013
Applicant shall disclose to the Tribunal by affidavit-

c) Any scheme of 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;
 Section 230(2) of Companies Act 2013

Applicant shall disclose to the Tribunal by affidavit-(continuation)

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
 Section 230(3) of Companies Act 2013
Where meeting is proposed to be called in pursuance of an order of
Tribunal, 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 which shall be accompanied by

i) Details of compromise or arrangement

ii) Valuation report and their effect
iii) Effect of compromise or arrangement on material interest of Directors
or Debenture holders
 Section 230(4) & 230(5)of Companies Act 2013
A notice shall provide that person may vote in meeting either themselves
or through proxies or by postal ballot to the adoption of compromise or
arrangement within one month from the date of receipt of such notice

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
Power to make compromise or make arrangement
with Creditors and Members
Section 230(5)of Companies Act 2013

• A notice in Form No CAA-3 along with Copy of Scheme of C&A, & the
explanatory statement, 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 Sectorial Regulators or authorities, as required by Tribunal.
 Section 230(5)of Companies Act 2013
Representation by authority:
• If the authorities desire to make any representation then do so
before 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 no representation is made within the 30 days then it is
presumed that authority doesn’t have any objection .
 Section 230(6)of Companies Act 2013

Voting

Where at meeting majority of person representing 3/4th in value of the

creditors or class of creditors or members or class of members , as case
be , agree to any compromise or arrangement and if sanctioned by the
Tribunal , it shall be binding on the Company, all the creditors or class of
creditors or members or class of members as case may be.
Tribunal may dispense with calling of meeting if at least 90% value ,
agree and confirm by way of affidavit to scheme of compromise or
arrangement-Section 230(9)
 Section 231 of Companies Act 2013

• 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.
• 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
 Merger and amalgamation of companies
Section 232 of Companies Act 2013
Where an application is made to Tribunal under section 230 and it is shown to
tribunal
a) that compromise or arrangement has been proposed for purpose of, in
connection with, scheme for reconstruction of the Company or companies
involving merger or the amalgamation of any two or more companies
b) that under the scheme, transfer of whole or part of undertaking to transferee
company or is proposed to be divided among and transferred to two or more
companies
Tribunal may order meeting of creditor or class of creditors or members or class
of members, to be called, held and conducted in such manner as Tribunal may
direct and provision of subsection (3) to (6) of section 230shall apply mutatis
mutandis.
 Section 232 (2) of Companies Act 2013
Where order is made by the Tribunal, Company is required to circulate
following for the meeting
• draft of proposed terms of Scheme
• confirmation of filing draft scheme with Registrar
• a report by directors of merging companies explaining effect of
compromise on shareholders, KMP, promoters & Non Promoters
Shareholders, laying out in particular share exchange ratio, specifying
any special valuation difficulties.
• the report of expert with regard to valuation
Section 232(3) of Companies Act 2013
The Tribunal after satisfying the compliances may, by order sanction
the Compromise or arrangement or by subsequent order make
provision for
• transfer of part or whole undertaking to transferee Company
• allotment or appropriation by transferee company
• continuation of legal proceeding by or against transferor company on
date of transfer
• dissolution, without winding up of transferor company
• provision for person who dissent from compromise or arrangement
• transfer of employees
Section 232(5) , 232(6) & 232(7)
• Every Company in relation to which order is made shall file certified
copy of order with Registrar for registration within 30 days of the
receipt of certified copy of order
• The scheme shall indicate appointed date and scheme shall be deemed
to effective from such date only.
• Every Company, until completion of scheme, file a statement every
year in CAA 8, within 270 days from the end of each financial year duly
certified by Practicing CA/CS/CA indicating that scheme had complied
with order of Tribunal.
 232(8) of Companies Act 2013

• If transferee Company or transferor Company contravenes the provisions of section

230 shall be punishable with fine not less than one lakh which my extends to
twenty-five lakh and every officer in default shall be punishable with imprisonment
which may extends to one year or fine which shall not be less than one lakh which
may extends to three lakh rupees.
 Section 233 : Merger & Amalgamation of certain
Companies
(2 OR more small companies or between holding & its wholly owned subsidiary)

