Company Law and Practice · Compromise, Arrangement and Amalgamations - Concepts

Compromise and Arrangement: Meaning and Scope under the Companies Act

Updated 11 October 2026 · Fact-checked

A compromise is an agreement between a company and its creditors or members, usually to settle a dispute or doubt. An arrangement is a wider term for any reorganisation of rights or capital. Under section 230 the Tribunal can sanction either. Merger and division schemes follow section 232.

Understand Compromise and Arrangement: Meaning and Scope

A company often needs to change its relationship with its creditors or its members. It may owe more than it can pay. It may want to restructure its share capital. It may want to merge with another company. Doing this person by person is impractical. The Companies Act, 2013 gives one court-supervised route instead: a compromise or arrangement sanctioned by the National Company Law Tribunal (Tribunal).

A compromise is an agreement that involves give and take between the company and its creditors or members. It usually settles a dispute, a doubt or a difficulty. For example, creditors accept 70% of their dues in full settlement. An arrangement is wider. It does not need a dispute. It covers any plan that reorganises the company's affairs or the rights of its members or creditors. The Act's explanation to section 230 says an arrangement includes reorganising share capital by consolidating shares of different classes, by dividing shares into different classes, or by both.

The scheme is proposed between the company and its creditors or any class of them, or its members or any class of them. A class means a group whose rights are similar, such as secured creditors, unsecured creditors, equity shareholders or preference shareholders. Under section 230, the application to the Tribunal can come from the company, a creditor, a member, or the liquidator if the company is being wound up.

The scheme binds everyone in the class only if the statutory majority approves at the Tribunal-ordered meeting and the Tribunal then sanctions it. The majority required is a majority in number representing three-fourths in value of those present and voting. The sanction is what makes the scheme binding on dissenters.

Section 232 is a special case. It applies when the compromise or arrangement is proposed for, or in connection with, a scheme of reconstruction involving a merger or amalgamation of two or more companies. It also applies where the undertaking of a company is divided among and transferred to two or more companies (a division). Here the transferor company's whole or part of its undertaking, property or liabilities moves to the transferee company. So the scope runs from a simple debt settlement, through capital reorganisation, to full mergers and demergers.

Key rules to remember

Compromise: Compromise = agreement between company and creditors/members, with give and take, usually settling a dispute or doubt; Needs approval of the class and sanction of the Tribunal to bind all.
Arrangement: Arrangement = any reorganisation of the company's affairs or of rights of creditors/members (includes reorganisation of share capital); Wider than compromise. No dispute is needed.
Parties to the scheme: Company ↔ creditors (or class) OR members (or class); Application under section 230 can be made by the company, a creditor, a member, or the liquidator.
Approval needed at the meeting: Majority in number representing 3/4 in value of those present and voting; Then the Tribunal sanctions the scheme. Dissenters are bound after sanction.
Scope of section 232: Scheme of reconstruction involving merger or amalgamation of two or more companies, or division of a company's undertaking among two or more companies; Section 230(3) to (6) apply mutatis mutandis to the meetings ordered under section 232(1).
Merger types (Explanation to section 232): Merger by absorption: transfer to an existing company. Merger by formation of a new company: transfer of two or more companies to a new company; The new company may or may not be a public company.

How to solve Compromise and Arrangement: Meaning and Scope questions

Use this order for any question on the meaning and scope of compromise and arrangement. It gives you the provision, the analysis and the conclusion that ICSI-style answers need.

1Read the facts and identify who the parties are: the company and which creditors or members, or which class of them.
2Classify the proposal. Is it a settlement of dues or a dispute (compromise), a reorganisation of capital or rights (arrangement), or a merger, amalgamation or division (section 232)?
3State the provision: section 230 for compromise and arrangement generally, and section 232 where the scheme involves merger, amalgamation or division.
4Apply the definitions to the facts. Point out give and take or dispute for a compromise, and the wider reorganisation for an arrangement.
5Check who may apply and that the Tribunal orders the meeting of the class concerned.
6Mention the approval needed (majority in number representing three-fourths in value of those present and voting) and the Tribunal's sanction.
7Write a clear conclusion that answers the exact question asked.

Quickest way: Three-question scan

When to use it: Use it when the question is short, such as 'distinguish', 'explain the scope' or 'is this a scheme under section 230?'

Ask: is it a settlement with give and take? If yes, name it a compromise.
Ask: is it a wider reorganisation, such as share capital or rights? If yes, name it an arrangement.
Ask: does it involve merging or dividing companies? If yes, add section 232 and the transferor and transferee companies.
Close with the Tribunal's sanction making the scheme binding.

