CS Executive · Company Law and Practice
Compromise, Arrangement and Amalgamations: Concepts for CS Executive
A compromise is an agreement between a company and its creditors or members to settle claims. An arrangement is wider and includes reorganising share capital. Under Section 230, the Tribunal orders meetings, and a majority representing three-fourths in value must agree. The Tribunal then sanctions the scheme, which binds everyone.
What this chapter covers
This chapter covers how a company can settle with its creditors or members, reorganise itself, merge with another company or be taken over. The common route is a scheme approved by the National Company Law Tribunal (the Tribunal) under Sections 230 to 232 of the Companies Act, 2013.
You start with meaning and scope. Then you learn the procedure: application, disclosure by affidavit, notice, voting, sanction and filing. Merger, amalgamation and takeover are applications of the same scheme route. Takeover of listed companies also links to SEBI regulations.
The chapter connects to other parts of Paper 2: share capital, meetings and resolutions, and winding up. It also links to Paper 5 (securities laws) and Paper 7 (tax treatment of amalgamations). Learn it as one process with variations, not as five separate topics.
Paper 2 is a written paper, and this chapter suits written answers. Questions usually ask you to explain a procedure, state a voting rule or apply a rule to facts. Section 230 has many precise details: who can apply, what must be disclosed, time limits, voting majority and objection thresholds. If you learn these accurately, you can write structured answers that earn marks. Weak recall of numbers is where most students lose marks here.
Compromise, Arrangement and Amalgamations - Concepts: topics in the order to study them
- 1Compromise and Arrangement: Meaning and ScopeStart here because every later topic uses these terms, including the point that arrangement covers reorganising share capital by consolidating or dividing shares.
- 2Procedure for Scheme under Sections 230 to 232This is the core of the chapter and the most testable part, so study it second while the meaning is fresh.
- 3Merger and Amalgamation of CompaniesAmalgamation is a scheme under the same procedure, so you can learn it as an extension of what you just studied.
- 4Power of Tribunal to Enforce Compromise or ArrangementAfter you know how a scheme is sanctioned, you can understand how the Tribunal makes it work in practice.
- 5Takeover and Acquisition of SharesStudy this last because it builds on schemes, and for listed companies it points to SEBI regulations.
How to prepare Compromise, Arrangement and Amalgamations - Concepts
Treat this chapter as a sequence of steps with fixed conditions. Your goal is to reproduce the sequence and the numbers without error.
- Read Section 230 once in full and underline every number: 75% of secured creditors in value, one month for voting, 10% shareholding and 5% debt for objections, 30 days for representations and filing, and 90% value for dispensing with a creditors' meeting.
- Draw the procedure as a flow: application to Tribunal, affidavit disclosure, Tribunal orders meeting, notice with statement and valuation report, voting, Tribunal sanction, filing with the Registrar.
- Write down who receives notice: creditors, members, debenture-holders, and authorities such as the Central Government, income-tax authorities, RBI, SEBI, Registrar, stock exchanges and Official Liquidator. Note the 30-day period for their representations.
- Learn the voting rule exactly: a majority of persons representing three-fourths in value, of those voting in person, by proxy or by postal ballot. Practise stating it in one sentence.
- Learn what the sanction order may provide, including the auditor's certificate on accounting treatment under Section 133 standards, which is a condition for sanction.
- Practise two or three full answers in ICSI style: state the provision, apply it to the facts, then give a clear conclusion citing the section.
- Revise by closing the book and writing the flow and the numbers from memory, then check against the text.
Common mistakes in Compromise, Arrangement and Amalgamations - Concepts
Saying approval needs three-fourths of all members or creditors.
Fix: Write it fully: a majority of persons representing three-fourths in value of those voting in person, by proxy or by postal ballot.
Mixing up the 10% and 5% objection thresholds.
Fix: Link 10% to shareholding and 5% to outstanding debt as per the latest audited financial statement.
Treating compromise and arrangement as the same thing.
