16 December 2016
Rules relating to compromises, arrangements, amalgamations
and capital reduction notified
Background
The Ministry of Corporate Affairs (MCA) has issued two notifications viz. Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 (‘CA rules’) on 14 December 2016 and National Company Law
Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 (‘CR rules’) on 15 December 2016.
1
CA rules are notified to come into effect from 15 December 2016 whereas CR Rules shall come into force on the
date of their publication in the Official Gazette.
CA rules relate to the procedure for compromises, arrangements and amalgamations provided in section 230 to
233 and 235 to 240 of the Companies Act 2013 (‘CA 2013’) and CR Rules relate to procedure for reduction of
share capital of company provided in section 66 of the CA 2013. These sections relating to CA rules and CR rules
were notified recently by MCA on 7 December 2016.
In this Flash News, we have discussed the key procedure/provisions of the above-mentioned CA rules and CR
rules.
Part I - Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

Procedure to be followed for a Scheme of amalgamation or arrangement under section 230-232 of the CA
2013
S. No.
1
Procedure/provision
Timeline
Forms
Filing of application with the Tribunal
Companies to file with the National Company Law Tribunal (‘the
Tribunal’)




1
an application (Joint application in case of merger / arrangement
involving multiple entities may be filed at the discretion of the
companies party to merger / arrangement);
a notice of admission;
an affidavit; and
a copy of the Scheme of compromise, merger, amalgamation or
arrangement (‘the Scheme’), along with disclosures such as
material facts relating to company, latest financial position of the
company, the latest auditor’s report on the accounts of the
company, the pendency of any investigation or proceedings
NCLT-1
NCLT-2
NCLT-6
Notification No. G.S.R. 1134(E) dated 14 December 2016 issued by the Ministry of Corporate Affairs, Government of India
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International”), a Swiss entity. All rights reserved.
against the companies.
2
Hearing of the application at the Tribunal
Tribunal may at its discretion, give directions to convene meeting of
shareholders/creditors or dispense with the meeting of creditors of the
2
transferor and transferee Company .
3
Procedure for convening meeting of shareholders/creditors
Sending of notices to members/creditors
Sending of individual notice and explanatory statement (along with a
copy of the Scheme and the prescribed details) of meeting or
meetings to each of the members/creditors of the companies
involved. Some of the prescribed details are summary of valuation
report including basis of valuation and fairness opinion (if any),
appointed date, effective date, benefits of the compromise or
arrangement as perceived by the Directors to various stakeholders
etc.
At least one
month
before the
date
fixed
for
the
meeting
CAA-2
Not
less
than
30
days before
the
date
fixed for the
meeting
CAA-2
Further various documents such as financials, Tribunal order,
Scheme, Auditors certificate on accounting treatment, etc. should be
made available for inspection to the members and creditors of the
company.
Publishing of advertisement
Publishing the advertisement for the meetings in two newspapers one in an English newspaper and one in a vernacular language
newspaper and shall also be placed on the website of the company (if
any), and on website of the Securities and Exchange Board of India
(SEBI) and the recognised stock exchange where the securities of the
company are listed.
Provided where separate meetings of creditors or members are to be
held, joint advertisement for such meetings may be given.
Sending of notices to sectoral regulators/statutory authorities
CAA-3
Post sending notices to members/creditors, company to send notice
of meeting to regulators like the Central Government (CG), Registrar
of Companies (ROC), Income-tax authorities (in ALL cases), Reserve
Bank of India, SEBI, Competition Commission of India, stock
exchanges, as applicable and other sectoral regulators as directed by
the Tribunal.
Affidavit of Service:
Filing of the Affidavit of the Chairperson stating that all the directions
regarding issue of notices and the advertisements for convening
meeting are complied with.
4
Convening of meeting of members/creditors
Voting at the meeting(s) shall take place by poll or by voting through
electronic means

