Section 390

Interpretation of sections 391 and 393. Expression Company- means any Co. liable to be Wound Up U/T/A Arrangement includes a reorganization of the share capital of the Co. 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 Unsecured Creditors who may have filed suits, or obtained decrees shall he deemed to be of the same class as other unsecured creditors.

Power to compromise or make arrangements with creditors and members (Sec. 391)

Where a compromise or arrangement is proposed- between a

Company and its creditors or any class of them; or Company and its members or any class of them;

the Tribunal may, on the application

of the company or of any creditor or Member of the Co. or, in the case of a Co. which is being wound up, of the liquidator,

Power to Compromise or Make Arrangements with Creditors & Members (Sec 391)

Order a meeting of SHs or Creditors or Class of SHs or Creditors Majority in No. Representing 3/4th in value present and voting Tribunal sanction - to be binding on all -

All material facts are disclosed

Creditors, Creditors of the class Members - Members of the class - On the company - in the case of a Co. which is being WU - on the liquidator and contributories of the Co.

Shall give notice Government

to

the

Central

Notice to be Given to Central Government for Applications U/S 391 & 394 (Sec. 394A)

The Tribunal shall give notice of every application made to it U/S 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.

 Co. has disclosed by affidavit or otherwise, all material facts such as the latest Financial position of the Co. Auditors report on the accounts of the Co. The Pendency of any investigation proceedings in relation to the Co. U/Ss 235 to 251, An order made by the Tribunal U/T/S shall have no effect until a certified copy of the order has been filed with the ROC. A copy of every such order shall be annexed to every copy of the MOA issued after the certified copy of the order

 If default is made in complying Co. & Every Officer of the Co. who is in default - Shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made. The Tribunal may, at any time after an application has been made to it U/T/S, stay the

commencement or continuation of any suit or proceeding against the Co. on such terms as the Tribunal thinks fit, until the application is finally disposed of.

 Power of Tribunal to Arrangements (Sec. 392)

Enforce

Compromises

&

Shall have power to supervise the carrying out of the compromise or an arrangement Give such directions in regard to any matter or make such modifications as it may consider necessary for the proper working of Cannot be worked satisfactorily
Compromises & Arrangements

With or without modifications, it may, Either on its own motion or the application of any person interested in the affairs of the Co. Make an order winding up the Co. Shall be deemed to be an order made U/S 433

 (i) the transfer to the transferee Co. of the whole or any part of the undertaking, property or liabilities of any transferor Co. (ii) the allotment or appropriation by the transferee Co. of any shares, debentures, policies, or other like interests in that Co. which, under the compromise or arrangement, are to be allotted or appropriated by that Co. to or for any person; (iii) the continuation by or against the transferee Co. of any legal proceedings pending by or against any transferor Co.

 (iv) the dissolution, without winding up, of any transferor Co. (v) the Provision to be made for any person who, within such time and in such manner as the Tribunal 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

 A. The Tribunal has received a report from the ROC and B. The Official Liquidator has, on scrutiny of the books and papers of the Co. made a report to the Tribunal

that the affairs of the Co. have not been conducted in a manner prejudicial to the interests of its members or to public interest:
Where an order U/T/S provides for the transfer of any property or liabilities, then, by virtue of the order, that

Property shall be transferred to and vest in, & Liabilities to be of, the transferee Co & if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.

Information as to Compromises or Arrangements With Creditors & Members (Sec. 393) With every notice calling the meeting - shall be sent also a statement setting forth The terms of the compromise or arrangement and Explaining its effect & in particular, stating any material interests of the Directors, MD or Manager whether in their capacity as such or as members or creditors or otherwise, & The effect on those interests, of the compromise or arrangement, if, and insofar as, it is different from the effect on the like interests of other persons & (b) The place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement (2) Affects the rights of debenture holders - the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures...

CASES
Miheer H. Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506 In re, Sidhpur Mills Co. Ltd. AIR 1962 Guj 305 KEC International Ltd. v Kamani Employees Union of KEC & Others. 1998 Ind Law Mum. 8513 In Re: Arvind Mills Ltd. (2002) Vol.111 C/C 118 Kirloskar Electric Co. Ltd. In re. (2003) 4 Comp L J 13 (Karn) Reliance Natural Resources Ltd. v Reliance Industries Ltd. (2010) 7 SCC 1 ICICI Ltd. In re (2002) 36 SCL 682 (Bom.) In Re, Teck-men Tools (P.) Ltd. (2009) 92 SCL 59 (AP) HCL Infosystems Ltd, In Re 2004 121 Com. Cases 861 HLL Employees Union v HLL (1994) 4 Comp. L J 267

 In re Maneckchowk & Ahmedabad Mfg. Co. Ltd. (1970) 40 Comp Cas 819 (Guj) SEBI and UOI v Sterlite Industries Ltd. (2003) Vol. 113 Comp Cases 273 Maknam Investments Ltd. Re (1995) 4 Comp L J 330 Cal G.L. Sultania v SEBI (2007) 5 SCC 133 JIK Industries Limited & others v Amarlal v Jumani & anot. 2012 Indlaw SC 583 Sesa Industries Limited v Krishna H. Bajaj and others (2011) 3 SCC 218, AIR 2011 SC 1070 Chembra Orchard Produce Limited and Others v Regional Director of Company Affairs, (2009) 2 SCC 547 Messrs Meghal Homes Private Limited v Shree Niwas Girni K.K.Samiti & Others (2007) 7 SCC 753, AIR 2007 SC 3079

 Is it to find out: What loopholes are present in the scheme? What technical mistakes have been committed? What accounting errors have crept in? or What legal rights of one or the other sides have or have not been protected?

Role of the Court

What/How?

THE END

Supervisory and not Appellant

Scheme should not be scrutinized in the way a carping critic, a hair-splitting expert, a meticulous accountant or a fastidious counsel would do it.

"prudent business management test"

It must be tested from the point of view of an ordinary reasonable shareholder, acting in a business-like manner In amalgamation of companies the Courts have evolved, the principle "prudent business management test" or that the scheme should not be a device to evade law.

Pros and cons of the scheme

Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy

Look into the interest of

Share holders Creditors Employees of the Company Blue Collared White Collared

Court Not a Rubber stamp

If the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. it cannot be said that a Company Court before whom an application is moved has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme.

Commercial wisdom
It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote Court certainly would not act as a Court of appeal and sit in judgment as the same would be in the realm of corporate and commercial wisdom of the concerned parties Direct/think of having a better Scheme???

Umpire in a game of cricket

Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire.