Companies Act 2013

Chapter XV Section (230 to 240)

Comprimises, Arrangement and Amalgamations
Section 230 -231
Section 232
Section 233
Section 234
Section 235
Section 236
Section 237

Section 238
Section 239
Section 240

Compromise or Arrangements
Mergers and Amalgamation including
demergers
Amalgamation of small companies
Amalgamation with Foreign Company
Acquisition of shares of dissenting
shareholders
Purchase of minority shareholding
Power of Central Government to provide
for amalgamation of companies in Public
interest
Registration of offer of schemes involving
transfer of shares
Preservation of bookds and papers of
amalgamated companies
Liability of Officers in respect of offences
committed prior to merger, amalgamation

1. Meaning of Arrangement
Arrangement includes a reorganisation of the companys 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 these methods. It also include takeover offer made in the manner prescribed under
SEBI Takeover code.
Section 230 -231 Scheme of compromise or arrangement
1.
The company proposing a scheme of compromise or arrangement shall file an
application to the Tribunal under Sec 230 Sub Section (1). The application for compromise
or arrangement to be accompanied by an affidavit disclosing
a.

All material facts relating to the company

b.

Latest financial statements

c.

Latest auditors report on the accounts of the company

d.

Pendency of any investigation or proceedings against company

e.

Reduction of share capital if any

2.

Corporate debt restructuring:

Definition: It is a process that allows a private or public company, or a sovereign entity facing
cash flow problems and financial distress to reduce and renegotiate its delinquent debts in
order to improve or restore liquidity so that it can continue its operations.
Example: Kingfisher debt: Consortium of 14 banks that have a Rs.7,000 crore exposure to the
troubled airline. Due to continuous loss year on year, the company was not able to service its
debt. Hence it applied for CDR. They lenders restructured Kingfishers debt in November
2010. To infuse life into the airline, ailing even then, banks in the consortium converted
Rs.1,355 crore of debt into equity, at a 61.6% premium to the market price of Kingfisher
Airlines stock. Following this, banks own 23.21% of the airlines equity. The promoter, too,
converted Rs.648 crore of debt into equity. Apart from this, the bankers also stretched the
period of repayment of loans to nine years with a two-year moratorium, cut the interest rates,
and sanctioned a fresh loan.
In the case of corporate debt restructuring the restricting proposal should be approved by not
less than 75 % of the secured creditors in value. The following are the documents to be
submitted by the company to the Tribunal
a.

Creditors responsibility statement in the prescribed form

b.

Safeguards for the protection of other secured and unsecured creditors

c. Report by the Auditor confirming the liquidity position of the company post
restructuring
d.
Statement to the effect of adopting CDR guidelines specified by the Reserve Bank of
India
e. 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.

The Tribunal shall direct the company to call for meeting of the creditors

4. The company shall send the notice of such meeting to all the creditors of class of
creditors and debenture holders. The notice shall be accompanied by a statement disclosing
the following details
a.

Details of compromise or arrangement

b.

Copy of the valuation report

c.

Key managerial personnel

d.

Promoters and non-promoter members

e.

The effect of compromise on any material interests of the Directors of the company.
2

The copy of notice and other documents shall also be placed on the website of the company
and shall be sent to the Securities and Exchange Board and stock exchanges where the
securities of the companies are listed
5. The members who received the notice can vote in the meetings either themselves or
through proxies or by postal ballot to the adopting of the compromise or arrangement within
one month from the date of receipt of such notice
Who can object to the compromise or arrangement?
Any objection to the compromise or arrangement shall be made only by persons holding not
less than 10 % of the shareholding or having outstanding debt amounting to not less than 5 %
of the total outstanding debt as per the latest audited financial statement
6. The company shall send the notice under Sub Section (3) along with all the documents to
the Central Government, income tax, RBI, SEBI, the Registrar, the respective stock
exchanges, the Official Liquidator, Competition Commission of India and other Sectoral
Regulators.
7. The company conducts the meeting of creditors in pursuance of sub section (1). Majority
of persons representing 75 % (3/4) 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 must
agree to any compromise or arrangement.
8. No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate
by the companys auditor has been filed with the Tribunal to the effect that is in conformity
with the accounting standards prescribed under Section 133.
Recap

