Corporate Restructuring, Valuation and Insolvency · Regulatory Approvals of Scheme

Scheme to Be Binding: Section 263 and Section 230(6)

Updated 11 October 2026 · Fact-checked

Section 263 of the Companies Act, 2013 (Scheme to be binding) was omitted with effect from 15-11-2016. Today a scheme binds through Section 230(6): once the required three-fourths in value approve it at the meeting and the Tribunal sanctions it by order, it binds the company, creditors, members, and the liquidator and contributories in a winding up.

Understand Scheme to be Binding (Section 263)

A scheme of compromise or arrangement is a deal between a company and its creditors or members. Some of them will vote against it. The law must say when the dissenters are still bound. Otherwise one holdout could block a restructuring.

The official text supplied shows that Section 263 (Scheme to be binding) and Section 262 (Sanction of scheme) are both omitted by the Eleventh Schedule to Act 31 of 2016, with effect from 15-11-2016. So do not write an answer that quotes Section 263 as live law. You may mention it only to contrast.

The binding effect now sits in Section 230(6). Two things must happen. First, at the meeting ordered by the Tribunal, a majority of persons representing three-fourths in value of the creditors, class of creditors, members or class of members, voting in person, by proxy or by postal ballot, must agree. Second, the Tribunal must sanction the scheme by an order.

Only then is the scheme binding on the company, all the creditors or the class of creditors, all the members or the class of members, and, where the company is being wound up, on the liquidator (appointed under the Companies Act or the Insolvency and Bankruptcy Code, 2016) and the contributories. Binding means even those who voted against, or did not vote, are bound.

Binding force comes with conditions. The Tribunal's order can provide for protection of any class of creditors, an exit offer to dissenting shareholders, and the other matters in Section 230(7). The company must file the order with the Registrar within thirty days of receiving it. The auditor's certificate on accounting treatment must be filed before sanction.

Key rules to remember

Status of Section 263 and Section 262: Section 263 and Section 262 = omitted w.e.f. 15-11-2016; Both were omitted by Act 31 of 2016 (Eleventh Schedule). Do not cite them as current law.
Binding effect today: Approval by three-fourths in value at the meeting + Tribunal sanction order = scheme binds (Section 230(6)); Both conditions are needed. Approval alone, or an unsanctioned scheme, does not bind.
Who is bound: Company + creditors/class + members/class + liquidator + contributories; The liquidator and contributories are bound where the company is being wound up.
Contents of the sanction order: Section 230(7): preference share conversion option, protection of creditor classes, variation of rights under Section 48, abatement of BIFR proceedings, exit offer to dissenters and other necessary matters; The order must provide for all or any of these matters, as applicable.
Auditor's certificate: No sanction unless auditor certifies accounting treatment conforms to accounting standards under Section 133; This is the proviso to Section 230(7).
Filing of order: Order filed with Registrar within 30 days of receipt (Section 230(8)); The company has this duty.
Objection threshold: Objection only by holders of at least 10% of shareholding, or creditors with at least 5% of total outstanding debt (Section 230(4) proviso); Debt is measured as per the latest audited financial statement.
Dispensing with creditors' meeting: Creditors holding at least 90% in value agree by affidavit: Tribunal may dispense with the meeting (Section 230(9)); This applies to creditors or a class of creditors, not to members.

How to solve Scheme to be Binding (Section 263) questions

For any question on the binding effect of a scheme, follow the provision, analysis, conclusion pattern and anchor it in Section 230.

1Identify the stage of the scheme: only proposed, approved at meeting, sanctioned, or order filed.
2Note the correct law: state that Section 263 is omitted w.e.f. 15-11-2016 and that binding effect is under Section 230(6).
3Test the vote: was the meeting ordered by the Tribunal, and did the majority representing three-fourths in value of the class agree (in person, proxy or postal ballot)?
4Check Tribunal sanction. Without the sanction order, the scheme does not bind anyone.
5Name the persons bound on the facts: company, creditors or class, members or class, and the liquidator and contributories if there is a winding up.
6Check the compliance points: auditor's certificate, matters in the order under Section 230(7), and filing with the Registrar within thirty days.
7Write a one-line conclusion that applies the rule to the person in the question, for example the dissenting creditor.

Quickest way: Vote, Sanction, Bound, File

When to use it: Use when a short-answer or case question asks whether a scheme binds a dissenting creditor or member.

Say Section 263 is omitted; the rule is in Section 230(6).
Tick the vote: three-fourths in value at the Tribunal-ordered meeting.
Tick the sanction: Tribunal order.
List who is bound, including dissenters.
Add the filing duty: Registrar within 30 days.

