Companies Act 2013 Section 235
Companies Act 2013 Section 235 governs the power of the Tribunal to compromise or make arrangements with creditors and members.
Companies Act 2013 Section 235 deals with the authority of the National Company Law Tribunal (NCLT) to approve compromises or arrangements between a company and its creditors or members. This provision is crucial for corporate restructuring, mergers, and settlements, ensuring legal sanction for such agreements.
Understanding this section is vital for directors, shareholders, creditors, and legal professionals involved in corporate governance and insolvency processes. It helps facilitate smooth resolutions and protects stakeholder interests by providing a judicial framework for compromises and arrangements.
Companies Act Section 235 – Exact Provision
This section empowers the Tribunal to oversee and approve compromises or arrangements, ensuring they are fair and have the consent of the majority. It provides a legal mechanism to restructure obligations or membership rights, often used in mergers, demergers, or financial restructuring.
Enables Tribunal to call meetings of creditors or members.
Requires approval by a majority in number and three-fourths in value.
Sanction by Tribunal makes the arrangement binding.
Applies to compromises or arrangements with creditors or members.
Facilitates corporate restructuring and settlements.
Explanation of Companies Act Section 235
This section allows companies to seek Tribunal approval for compromises or arrangements with creditors or members. It applies to companies, their creditors, members, and the Tribunal.
States the procedure for calling meetings to approve compromises or arrangements.
Applies to all companies seeking restructuring or settlements.
Mandates majority approval by number and value of creditors or members.
Permits the Tribunal to sanction the compromise, making it legally binding.
Prohibits implementation without Tribunal's approval.
Purpose and Rationale of Companies Act Section 235
The section aims to provide a judicially supervised process for companies to restructure obligations or membership rights. It balances interests of companies and stakeholders, ensuring fairness and legal certainty.
Strengthens corporate governance through legal oversight.
Protects rights of creditors and members during compromises.
Ensures transparency and accountability in arrangements.
Prevents misuse of corporate restructuring powers.
When Companies Act Section 235 Applies
This section applies when a company proposes a compromise or arrangement with creditors or members requiring Tribunal approval.
Applicable to all companies under the Act.
Triggered by proposals for mergers, demergers, or financial restructuring.
Mandatory for compromises affecting creditor or member rights.
Exemptions may apply for small-scale or informal arrangements not requiring Tribunal.
Legal Effect of Companies Act Section 235
Section 235 creates a mandatory legal process for compromises or arrangements involving creditors or members. It requires Tribunal approval, making the arrangement binding on all parties once sanctioned. Non-compliance renders the arrangement void and may attract penalties. The provision interacts with MCA rules on filings and disclosures related to such compromises.
Creates binding effect upon Tribunal sanction.
Mandates procedural compliance for validity.
Non-compliance leads to invalidation and possible penalties.
Nature of Compliance or Obligation under Companies Act Section 235
Compliance with Section 235 is mandatory for companies seeking to compromise or arrange with creditors or members. It is a conditional, event-driven obligation requiring Tribunal application, meeting convening, and sanction. Directors and officers must ensure adherence to procedural and substantive requirements to protect company and stakeholder interests.
Mandatory compliance for relevant compromises or arrangements.
Conditional on proposal of compromise or arrangement.
Ongoing obligation until Tribunal sanction is obtained.
Responsibility lies with company directors and officers.
Stage of Corporate Action Where Section Applies
Section 235 applies primarily at the restructuring or settlement stage of corporate action. It involves board decisions to propose compromises, convening creditor or member meetings, and Tribunal filings for approval.
Board decision to propose compromise or arrangement.
Calling and conducting meetings of creditors or members.
Filing application with Tribunal for sanction.
Post-sanction compliance and implementation.
Penalties and Consequences under Companies Act Section 235
Failure to comply with Section 235 can lead to invalidation of the compromise or arrangement. The company and officers may face penalties including fines. While imprisonment is generally not prescribed, repeated or fraudulent non-compliance may attract stricter actions under related provisions.