Fix: Define compromise as a settlement of claims and arrangement as wider, and mention that it includes share capital reorganisation.
Forgetting who must be sent notice besides members and creditors.
Fix: Remember the list in sub-section (5) and the 30-day period for representations.
Leaving out the auditor's certificate when describing sanction.
Fix: Add it to your answer as a condition: no sanction without the certificate on accounting treatment.
Writing answers without a conclusion or section reference.
Fix: Use the ICSI pattern: provision, application to the facts, conclusion, and cite Section 230 where it matters.
Last-day revision: Compromise, Arrangement and Amalgamations - Concepts
- Section 230 lets the Tribunal order meetings of creditors or members, or any class of them, on application.
- Applicants can be the company, any creditor or member, or the liquidator if the company is being wound up.
- Arrangement includes reorganising share capital by consolidation, division or both.
- The applicant must disclose material facts by affidavit, including latest financial position, auditor's report and pending investigations.
- Notice goes to creditors, members and debenture-holders, with a statement of effect and any valuation report.
- Voters can vote themselves, by proxy or by postal ballot within one month of receiving notice.
- Objections can be made only by holders of at least 10% of shareholding or debt of at least 5% of total outstanding debt.
- Authorities get notice and have 30 days to make representations, otherwise they are presumed to have none.
- Approval needs a majority of persons representing three-fourths in value of those voting.
- The Tribunal can dispense with a creditors' meeting if creditors holding at least 90% in value confirm by affidavit.
- Sanction needs the auditor's certificate that accounting treatment follows Section 133 standards.
- File the Tribunal's order with the Registrar within 30 days of receiving it.
Compromise, Arrangement and Amalgamations - Concepts practice questions
- Alpha Textiles Ltd proposes to transfer its entire undertaking, property and liabilities to Beta Fabrics Ltd, an existing company, under a s…
- Rohini Steels Ltd has 10,000 crore of total outstanding debt per its latest audited financial statement, and its shareholders number many. A…
- Kaveri Plastics Pvt Ltd, an unlisted company, made a takeover offer through a scheme. Minority shareholder Rohan feels the offer is unfair t…
- Kaveri Foods Ltd has received a Tribunal order to hold a meeting on a scheme. The notice of the meeting is sent to the members. Within what …
- Mehta Foods Ltd's scheme of arrangement was sanctioned by the Tribunal and includes a takeover offer. The scheme also needs to treat dissent…
- Bharat Textiles Ltd proposes a compromise with its unsecured creditors. Under Section 230, who may apply to the Tribunal to order a meeting …
- Two years after the Tribunal sanctioned Kaveri Agro Ltd's arrangement, a practical hurdle arose in transferring a particular asset under the…
- A listed company, Kaveri Ltd, merges into an unlisted company, Narmada Pvt Ltd, under a sanctioned scheme. Some Kaveri shareholders choose t…
Compromise, Arrangement and Amalgamations - Concepts in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Compromise, Arrangement and Amalgamations - Concepts: frequently asked questions
What is the difference between a compromise and an arrangement?
A compromise is a settlement between a company and its creditors or members. An arrangement is wider. Under Section 230 it includes reorganising share capital by consolidating shares of different classes, dividing shares into classes, or both.
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 Tribunal then orders a meeting of the creditors or members, or of a class of them.
What majority is needed to approve a scheme?
A majority of persons representing three-fourths in value of the creditors or members, or their class, voting in person, by proxy or by postal ballot. The Tribunal must then sanction the scheme, after which it binds all concerned.
Can the Tribunal skip the creditors' meeting?
Yes. The Tribunal may dispense with the meeting of creditors or a class of creditors if those holding at least 90% in value agree and confirm the scheme by affidavit.
Is this chapter written or objective in the exam?
The CS Executive papers are descriptive written papers, with no MCQ or OMR format. Prepare to explain the procedure, state the rules with their exact conditions and give a conclusion.