Arrangement /Compromise When a Company is a Going Concern

Transcription

1 1 1. CORPORATE LAW A. COMPROMISE AND ARRANGEMENTS (SECTION ) What is a Compromise: Compromise is a scheme of give and take in a dispute. It presupposes the existence of a dispute over some matter, because question of compromise does not arise at all unless there is some dispute over some matter. A fair, reasonable and just compromise demands i) surrender of some rights with compensation ii) iii) measure of accommodation, on both side, of all the parties to it. It become beneficial to all the parties. In short compromise means settlement or adjustment of claims in dispute by mutual concessions. What is an Arrangement: Arrangement involves reorganization of share capital of a company. It includes reorganization and rearrangement of share capital of a company without the existence of any dispute, i) by the consolidation of shares of different classes or ii) iii) iv) by the division of shares into shares of different classes or by both these methods Arrangement /Compromise When a Company is a Going Concern Compromise or arrangement with creditors and members Procedure to be followed: 1. Application to the court: On a proposal for a compromise being made, the company or any creditor or member or in case of company being wound up, the liquidator may apply to the court for a Compromise. 2. Meeting of members or creditors: The court shall then direct the calling of the meeting of each class of creditors or each class of members. The court shall satisfy itself that the scheme is reasonable and implement able by the company. 3. Resolution by 3/4th's majority: A resolution approving the compromise or arrangement shall be passed by a majority representing three fourths (75%) in value of the creditors or Members present in the meeting. 4. Court's sanction: The court shall sanction the scheme which is fair and reasonable and is made in good faith for the benefit of each class of members or creditors. 5. Enforcement and supervision of the scheme by the court: The court has power to supervise the implementation of the scheme. Court may modify or even set aside a sanctioned scheme. 1

2 2 6. Compromise binding on all members and creditors: Once a compromise is sanctioned by the court, it becomes binding on all the creditors and members. In case of a company, which is being wound up, on the liquidator and contributories of the company. The court is not bound to sanction, the compromise or arrangement unless it is satisfied that all material facts are disclosed relating, to the financial position of the company, it's latest auditor's report, etc. 7. Copy of the court's order to be filed with the Registrar: The compromise shall have effect only when a certified copy of it has been delivered to the Registrar for registration. A copy shall also been annexed to every copy of the Memorandum issued after the certified copy of the order has been filed. 8. Stay of suit: The court may, stay the commencement or continuation of any suit or proceeding against the company, on such terms as it thinks fit, until the application is finally disposed off. 9. Appeal: An appeal shall lie from any order made by the court exercising original jurisdiction under section (391) to the empowered to the court empowered hear appeal. B- RECONSTRUCTION AND MERGER/AMALGAMATION (SEC. 394) What is "Reconstruction" under Sec. 394? The word reconstruction means reorganization of the company. Reconstruction takes place when a company transfer its entire undertaking and property to a new company under an agreement, by which the shareholder of the old company are entitled to receive some share or identical interest in the new company. Modes of Reorganization 1. External Reconstruction : There is transfer of an undertaking of an existing company to another company, which is floated for the purpose of taking over the business. 2. Internal Reconstruction :- wherein the company continues to exist and operate with adjustment of rights of the shareholder and or creditors. What is Merger/ Amalgamation" under Sec. 394? Combination of two or more companies into one company. Amalgamation / Merger occurs when: i) Two or more companies are amalgamated into one company. ii) The shareholder in the amalgamating company become substantially the share holder in the amalgamated company. Amalgamation / Merger takes place either : i) when one or more undertaking are transferred to a new company or ii) by transfer of one or more undertaking to an existing company. 2

3 3 Procedure of Merger:- 1. Approval of scheme by holders of 3/4th's in value of the shares: Where a compromise or arrangement has been proposed for the purposes of reconstruction of a company or for it's amalgamation with another company. That scheme shall be approved by the holders of 3/4 th s ( 75% ) in value of the shares concerned. 2. Tribunals sanction necessary: The Tribunal may sanction the Compromise or arrangement and pass order for any of the following matters: a) The transfer of the undertaking, property and liabilities of the transferor company to the transferee company. b) The allotment or appropriation by the transferee company of any shares or debentures, policies or other interest in that company which are to be allotted or appropriated under the contract. (c) (d) (e) The continuation by or against any transferee company of any legal proceedings by or against any transferor company. The dissolution, without winding up, of any transferor company The provisions to be made for any persons who dissent compromise or arrangement, (f) Such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamate shall be fully and effectively carried out. 3. Report from the Registrar in case of amalgamation of company which is being wound up : It is required to be sanctioned by the Tribunal. However if the Tribunal has received a report from the Registrar that the affairs of the company have not been conduct in a manner prejudicial to the interests of it's members or to the public interest, Tribunal shall not sanction the compromise or arrangement Report from the Official Liquidator is necessary before the Tribunal orders dissolution without winding up of any transferor company. 4. A certified copy of the Tribunals order to be filed with Registrar: Within 30 days. If default is made, the company, and every officer of the company who is at default shall be punishable with fine which may extend to T 500/-. 2. COMPANY LAW ADMINISTARATION ESTABLISHMENT OF TRIBUNAL AND APPELLATE TRIBUNAL -POWERS AND PROCEDURE (S.10FZA) The Companies (Second Amendment) Act 2002 The National Company Law Tribunal (NCLT) and the Natinal Company Law Appellate Tribunal ( NCLAT ) shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. 3

