Section 230 of the Companies Act, 2013
Section 230 of the Companies Act, 2013 is a very important provision that deals with the Compromise or Arrangement between a company and its creditors or members. It is often used during mergers, debt restructuring, takeovers, and company revival.
📜 Section 230 – Power to Compromise or Make Arrangements with Creditors and Members
🧾 Purpose of Section 230:
To provide a legal mechanism for companies to:
Restructure debts
Merge or amalgamate with other companies
Settle disputes with creditors or members
Revive sick companies
🔹 Key Provisions:
(1) Application to NCLT:
The company, its creditor, member, or liquidator (in case of winding up) can apply to the National Company Law Tribunal (NCLT) for a compromise or arrangement.
The application must include:
Details of the proposed compromise or arrangement.
A valuation report (if applicable).
Disclosures about the effect on stakeholders.
(2) Calling of Meeting:
NCLT may order a meeting of creditors or members to vote on the scheme.
Notice of the meeting must be sent to:
Shareholders or creditors concerned
ROC, SEBI (for listed companies), Income Tax Dept., etc.
(3) Approval Required:
The scheme must be approved by:
Majority in number, and
Representing three-fourths in value of creditors or members (present and voting).
(4) Sanction by NCLT:
After approval, the NCLT sanctions the scheme, making it binding on all stakeholders (including dissenters).
(5) Additional Disclosures:
The scheme must disclose:
Material interests of directors, promoters
Any corporate debt restructuring
Effect on shareholders, creditors, employees, etc.
⚠️ Penalty for Non-compliance:
Any person making a false statement or omitting material facts may face penalties under Section 448 and 449.
✅ Common Use Cases:
| Use Case | Example |
|---|---|
| Debt Restructuring | Company negotiating new payment terms with creditors |
| Amalgamation | Two companies merging into one entity |
| Revival | Sick companies proposing a plan to revive operations |
🧾 Summary Table:
| Action | Authority/Requirement |
|---|---|
| Who can apply? | Company, creditor, member, liquidator |
| Where to apply? | NCLT |
| Approval threshold | 75% in value + majority in number |
| Final approval | NCLT order |
| Binding on | All creditors/members, including dissenters |
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