Common mistakes in Compromise and Arrangement: Meaning and Scope

Saying a compromise always needs a dispute in court.
The everyday meaning of the word suggests a quarrel.
Fix: Say a compromise usually settles a dispute or doubt and involves give and take. It is not a court case. The Tribunal's role is to sanction it.
Treating compromise and arrangement as exact synonyms.
The Act uses them together, so students merge them.
Fix: Show the difference. A compromise is a give-and-take settlement. An arrangement is wider and needs no dispute. Give one example of each.
Limiting schemes to creditors.
Students link compromise only with debt settlement.
Fix: Remember that a scheme can be with creditors or a class of them, or with members or a class of them.
Applying section 232 to every scheme.
Merger and compromise appear in the same chapter.
Fix: Use section 232 only where the scheme involves merger, amalgamation or division. Other schemes fall under section 230.
Forgetting that the Tribunal's sanction is needed.
Students stop once the class has voted.
Fix: Always end with: approval by the required majority, then sanction by the Tribunal. The scheme binds only after that.
Mixing up the types of merger.
The terms look similar.
Fix: Merger by absorption moves the undertakings to an existing company. Merger by formation of a new company moves the undertakings of two or more companies to a new company.

Worked examples

Example 1

Distinguish between a compromise and an arrangement under the Companies Act, 2013, with an example of each.

Show the solution

Provision: section 230 allows a company to propose a compromise or arrangement to its creditors or members (or a class of them), subject to sanction by the Tribunal.
Compromise: it is an agreement with give and take, usually settling a dispute or doubt. Example: Sundaram Textiles Ltd. persuades its unsecured creditors to accept a part payment in full settlement of their dues.
Arrangement: it is wider and does not need a dispute. It covers any reorganisation of the company's affairs or of rights. Example: Sundaram Textiles Ltd. reorganises its share capital by dividing its shares into different classes.
Common ground: both involve the company and its creditors or members, both need approval of the class at a Tribunal-ordered meeting, and both bind dissenters only after the Tribunal sanctions them.

Answer: A compromise is a give-and-take settlement, usually of a dispute or doubt. An arrangement is a wider reorganisation of the company's affairs or of rights and needs no dispute. Both are covered by section 230 and bind the class only after Tribunal sanction.

Example 2

Kaveri Pharma Ltd. and Narmada Drugs Ltd. propose a scheme under which all the undertaking, property and liabilities of Narmada Drugs Ltd. will be transferred to Kaveri Pharma Ltd., and Narmada Drugs Ltd. will be dissolved. Which section governs the scheme, and what kind of merger is it?

Show the solution

Identify the nature of the scheme: it is a reconstruction involving the amalgamation of two companies, with the whole undertaking, property and liabilities of one company moving to another.
Provision: section 232 applies where a compromise or arrangement is proposed for or in connection with such a scheme. Section 230(3) to (6) apply to the meetings the Tribunal orders.
Parties: Narmada Drugs Ltd. is the transferor company. Kaveri Pharma Ltd. is the transferee company.
Type: the transfer is to an existing company, so it is a merger by absorption, as the Explanation to section 232 describes.
Consequence: the Tribunal can provide for the transfer, the dissolution of the transferor company without winding-up, and the continuation of pending legal proceedings against the transferee company.
Condition: the scheme must state an appointed date from which it is effective, and the auditor's certificate on accounting treatment must be filed with the Tribunal before sanction.

Answer: Section 232 governs the scheme. It is a merger by absorption, with Narmada Drugs Ltd. as transferor and Kaveri Pharma Ltd. as transferee. The transferor can be dissolved without winding-up once the Tribunal sanctions the scheme.

Exam tips

Start definition questions with the two terms side by side: compromise as give and take, arrangement as wider reorganisation.
Cite section 230 for schemes in general and section 232 for merger, amalgamation and division. Do not mix them.
Name the parties correctly: creditors or a class of them, members or a class of them. Use the words 'transferor' and 'transferee' for section 232.
End every answer with the Tribunal's sanction, since the scheme binds only after it.
Use short examples with Indian company names to show you have applied the definition.

Practice questions from Compromise, Arrangement and Amalgamations - Concepts

Compromise and Arrangement: Meaning and Scope 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: Meaning and Scope: frequently asked questions

What is the difference between compromise and arrangement?

A compromise is a give-and-take agreement, usually settling a dispute or doubt. An arrangement is wider and covers any reorganisation of the company's affairs or of rights, including share capital. An arrangement does not need a dispute.

Who can apply to the Tribunal for a compromise or arrangement?

Under section 230, the company, any creditor, any member, or the liquidator (if the company is being wound up) can apply to the Tribunal. The Tribunal then orders the meeting of the creditors or members, or of the relevant class.

Is a merger also a compromise or arrangement?

Yes. Section 232 deals with a compromise or arrangement proposed for a scheme of reconstruction involving merger or amalgamation of companies. It also covers a division of a company's undertaking among two or more companies.

When does a scheme bind dissenting members or creditors?

A scheme binds them after the required majority approves it at the meeting and the Tribunal sanctions it. Approval alone is not enough.