4 4 National Company Law Tribunal (NCLT) NCLT was set up by the Central govt. on the recommendation of selection committee. NCLT consists of President and number of judicial and technical members not exceeding 62 Qualification of President :- Person who has been the judge of High Court or eligible to appoint as judge of High Court. Qualification of Judicial Members :- 1. Has hel Judicial office at least 15 years 2. Experience as an Advocate of 10 years in High Court. 3. Held the post in Indian legal Service ( ILS) 3 years. 4. Held the post as Joint Secretary to the Govt. of India for 5 years 5. Experience as an CA/ Cost accountant/ CS of 15 years Qualification of Technical Members :- Period of holding office:- 1. Held the post as A Grade Officer to the Govt. of India ( A/c Branch) for 15 years. 2. Held the post as Joint Secretary to the Govt. of India ( dealing the problem of company law) for 5 years 3. Experience in science, technology, economics, banking, industry, law, finance, management, administration, marketing, etc. 20 years. 1. For President 3 years and not beyond the age of 67 years 2. For Members 3 years and not beyond the age of 65 years 3. Eligible for reappointment. 4. Salary and allowance shall be prescribed by the Central Govt. Removal of office:- 1. Removal by Central govt. with consultation of Chief Justice of India. 2. If President or member is a) Insolvent. b) Convicted. c) Physically and mentally incapable. d) Has personal interest which prejudicially affects function as president or member. National Company Law Appellate Tribunal (NCLAT) NCLT was set up by the Central govt. on the recommendation of selection committee. NCLT consists of President and 2 members Qualification of President :- Person who has been the judge of Supreme Court or High Court or eligible to appoint as judge of High Court. Qualification of Judicial Members :- Experience in science, technology, economics, banking, industry, law, finance, management, administration, marketing, etc. 25 years. 4

5 5 Period of holding office:- 1. For President 3 years and not beyond the age of 70 years 2. For Members 3 years and not beyond the age of 67 years 3. Eligible for reappointment. 4. Salary and allowance shall be prescribed by the Central Govt. Removal of office:- 1. Removal by Central govt. with consultation of Chief Justice of India. 2.If President or member is e) Insolvent. f) Convicted. g) Physically and mentally incapable. h) Has personal interest which prejudicially affects function as president or member. Power and Function of Tribunal The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely : 1. summoning and enforcing the attendance of any person and examining him on oath; 2. requiring the discovery and production of documents; 3. receiving evidence on affidavits; 4. issuing commissions for the examination of witnesses or documents; 5. reviewing its decisions; 6. dismissing a representation for default or deciding it expartee; 7. setting aside any order of dismissal of any representation for default or any order passed by it ex partee; and 8. any other matter which may be prescribed by the Central Government. Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send in case of its inability execute such order, to the court within the local limits of whose jurisdiction, - (a) in the case of an order against a company, the registered office of the company is situate; or (b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or persona' works for gain. All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196, of the Indian Penal Code and the Tribunal and the Appellate Tribunal shall be deemed to be a civil court 5

6 6 for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statuary powers on 12 April 992 through the SEBI Act, The SEBI is managed by its members, which consists Chairman and 8 members of following: (a) The chairman who is nominated by Union Government of India. (b) Two members, i.e. officers from Union Finance Ministry. (c) One member from the Reserve Bank of India. (d) The remaining 5 members are nominated by Union Government of India, out of them at least 3 shall be whole-time members. The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East, Mumbai , with its regional offices at Kolkata, Delhi, Chennai and Ahmedabad. It has recently opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati, Bhubaneshwar, Patana, Kochi and Chandigarh in financial year FUNCTIONS The Preamble of the Securities and Exchange Board of India describes basic functions of the Securities and Exchange Board of India as to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto." SEBI has to be responsive to the needs of three groups, which constitute the market. The issuers of securities The investors The market intermediaries. The basic objectives of Board were identified as: 1. To protect the interests of investors in securities; 2. To promote the development of securities market; 3. To regulate the securities market and 4. For matters connected therewith or incidental thereto. SEBI has three functions rolled into one body: quasi-legislative, quasi- judicial and quasi-executive. 6

7 7 It drafts regulations in its legislative capacity. it conducts investigation and enforcement action in its executive function it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeal process to create accountability. There is a Securities Appellate Tribunal. An appeal lies directly to the Supreme Court. POWERS 1. To approve bye-laws of stock exchange. 2. To require the stock exchange to amend their bye-laws. 3. Inspect the books of accounts and call for periodical returns from recognized stock exchanges. 4. Inspect the books of accounts of financial intermediaries. 5. Compel certain companies to list their shares in one or more stock exchanges. 6. Enjoy the power of civil court. 7. To call for information from any agency as prescribed. 8. Power to direct enquiries. FUNCTION Its main function are providing for : 1. Regulating the business in stock exchanges and any other securities markets: 2. Registering and regulating :- the working of stock brokers, subbrokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner; 3. Registering and regulating :- the working of the depositories, participants, custodians so securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf; 4. Registering and regulating :- the working of venture capital funds and collective investment schemes including mutual funds; 5. Promoting and regulating :- self-regulatory organisation; 6. Prohibiting :- fraudulent and unfair trade practices relating to securities markets; 7. Promoting :- investors' education and training of intermediaries of securities markets; 8. Prohibiting :- insider trading in securities; 9. Regulating :- substantial acquisition of shares and takeover of companies; 10. Calling for information from:- undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds and other 7

8 8 person associated with the securities market and intermediaries and self-regulatory organizations in the securities market; 11. Calling for information and record :- from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board; 12. Performing such functions and exercising such powers under the provisions of Securities Contracts (Regulation) Act, 1956, as ma delegated to it by the Central Government; 13. Levying fees or other charges for carrying out the purpose of this section; 14. Conducting research for the above purposes; 15. Calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; performing such other functions as may be prescribed. 8