COMPANIES ACT, 1956

1
COMPANIES ACT, 1956
2

• SECTION 390 TO 396A
• AMALGAMATION
• MERGER
• DEMERGER
• EXTERNAL AND INTERNAL RECONSTRUCTION
• If you cant beat you meet - Adolf Hitler

3
Chapter V, Section 390 to 396ACompromise,
Arrangements and Reconstruction.
4

• Marriage between two artificial persons is termed
  as Amalgamation.
• The procedure regarding it is mentioned in the
  above referred Section.

5
Section 390 Interpretation of Sections 391 and
393

• Company means any company liable to be wound up
  under this act.
• Arrangement includes a reorganization of the
  share capital of the company.
• Unsecured creditors who may have filed suits or
  obtained decrees shall be deemed to be of the
  same class as other unsecured creditors.

6
Section 391 Power to compromise or make
arrangement with creditors and members.

• Compromise and arrangement can be between company
  and its creditors or its members or any class of
  them.
• The persons who can apply to the court for the
  above mentioned purpose
• Application by the company itself, any of its
  creditors, member of the company, in case of the
  company which is being wound up by its
  liquidator.
• To be called held and conducted in such manner as
  the court directs.

7
Sec 391(2)

• If a majority in number, representing
  three-fourth in value of the creditors/members,
  or class of creditors/members as case may be,
  present and voting either in person or by proxy,
  at the meeting, agree to any compromise or
  arrangement, the compromise or arrangement if
  sanctioned by the court be binding on all the
  creditors, members 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.
• 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 ROC.

8
Sec 392 Power of H.C. to enforce compromises
and arrangement.

• HC has the power to supervise the carrying out
  the compromise or arrangement.
• May, at the time of making such order or at any
  time thereafter, give such direction in regard to
  any matter or make such modification in the
  compromise or arrangement as it may consider
  necessary for the proper working of the
  compromise or arrangement.
• If the court is satisfied that the arrangement or
  compromise cannot be worked satisfactory with or
  without modification, 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 the company and such an shall be
  deemed to be an order made under section 433 of
  this Act.
• Refer the cases mentioned below
• Maddi Lakshmaiah v. Duncan Agro Industries Ltd.
  Court can modify the scheme only for removing the
  difficulties of the scheme.
• Miheer H. Mafatlal v. Mafatlal and indutries Ltd.
  Court only has the supervisory work and has to
  work as an umpire in the cricket match and not as
  a player in the field.

9
Section 393- Information as to compromise or
arrangement with creditors and members.

• Where a meeting of the creditors or member is
  called under section 391
• 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
  interest of the directors, MD, or manager of the
  company
• In every notice calling the meeting which is
  given by the advertisement there shall be either
  such a statement as aforesaid or a notification
  of the place at which and the manner in which
  creditors or member entitled to attend the
  meeting may obtain copies of such a statement as
  aforesaid.

• 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 the creditors or members entitled to
  attend the meeting , every creditor or member so
  entitled to attend the meeting, every creditor or
  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.

10
Section 394 Provision for facilitating
reconstruction amalgamation of Companies.

• Where an application is made to the Court, 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
• The transfer to the transferee company of the
  whole or any part of the undertaking , property
  or liabilities of any transferor company.
• The allotment or appropriation by the transferee
  company of any shares, debentures, policies, or
  other like interest in that company which, under
  the compromise or arrangement, are to be allotted
  or appropriated by that company to or another
  person.
• The continuation by or against the transferee
  company of any legal proceeding pending by or
  against any transferor company.
• The dissolution, without winding up, of any
  transferor company.
• The provision to be made for any person who,
  within such time and in such manner as the court
  directs, dissent from the compromise or
  arrangement.
• Such incidental, consequential and supplemental
  matters as are necessary to secure that the
  reconstruction or amalgamation shall be fully and
  effectively carried out.

11
Sec. 394A- Notice to be given to CG for
application under sec 391 and 394.

• The court shall give notice of every application
  made to it under section 391 or 394 to CG, and
  shall take into consideration the
  representations, if any, made to it by that Govt.
  before passing any order under any of these
  sections.

12
Section 396

• Power of CG to provide for the amalgamation of
  companies in national interest.

13
Section 395 Power and duty to acquire shares
of shareholders dissenting from contract or
scheme approved by majority.
14
Section 396 A

• Preservation of books and papers of amalgamated
  company. Prior permission of CG is required,
  before disposing of the books and papers of the
  amalgamated company.