2
Not
less
than seven
days before
the
date
fixed for the
meeting
Voting by proxy shall be permitted.
Within one
month from
the date of
receipt
of
If 90% or more of value of creditors have consented to the scheme by way of an affidavit, then creditors meeting shall be dispensed with by the Tribunal.
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International”), a Swiss entity. All rights reserved.
the notice
Eligible persons who can object are (i) members holding more than
10 per cent of shareholding (ii) creditors holding more than 5 per cent
as per last audited financial statements or if such statement is more
than six months old, then as per provisional financial statement not
preceding the date of application by more than six months.
5
Filing of representation by the regulators/statutory authorities to Tribunal
Filing of representation by the regulators/statutory authorities to the
Tribunal, if any and serve the copy to concerned companies within 30
days from the date of receipt of notice, failing which, it shall be
presumed that they have no representations to make on the
proposals.
6
Procedure post the meeting of members/creditors
Chairperson of the meeting(s) to submit to the Tribunal, a report of
the result of the meeting.
7
Within three
days
after
the
conclusion
of
the
meeting
CAA-4
Within
seven days
of the filing
of the report
by
the
Chairperson
CAA-5
Filing of the petition with the Tribunal
Filing of the petition for confirming compromise or arrangement with
the Tribunal.
8
Within
30
days
of
receiving
notice
Hearing of the petition at the Tribunal and procedure to be followed before the date of final
hearing
The Tribunal shall fix a date for the hearing of the Petition and notice
of the hearing shall be advertised in the same newspaper in which the
notice of the meeting was advertised.
Not
less
than
10
days before
the
date
fixed for the
hearing
Tribunal to send notices of hearing of Petition to the
members/creditors who have objected to the Scheme and to CG and
other regulators/statutory authorities who have made representation.
Submission of report by regulatory authorities.
9
Final hearing at the Tribunal
10
Procedure post completion of final hearing at the Tribunal
Companies to obtain a certified copy of the order made under section
232 read with section 230 (7) of the Companies Act, 2013 and file
certified copy of this order to be delivered to the ROC for registration.
However, in Form CAA7, the transferor company shall cause a
certified copy of this order to be delivered to the ROC for registration.
Within
30
days of the
date of the
receipt
of
the order
CAA-7
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International”), a Swiss entity. All rights reserved.
Statement of compliance in mergers and amalgamations – Every
company in relation to which the order is under Section 232(3) shall
until the Scheme is fully implemented, file a statement with the ROC
every year, duly certified by a chartered accountant or a cost
accountant or a company secretary in practice indicating whether the
Scheme is being complied with in accordance with the orders of the
Tribunal or not.
Within 210
days
from
the end of
each
financial
year
CAA-8
Report of working of compromise or arrangement
At any time after issuing an order sanctioning the compromise or arrangement, the Tribunal may direct the
company to submit a report on the working of the said compromise or arrangement.
Liberties of parties after passing of order
Companies, their creditors or members or liquidator may at any time after the passing of the order, apply to
the Tribunal for determination of any question relating to the working of the compromise or arrangement.

Procedure to be followed for merger or amalgamation of two or more small companies or between a holding
company and its wholly owned subsidiary company or such other class or classes of companies as may be
3
prescribed under section 233 of CA, 2013 (Fast track merger)
S. No.
1
Procedure/provision
Timeline
Forms
Notice of proposed scheme to be sent to ROC and Official Liquidator (OL)
Notice of the proposed scheme inviting objections or suggestions, if
any, within 30 days, to be sent by Transferor Company and
Transferee company to ROC, OL and persons affected by the
scheme along with copy of scheme.
2
Filing of declaration of solvency with ROC
Transferee and Transferor Company shall be required to file
declaration of solvency with ROC.
3
CAA 9
Before
convening
meeting of
members
and
creditors for
approval of
the Scheme
CAA 10
Convene meeting of member and creditors (if any)
Notice and explanatory statement of convening meeting of members
and/or creditors to approve the Scheme shall be accompanied with:



Statement disclosing details/facts of the companies, capital
structure, details of promoters, directors etc.;
Copy of Scheme and
Declaration of solvency in Form CAA 10.
Notice
period
clear
days
of
21
3
It is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233 of the Act, the concerned companies may, at
their discretion, opt to undertake such schemes under section 230 to 232 of the CA, 2013, including where the condition prescribed in section 233(1)(d) of the CA,
2013 (i.e. approval of scheme by majority representing 9/10th in value of the creditors or class of creditors of respective companies) has not been met
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International”), a Swiss entity. All rights reserved.
4
Filing of documents with CG, ROC and OL
Transferee Company shall require to file following documents with
CG:


Copy of Scheme as approved by members and creditors and
Report of the result of each of the meetings.
Copy of the Scheme alongwith relevant forms shall also be filed with
ROC and OL.
5
Within
seven days
of
conclusion
of meeting
of members
and/or
creditors
Where objection/suggestions are received from ROC and OL and CG
on the basis of objection received or otherwise is of the opinion that
Scheme is not in the public interest or in the interest of creditors, CG
may file an application before Tribunal for consideration of Scheme
u/s 232 of the CA, 2013.
CAA 12
Application
shall
be
filed within
60 days of
receipt
of
scheme
CAA 13
Within
30
days
of
receipt
of
confirmation
order
Form
28
Filing of confirmation order with ROC
Confirmation order of CG shall be filed with ROC.

