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CHAPTER V ARBITRATION, COMPROMISES, ARRANGEMENTS AND RECONSTRUCTIONS [389.
Power for companies to refer matters to arbitration - Repealed by the Companies (Amendment) Act, 1960 (65 of 1960), section
150.] 390.
Interpretation of sections 391 and 393 In
sections 391 and 393, - (a) the expression
"company" means any company liable to be wound up
under this Act; (b) the expression
¨arrangement〃 includes a reorganization of the share capital
of the company by the consolidation of shares of different classes,
or by the division of shares into shares of different classes
or, by both those methods; and (c) unsecured
creditors who may have filed suits or obtained decrees shall
he deemed to be of the same class as other unsecured creditors. 391.
Power to compromise or make arrangements with creditors
and members (1) Where a compromise
or arrangement is proposed - (a) between a
company and its creditors or any class of them;or (b) between a
company and its members or any class of them; the Court may, on the application of the company or of any creditor or member
of the company, or, in the case of a company, which is being
wound up, of the liquidator, order a meeting of the creditors
or class of creditors, or of the members or class of members,
as the case may be, to be called, held and conducted in such
manner as the Court directs. (2) If a majority
in number representing three-fourths in value of the creditors,
or class of creditors, or members, or class of members, as the
case may be, present and voting either in person or, where proxies
are allowed 1[under the rules made under section
643], by proxy, at the meeting, agree to any compromise or arrangement,
the compromise or arrangement shall, if sanctioned by the Court,
be binding on all the creditors, all the creditors of the class,
all the members, or all the members of the class as the case
may be, and also on the company, or in the case of a company
which is being wound up, on the liquidator and contributories
of the company: 1
Inserted by Act 65 of 1990, section 151. 1[Provided that no order sanctioning any compromise
or arrangement shall be made by the Court unless the Court is
satisfied that the company or any other person by whom an application
has been made under sub-section (1) has disclosed to the Court,
by affidavit or otherwise, 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,
the pendency of any investigation proceedings in relation to
the company under sections 235 to 251, and the like.] (3) An order
made by the Court under sub-section (2) shall have no effect
until a certified copy of the order has been filed with the
Registrar. (4) A copy of
every such order shall be annexed to every copy of the memorandum
of the company issued after the certified copy of the order
has been filed as aforesaid, or in the case of a company not
having a memorandum, to every copy so issued of the instrument
constituting or defining the constitution of the company. (5) If default
is made in complying with sub-section (4), the company, and
every officer of the company who is in default, shall be punishable
with fine which may extend to ten rupees for each copy in respect
of which default is made. (6) The Court
may, at any time after an application has been made to it under
this section, stay the commencement or continuation of any suit
or proceeding against the company on such terms as the Court
thinks fit, until the application is finally disposed of. (7) An appeal
shall lie from any order made by a Court exercising original
jurisdiction under this section to the Court empowered to hear
appeals from the decisions of that Court, or if more than one
Court is so empowered, to the Court of inferior jurisdiction.
The provisions of sub-sections (3) to (6) shall apply
in relation to the appellate order and the appeal as they apply
in relation to the original order and the application. 392.
Power of High Court to enforce compromises and arrangements (1) Where a High
Court makes an order under section 391 sanctioning a compromise
or an arrangement in respect of a company, it - (a) shall have
power to supervise the carrying out of the compromise or arrangement;
and
1
Inserted by Act 31 of 1965, section 48, w.e.f. 15-10-1965. (b) may, at the
time of making such order or at any time thereafter, give such
directions in regard to any matter or make such modifications
in the compromise or arrangement as it may consider necessary
for the proper working of the compromise or arrangement. (2) If the Court
aforesaid is satisfied that a compromise or arrangement
sanctioned under section 391 cannot be worked satisfactorily
with or without modifications, it may, either
on its own motion or on the application of any person interested
in the affairs of the company, make an order winding up the
company, and such an order shall be deemed to be an order made
under section 433 of this Act. (3) The provisions
of this section shall, so far as may be, also apply to a company
in respect of which an order has been made before the commencement
of this Act under section 153 of the Indian Companies Act, 1913
(7 of 1913), sanctioning a compromise or an arrangement. 393
Information as to compromises or arrangements with creditors
and members (1) Where a meeting
of creditors or any class of creditors, or of members or any
class of members, is called under section 391, - (a) with every
notice calling the meeting which is sent to a creditor or member,
there shall be sent also a statement setting forth the terms
of the compromise or arrangement and explaining its effect;
and in particular, stating any material interests of the directors,
managing director, 1[***] or manager of the company,
whether in their capacity as such or as members or creditors
of the company or otherwise, and
the effect on those interests, of the compromise or arrangement,
if, and in so far as, it is different from the effect on the
like interests of other persons; and (b) in every
notice calling the meeting which is given by the advertisement,
there shall be included either such a statement as aforesaid
or a notification of the place at which and the manner in which
creditors or members entitled to attend the meeting may obtain
copies of such a statement as aforesaid. (2) Where the
compromise or arrangement affects the rights of debenture holders
of the company, the said statement shall give the like information
and explanation as respects the trustees of any deed for securing
the issue of the debentures as it is required to give as respects
the company's directors.
