COMPROMISES, ARRANGEMENTS & AMALGAMATIONS - COURT CONVENED MEETINGS

Section 230 of the Companies Act 2013 (referred to as Act), provides for detailed procedure relating to compromise or arrangements with creditors or members. The first and foremost stage in the process of getting the scheme approved by the National company Law Tribunal (referred to as Tribunal) is filing of Applications by the respective companies before the Tribunal, upon which the Tribunal may order a meeting of members or creditors or a class of members or the creditors.

The meeting so ordered shall be conducted in the manner as may be prescribed by the Tribunal.[1]

The Companies (Compromises, Arrangements & Amalgamations) Rules 2016, which was made effective from 15.12.2016, enlists detailed procedure for the conduct of the meeting pursuant to the Order of the Tribunal to sanction the scheme if compromise or arrangement by the members or creditors as the case may be.

Following are the highlights of provisions relating to meeting as prescribed under Section 230 of the Act and the Rules made thereunder.

BEFORE THE MEETING:

1.      Notice of the Meeting: Notice of the general meeting ordered by the Tribunal as stated above shall be sent to the members or creditors as the case may be through registered post or courier or by email or hand delivery at the address registered with the company[2]. A copy of the same shall also be displayed at the website of the company if any. The form in which such notice has to be issued is prescribed in Rule 6 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016. In case of a listed company a copy of the same will be displayed in the website of SEBI and the recognized stock exchanges where the shares of the Company are listed.

2.      Information / Disclosures supporting Notice:

a)      Statement disclosing the details of compromise or arrangement.

b)      Copy of valuation report, if any.

c)      Effect of compromise or arrangement on material interests of the directors of the company / debenture trustees.

d)     All information as provided in Rule 6 (3) of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016.

3.      Advertisement / Paper publication:

Rule 7 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016, provides the form and manner in which the contents of the notice referred above is required to be published.  In event of separate meetings conducted by for the members and the creditors, a joint publication may also be preferred.

The Rules further states that the publication is required to be made both in an English newspaper and a vernacular newspaper having vide circulation in the state where the registered offices of the Companies are situated.

A copy of the said publication should be displayed in the website of the Company if any.

Proviso to Section 230 (3) mandates that the time frame within which the copies of the compromise / arrangement is made available at the registered office of the company should be mentioned specifically in the advertisement

4.      Voting: Persons received the notice may vote either in person or proxy or by way of postal ballot within one month from the date of receipt of the notice. The concept of voting through postal ballot is a new addition to the existing provisions relating to voting in a meeting convened for the purpose of sanction of a scheme. Rule 10 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016 list outs the procedure relating to voting by proxies.

5.      Notice to Statutory Authorities: According to Section 230(5), Companies shall send notice in the form prescribed in Rule 8 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016 to the following Authorities:

a)      Central Government, Registrar of Companies, Income Tax Authorities in all cases.

b)      RBI, SEBI and Stock Exchanges if applicable.

c)      Other sector specific regulators/authorities as directed by the Tribunal.

If the Authorities referred above intend to make any representation, the same shall be made within 30 days from the date of receipt of the notice. In event of no representations received within the stipulated period, then it shall be presumed that the authorities have no representations to be made with respect to the proposed scheme.[3] It is pertinent to note that this provision stipulating timeframe for the authorities to provide their representations is new addition in the present Act.

6.      Physical copy of the scheme of compromise or arrangement, upon requisition shall be provided at free of cost to everyone who is entitled to attend the meeting and vote in the said meeting.[4]

7.      Affidavit of Service: The chairman appointed by the companies or such other person appointed by the Order of Tribunal shall file the Affidavit of Service before the Tribunal, not less than 7 days before the date fixed for the meeting.[5]

DURING & AFTER THE MEETING:

1.      VOTING MAJORITY: Section 230(6) stipulates that the Scheme is said to be approved if majority of members/creditors representing three fourth in value cast their votes in favor of the same. In that event the scheme is said to be binding on all the members or creditors as the case may be.

2.      RECORDING THE RESULT OF THE MEETING: The Chairman of the meeting shall record the result of the meeting and file Rule 14 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016 within the time fixed by the Tribunal. In case if no such time is fixed, then the same shall be filed within 3 days after the conclusion of the meeting.

RIGHT TO OBJECT:

Proviso to Rule 230 (4) states that objection to the compromise shall be raised only members holding at least 10% of shareholding or person(s) holding 5% of the outstanding debt as per the last audited financial statement.

DISPENSATION OF MEETING:

Section 230 (9) of the Act states that the Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors having ninety percent in value give their assent to the scheme. Also Rule 5 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016 states that the Tribunal may give directions to determine the meeting to be held or dispensed with as per Section 230 (9).

The question whether the same is applicable for dispensation of meeting of members was raised before the Principal Bench, New Delhi. The Bench vide its Order dated 13.1.2017[6], clarified that the same shall not be applicable to the meeting of members of the Company. Dismissing the prayer raised by the companies in the said scheme of compromise, the Bench clarified that Section 230(9) is applicable only to meeting of creditors or class of creditors and not to the members.

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[1] Section 230 (1) of the Companies Act 1956.

[2] Rule 6 (2) of Companies ( Compromises, Arrangements & Amalgamations) Rules 2016

[3] Section 230 (5) of the Act & Rule 8 (3) of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016

[4] & Rule 11 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016

[5] & Rule 12 of the Companies (Compromises, Arrangements & Amalgamations) Rules 2016

[6] JVA Trading Pvt. Ltd. and C&S Electric Limited.