Steps Involved
• The Schemes should be approved by the Board of Directors of Companies.
• The Notice of the schemes approved by the BOD’s will need to be sent to the
Registrar of Companies (RoC) and the Official Liquidator (OL) for their
suggestions or objections within 30 days by Transferor Company and
Transferee Company in Form CAA 9.
• Companies involved in the merger files a declaration of solvency with the ROC
in Form CAA 10 before convening the meeting of members and creditors.
• Then the scheme will be considered in the meeting of members or creditors,
along with their suggestions or objections
 Section 233 : Merger & Amalgamation of certain
Companies
(2 OR more small companies or between holding & its wholly owned subsidiary)

• The scheme will have to be approved by the following class of persons:

• Shareholders holding 90% of the total number of shares at general
meeting.
• Majority Creditors (representing nine-tenth in value) in a meeting
convened with 21 days’ notice.
• The notice of the meeting to the members and creditors shall be
accompanied by;
i)A copy of the scheme of compromise or arrangement.
ii)The declaration of solvency.
 Section 233 : Merger & Amalgamation of certain
Companies
(2 OR more small companies or between holding & its wholly owned subsidiary)
• The transferee company shall, within 7 days after the conclusion of the
meeting file a copy of the scheme with:
i) Regional Director (Power delegated to RD with effect from 19th December
2016) in Form CAA 11.
ii) Registrar of Companies in Form GNL-1.
iii) Official Liquidator through hand delivery or by registered post of speed post.
• If no objection or suggestion received to the scheme from the Registrar of
Companies and Official Liquidator, and the Regional Director is of the opinion
that the scheme is in the public interest or in the interest of creditors, the
Regional Director shall issue a confirmation order of such scheme of merger or
amalgamation in Form No. CAA 12.
 Section 233 : Merger & Amalgamation of
certain Companies
• The confirmation Order of the scheme issued by the RD shall be filled
within 30 Days of receipt of order of confirmation, in form INC-28 with
the ROC.
• Approx. timeline for Merger between WOS and Holding Company is 2 -
3 months without Tribunal approval.
 Section 235 of Companies Act 2013
Power to acquire shares of shareholders dissenting from scheme or contract
approved by majority
• This Section states that, where a scheme or contract involves transfer of
shares or any class of shares in a company( the transferor company) to
another company ( the transferee company) which has been approved by
holders not less than nine-tenth in value of shares, within four months after
making the offer, the transferee company may, at any time within two
months after the expiry of the said four months, give notice in the
prescribed manner to the dissenting shareholders that it desires to acquire
his shares.
• The shares shall be transferred to the transferee company within one month
from the date of notice as per sub section (1), unless an application has been
made to the Tribunal by the dissenting shareholders and the Tribunal thinks
fit to order.
 Section 236 of Companies Act,2013
Purchase of minority shareholding (Corresponding to Section 395 of Companies
Act 1956)
• In the event of an acquirer, or a person acting in concert with such acquirer, becomes a
holder of ninety percent or more of the issued equity capital, by virtue of an
amalgamation, or for any other reason, shall notify the company of their intention to buy
the remaining equity shares & acquirer shall offer to the minority shareholders of the
Company for buying shares at price determined on basis of valuation by a registered valuer
• Where a shareholder or the majority equity shareholder fails to acquire full purchase of the
shares of the minority equity shareholders, then, the provisions of this section shall
continue to apply to the residual minority shareholders even though
(a) the shares have been delisted ; and
(b) the period of one year or the period specified in the regulations made by the SEBI , has
elapsed.
 Section 237 of the Companies Act 2013