1
Reference to managing agent, secretaries and treasurers
after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970. (3) Where a notice
given by advertisement includes a notification that copies of
a statement setting forth the terms of the compromise or arrangement
proposed and explaining its effect can be obtained by creditors
or members entitled to attend the meeting, every creditor or
member so entitled shall, on making an application in the manner
indicated by the notice, be furnished by the company, free of
charge, with a copy of the statement. (4) Where default
is made in complying with any of the requirements of this section,
the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to five thousand
rupees; and for the purpose of this sub-section any liquidator
of the company and any trustee of a deed for securing the issue
of debentures of the company shall be deemed to be an officer
of the company:
Provided that a person shall not be punishable under
this sub-section if he shows that the default was due to the
refusal of any other person, being a director, managing director,
1[***] managing or trustee for debenture holders,
to supply the necessary particulars as to his material interest. (5) Every director,
managing director, 2[***] or manager of the company,
and every trustee for debenture holders of the company, shall
give notice to the company of such matter relating to himself
as may be necessary for the purposes of this section; and if
he fails to do so, he shall be punishable with fine which may
extend to five hundred rupees. 394.
Provisions for facilitating reconstruction and amalgamation
of companies (1) Where an
application is made to the Court under section 391 for the sanctioning
of a compromise or arrangement proposed between a company and
any such persons as are mentioned in that section, and it is
shown to the Court, (a) that the
compromise or arrangement has been proposed for the purposes
of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two
or more companies; and (b) that under
the scheme the whole or any part of the undertaking, property
or liabilities of any company concerned in the scheme (in this
section referred to as a "transferor company") is
to be transferred to another company (in this section referred
to as "the transferee company");
1
Ibid.
2
Ibid.
the
Court may, either by the order sanctioning the compromise or
arrangement or by a subsequent order, make provision for all
or any of the following matters: - (i) the transfer
to the transferee company of the whole or any part of the undertaking,
property or liabilities of any transferor company; (ii) the allotment
or appropriation by the transferee company of any shares, debentures,
policies, or other like interests in that company which, under
the compromise or arrangement, are to be allotted or appropriated
by that company to or for any person; (iii) the continuation
by or against the transferee company of any legal proceedings
pending by or against any transferor company; (iv) the dissolution,
without winding up, of any transferor company; (v) the provision
to be made for any persons who, within such time and in such
manner as the Court directs, dissent from the compromise or
arrangement; and (vi) such incidental,
consequential and supplemental matters as are necessary to secure
that the reconstruction or amalgamation shall be fully and effectively
carried out: 1[Provided that no compromise or arrangement proposed
for the purposes of, or in connection with, a scheme for the
amalgamation of a company, which is being wound up, with any
other company or companies, shall be sanctioned by the Court
unless the Court has received a report from the Company Law
Board or the Registrar that the affairs of the company have
not been conducted in a manner prejudicial to the interests
of its members or to public interest:
Provided
further that no order for the dissolution of any transferor
company under clause (iv)
shall be made by the Court unless the Official Liquidator has,
on scrutiny of the books and papers of the company, made a report
to the Court that the affairs of the company have not been conducted
in a manner prejudicial to the interests of its members or to
public interest.]
1
Inserted by Act 31 of 1965, section 49, w.e.f. 15-10-1965.
(2) Where an
order under this section provides for the transfer of any property
or liabilities, then, by virtue of the order, that property
shall be transferred to and vest in, and those liabilities shall
be transferred to and become the liabilities of, the transferee
company; and in the case of any property, if the order so directs,
freed from any charge which is, by virtue of the compromise
or arrangement, to cease to have effect.
