Compromise ,reconstruction or amalgamation


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Compromise ,reconstruction or amalgamation

  1. 1. COMPROMISE OR ARRENGEMENTThe provisions of the Companies Act regardind a scheme of ‘Compromise’ or ‘Arrangement’ are mainly applicable to those companies which are liable to be wound up under the act [ sec.390(a) ]. It is to be remembered that these provisions are applicable to foreign company incorporated outside india but doing business in india and a government company also because they are liable to be wound up under the act . These provisions would also equally apply to concern which is in winding up . By providing these provisions , the law intends to provide a kind of subsitute for windindg up and thereby save a company from going in to liquidation .
  2. 2. Statutory Provisions Sections 391, 392 , and 393 of the companies act,1956Section 391 lays down that ;(1) Where a compromise or arrengement is proposed :(a) Between a company & its creditors .(b) between a company and its members .(2) The compromise or Arrengement will then binding on :(a) All the creditors or classes of creditors .(b) All the members or classes of members .(c) The company(d) In the case of company which is being wound up on the liquidators and conttributories .
  3. 3. (3) The court order is not effective , unless the certified copy of the order has been field with the registrar .(4) A copy of every such order shall be annexed to every copy of the memorandum , subsequently issued. If default is made in this respect , the company and every officer who is in default shall be punishable with fine which may extend to rs 100 for each copy in respect of which default is made .(5) After an application has been made to the court under this section , the court may at any time stay the commencement of any suit or processing against the company.(6) Any order of the court under this section is open to appeal to high court . Provision no.3 ,4 , 5given above shall also apply in relation to any appellate order .
  4. 4. Section 392 deals with the power of the court toenforce Compromise or Arrangement and lays down that :(1) When the court makes an order sanctioning a compromise or an arrangement in respect of a company , it can exercise the following powers :(a) It shall have power to supervise the carrying out the scheme of compromise or arrangement .(b) may, at the time of making such order , or at any time there after , give such directions or make such modifications , as it may consider necessary , for the proper working of the compromise and Arrangement.(2) If how ever, the court is satisfied that the sanctioned or Arrangement cannot be worked satisfactorily with or without modifications .
  5. 5. Section 393 deals with the rules regarding meeting of creditors or members and lays down that :(1) Where a meeting of the creditors or any class of creditors, or members or any class of members is called under section 391 , for passing a scheme of Compromise or Arrangement .its affect , should also be sent along with the notice , calling such meeting .such a statement must explain in particular any material interest of director , managing director or manager of the company .
  6. 6. (2) If default is made in complying with the above provisions regarding the notice and the statement , every officer (including liquidator of the company and every trustee of debenture holders ) in default and the company shall be punishable with fine which may extend to Rs 50,000.(3) Every officer ( directors , managing directors or manager or every trustee of debenture holders ) of the company , is required to give notice to the company for such matters relating to himself as may be necessary for the purpose of the Compromise or Arrangement , and if he fails to do so , he shall be punishable with fine which may extend Rs 5000 .
  7. 7. RECONSTRUCTION & AMALGAMATION Sections 394 and 395 provide for facilitating Arrangements for the purpose of „Reconstruction‟ or „Amalgamation‟ of companies . The term Reconstruction implies the formation of a new company to take-over the Assets of an existing company with the idea that the persons interested and the nature of business substantially remains the same . The term Amalgamation is taken to mean as the union of two or more companies , so as to form a third entity or one company is absorbed into another company .
  8. 8. Both reconstruction as well as Amalgamationrequire similar legal procedures and schemes canbe carried out :(a) Section 494 and 507 provide for Reconstruction or Amalgamation of companies by winding up the company voluntary .(b) Section 394 and 395 provide for a scheme of Reconstruction and Amalgamation without winding up . Section 394 lays down that :1. Transfer of the undertaking , property or liabilities of one company to another .2. The allotment or appropriation by the transferee company of any shares , debentures , policies , or other like interests in that company .
  9. 9. 3. The continuation by or against the transferee company of any legal proceedings pending by or against the transferor company ,4. The dissolution , without winding up , of the transferor company .5. The provision to be made for any person who dissents from the scheme .6. Such incidental , consequential and supplemental matters as may be necessary to secure that the reconstruction or Amalgamation shall be fully and effectively carried out .
  10. 10. Acquisition of shares of dissenting shareholders in case of Take-over Bid The method of Amalgamation by take-over bid is quite common. A “take over Bid” means an offer to Acquire shares of company with a view to obtaining legal control of the company . Section 395 provides for the compulsory Acquisition of the shares of the dissenting minority , the provisions of sec.395 are as follows :1. The offer of the transferee company to Acquire the shares or Any class of shares , must be placed before the shareholder of the transferor company .
  11. 11. 2. The shareholders have the option to Approve the offer with in four months . Approval must be Accorded by the holders of at least 90 per sent in value of the shares .whose transfer is involved (other than shares already held by transferee company at the date of the offer or by its nominees or by its subsidiary )3. If the scheme is so approved , the transferee company may , at any time , with in two months , after the expiration of the Above four months , give notice to the dissenting share holders .4. The dissenting shareholders can , with in one month of the receipt of such notice , apply to the court for annulling the scheme .
  12. 12. 5. If the court refuse to issue the order annulling the scheme of Amalgamation or if no application is made to the court , the transferee company shall be entitled and bound to Acquire the share of dissenting shareholders .6.The transfer of shares pursuant to the notice given by the transferee company after the disposal of the appeal field by the dissenting share holders .7. Any sums which so received by the transferee company must be paid in to a bank account and this amount or any other consideration received must be held for dissenting share holders .
  13. 13. Amalgamation in national interest Under section 396 of the Act , the central Govt. is given power to order Amalgamation of two or more companies in public interest. The section provide as follows :1. If the central govt. is satisfied that it is essential in the public interest that two or more companies should be Amalgamated .2. the order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by transferee company.3. Every member , debenture holder or any other creditors of the Amalgamation companies , continue to have the same interest in the new company ,
  14. 14. 4. No order under this section shall be made by the central govt. unless :(a) A draft copy of the proposed order has been sent to each of the companies to file their objectives and suggestions .(b) The time for preferring an appeal to company law board has expired .(3) It has considered and made such modifications if any , in the draft order as may seem to it desirable in the light of any suggestions and objectives.5. Copies of the order made by the govt. in this connection must , as soon as possible , be laid before both the house of parliament.
  15. 15. Yudhvir Saini MBA/10/24 3rd SEM
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