Power of Central Government to provide for amalgamation of companies

in public interest (Corresponds to sec. 396 of the Companies Act 1956)
• In public interest, the Central Government can order by notification in
official gazette, two or more companies to amalgamate into a single
company, if it is essential.
• Every member, creditor including debenture holder shall have , as nearly
as may be, the same interest in or right against the transferee company
as it originally had in the transferor company. He shall be liable to
compensation in case of the rights are lesser in transferee company.
• The copies of every order made under this section shall, as soon as
maybe after it has been made, be laid before the House of Parliament.
 Section 238 of Companies Act 2013
Registration of offer of schemes involving transfer of shares (Corresponds to Sec.
395 of 1956 Act)
In relation to every offer of a scheme or contract involving the transfer of shares
or any class of shares in transferor company to transferee company
• Every circular containing such offer and recommendation to the members of
the transferor company by its directors to accept such offer shall be
accompanied by such information and in such manner as ay be prescribed
• Such offer to contain a statement by or on behalf of the transferee company,
disclosing necessary cash will be available.
• Every such circular shall be presented to Registrar for registration and no such
circular shall be issued until it is so registered
An appeal shall lie to Tribunal against an order of Registrar refusing to register
any circular
Director who issues circular , which has not been presented for registration ,shall
be punishable with fine which shall not be less than 25000 Rs. which may
extends to Rs. 5,00,000
 Section 239 of Companies Act 2013
Preservation of books and papers of amalgamated companies
(Corresponds under Sec. 396A of 1956 Act)
• The Central Government reserves the right to dispose of the books and
papers of a company which has been amalgamated with, or whose
shares have been acquired by another company under this Chapter.
• The government may appoint a person to examine the books and papers
for the purpose of ascertaining whether they contain any evidence of the
commission of an offence in connection with the promotion or
formation, or the management of the affairs, of the transferor company
or its amalgamation or the acquisition of its shares.
 Section 240 of Companies Act 2013
New Provision
• The Liability in respect of offences committed under this Act by the
officers in default, of transferor company prior to its merger,
amalgamation or acquisition shall continue after such merger ,
amalgamation or acquisition.
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
Rule 3: An application under sub-section (1) of section 230 of the Act may be submitted
in form no. NCLT-1 along with:
A notice of admission in Form No. NCLT-2
An affidavit in Form No. NCLT -6
A copy of scheme of compromise or arrangement, which should include disclosures as
per sub-section (2) of section 230 of the Act
Fees of Rs.5000/-
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.

• Rule 4: For, Sec 230(2)(c)(i), the creditor’s responsibility statement in Form No. CAA.1 shall be
included in the scheme of corporate debt restructuring.
• Rule 5: Upon hearing the application under Sec 230(1), Tribunal shall give such directions as it
may think necessary (viz: Determining class of creditors, Appointing Chairperson, Time &
Place, Notice to be given etc.)
 The Companies (Compromises, Arrangements,
and Amalgamations) Rules, 2016.

• Rule 6: Where a meeting is proposed to be called in pursuance of an Order of the