GNL - 1
Approval of Scheme by CG
Where no objection/suggestion to the Scheme is received from ROC
and OL, or objection is deemed to be non-sustainable and the CG is
of the opinion that the Scheme is in the public interest or in the
interest of creditors, CG shall issue a confirmation order of such
Scheme of merger or amalgamation.
6
CAA 11
INC-
Rules with respect to acquisition of shareholding of dissenting shareholders and purchase of minority
shareholding read with section 235, 236 and 238 of the CA, 2013:
1
Notice to dissenting shareholders
Transferee company shall send notice to dissenting shareholders of
transferor company for acquiring their shares in transferor company.
Further, every circular containing offer of Scheme or contract
involving transfer of shares and recommendation to the members of
the transferor company by its directors to accept such offer, shall be
accompanied by specified information.
2
CAA 14
CAA 15
Determination of price for purchase of minority shareholding
under section 236 of CA, 2013
Offer price to be paid to minority shareholders for acquiring their
shares by the acquirer, person or group of persons, shall be
determined by registered valuer.

In case of listed company
Offer price shall be computed as per relevant SEBI regulation.

In case of unlisted company and private company
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International”), a Swiss entity. All rights reserved.
Price to be determined after considering following parameters


The highest price paid by the acquirer, person or group of
persons for acquisition during last 12 months;
Fair price of shares after taking into account valuation
parameters including return on net worth, book value of
shares, earning per share, price earning multiple vis-à-vis the
industry average, and such other parameters as are
customary for valuation of shares of such company.
Part II – National Company Law Tribunal (Procedure for reduction of share capital of company) Rules,
2016
S. No.
1
Procedure/provision
Timeline
Filing of Application or Petition for Reduction of share capital
Company to file an application for confirmation of reduction of capital
with the Tribunal



2
Forms
RSC 1
List of creditors duly certified by Managing Director (MD) or any
two directors (if MD is not present) showing details such as
names, address and amounts owed to them – list to be maximum
15 days old from the date of application filing
Declaration by a director of the company that company is not in
arrears in repayment of the deposit or interest thereon
Auditor certificate for the following
 certifying that list of creditors, certified by MD or two directors
is correct as per the records of the company;
 certifying that company is not in arrears in repayment of the
deposit or interest thereon and
 certifying that the accounting treatment proposed for the
reduction of capital is in conformity with the accounting
standards specified in section 133 or any other provisions of
CA 2013.
Issue of Notice and directions by the Tribunal

Tribunal shall within 15 days of the submission of the application
give or direct to give notice to
 CG, ROC - in all cases;
 Securities and Exchange Board of India – in case of listed
companies;
 Creditors – in all cases.
Within seven
days
of
direction
given by the
Tribunal
RSC 2
RSC 2
RSC 3
seeking their representations and objections, if any

3
Notice to creditors to be sent with all the details of capital
reduction as prescribed.
Publishing of notice
Notice is required to be published in English language in a leading
English newspaper and in a leading vernacular language newspaper
and also to be published on website of the company (if any) seeking
objections from the creditors and intimating about the date of
hearing.
Within seven
days
of
direction
from
Tribunal
Objections to the notice needs to be filed with the Tribunal and a
copy of the same is also required to be served on the company.
Within three
months from
publication
RSC 4
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International”), a Swiss entity. All rights reserved.
of notice
4
Filing of Affidavit of Service
Company shall file an affidavit confirming the dispatch and
publication of notice.
Within seven
days
from
the date of
issue
of
notice
RSC 5
Tribunal may dispense with the requirement of serving notice to creditors and/or publication of notice in
newspapers if it is satisfied that debt or claim of every creditor has been discharged or determined or has
been secured or his consent is obtained.
5
Representation by CG, ROC, SEBI and creditors
CG, ROC, SEBI or the creditors of the company can make objections
to the capital reduction proposed by the company within the
prescribed time limit. Such representation shall also be sent also to
the company.
In case no representation is received by the Tribunal, it will be
presumed that they have no objections.
6
Procedure with regard to representation and objections received
Company shall submit to the Tribunal, the representations/objections
so received along with responses raised by CG, ROC, SEBI or
creditors.
7
Within three
months from
date
of
receipt
of
notice
Within seven
days
of
expiry
of
three month
period
allowed for
representati
on
Reduction order and issue of certificate by ROC
Where the Tribunal makes an order confirming a reduction, the order
confirming the reduction and approving the minute may include such
directions or terms and conditions as the Tribunal deems fit, and
ROC will issue a certificate for reduction of share capital.
RSC 6
RSC 7
Our comments
The much awaited final CA rules and CR rules have now been notified and made effective.
The rules have provided much required clarity on many issues. However, further clarifications are still required
such as whether notice for convening meeting to be sent to Official Liquidator, the mode of calculating the votes
received under postal ballot, role of CG in case of fast track merger, transitional provisions etc. Further how the
rules are being implemented and the evolution of practical application of the provisions of the Act, where there is
no specific rule, will play a crucial role in determining how effectively the law is being administered.
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International”), a Swiss entity. All rights reserved.
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