Companies Compliance Act 391-396

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 bind- ing 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: 2[ Provided that no order sanctioning any compromise or arrange- ment
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

392. Power of Tribunal to enforce compromise and arrangement.

(1) Where the Tribunal 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 an
arrangement; and

(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 Tribunal aforesaid is satisfied that a compromise or an 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 the
Companies (Amendment) Act, 2001 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 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.

(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 2[fifty 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[***] manager or trustee for debenture holders, to supply the
necessary particulars as to his material interests.

(5) Every director, managing director, 1[***] or manager of the company, and
every trustee for debenture holders of the company, shall give notice to the
company of such matters 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 3[five thousand 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"); 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 trans- feror
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.]

(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 2[ thirty] days after the making of an order under this section every
company in relation to which the order is made shall

1. Added by Act 31 of 1965, s. 49 (w. e. f. 15- 10- 1965 ).

2. Subs. by s. 62 and Sch., ibid. for" fourteen" (w. e. f. 15- 10- 1965 ).

cause a certified copy thereof to be filed with the Registrar for registration. If
default is made in complying with this sub- section, the com- pany, 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.

Notice to be given to Central Government for applications under sec- tions 391 and
394.

395. Power and duty to acquire shares of shareholders dissenting

from scheme or contract approved by majority

(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 manner 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 1[Tribunal] 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,-

(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 1[Tribunal] 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 1[Tribunal] 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
1[Tribunal] 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
2[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.

(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.
3[(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 prescribed;

(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 1[Tribunal] 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 4[five
thousand 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.
(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 subsection;

(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 national interest

396. Power of Central Government to provide for amalgamation of companies in

1[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.

(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 or rights of such member or creditor in or against the
company resulting from the amalgamation are less than his interest in or rights
against the original company, he shall be entitled to compensation which shall be
assessed by such authority 3[as may be prescribed and every such assessment shall
be published in the Official Gazette],

The compensation so assessed shall be paid to the member, or creditor concerned

by the company resulting from the amalgamation.

4(3A) Any person aggrieved by any assessment of compensation made by the

prescribed authority under sub-section (3) may, within thirty days from the date of
publication of such assessment in the Official Gazette prefer an appeal to the
5[Tribunal] and thereupon the assessment of the compensation shall be made by
the 5[Tribunal].]

(4) No order shall be made under this section, unless-

(a) a copy of the proposed order has been sent in draft to each of the companies
concerned; 6[***]

4[(aa) the time for preferring an appeal under sub-section (3A) has expired, or
where any such appeal has been preferred, the appeal has been finally disposed of;
and]

(b) the Central Government 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
objections which may be received by it from any such company within such period
as the Central Government may fix in that behalf, not being less than two months
from the date on which the copy aforesaid is received by that company, or from
any class of shareholders therein, or from any creditors or any class of creditors
thereof.

(5) Copies of every order made under this section shall, as soon as may be after it
has been made, be laid before both Houses of Parliament.

396A. Preservation of books and papers of amalgamated company

1[396A. Preservation of books and papers of amalgamated company.-

The books and papers of a company which has been amalgamated with, or whose
shares have been acquired by, another company under this Chapter shall not be
disposed of without the prior permission of the Central Government and before
granting such permission, that Government may appoint a person to examine the
books and papers or any of them for the purpose of ascertaining whether they
contain any evidence of the commission of an offence in connection with the
promotion or formation, or the management of the affairs, of the first-mentioned
company or its amalgamation or the acquisition of its shares.]