Tribunal under Sec 230(1), the notice of the Meeting shall be in Form No. CAA.2.
• Rule 7: The notice of the meeting under 230(1) shall be advertised in Form No. CAA.2
in at least one English newspaper and in at least one vernacular newspaper having
wide circulation in the state in which the registered office of the company is situated
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
• Rule 8: For the Purpose of Sec 230(5), Notice to Statutory Authority shall be in Form
No. CAA.3, Accompanied with a copy of the scheme of compromise or arrangement,
the explanatory statement and the disclosures mentioned under rule 6.
• Rule-9 : The person who receives the notice may within one month from the date of
receipt of the notice vote in the meeting either in person or through proxy or through
postal ballot or through electronic means to the adoption of the scheme of
compromise and arrangement.
• Rule10: Voting by proxy shall be permitted (Form to be registered not later than 48
hours before the meeting.) {In case of Body Corporate, Authorized Representative to
file form along with CTC.}
• Minor not to be Appointed as Proxy
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
• Rule 11: Every creditor or member entitled to attend the meeting shall be furnished
by the company, free of charge, within one day on a requisition being made for the
same , with a copy of the scheme of the proposed compromise or arrangement
together with a copy of the statement required to be furnished under section 230 of
the Act.
• Rule 12: Affidavit by Chairman or any person so directed shall be filed before the
tribunal not less than 7 days before the date fixed for meeting stating all the issues
with advertisement or notice have been complied with.
• Rule 13: The report of the result of the meeting shall be in form no CAA.4.
• Rule 14: The above report in CAA.4 shall be submitted to tribunal.
 The Companies (Compromises, Arrangements,
and Amalgamations) Rules, 2016.
• Rule 15: Where the proposed compromise or arrangement is agreed to by the
members or creditors or both as the case maybe, the company (or its
liquidator),shall , within 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.
• Rule 16: The tribunal shall fix a date for the hearing of petition, and 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, not
less than ten days before the date fixed for the hearing.
• Rule 17: where the tribunal sanctions the compromise or arrangement, the order
shall be in Form No.CAA.6.
• The order shall direct that a certified copy of the same shall be filed
with the registrar of companies within thirty days.
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
• Sec 232: Merger & Amalgamation of Companies.
• Rule 18: Application for directions under section 232 shall be made to the tribunal by
a notice of admission supported by an affidavit for directions of the Tribunal as to the
proceedings to be taken.
• Rule 19: The tribunal may make such order or give such directions as it may think fit,
as to the proceeding to be taken for purpose of reconstruction or amalgamation.
• Rule 20: An order made under section 232 read with section 230 of the act shall be in
Form No CAA.7.
• Rule 21: For 232(7), statement shall be in Form No.CAA.8 to be filled within two
hundred and ten days from the end of each financial year.
The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
• Sec 233: Merger or Amalgamation of certain companies:-
• RULE 25:
• The notice of the proposed scheme, under Sec 233(a), to invite objections or
suggestions from the Registrar and official liquidator or persons affected by the
scheme shall be in Form No.CAA.9.
• For Sec 233(1)(c), declaration of solvency shall be filed in Form No. CAA.10.
• For Sec 233(1)(b) & (d), Notice shall be accompanied by:
I) A statement referred to in Sec 230(3), read with sub rule (3) of rule 6 hereof ;
II) The declaration of solvency
III) A Copy of Scheme.
 The Companies (Compromises, Arrangements,
and Amalgamations) Rules, 2016.
• For Sec 233(2), within seven days after the conclusion of the meeting, file a copy of the
scheme, along with a report of the result, in Form no. CAA.11. (Shall also be filled to
ROC in GNL-1 & official Liquidator.)
• Confirmation order of such scheme of merger or amalgamation shall be in Form No.
CAA.12 BY Central Govt.
• RoC / OL or the Central Government is of the opinion that scheme is not in the public
interest or in the interest of creditors, may Submit Objection in CAA.13. within 60 days
before the Tribunal.
• Confirmation order shall be filed, within thirty days of the receipt of the order of
confirmation, in Form INC-28 with RoC.
 The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.

• Sec 235: Power to acquire shares of shareholders dissenting from

scheme or contract approved by majority:
• For 235(1), the transferee company shall send a notice to the dissenting
shareholder(s) of the transferor company , in Form No.CAA.14.
Checklist for Reconstruction
COMPROMISE AND ARRANGEMENT

• Relevant sections: 230, 231

• Effective date: 15 December 2016
• Relevant Rules: Rule 3 – 17, 22, 23, 24 of Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016.
• Effective date: 15 December 2016

Scheme of the sections:

• Section 390 of CA 1956 omitted. Definition of company and
unsecured creditors omitted. ‘Arrangement’ included in Explanation
to Section 230(1)
1. Application to be made in form NCLT – 1 along with following documents
(equivalent to CSD):
• Notice of admission in form NCLT-2
• Affidavit in form NCLT – 6
• Copy of scheme containing disclosures as per section 230 (2)
• Fees of Rs. 5,000 payable by demand draft in favour of “Pay and Accounts
Officer, Ministry of Corporate Affairs, Mumbai” payable at Mumbai

2. Application to contain following:

• Whether joint application by more than one company
• Where applicant is not the company (i.e. it is any creditor / member /
liquidator), notice to be served on company
• Applicant to disclose basis on which each class of members or creditors has
been identified for approving the scheme
3. Affidavit to contain following:
• All material facts relating to the company – latest financial position, latest
auditors report, pendency of any investigation
• Reduction of capital, if included
• Scheme of corporate debt restructuring, if any, which is consented to by at least
75% of secured creditors in value, along with, inter alia, creditors responsibility
statement in form CAA1

