Procedural Aspect of Section 230-232 of the Companies Act, 2013 By Neeti Daga | Mamta Binani & Associates

Section 230 of the Act deals with compromise or arrangements proposed between a company and its creditors or members.
Section 231 of the Act deals with the powers of the National Company Law Tribunal (the ‘Tribunal’) to enforce compromise or arrangement.
Section 232 of the Act deals with the compromise or arrangements proposed for the purpose of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or amalgamation of any two or more companies.
The above-mentioned sections are read along with the Rules.
In this procedural write-up, we shall be discussing Section 230 and Section 232 in detail.
The judicial authorities involved in the process:- The Tribunal herein referred as the ‘Tribunal’ or the ‘NCLT’.
A brief structure of the overall procedure within the ambit of sections 230, 232 and Rules under the Act has been depicted below in the order of occurrence:
1. Filing of Company Application:

  • An Application to be filed with the NCLT in Form NCLT-1 with all the required documents under Rule 3 of the Rules[1] and Affidavit disclosing the matters[2] under section 230(2) of the Act.
  • Prescribed fees of Rs 5,000 as per the Rules shall be submitted along with the Application.
2. Hearing of Company Application:

  • The Tribunal may fix the date and place of the hearing.
  • On hearing the Application, the Tribunal may give directions as it may think necessary prescribed under Rule 5[3] of the Rules.
3. Order of the Tribunal:

  • The Tribunal may order a meeting of the creditors or a class of creditors or members or class of members as the case may be to be held and conducted in the manner directed by the Tribunal.
[The Tribunal may dispense with calling of the meeting of creditors or class of creditors where such creditors or class of creditors, at least ninety per cent in value, agree and give their No Objection Certificate by way of an affidavit to the Scheme of Compromise and Arrangement.]
4. Notice of the Meeting:

  • Where a meeting is supposed to be called, a Chairperson is appointed by the Tribunal for conducting the meeting and further reporting to the Tribunal about the meeting.
  • The Chairperson shall issue a notice u/s 230 with all the accompanying documents such as:
  1. Details of the Scheme,
  2. Valuation Report and its effect
  3. Effect of the Scheme on material interests of the Directors, Promoters, Debenture holders etc.
to all the creditors, members and debenture holders of the Company in Form No. CAA 2 and to the statutory regulators whichever applicable in Form No. CAA-3 like the Central Government (Regional Director), Income Tax authorities, The Reserve Bank of India if the Company is a Non-Banking Financial Company (NBFC), to the Securities and Exchange Board of India (SEBI) & Stock Exchanges if the Company is a listed entity, etc.
Note: Where Notice of the meeting is issued u/s 232 it shall also contain the additional details prescribed u/s 232(2).
  • The said Notice shall also be placed on the website of the Company and in case of listed Company shall also be placed on the website of SEBI and the Stock exchanges where the Company is listed. 
  • The Notice shall also be advertised in Form No. CAA-2 in at least one English newspaper and in at least one vernacular newspaper having wide circulation in the State in which the registered office of the Company is situated. The advertisement shall be made not less than thirty days before the date of the meeting. 
5. Service of Notice to the Tribunal:

  • An affidavit regarding compliance of directions regarding the issue of Notice and advertisement to be filed with NCLT at least seven days before the date of the meeting by the Chairperson or any other person as directed.
6. Objections:

  • The persons to whom the Notice of the meeting is sent can vote either themselves or through proxies or by postal ballot to confirm the adoption of the Scheme within one month from the date of receipt of such Notice.
                      Provided that objections can be made within one month only by:

  1. Persons holding not less than ten per cent of the total shareholding, or
  2. Persons having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial balance sheet.
  • Further, any objections or representations may be made by the statutory authorities to the Tribunal within thirty days of receipt of the Notice and a copy of the same shall be sent to the Company.
  • If within the prescribed time no objections or representations are received, it shall be presumed that the authorities have no objections or representations to make on the Scheme.
7. Conducting the meeting:

  • When the meeting is held, the majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, voting in person or proxy or by postal ballot, shall agree to the Scheme of Compromise or Arrangement.
  • If the Scheme is sanctioned by the NCLT by an order, it shall be binding on the Companies and all parties referred to under this section. 
8. Report of the meeting:
A report on the proceedings of the meeting conducted shall be submitted to the NCLT by the Chairperson in Form CAA-4 within three days of conducting the meeting.
9. Filing of Company Petition:
Within seven days of the filing of the report by the Chairperson, a Petition in Form No. CAA-5 shall be presented to the Tribunal for sanction of the Scheme of Compromise or Arrangement.
10. Advertisement before the hearing in newspapers:
The Tribunal shall fix a date for the hearing and the same shall be published in Form No. NCLT- 3A in the same newspapers in which the notice of the meeting was advertised, or in such other newspaper as the Tribunal may direct, not less than ten days before the date of hearing.
11. First hearing of Company Petition:
The hearing shall be held with the Tribunal, where the Tribunal checks whether the directions given in the previous orders have been complied. Thereafter the Tribunal may issue such additional directions (as required) to be complied with before the next or final hearing, as the case may be.
[These directions basically include complying with the orders of the first hearing of the Company Petition and obtaining NOC from all the statutory authorities to whom the notice has been served before the final date of hearing where the Scheme is sanctioned or dismissed.]
12. Subsequent or final hearing:

  • In the next hearing which is generally the final hearing, the Tribunal shall take note of all the compliances made by the Applicant and if it deems fit, shall sanction the compromise or arrangement u/s 230 and the order for which shall be given in Form No. CAA-6.
  • An order made by the Tribunal for sanctioning the Scheme u/s 232 shall be given in Form CAA-7. 
Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the Company’s Auditor has been filed with the Tribunal to the effect that the accounting treatment, if any proposed in the Scheme is in conformity with the accounting standards prescribed under section 133 of the Act.
  • The order shall direct that a certified copy of the same shall be filed with the Registrar of Companies within thirty days of receipt of the order.
13. Filing of Order with the Registrar of Companies:

  • A certified copy of the order is to be filed with the Registrar of Companies in Form No. INC-28 within thirty days of receipt of the order. 
  • The same shall be furnished to other statutory authorities as applicable for the concerned companies.
Note: Until the completion of the Scheme under section 232, every Company under section 232 shall file a statement in Form No. CAA-8 within two hundred and ten days from the end of the Financial Year indicating that the Scheme had complied with the order of the NCLT and the same shall be duly certified by a practising CA/CS/CMA.
List of all the Forms mentioned in the write-up:-

Sl. No




Filing of Company Application



Notice of the meeting to all creditors, members, etc

Advertisement in newspapers of the notice



Notice of the meeting to sectoral regulators and Government Authorities



Report of the meeting by Chairperson



Filing of Company Petition



Advertisement is newspaper of second hearing



Order under section 230



Order under section 232



Filing of order with the Registrar of Companies



Statement of compliance certified by a practicing CA/CS/CMA



I. Documents required under Rule 3:
(i) a notice of admission in Form No. NCLT-2 (appended in the National Company Law Tribunal Rules, 2016);
(ii) an affidavit in Form No, NCLT-6 (appended in the National Company Law Tribunal Rules, 2016);
(iii) a copy of scheme of compromise or arrangement, which should include disclosures as per sub-section (2) of section 230 of the Act.
II. Disclosures under section 230(2) of the Act:
The company or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit—

a. all material facts relating to the company, such as the latest financial position 
of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;

b. reduction of share capital of the company, if any, included in the compromise
or arrangement;

c. any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including—

  1. a creditor’s responsibility statement in the prescribed form;
  2. safeguards for the protection of other secured and unsecured creditors;
  3. report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based on the estimates provided to them by the Board;
  4. where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and
  5. a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer.
III. Upon hearing the application under sub-section ( I) of section 231 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in of the following matters:-

  1. determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement, or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230;
  2. fixing the time and place of the meeting or meetings;
  3. appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration;
  4. fixing the quorum arid the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means;
  5. determining the values of the creditors or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held;
  6. notice to be given of the meeting or meetings and the advertisement of such notice;
  7. notice to be given to sectoral regulators or authorities as required under sub-section {5) or section 230;
  8. the time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; and
  9. such other matters as the Tribunal may deem necessary.
[1] Please refer Page 7 of this document.
[2] Please refer Page 7 of this document.
[3] Please refer page 7-8 of the document.

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