Corporate and Economic Laws · Compromises, Arrangements and Amalgamations

Compromise and Arrangement under Section 230 of the Companies Act

Updated 11 October 2026 · Fact-checked

A compromise or arrangement under Section 230 is a settlement between a company and its creditors or members (or a class of them). The Tribunal orders a meeting. If a majority in number representing three-fourths in value of those voting agree, and the Tribunal sanctions it, the scheme binds everyone. Solve questions by following: proposal, application, disclosure, meeting, vote, sanction.

Understand Compromise and Arrangement under Sections 230-231

A compromise is a settlement of disputed or doubtful claims, for example a company and its creditors agreeing to take less than the full debt. An arrangement is wider. The Explanation to Section 230(1) says it includes a reorganisation of share capital by consolidating shares of different classes, dividing shares into different classes, or both.

The scheme is proposed between the company and its creditors (or any class of them), or between the company and its members (or any class of them). The Tribunal, on the application of the company, of any creditor or member, or of the liquidator if the company is being wound up, orders a meeting of the creditors or members, or of the class concerned. The meeting is called, held and conducted in the manner the Tribunal directs.

The applicant must tell the Tribunal the full truth by affidavit. This covers all material facts: the latest financial position, the latest auditor's report, and any pending investigation or proceedings. It also covers any reduction of share capital included in the scheme, and any corporate debt restructuring scheme consented to by at least 75% of secured creditors in value.

Once the Tribunal orders a meeting, notice goes to all creditors, members and debenture-holders, with a statement of the scheme's details and effects. Notice also goes to regulators such as the Central Government, income-tax authorities, RBI, SEBI, the Registrar and others. The law protects the minority too, because the scheme works only if the Tribunal sanctions it, and the sanctioned scheme then binds even those who voted against it.

Key rules to remember

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.

How to solve Compromise and Arrangement under Sections 230-231 questions

Use the same sequence for any question on Section 230. Apply the facts to each stage and note where the scheme fails.

1Identify the parties: the company and which creditors or members (or which class) are affected. Check the scheme is a compromise or an arrangement.
2Check who applied. It must be the company, a creditor, a member, or the liquidator in a winding up.
3Check the affidavit disclosures under Section 230(2): material facts, auditor's report, pending investigations, share capital reduction, and any debt restructuring details.
4Check the meeting and notice: Tribunal-ordered meeting, individual notice with the statement and valuation report, notices to regulators with 30 days to respond, and one month for voting.
5Apply the voting rule: majority in number and three-fourths in value of those voting. Compute value percentages carefully.
6Check for dispensation or objections: 90% creditors by affidavit, and the 10% shareholding or 5% debt test for objectors.
7Check Tribunal sanction, including the auditor's accounting certificate, then the binding effect and filing of the order within 30 days.
8State a clear conclusion: scheme valid or not, and the reason.

Quickest way: Four-check shortcut

When to use it: For MCQs and short case questions where you must decide quickly whether a scheme is validly approved.

Who applied? Company, creditor, member or liquidator.
Was the meeting ordered by the Tribunal?
Did the vote meet both tests: majority in number and three-fourths in value, of those voting?
Did the Tribunal sanction it? Without sanction the vote alone binds nobody.

Common mistakes in Compromise and Arrangement under Sections 230-231

Calculating three-fourths on total capital or total debt instead of the value of those voting.
Students remember '75%' but not the base.
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.
The two-part test is shortened to a single number.
Fix: Write both parts: a majority of persons, representing three-fourths in value.
Treating shareholder approval as final and binding.
Students forget the Tribunal's role.
Fix: The scheme binds all only when the majority agrees and the Tribunal sanctions it by order.
Mixing up the 10% and 5% objection thresholds.
Both appear in the same proviso.
Fix: 10% of shareholding for members; 5% of total outstanding debt for creditors.
Mixing the 90% value figure for dispensing with a creditors' meeting with the 75% secured creditors figure in the debt restructuring disclosure.
Both are creditor percentages in the same section.
Fix: The 90% value rule under Section 230(9) concerns dispensing with a meeting. The 75% secured creditors figure in Section 230(2)(c) concerns a disclosed corporate debt restructuring scheme.
Forgetting the auditor's certificate on accounting treatment.
It sits in a proviso to sub-section (7).
Fix: Remember that no sanction without the auditor's certificate of conformity with Section 133 standards.

Worked examples

Example 1

Alpha Textiles Ltd proposes a compromise with its unsecured creditors. At the Tribunal-ordered meeting, 40 creditors vote: 24 in favour (holding ₹7,20,00,000 of debt) and 16 against (holding ₹2,80,00,000). Is the voting requirement under Section 230(6) met?

Show the solution

Total value voting = ₹7,20,00,000 + ₹2,80,00,000 = ₹10,00,000,000... recompute: ₹10,00,00,000.
Test 1, number: 24 of 40 = 60%, which is a majority. Met.
Test 2, value: ₹7,20,00,000 ÷ ₹10,00,00,000 = 72%, which is below three-fourths (75%). Not met.
Both tests must be satisfied, so the resolution fails despite the numerical majority.

Answer: The requirement is not met. The majority in number is satisfied (60%), but the value in favour is 72%, below the required three-fourths. The scheme cannot be sanctioned on this vote.

Example 2

Beta Industries Ltd, which is in financial difficulty, wants a compromise with its members. Explain the procedure up to the point where the scheme binds the members.

Show the solution

The company (or a creditor or member) applies to the Tribunal under Section 230(1). The Tribunal orders a meeting of the members or class of members.
The applicant files an affidavit disclosing material facts: latest financial position, latest auditor's report, pending investigations, and any share capital reduction in the scheme.
Notice of the meeting goes to all members, creditors and debenture-holders, with a statement of the scheme's details, a copy of the valuation report if any, and its effect on key managerial personnel, promoters, non-promoter members and directors' interests. It is also placed on the company's website.
Notice with documents goes to the Central Government, income-tax authorities, RBI, SEBI, the Registrar, stock exchanges, the Official Liquidator and others. They have 30 days to make representations.
Members vote in person, by proxy or by postal ballot within one month of receiving the notice.
If a majority of persons representing three-fourths in value of those voting agree, the Tribunal can sanction the scheme, after the auditor's certificate on accounting treatment is filed.
On the Tribunal's order, the scheme binds the company and all members or the class. The company files the order with the Registrar within 30 days of receipt.

Answer: The scheme binds the members only after the Tribunal-ordered meeting approves it by a majority in number representing three-fourths in value of those voting, and the Tribunal sanctions it. The company then files the order with the Registrar within 30 days.

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.

Practice questions from Compromises, Arrangements and Amalgamations

Compromise and Arrangement under Sections 230-231 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Compromise and Arrangement under Sections 230-231: frequently asked questions

Who can apply to the Tribunal under Section 230?

The company, any creditor or any member can apply. If the company is being wound up, the liquidator can apply. The application asks the Tribunal to order a meeting of the creditors or members, or of a class of them.

What majority is required for a scheme of arrangement under Section 230?

A majority of persons representing three-fourths in value of the creditors or class, or the members or class, voting in person, by proxy or by postal ballot. The Tribunal must then sanction the scheme by order.

Can the Tribunal skip the creditors' meeting?

Yes. Under Section 230(9), the Tribunal may dispense with the meeting of a creditor or class of creditors if creditors having at least 90% in value agree and confirm by affidavit to the scheme.

Who can object to a compromise or arrangement?

Only persons holding at least 10% of the shareholding, or having outstanding debt of at least 5% of the total outstanding debt as per the latest audited financial statement, can object.