4. Meetings:
• On hearing of application, NCLT may give directions regarding meetings including
manner of holding of members and creditors meeting or of dispensing with the
meeting for any class of creditors. Meeting of creditors can be dispensed with
when creditors / class of creditors, having at least 90% value, agree and confirm
by way of affidavit, to the scheme. [230(9)]
• Where meeting is to be held, notice to be in form CAA.2 and to be sent
individually to each creditor / member.
• Notice to be signed by chairperson appointed and sent by registered post / speed
post / courier / email / hand delivery / any other mode as directed, to the last
known address, at least 1 month before date of meeting
• Notice to be accompanied by copy of the scheme and statement disclosing
details prescribed as per Rule 6 (3) for each of the companies forming part
of the compromise or arrangement, copy of valuation report
• Notice of meeting to be advertised in Form CAA2 in at least one English
and one vernacular newspaper having wide circulation in the State and also
placed on the website of the company at least 30 days before date fixed for
the meeting. In case of listed companies, these documents to be sent to
SEBI and stock exchange
• Where separate meetings of classes of creditors or members are to be
held, joint advertisement may be given
• Advertisement to also indicate time within which copies of compromise or
arrangement shall be made available free of charge from registered office
• Objections to the scheme shall be made only by persons holding at least
10% of shareholding or having outstanding debt of not less than 5% of total
outstanding debt as per latest audited financial statement or provisional
financial statement not preceding the date of application by more than 6
months
• Specific rules made about illiterate proxies or those not knowing English –
Rule 10
• Notice also to be given in form CAA.3 along with all above documents to:
Central Government, ROC, Income tax authorities in all cases
RBI, SEBI, CCI, stock exchange as applicable
Official liquidator
Other sectoral regulators as directed by NCLT
• Notice to state that representations to be made within 30 days from date
of receipt, failing which it shall be presumed that they have no
representations to make. Copy of representation also to be served on the
companies.
• Notice to authorities to be sent immediately after notice is sent to
members / creditors, by registered post / speed post / courier / by hand
delivery
• Affidavit regarding compliance of directions regarding issue of notice and
advertisement to be filed with NCLT at least 7 days before date of meeting
• Voting to take place by poll or through electronic means
• Report of result to be in Form CAA.4 and to state accurately number of
creditors (class wise) who were present, who voted either in person or
proxy or through electronic means, individual values and the way they
voted – to be filed within 3 days of conclusion of meeting, unless otherwise
specified
• Where majority representing 75% in value of creditors or members and
voting, agree to the scheme and if it is sanctioned by NCLT, it shall be
binding on the company, creditors, members, liquidator, contributories

5. Petition: (equivalent to CSP)

• Where scheme approved by members / creditors, company to file petition
in Form CAA.5 to NCLT within 7 days of filing of report for sanction of the
scheme
• Prayers to be made as per appropriate sections of CA 2013
• If company fails to file petition, any creditor or member may do so
• NCLT to fix date of hearing which shall be advertised in same newspapers
at least 10 days before date fixed for hearing
• Notice also to be served by NCLT on objectors and authorities who have
made representation

6. Order:
• Shall contain matters as per 230(7)
• No sanction unless certificate by auditor has been filed with NCLT to the
effect that accounting treatment proposed in the scheme is in conformity
with accounting standards prescribed under sec 133
• No requirement of ROC and RD / OL report for sanctioning scheme
• Order shall be form CAA.6
• Order to be filed with ROC within 30 days from date of receipt of copy. No
reference to date of effect of order to date of filing
• Buy back not to be sanctioned unless buy back is in accordance with
section 68
• Provisions of sec 66 not applicable to reduction of capital effected in
pursuance of order under sec 230

7. NCLT has powers to monitor implementation of scheme.

8. NCLT can call for information on implementation either suo moto or

on application by the company, creditor, member, liquidator.