(3) Within 1[thirty]
days after the making of an order under this section every company
in relation to which the order is made shall cause a certified
copy thereof to be filed with the Registrar for registration. If
default is made in complying with this sub-section, the company,
and every officer of the company who is in default, shall be
punishable with fine which may extend to fifty rupees. (4) In this section
- (a) "property"
includes property, rights and powers of every description; and
"liabilities" includes duties of every description;
and (b) "transferee
company" does not include any company other than a company
within the meaning of this Act; but "transferor company"
includes any body corporate, whether a company within the meaning
of this Act or not. 2[394A.
Notice to be given to Central Government3
for applications under sections 391 and 394 The
Court shall give notice of every application made to it under
section 391 or 394 to the Central Government, and shall take
into consideration the representations, if any, made to it by
that Government before passing any order under any of these
sections.]
1
Substituted by Act 31 of 1965, section 62 and Schedule,
for ¨Fourteen〃 w.e.f. 15-10-1965.
2
Inserted by Act 31 of 1965, section 50, w.e.f. 15-10-1965.
3
Powers delegated to Regional Directors vide Notification
No. GSR 288(E), dated 31-5-1991. 395.
Power and duty to acquire shares of shareholders dissenting
from scheme or contract approved by majority1 (1) Where a scheme
or contract involving the transfer of shares or any class of
shares in a company (in this section referred to as "the
transferor company") to another company (in this section
referred to as "the transferee company"), has, within
four months after the making of the offer in that behalf by
the transferee company, been approved by the holders of not
less than nine-tenths in value of the shares whose transfer
is involved (other than shares already held at the date of the
offer by, or by a nominee for, the transferee company or its
subsidiary), the transferee company may, at any time within
two months after the expiry of the said four months, give notice
in the prescribed manner2
to any dissenting shareholder, that it desires to acquire his
shares; and when such a notice is given, the transferee company
shall, unless, on an application made by the dissenting shareholder
within one month from the date on which the notice was given,
the Court thinks fit to order otherwise, be entitled and bound
to acquire those shares on the terms on which, under the scheme
or contract, the shares of the approving shareholders are to
be transferred to the transferee company: Provided
that where shares in the transferor company of the same class
as the shares whose transfer is involved are already held as
aforesaid to a value greater than one-tenth of the aggregate
of the values of all the shares in the company of such class,
the foregoing provisions of this sub-section shall not apply,
unless - (a) the transferee
company offers the same terms to all holders of the shares of
that class (other than those already held as aforesaid) whose
transfer is involved; and (b) the holders
who approve the scheme or contract, besides holding not less
than nine-tenths in value of the shares (other than those already
held as aforesaid) whose transfer is involved, are not less
than three-fourths in number of the holders of those shares; (2) Where, in
pursuance of any such scheme or contract as aforesaid, shares,
or shares of any class, in a company are transferred to another
company or its nominee, and those shares together with any other
shares or any other shares of the same class, as the case may
be, in the first-mentioned company held at the date of the transfer
by, or by a nominee for, the transferee company or its subsidiary
comprise nine-tenths in value of the shares, or the shares of
that class, as the case may be, in the first-mentioned company,
then, -
1
See rule 12, Companies (Central Governmentˇs) General
Rules and Forms, 1956.
2
See Form 35, Companies (Central Governmentˇs) General
Rules and Forms, 1956. (a) the transferee
company shall, within one month from the date of the transfer
(unless on a previous transfer in pursuance of the scheme or
contract it has already complied with this requirement), give
notice of that fact in the prescribed manner to the holders
of the remaining shares or of the remaining shares of that class,
as the case may be, who have not assented to the scheme or contract;
and (b) any such
holder may, within three months from the giving of the notice
to him, require the transferee company to acquire the shares
in question; and
where a shareholder gives notice under clause (b) with respect
to any shares, the transferee company shall be entitled and
bound to acquire those shares on the terms on which, under the
scheme or contract, the shares of the approving shareholders
were transferred to it, or on such other terms as may be agreed,
or as the Court on the application of either the transferee
company or the shareholder thinks fit to order. (3) Where a notice
has been given by the transferee company under sub-section (1)
and the Court has not, on an application made by the dissenting
shareholder, made an order to the contrary, the transferee company
shall, on the expiry of one month from the date on which the
notice has been given, or, if an application to the Court by
the dissenting shareholder is then pending, after that application
has been disposed of, transmit a copy of the notice to the transferor
company together with an instrument of transfer executed on
behalf of the shareholder by any person appointed by the transferee
company and on its own behalf by the transferee company, and
pay or transfer to the transferor company the amount or other
consideration representing the price payable by the transferee
company for the shares which, by virtue of this section, that
company is entitled to acquire; and 1[the transferor
company shall - (a) thereupon
register the transferee company as the holder of those shares,
and (b) within one
month of the date of such registration, inform the dissenting
shareholders of the fact of such registration and of the receipt
of the amount or other consideration representing the price
payable to them by the transferee company:] Provided
that an instrument of transfer shall not be required for any
share for which a share warrant is for the time being outstanding.
