Compromises, Arrangements and Amalgamations: formula sheet

Key formulas

Who may apply (Section 230(1))

Company, or any creditor, or any member; liquidator if the company is being wound up

Application is made to the Tribunal, which then orders the meeting.

Majority for approval (Section 230(6))

Majority of persons representing three-fourths in value of the creditors/class or members/class, voting in person, by proxy or by postal ballot

Both tests apply: a majority in number and three-fourths in value of those voting.

Time to vote on the notice (Section 230(4))

Within one month from the date of receipt of the notice

Voting can be personal, by proxy or by postal ballot.

Objection threshold (Proviso to Section 230(4))

Holding at least 10% of shareholding, or outstanding debt of at least 5% of total outstanding debt per the latest audited financial statement

Only such persons can object to the compromise or arrangement.

Regulators' representations (Section 230(5))

Within 30 days from receipt of notice

If no representation is made, it is presumed they have none.

Meeting of creditors dispensed (Section 230(9))

Creditors holding at least 90% in value confirm by affidavit

The Tribunal may then dispense with the creditors' meeting.

Filing of order (Section 230(8))

Company files the Tribunal's order with the Registrar within 30 days of receiving it

Count from receipt of the order.

Auditor's certificate (Proviso to Section 230(7))

Certificate that the proposed accounting treatment conforms to accounting standards under Section 133

Must be filed with the Tribunal before sanction.

Documents to circulate for the meeting (s.232(2))

Draft scheme adopted by directors + confirmation of filing with Registrar + directors' report (effect on each class, share exchange ratio, valuation difficulties) + expert valuation report, if any + supplementary accounting statement, if needed

The supplementary accounting statement is needed if the last annual accounts relate to a financial year ending more than six months before the first meeting.

Merger by absorption

Transferor(s) → existing transferee company

Undertaking, property and liabilities of one or more companies go to another existing company.

Merger by formation of a new company

Two or more transferors → new company

The new company may be public or not. The 'merging companies' here are the transferor companies.

Auditor's certificate (proviso to s.232(3))

No sanction unless the company's auditor certifies accounting treatment conforms to accounting standards under section 133

The certificate must be filed with the Tribunal.

Filing of order (s.232(5))

Certified copy of order to Registrar within 30 days of receipt

Default penalty under s.232(8): ₹20,000 on the company and each officer in default, plus ₹1,000 per day after the first, maximum ₹3,00,000.

Appointed date (s.232(6))

Scheme must state an appointed date and is effective from it, not a later date

Different from the date the order is made.

Annual compliance statement (s.232(7))

Until the scheme is complete, file a yearly statement with the Registrar certified by a CA, CMA or CS in practice

It states whether the scheme is being complied with as per the Tribunal's orders.

Eligible companies

Two or more small companies; or holding company + wholly-owned subsidiary; or other prescribed classes

Section 233(1). It applies notwithstanding Sections 230 and 232.

Notice for objections

Notice inviting objections or suggestions within 30 days

Issued by the transferor and transferee companies. It goes to the Registrar and Official Liquidators of the places where the registered offices are situated, and to persons affected.

Member approval

Approval at a general meeting by members holding at least 90% of the total number of shares

Each company does this separately, after considering the objections and suggestions received.

Declaration of solvency

Each company files a declaration of solvency in the prescribed form with the Registrar of its registered office

Section 233(1)(c).

Creditor approval

Majority representing 9/10 in value of creditors or class of creditors

Approved at a meeting called by 21 days' notice with the scheme, or approved in writing.

Filing the scheme

Transferee company files the approved scheme with the Central Government, Registrar and Official Liquidator

Section 233(2).

Registrar/OL objection window

30 days to communicate objections to the Central Government

If none is made, no objection is presumed.

Central Government reference to Tribunal

Application within 60 days of receipt of the scheme

Made if the scheme is not in public interest or in the creditors' interest. The Central Government asks the Tribunal to consider it under Section 232.

Effect of registration

Transferor dissolved without winding-up; assets, liabilities, charges and proceedings pass to the transferee

Section 233(8) and (9).

Applicability of the Chapter

Section 234(1): Chapter provisions apply mutatis mutandis to mergers between Indian companies and companies in jurisdictions notified by the Central Government

Subject to any other law for the time being in force. The Central Government may make rules in consultation with the RBI.

RBI approval

Section 234(2): foreign company may merge into an Indian company, or vice versa, with the prior approval of the RBI

Approval must be prior, not after the scheme is passed. It is subject to other laws in force.

Permitted consideration

Cash, or Depository Receipts, or partly cash and partly Depository Receipts

Paid to the shareholders of the merging company as per the scheme. The words 'among other things' mean the scheme may provide other terms too.

Meaning of foreign company

Company or body corporate incorporated outside India, whether or not it has a place of business in India

This is the Explanation to section 234(2). It is wider than just a company with an Indian office.

Officers' liability

Section 240: liability of officers in default of the transferor company for offences under the Act before the merger continues after the merger

Applies to merger, amalgamation or acquisition generally, including cross-border cases.

Section 235 approval threshold

Approval by holders of ≥ 9/10 in value of shares involved, within 4 months of the offer

Shares already held by the transferee company, its nominee or its subsidiaries at the date of the offer are excluded.

Section 235 notice window

Notice to dissenters within 2 months after the 4 months expire

Notice is given in the prescribed manner by the transferee company.

Dissenter's remedy

Tribunal application within 1 month of the notice

Otherwise the transferee company is entitled and bound to acquire on the same terms as approving holders.

Handling of money under section 235

Separate bank account; held in trust; disbursed within 60 days

Transferor company informs dissenters within 1 month of registering the transferee.