9. NCLT may pass directions modifying or dispensing requirements of

rules, except those matters specifically provided by the Act.
Comments
• Appears to be speedier since no • Procedural simplicity is expected.
requirement of ROC / RD / OL report. NCLT Rules have specified formats,
No external auditor will be appointed procedures for matters before it.
by OL. Lesser costs. Lesser ambiguity as per local customs
• NCLT is expected to have fewer / procedures
vacations as compared to HC • PCS can appear before NCLT at every
• If there is a dedicated Bench for these stage. PCS can be involved in each
matters, 3 months can be said to be a step right from drafting the scheme,
reasonable period for completion, drafting CSD, support for convening
depending on dates of hearing given meetings, filing of report, filing of CSP
by NCLT after holding of the meeting within prescribed time, appearance
for final hearing, obtaining order, filing
of order, implementation of the
Scheme.
Checklist for Mergers &
Amalgamations
COMPROMISE AND ARRANGEMENT THROUGH MERGERS / AMALGAMATIONS / HIVE
OFF / DEMERGER

• Relevant sections: 230, 232

• Effective date: 15 December 2016
• Relevant Rules: Rule 18, 19, 20, 21, 22, 23, 24 of Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016
• Effective date: 15 December 2016

Scheme of the sections:

1. Application to be made in form NCLT – 1 along with following documents (equivalent
to CSD):
• Notice of admission
• Affidavit for directions
• Copy of scheme containing disclosures as per section 230 (2)
• Fees of Rs. 5,000 payable by demand draft in favour of “Pay and Accounts Officer,
Ministry of Corporate Affairs, Mumbai” payable at Mumbai
2. Application to contain following:
• Whether joint application by more than one company
• Where applicant is not the company (i.e. it is any creditor / member / liquidator),
notice to be served on company
• Applicant to disclose basis on which each class of members or creditors has been
identified for approving the scheme

3. Affidavit to contain following:

• All material facts relating to the company – latest financial position, latest
auditors report, pendency of any investigation
• Draft scheme drawn up and adopted by the directors
• Confirmation that draft scheme has been filed with ROC
• Report of directors explaining effect of compromise on each stakeholder
• Valuation report
• Supplementary accounting statement, if last audited financials more than 6
months prior to first meeting for approval of scheme
4. Meetings:
• On hearing of application, NCLT may give directions regarding meetings
including manner of holding of members and creditors meeting or of
dispensing with the meeting for any class of creditors. Meeting of creditors
can be dispensed with when creditors / class of creditors, having at least
90% value, agree and confirm by way of affidavit, to the scheme. [230(9)]
• Where meeting is to be held, notice to be in form CAA.2 and to be sent
individually to each creditor / member.
• Notice to be signed by chairperson appointed and sent by registered post /
speed post / courier / email / hand delivery / any other mode as directed,
to the last known address, at least 1 month before date of meeting
• Notice to be accompanied by copy of the scheme and statement disclosing
details prescribed as per Rule 6 (3) for each of the companies forming part
of the compromise or arrangement, copy of valuation report
• Notice of meeting to be advertised in Form CAA2 in at least one English
and one vernacular newspaper having wide circulation in the State and also
placed on the website of the company at least 30 days before date fixed for
the meeting. In case of listed companies, these documents to be sent to
SEBI and stock exchange
• Where separate meetings of classes of creditors or members are to be
held, joint advertisement may be given
• Advertisement to also indicate time within which copies of compromise or
arrangement shall be made available free of charge from registered office
• Objections to the scheme shall be made only by persons holding at least
10% of shareholding or having outstanding debt of not less than 5% of total
outstanding debt as per latest audited financial statement or provisional
financial statement not preceding the date of application by more than 6
months
• Specific rules made about illiterate proxies or those not knowing English –
Rule 10
• Notice also to be given in form CAA.3 along with all above documents to:
 Central Government, ROC, Income tax authorities in all cases
 RBI, SEBI, CCI, stock exchange as applicable
 Official liquidator
 Other sectoral regulators as directed by NCLT
• Notice to state that representations to be made within 30 days from date of
receipt, failing which it shall be presumed that they have no representations to
make. Copy of representation also to be served on the companies.
• Notice to authorities to be sent immediately after notice is sent to members /
creditors, by registered post / speed post / courier / by hand delivery
• Affidavit regarding compliance of directions regarding issue of notice and
advertisement to be filed with NCLT at least 7 days before date of meeting
• Voting to take place by poll or through electronic means
• Report of result to be in Form CAA.4 and to state accurately number of creditors
(class wise) who were present, who voted either in person or proxy or through
electronic means, individual values and the way they voted – to be filed within 3
days of conclusion of meeting, unless otherwise specified
• Where majority representing 75% in value of creditors or members and voting, agree to
the scheme and if it is sanctioned by NCLT, it shall be binding on the company, creditors,
members, liquidator, contributories

