Rules on the Powers of NCLT to sanction Compromise or Arrangement proposals of Companies with Creditors Notified

Under Section 230 of the Companies Act, 2013, National Company Law Tribunal (NCLT) was vested with the powers to issue appropriate Orders regarding the proposal of a Company on a compromise or arrangement including, a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. NCLT was given the powers to issue Orders to provide for all or any of the following matters namely -

 (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;

(b) the protection of any class of creditors;

(c) if the compromise or arrangement results in the variation of the shareholders' rights, it shall be given effect to under the provisions of section 48;

(d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall abate;

(e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement:

Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.

Presently the Ministry of Corporate Affairs has notified the Companies (Compromises, Arrangements and Amalgamations) Rules,2016, laying down the procedures to be followed in this regards. The Rules shall now govern any application under the Act or any reference to NCLT for the restructuring or compromise or any such arrangement, under the Bankruptcy Code.