Section 236 trigger

Holding ≥ 90% of issued equity share capital (acquirer or persons acting in concert)

Applies whatever the reason: amalgamation, share exchange, conversion of securities or otherwise.

Section 236 price

Price = valuation by a registered valuer under prescribed rules

Minority may also offer their shares to the majority at this price.

Section 236 deposit

Deposit value of shares in separate account for at least 1 year; pay within 60 days

Further disbursement continues for one year for those not paid. Rights of heirs of deceased holders continue for 3 years.

Section 236(8) sharing

If holders of ≥ 75% of the minority negotiate a higher price for onward transfer without disclosure, majority shares the extra pro rata

Applies where the minority shares were acquired under this section.

What goes in the register

Contracts or arrangements under Section 184(2) or Section 188

Particulars are kept separately, in the manner and form prescribed by the rules.

Board placement and signing

Place before the next Board meeting; signed by all directors present

Section 189(1). Directors absent at that meeting do not sign.

Director or KMP disclosure

Within 30 days of appointment or relinquishment of office

Section 189(2). Particulars are those specified in Section 184(1), relating to his concern or interest in other associations.

Place and inspection

Registered office; open in business hours; produced at the start of every AGM

Section 189(3) and (4). Members may take extracts and get copies on payment of the prescribed fees.

Exemptions

Goods, materials or services not exceeding ₹5,00,000 in aggregate in a year; banking company bill collection in ordinary course

Section 189(5). The limit is aggregate per year, not per contract.

Penalty

₹25,000 on every director who fails to comply

Section 189(6). Compare ₹1,00,000 for contravening Section 184(1) or (2) under Section 184(4).

Section 184 vs 189

184 = disclosure and non-participation; 189 = register and access

Contract entered without Section 184 disclosure, or with an interested director participating, is voidable at the company's option (Section 184(3)).

Quick revision

• Section 230 applies to a compromise or arrangement with creditors or any class of them, or members or any class of them.
• The Tribunal may order a meeting on the application of the company, a creditor, a member, or the liquidator if the company is being wound up.
• Arrangement includes reorganisation of share capital by consolidation, division into different classes, or both.
• The applicant must disclose material facts by affidavit, including the latest financial position, the latest auditor's report and any pending investigation.
• Notice goes to creditors, members and debenture-holders with a statement of effect on key managerial personnel, promoters, non-promoter members and others, and a copy of the valuation report, if any.
• Voting may be in person, by proxy or by postal ballot, within one month from receipt of notice.
• Objection can be made only by holders of at least ten per cent of shareholding or outstanding debt of at least five per cent of total outstanding debt.
• Approval needs a majority of persons representing three-fourths in value of those voting, followed by Tribunal sanction. It then binds all.
• Regulators who receive notice have thirty days to make representations, failing which they are presumed to have none.
• No scheme is sanctioned without the auditor's certificate that its accounting treatment conforms to the accounting standards under Section 133.
• The Tribunal may dispense with a creditors' meeting where creditors holding at least ninety per cent in value confirm the scheme by affidavit.
• The company must file the Tribunal's order with the Registrar within thirty days of receiving it.

Common mistakes

• Calculating three-fourths on total capital or total debt instead of the value of those voting. Fix: Section 230(6) refers to those voting in person, by proxy or by postal ballot. Use only the votes cast.
• Saying only a majority in value is needed. Fix: Write both parts: a majority of persons, representing three-fourths in value.
• Writing that section 232 describes a legal difference between merger and amalgamation. Fix: Say the section deals with 'merger and amalgamation' of companies. Then classify the scheme as absorption or formation of a new company, as the Explanation does.
• Saying the supplementary accounting statement is always required. Fix: State that it is needed only if the last annual accounts relate to a financial year ending more than six months before the first meeting.
• Saying the Tribunal sanctions every Section 233 merger. Fix: Under Section 233 the Central Government registers the scheme. The Tribunal is involved only if the Central Government applies or a person applies and the Tribunal considers it.
• Quoting the member approval as 90% of members present and voting. Fix: The text says members or class of members holding at least 90% of the total number of shares.
• Saying section 234 allows only foreign companies to merge into Indian companies. Fix: Remember the words 'or vice versa'. Both inbound and outbound mergers are covered.
• Forgetting that the country must be notified by the Central Government. Fix: Quote section 234(1): the jurisdictions of such countries as may be notified from time to time by the Central Government.
• Treating section 235 and section 236 as the same squeeze-out. Fix: Section 235 needs an offer and approval by 90% in value of shares involved. Section 236 needs only that a person holds 90% or more of issued equity capital.
• Counting all shares in the 90% test under section 235. Fix: Leave out shares already held at the offer date by the transferee company, its nominee or its subsidiaries.

Exam tips

• In MCQs, expect questions on the exact figures: three-fourths in value, one month, 30 days, 10% and 5% objection thresholds, and 90% for dispensing with a creditors' meeting.
• In numerical questions, always test both number and value, and compute value on those voting only.
• In case questions, check who applied, whether a Tribunal order was obtained, and whether the Tribunal sanctioned the scheme.
• In long answers, list the procedure in sequence and mention the affidavit disclosures and notice to regulators to show depth.
• Pair this topic with merger and amalgamation under Section 232, since the Section 230 procedure is its base.
• For procedure questions, answer in the order: application, meeting, circulation, sanction, filing. Examiners reward the sequence.
• In MCQs, watch the numbers: 30 days for filing, six months for the accounting statement, ₹20,000, ₹1,000 and ₹3,00,000 for the penalty.
• In case scenarios, check for hooks: a listed transferor with an unlisted transferee, non-resident shareholders, or the transferee holding its own shares.