5. Petition
• There is no separate provision for this. NCLT may make its own rules / procedure for
this. Where NCLT is satisfied that provisions of section 232 (1) and (2) are complied with,
it may sanction the scheme – section 232 (3).

6. Order
• Shall contain matters as per 232(3)
• No sanction unless certificate by auditor has been filed with NCLT to the effect that
accounting treatment proposed in the scheme is in conformity with accounting
standards prescribed under sec 133
• No requirement of ROC and RD / OL report for sanctioning scheme
• Order shall be form CAA.7
• Order to be filed with ROC within 30 days from date of receipt of copy. No reference to
date of effect of order to date of filing
• Scheme to clearly indicate appointed date from which it shall be effective and
scheme shall be deemed to be effective from that date only and not any
subsequent date

7. Until full implementation of the scheme, company shall file a statement with
ROC in Form CAA.8 within 210 days from end of each financial year, duly certified
by CA / CS / CWA in practice indicating whether the scheme is being complied
with as per order.

8. Contravention of provisions – fine not less than Rs. 1 lakh upto Rs. 25 lakhs for
company and officer imprisonment upto one year or fine minimum Rs. 1 lakh upto
Rs. 3 lakhs, or both.

9. NCLT has powers to monitor implementation of scheme.

10. NCLT can call for information on implementation either suo motu or on
application by the company, creditor, member, liquidator.
11. NCLT may pass directions modifying or dispensing requirements of
rules, except those matters specifically provided by the Act.

12. Explanation to section 232 describes different types of mergers

13. Section 240 – liability in respect of offences committed under this

Act by officers in default of transferor company prior to its merger,
amalgamation or acquisition shall continue after such event
 Comments
1. Appears to be speedier since no 5. Procedural simplicity is expected. NCLT
requirement of ROC / RD / OL report. No Rules have specified formats, procedures
external auditor will be appointed by OL. for matters before it. Lesser ambiguity as
Lesser costs. per local customs / procedures
2. NCLT is expected to have fewer vacations 6. PCS can appear before NCLT at every
as compared to HC stage. PCS can be involved in each step
3. Need clarity about step of CSP whether right from drafting the scheme, drafting
applicable or not. Section 232 only refers CSD, support for convening meetings, filing
that provisions of section 230 (3) to (6) of report, filing of CSP within prescribed
about meetings shall apply mutatis time, appearance for final hearing,
mutandis. obtaining order, filing of order,
implementation of the Scheme.
4. If there is a dedicated Bench for these
matters, 3 months can be said to be a
reasonable period for completion,
depending on dates of hearing given by
NCLT after holding of the meeting
Checklist for Fast Track
Merger
FAST TRACK MERGER
• Relevant sections: 233
• Effective date: 15 December 2016
• Relevant Rules: Rule 25 of Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016
• Effective date: 15 December 2016

Scheme of the section:

• Applies to the following types of companies for merger, amalgamation,
reconstruction, compromise:
Two or more small companies
Holding and its wholly owned subsidiary
Other classes of companies as may be prescribed
Conditions applicable:
1. Notice in form CAA.9 of proposed scheme inviting objections / suggestions
from ROC and OL or persons affected by the scheme, within 30 days, is
issued by transferor and transferee companies.

