Compromise and arrangement

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.

Process

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.

FAQ’s

What is section 230 of Companies Act?
230. Reading and inspection of auditor’ s report. The auditor’ s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.
Who can propose a scheme under section 230 of the Companies Act 2013?
If the members or the CD or creditors approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application u/s 230 of the Companies Act, 2013 before the AA – M/s.
What are the requirements relating to notice required under section 230 of the Companies Act 2013?
Section 230 of the Companies Act requires that the notice of the meeting shall be sent to all creditors/members enclosing therewith a statement containing details of the scheme and the effect of the scheme on creditors, promoters, non-promoter members, etc.
What is Section 230 simplified?
Section 230 is a provision of federal law that protects website hosts, including platforms like Google and Facebook, and their users from legal liability for online information provided by third parties.
What are the limits of Section 230?
Section 230 protect a blog host from liability for “any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is
What type of resolution is required to be passed under section 230 of the Companies Act?
Section 230 of the Act pertains to the power of the National Company Law Tribunal (“Tribunal”) to allow for a compromise. Under Section 230 of the Act, a compromise or an arrangement may take place between a company and its creditors or any subset of creditors; or between a company and its members or subset of members.
Has Section 230 been amended?
In 2018, Section 230 was amended by the Stop Enabling Sex Traffickers Act (FOSTA-SESTA) to require the removal of material violating federal and state sex trafficking laws.

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Section 230 Of Companies Act, 2013

Yashika Thakran

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