Application to Tribunal

Notice to be sent to all the Creditors

Notice to be placed on the website

Voting of Creditors in meeting or by postal ballot

Raising of objection to the scheme

Notice to be sent to other authorities

Auditors certificate with regard to accounting treatment

Order of Tribunal

Filing of Tribunals order with Registrar

Merger or Amalgamation of small companies

Definition of small company:
Small company: A small company has been defined as a company, other than a public
company.
(i) Paid-up share capital of which does not exceed 50 lakh INR or such higher amount as may
be prescribed which shall not be more than five crore INR
(ii) Turnover of which as per its last profit-and-loss account does not exceed two crore INR or
such higher amount as may be prescribed which shall not be more than 20 crore INR:
Procedures to be followed by the small companies for Merger or Amalgamation
1. Notice of the proposed scheme inviting objections or suggestions to the Registrar and
Official Liquidator to be submitted by the merging companies.
2.
3.

The scheme should be approved by 90 % of the shareholders in the general meeting

Each of the companies shall file a declaration of solvency with the Registrar

4. The scheme should be approved by majority representing 9/10 in value of the creditors
or class of creditors of respective companies
Can the Creditors meeting be dispensed?
A creditors meeting can be dispensed if Creditors with an outstanding debt of 90 % in value
agree and confirm by way of an affidavit to the scheme of compromise or arrangement.
Dissenting Shareholder
The expression dissenting shareholder includes a shareholder who has not assented to the
scheme or contract and any shareholder who has failed or refused to transfer his shares to the
transferee company in accordance with the scheme or contract.
The Section prescribes the manner in which the transferee company can acquire shares of the
shareholders dissenting from the scheme or contract as approved by the majority shareholders
holding not less than 9/10 in value of the shares whose transfer is involved.
The transferee company shall send a copy of the notice to the transferor company together
with an instrument of transfer to be executed and pay the consideration representing the price
payable by the transferee company for the shares. Such consideration received by the
transferor company shall be paid into separate bank account and shall be disbursed to the
entitled shareholders.

Fast Track Mergers

Section 233 enables fast track merger without the approval of NCLT between
1.

Two or more small companies

2.

Holding and wholly owned subsidiary Company

3.

Other class of companies as may be prescribed

Purchase of minority shareholding

The Section lays down the procedure and manner in which the registered holder of at least
90 % shares of a company is required to notify the company of their intention to buy the
remaining equity shares of minority shareholders by virtue of an amalgamation, share
exchange, conversion etc.
Constitution of National Company Law Tribunal
The constitution of National Company Law Tribunal is described under sections 408 and 409
of Companies Act, 2013.
Section 409 The President shall be a person who is or has been a Judge of a High Court for
five years
Judicial Member shall be the person who
a.

Is or has been a Judge of HC or

b.

Is or has been a District Judge for at least 5 years or

c.
Has been an advocate of a court or a Judicial office or as a member of a tribunal at
least for 10 years.
Technical Member
Shall be a person who
a.

Has been a member of the ICLS or Indian Legal Service for atleast 15 years

b.

Has been in practice as a CA for atleast 15 years

c.

Is or has been a cost accountant for atleast 15 years

d.

Is or has been a company Secretary for atleast 15 years

e.

Is or has been for atleast 5 years as Presiding Officer of a Labour Court

Herfindahl Hirschman Index (HHI)

HHI Index Herfindahl Hirschman Index is a commonly accepted measure of market
concentration. The HHI is calculated by squaring the market share of each firm competing in
the market. It takes into account the relative size distribution of the firms in market
Range 0 to 10,000
U.S department of Justice considers a market with a result less than
1000 Competitive market place
1000 1800 Moderately concentrated market place
1800 and more Highly concentrated market place
Mergers that increase the HHI by 100 points in concentrated market raise antitrust concerns