2. Companies to file declaration of solvency with ROC in form CAA.10, before

convening meetings of members and creditors for approval of the scheme

3. Objections received are considered in general meetings of the companies

and scheme is approved at a general meeting by members holding at least
90% of total number of shares

4. Scheme is approved by majority representing 9/10th in value of creditors in

a meeting called by giving 21 days’ notice along with the scheme or
otherwise approved in writing
5. Notice to be accompanied by:
Statement as under 230(3) read with Rule 6(3)
Declaration of solvency
Copy of the scheme

6. Within 7 days of conclusion of meeting of members and creditors,

transferee company to file copy of approved scheme along with report on
result of meetings in Form CAA.11 with Central Government, ROC, OL.

7. If ROC or OL has no objection, they to communicate it in writing to Central

Government within 30 days. If no such communication received, presumed
that there is no objection.

8. Where no objection received or objection is not sustainable, and Central

Government is of the opinion that it is in public interest or interest of
creditors, it shall issue confirmation order of the scheme in form CAA.12.
9. Where on the basis of objection or otherwise, CG is of the opinion that scheme is not in
public interest or of creditors, CG may file application to NCLT in form CAA.13 within 60
days of receipt of scheme stating objections and requesting NCLT to consider scheme
under section 232.

10. On receipt of such application, NCLT may order for consideration of the scheme under
section 232 or it may confirm scheme by passing order

11. Copy of the order of NCLT confirming the scheme to be filed with ROC within 30 days in
form INC-28 and persons concerned. ROC shall register scheme and issue confirmation.

12. Registration of scheme by ROC at any stage shall be deemed to have effect of
dissolution of transferor without winding up.

13. Effect of registration of scheme as per section 233(9)

14. Companies to make specific application along with scheme indicating revised
authorized capital

15. Companies may voluntarily opt for procedure under section 230 or 232
Comments
• No need to approach NCLT at all • Powers of CG should be with RD.
at any stage • Will result in speedy process
• No formalities about length of • PCS can handle each aspect of
notice, advertisement for this procedure.
meetings etc
• ROC, OL are required to give
their confirmation within 30
days.
Checklist for Purchase of
Minority Shareholding
PURCHASE OF MINORITY SHAREHOLDING
• Relevant sections: 236
• Effective date: 15 December 2016
• Relevant Rules: Rule 27 of Companies (Compromises, Arrangements
and Amalgamations) Rules, 2016.
• Effective date: 15 December 2016

Scheme of the section:

• New provision inserted by CA 2013
• This is an independent provision which can be applied in any
circumstances.
• This can reduce litigation
1. Where acquirer or person acting in concert becomes registered holder of
90% or more of issued equity capital of the company; OR

2. Any person or group of persons becomes 90% majority or holding 90% of

issued equity capital, by virtue of amalgamation, share exchange, conversion
of securities or for any other reason, such acquirer or person shall notify the
company of their intention to buy remaining equity shares.

3. Shares to be offered to be bought at price determined by registered valuer

as per Rule 27.

4. Without prejudice to above, minority may themselves offer their shares to

be bought by majority shareholder as per price determined above.
5. Majority to deposit amount equal to value of shares to be acquired in a
separate bank account to be opened by transferor company for at least 1
year for payment to minority shareholders and amount to be disbursed to
shareholders within 60 days.

6. Transferor company to act as a transfer agent for receiving and paying the
price to minority and for taking delivery of shares and delivering shares to
majority.

7. Where share certificates are not delivered within time prescribed by the
company, certificates shall be deemed to be cancelled and company can
issue new shares in lieu of cancelled shares and complete transfer by making
payment.

8. In case of minority shareholders who have died or ceased to exist, right of

such shareholders to make offer shall continue and be available for 3 years
from date of majority acquisition.
9. Before or on the date of transfer, if persons holding 75% or more of
the minority shares, negotiate with the majority for a higher rate than
that offered by majority as per valuation and if the majority pays such
higher rate to these 75%, these 75% shall share the additional
consideration received, with the balance minority shareholders on pro
rata basis.

10. Where majority fails to acquire full purchase of shares of minority

equity shareholders, provisions of this section shall continue to apply to
residual minority even if shares are delisted or period of one year has
elapsed.
By
CS Mahesh Athavale
[email protected]