Section 230 Of Companies Act, 2013
Updated: Oct 7, 2022
Compromise means a peaceful settlement of differences by mutual compromise by the parties in dispute. Arrangement means a modification of rights. Such readjustment of rights may be with members or class of them or creditors or class of them. It can include the reorganization of capital.
Section 230 of the Companies Act talks about compromise, the arrangement between the company and creditors/members, and the powers of NCLT.
Section 230: Power to Compromise or Make Arrangements with Creditors and Members
This provision states that compromise and arrangement can be done between the company and its creditors or between the company and its members.
Application for compromise or arrangement can be given either by the company or by creditors or by members of the company to the Tribunal in Form NCLT 1 along with a Notice of admission in From NCLT 2 and an Affidavit in Form NCLT 6.
An application under section 230(1) for any compromise or arrangement will be given by the applicant to the NCLT for its approval along with material facts, reduction of share capital (if any), consent of creditors (75%), and other disclosures. Applicant can be a company, creditor, member, or liquidator of the company.
After receiving the application, NCLT will call for a meeting of all the shareholders and creditors of the company for their approval through a notice. The notice will be given to the following- 1. All the members of the company 2. All the creditors of the company 3. All the debenture holders of the company 4. On the website of the company In the case of a listed company, notice will be given to SEBI and Stock Exchange so that it could be posted on their website. Apart from that, an advertisement will be published in an English newspaper and vernacular/regional newspaper. Notice to Central Government, RBI, Income Tax Authority, and Competition Commission of India for representation within 30 days. Note: If there is no reply within 30 days, it will be presumed that there is no issue/objection.
After sending notices, a meeting will be conducted within one month where all the members, creditors, and shareholders will vote for the process of compromise or arrangements which should be of the resolution of 75%. Modes of voting- 1. Physical voting 2. Vote through proxy 3. Vote through postal ballet 4. Electronical voting Note- An objection can be raised if the person has a minimum of 10% of Share Capital or 5% of Outstanding Debt.
After voting, a report has to be submitted to NCLT for the final order along with ancillary orders. NCLT's order should provide for all required matters u/s 130(7).
After NCLT's final order, the company has to file the order with ROC within 30 days.