Compromises,

Arrangements and
Amalgamation

UNIT 5
 • Compromise/Arrangement: meaning
• Section 230: Provides a method by which a compromise
agreed to by the creditors or any of them and the company
Power to may be placed before the Tribunal for sanction.
1. application to the tribunal
Compromise 2. Tribunal orders a meeting
or Make 3. Disclosure
4. Notice to creditors/members etc.
Arrangements 5. Notice to regulatory authorities
with Creditors 6. Binding

and Members 7. Contents of order

8. Conformity with Accounting Standards
• Sec 231: Power of Tribunal to Enforce Compromise or
Arrangement
 • Meaning: 'Transferor Company' and 'Transferee
Company'
• Sec 232: Legal formalities for merger or
amalgamation of two or more cos
• References to merging companies are in relation to
a
Merger and a. merger by absorption
Amalgamation: b. Merger by formation
Sec 232 c. Scheme involves a division where assets, rights,
liabilities include all kinds of debts in respect of which
compromise or arrangement is proposed are to be
divided among and transferred to two or more
companies.
• Sec 233: Merger or Amalgamation of Companies
Prevention of
Oppression and
Mismanagement
Unit 5 Continued...
The Principle of Majority
Rule
• Will of majority should prevail and bind the minority.
• Foss v. Harbottle (1843)
• The rule laid down many inherent advantages like:
1. if a company has suffered any financial loss, it is the co. And
not the minority shareholders who can sue.
2. if every individual member were given unfettered right to
decide there would be endless litigation.
3. There is a need to preserve right of majority to decide.
 A proper harmony between the rights of majority and minority
shareholders has to be achieved for the smooth functioning of
a co.
 •Meaning: The term ‘oppression’ has been
explained by Lord Cooper in Elder v. Elder &
Watson Ltd. [1952 SC 49 (Scotland)] as, “The
essence of the matter seems to be that the
conduct complained of should at the lowest
OPPRESSIO involve a visible departure from the standards
N of fair dealing, and a violation of the
conditions of fair play on which every
shareholder who entrusts his money to the
company is entitled to rely.”
 • PUBLIC INTEREST : idea of a company
functioning for public good or general
welfare of the community.
• 'The affairs of the co. Are being conducted in
a manner prejudicial to the interests of the
Grounds for Relief co.' Includes:
in cases of
1. non-conduct of the affairs of the co. Due to
Oppression etc: Sec
serious disputes amongst BOD resulting in
241
deadlock
2. not taking action against manager of the co.
Who misappropriated huge amount
POWERS OF TRIBUNAL: SEC 242
 Where the majority shareholders force new and
more risky objects on unwilling minority
shareholders.

Some Where the members are deprived of their right

to vote, to elect directors and to
receive dividends.
instances of Where there is an unreasonable and consistent
Oppression refusal to accept the transfer or transmission od
shares.

Where the majority shareholders continuously

ignored the decision of the BOD and made it
impossible for the company to function.
 •Not calling a general meeting and
keeping shareholders in dark.

•Non-maintenance of statutory
records and not conducting affairs
Continued... of the company in accordance
with the Companies Act.

•Issue of further shares benefiting

a section of shareholders.
 •An unwise, inefficient or careless conduct of
director.

•Non-holding of the meeting of the directors.

•Not declaring dividends when company is

making losses

Acts held as not •Denial of inspection of books to a

shareholder.
Oppressive •Lack of details in notice of a meeting.

•Non-maintenance/Non-filing of records.

•Increasing the voting rights of the shares held

by the management.
MISMANAGEMENT

• •Meaning: Sec 241(1)

• -Mismanagement is said to be done if the affairs of the company are being conducted
in a manner prejudicial to the interests of the company; or
• -a material change (not being a change brought about by, or in the interests of, any
creditors including debenture holders, or any class of shareholders, of the company)
has taken place in the management of control of the company, whether by an
alteration in its Board of directors, or if its managing agent or secretaries and
treasurers, or in the constitution or control of the firm or body corporate acting as its
managing agent or secretaries and treasurers, or in the ownership of the company's
shares, or if it has no share capital, in its membership, or in any other manner
whatsoever, and that by reason of such change, it is likely that the affairs of the
company will be conducted in a manner prejudicial to the interests of the company.
Acts held as Mismanagement

• The following acts have been held as amounting to mismanagement:-

· Where there is serious infighting between directors.

