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.
[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.
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