1
Substituted by Act 31 of 1965, section 51, for certain
words, w.e.f. 15-10-1965. (4) Any sums
received by the transferor company under this section shall
be paid into a separate bank account, and any such sums and
any other consideration so received shall be held by that company
in trust for the several persons entitled to the shares in respect
of which the said sums or other consideration were respectively
received. 1[(4A) (a) The following provisions shall apply in relation to every offer of
a scheme or contract involving the transfer of shares or any
class of shares in the transferor company to the transferee
company, namely: - (i) every such
offer or every circular containing such offer or every recommendation
to the members of the transferor company by its directors to
accept such offer shall be accompanied by such information as
may be prescribed2; (ii) every such
offer shall contain a statement by or on behalf of the transferee
company, disclosing the steps it has taken to ensure that necessary
cash will be available; (iii) every circular
containing or recommending acceptance of, such offer shall be
presented to the Registrar for registration and no such circular
shall be issued until it is so registered; (iv) the Registrar
may refuse to register any such circular which does not contain
the information required to be given under sub-clause (i) or
which sets out such information in a manner likely to give a
false impression; and (v) an appeal
shall lie to the Court against an order of the Registrar refusing
to register any such circular. (b) Whoever issues
a circular referred to in sub-clause (iii) of clause (a) which
has not been registered, shall be punishable with fine which
may extend to five hundred rupees.] (5) In this section
- (a) "dissenting
shareholder" includes a shareholder who has not assented
to the scheme or contract and any shareholder who has failed
or refused to transfer his shares to the transferee company
in accordance with the scheme or contract; (b) "transferor
company" and "transferee company" shall have
the same meaning as in section 394.
1
Inserted by Act 31 of 1965, section 51, w.e.f. 15-10-1965.
2
See Form 35A, Companies (Central Governmentˇs) General
Rules and Forms, 1956.
(6) In relation
to an offer made by the transferee company to shareholders of
the transferor company before the commencement of this Act,
this section shall have effect - (a) with the
substitution, in sub-section (1), for the words "the shares
whose transfer is involved (other than shares already held at
the date of the offer by, or by a nominee for, the transferee
company or its subsidiary)," of the words "the shares
affected" and with the omission of the proviso to that
sub-section; (b) with the
omission of sub-section (2); (c) with the
omission in sub-section (3) of the words "together with
an instrument of transfer executed on behalf of the shareholder
by any person appointed by the transferee company and on its
own behalf by the transferee company" and of the proviso
to that sub-section; and (d) with the
omission of clause (b) of sub-section (5). 396.
Power of Central Government to provide for amalgamation
of companies in public interest (1) Where the
Central Government is satisfied that it is essential in the
1[public interest] that two or more companies should
amalgamate, then, notwithstanding anything contained in sections
394 and 395 but subject to the provisions of this section, the
Central Government may, by order notified in the Official Gazette,
provide for the amalgamation of those companies into a single
company with such constitution; with such property, powers,
rights, interests, authorities and privileges; and with such
liabilities, duties, and obligations; as may be specified in
the order. (2) 2[The
order aforesaid may provide for the continuation by or against
the transferee company of any legal proceedings pending by or
against any transferor company and may also] contain such consequential,
incidental and supplemental provisions as may, in the opinion
of the Central Government, be necessary to give effect to the
amalgamation.
1
Substituted by Act 65 of 1960, section 152 for ¨national
interest〃.
2
Substituted by the Companies (Amendment) Act, 1985
(35 of 1985) for the words ¨The order aforesaid〃. (3) Every member or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or creditor; and to the extent to which the interest |