· Where Board of Directors is not legal and the illegality is being continued.
· Where bank account(s) was/were operated by unauthorised person(s).
· Where directors take no serious action to recover amounts embezzled.
· Continuation in office after expiry of term of directors.
· Sale of assets at low price and without compliance with the Act.
· Violation of Memorandum.
· Violation of statutory provisions and those of Articles.
· Company doomed to trade unprofitably.
Acts held as not Mismanagement

• The following acts have been held to not to amount to

Mismanagement:-
· Building up of reserves or non-declaration of dividend especially when
it does not result in devaluation of shares.
· Merely because company incurs loss, mismanagement can’t be
alleged.
· Arrangement with creditors in company’s bonafide interest.
· Removal of director and termination of works manager’s services.
Class Action: SEC 245

• •Who may file an application?

• Sec 245(3)(i) and (ii)
• •Against whom an application may be filed?
• -Company, its directors, auditor or any expert who has made any incorrect or misleading statement or
for any fraudulent, wrongful act or conduct on his part.
• •Relief under class action:
• Sec 245(1)
• •Matters to be considered by tribunal:
• Sec 245(4)
• •Order of the tribunal:
• Sec 245(6)
Winding Up
Unit 5 Continued...
Meaning

• Palmer: A co. incorporated under the Companies Act, cannot be put to an end except by winding up
or by removal from the registrar as defunct company. However, the life of a company can also be
extinguished under the scheme of amalgamation and reconstruction”
• It is a process in which:
1.The management of a co. is taken out of its directors' hands
2.Its assets are realized by a liquidator
3.Its debts and liabilities are discharged out of the proceeds of realization and
4.Any surplus assets remaining is returned to its members or shareholders.
Thus, the process of winding up involves realization of assets, payment of liabilities and distribution of
surplus, if any, amongst the members of the co.
• SEC 2(94-A)
 Particulars Winding up Dissolution

Meaning Winding up means appointing a liquidator to sell Dissolution means to dissolve the company
off the assets, divide the proceeds among completely. Any further operations cannot
creditors, and file to the NCLT for dissolution. be done in the company name.

Process Winding up is one of the method through which the Dissolution is the end process/result of winding up
dissolution of a company is carried on. and getting the name stuck off from the Register of
Companies.

Existence of Company The legal entity of the company continues and The dissolution of the company brings an
exists at the commencement and during the end to its legal entity status.
winding up process.

Continuation of Business A company can be allowed to continue its business during The company ceases to exist
the winding up process if it is required for the upon its dissolution.
beneficial winding up of the company.

Moderator Liquidator carries out the process of winding up. The NCLT passes the order of dissolution.
Modes of winding up
• With the passing of Insolvency and Bankruptcy Code, 2016, a
company can now be wound up under the Companies Act 2013 only
by Tribunal.
• Winding up by the tribunal
- Sec 270:Modes of winding up
- Sec 271: Circumstances in which company may be wound up by
Tribunal
- Sec 272: Petition for winding up
Grounds for compulsory winding up: Sec 271

Winding up by special resolution: sec 271(a)

Co. Acting against the interests of sovereignity and integrity of India, the security of the state, the
friendly relations with foreign states, public order, decency and morality: sec 271(b)

Co.'s affair been conducted in a fraudulent or umlawful manner: sec 271(c)

Company has made a default in filing with the Registrar its financial statements or annual returns
for immediately preceding five consecutive financial years: sec 271(d)

Just and equitable: sec 271(e)

 1. Deadlock in management: (Re)
Yenidje Tobacco Co. Ltd (1916)

Examples 2. Loss of Substratum: (Re)

German Date Coffee Co. (1882)
of just and
equitable 3. Oppression of Minority: Loch
grounds v. John Blackwood Ltd (1924)

4. Illegality of Objects and fraud

 The Company: Sec 272(1)(a) and (5)

Contributor's petition: Sec 272(1)(b) and (2)

Who can Joint petition: Sec 272(1)(c)

make
petition : The Registrar: Sec 272(1)(d) and (3)

Sec 272 Person authorized by central government: Sec

272(1)(e)
CG/SG's petition: Sec 272(1)(f)
Consequences of
winding up order: Power of Tribunal: Dissolution of
Sec 277, Sec 278 Sec 273 Company: Sec 302
and sec 279

Filing of Statement COMPANY Advisory

of Affairs: Sec 274, LIQUIDATOR: Sec Committee: Sec
Sec 273(3) 275 and 291 287