Monetary fines for non-compliance.
Invalidation of unauthorized compromises or arrangements.
Possible disqualification of officers for misconduct.
Example of Companies Act Section 235 in Practical Use
Company X faced financial difficulties and proposed a compromise with its creditors to restructure debt. The board applied to the Tribunal under Section 235, which ordered meetings of creditors. After approval by the required majority, the Tribunal sanctioned the arrangement. This allowed Company X to continue operations with restructured liabilities, protecting stakeholder interests.
Shows practical use in debt restructuring.
Highlights importance of Tribunal approval for binding effect.
Historical Background of Companies Act Section 235
Section 235 replaces similar provisions under the Companies Act, 1956, streamlining the process for compromises and arrangements. Introduced in the 2013 Act, it reflects reforms aimed at improving corporate restructuring efficiency and legal clarity.
Modernizes earlier provisions from the 1956 Act.
Introduced to enhance Tribunal's role in corporate compromises.
Part of broader insolvency and restructuring reforms.
Modern Relevance of Companies Act Section 235
In 2026, Section 235 remains vital for corporate restructuring, mergers, and insolvency processes. Digital filings via the MCA portal facilitate compliance. The section supports governance reforms and aligns with ESG and CSR trends by ensuring transparent stakeholder engagement.
Enables digital compliance and e-governance.
Supports governance reforms in restructuring.
Ensures practical importance in modern corporate environment.
Related Sections
Companies Act Section 230 – Power of Tribunal to approve compromises and arrangements.
Companies Act Section 232 – Merger and amalgamation of companies.
Companies Act Section 233 – Merger of company with foreign company.
Companies Act Section 234 – Power of Tribunal to enforce compromise or arrangement.
Companies Act Section 241 – Oppression and mismanagement remedies.
Insolvency and Bankruptcy Code Section 230 – Corporate insolvency resolution process.
Case References under Companies Act Section 235
- Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India (2019, SCC 1)
– Affirmed Tribunal’s authority in sanctioning compromises and arrangements under the Companies Act.
- ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2018, SCC 1)
– Clarified principles for Tribunal’s approval of compromises and arrangements.
Key Facts Summary for Companies Act Section 235
Section: 235
Title: Power of Tribunal to compromise or make arrangements
Category: Corporate governance, restructuring, compliance
Applies To: Companies, creditors, members, Tribunal
Compliance Nature: Mandatory, conditional on proposed compromise or arrangement
Penalties: Monetary fines, invalidation of arrangement, possible disqualification
Related Filings: Tribunal application, meeting notices, MCA filings
Conclusion on Companies Act Section 235
Section 235 is a cornerstone provision empowering the Tribunal to oversee compromises and arrangements between companies and their creditors or members. It ensures that such agreements are fair, legally binding, and protect stakeholder interests. Compliance with this section is essential for lawful corporate restructuring and dispute resolution.
By mandating Tribunal approval and majority consent, the section fosters transparency and accountability in corporate governance. Directors, shareholders, and professionals must understand and adhere to its requirements to avoid legal pitfalls and ensure smooth corporate operations.
FAQs on Companies Act Section 235
What is the main purpose of Section 235?
Section 235 empowers the Tribunal to approve compromises or arrangements between a company and its creditors or members, ensuring legal sanction and fairness in corporate restructuring.
Who can apply to the Tribunal under Section 235?
The company itself, any creditor, or any member can apply to the Tribunal to call meetings and seek approval for compromises or arrangements.
What majority is required to approve a compromise or arrangement?
A majority in number representing three-fourths in value of the creditors or members present and voting must approve the compromise or arrangement.
Is Tribunal approval mandatory for all compromises?
Yes, compromises or arrangements affecting creditor or member rights require Tribunal sanction to be legally binding under Section 235.
What happens if a company fails to comply with Section 235?
Non-compliance can invalidate the compromise or arrangement and may attract monetary penalties or other legal consequences for the company and its officers.