2. COMPROMISE OR ARRENGEMENT
The 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 .

3. Statutory Provisions
Sections 391, 392 , and 393 of the companies act,1956
Section 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 .

4. (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 .

5. Section 392 deals with the power of the court to
enforce 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 .

6. 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 .

7. (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 .

8. 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 .

9. Both reconstruction as well as Amalgamation
require similar legal procedures and schemes can
be 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 .

10. 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 .

11. 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 .

12. 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 .

13. 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 .

14. 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 ,

15. 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.

16. Yudhvir Saini
MBA/10/24
3rd SEM