Common mistakes in Scheme to be Binding (Section 263)

Quoting Section 263 as the current provision on binding effect.
Older books and the topic title still carry the section number.
Fix: State that Section 263 was omitted w.e.f. 15-11-2016 and cite Section 230(6).
Treating the shareholders' or creditors' vote as enough to bind everyone.
Students focus on the majority and forget the Tribunal's role.
Fix: Always write both conditions: three-fourths in value and Tribunal sanction.
Writing that the majority is a simple majority or three-fourths in number.
Confusion with other voting thresholds in company law.
Fix: The text says a majority of persons representing three-fourths in value. Stress value.
Confusing Section 262 and Section 263 as two live provisions, one on sanction and one on effect.
Students search for the difference and assume both operate.
Fix: Both are omitted. Sanction and binding effect are now both dealt with in Section 230 (sanction by the Tribunal, binding effect in sub-section (6)).
Forgetting the post-sanction compliance: filing the order with the Registrar.
Students stop at the binding effect.
Fix: Add that the company must file the Tribunal's order with the Registrar within thirty days of receiving it.
Saying Section 66 applies to a capital reduction in a scheme.
Students link all reductions with Section 66.
Fix: The Explanation to Section 230 says Section 66 does not apply to a reduction of share capital effected under the Tribunal's order under this section.

Worked examples

Example 1

Aarav Textiles Ltd proposes a scheme of arrangement with its unsecured creditors. At the Tribunal-ordered meeting, creditors representing more than three-fourths in value vote in favour. Ms Meera, a dissenting creditor, says she is not bound. The Tribunal has not yet passed any order. Advise.

Show the solution

Provision: Section 230(6) makes a scheme binding when the required majority representing three-fourths in value agrees at the meeting and the Tribunal sanctions it by order. Section 263 is omitted w.e.f. 15-11-2016.
Analysis: The vote requirement is met. The second condition, Tribunal sanction, is not yet met because no order has been passed.
Conclusion: Until the Tribunal sanctions the scheme, it does not bind the company or any creditor, including Ms Meera. After sanction, she will be bound even though she dissented, together with all creditors of that class.

Answer: The scheme is not yet binding. It will bind Ms Meera, the other creditors of the class and the company once the Tribunal sanctions it under Section 230(6).

Example 2

Bharat Components Ltd receives the Tribunal's sanction order on 10 March 2027. State the date by which the order must be filed with the Registrar, and list two things the Tribunal needed before it could sanction the scheme.

Show the solution

Provision: Section 230(8) requires the company to file the order with the Registrar within thirty days of receipt.
Computation: Thirty days from 10 March 2027. March has 31 days, so 21 days remain after 10 March, ending on 31 March. The remaining 9 days fall in April, ending on 9 April 2027.
Prerequisites: The proviso to Section 230(7) bars sanction unless the auditor's certificate is filed that the accounting treatment conforms to the accounting standards under Section 133. Also, the scheme must have been approved by the three-fourths in value majority under Section 230(6).
Conclusion: State the date and the two prerequisites.

Answer: The order must be filed with the Registrar by 9 April 2027. Before sanction, the auditor's certificate on accounting treatment had to be filed and the requisite three-fourths in value approval obtained.

Exam tips

Open by stating that Section 263 is omitted w.e.f. 15-11-2016 and that Section 230(6) governs. Examiners reward current law.
Write the binding rule as two limbs: vote of three-fourths in value and Tribunal sanction. Mention the liquidator and contributories to show full knowledge.
In case-based questions, name the exact stage of the scheme before concluding whether anyone is bound.
Add one practical compliance line: filing the order with the Registrar within thirty days and the auditor's certificate.
If asked for the difference between Sections 262 and 263, say both are omitted and explain what now covers the ground in Section 230.

Practice questions from Regulatory Approvals of Scheme

Scheme to be Binding (Section 263): frequently asked questions

Is Section 263 of the Companies Act, 2013 still in force?

No. The official text shows Section 263 (Scheme to be binding) was omitted by Act 31 of 2016, with effect from 15-11-2016. Cite Section 230(6) for the binding effect of a sanctioned scheme.

What is the difference between Section 262 and Section 263?

Section 262 was titled Sanction of scheme and Section 263 was titled Scheme to be binding. Both are omitted w.e.f. 15-11-2016, so neither applies now. Tribunal sanction and the binding effect are dealt with in Section 230.

Who is bound by a sanctioned scheme under Section 230(6)?

The company, all the creditors or class of creditors, and all the members or class of members are bound. In a winding up, the liquidator and the contributories are also bound.

Does a dissenting shareholder have to follow the scheme?

Yes, once the three-fourths in value majority approves and the Tribunal sanctions it, the scheme binds dissenters too. The Tribunal's order may include an exit offer to dissenting shareholders under Section 230(7).

Can the Tribunal skip the creditors' meeting?

Yes, under Section 230(9) it may dispense with the meeting of a creditor or class of creditors if creditors holding at least ninety per cent in value agree and confirm by affidavit.