The terms compromise and arrangements in company are similar to the meanings which we use in our day to day activities.
Chapter 15 (section 230-240) contains the following provisions related to compromise and arrangements in companies
Lets understand the terms better
What is a compromise ?
The term compromise is not defined under the provisions of company law but compromise can be known as to be the dispute settling mechanism or alternative.In compromise companies settle the differences with the other ways available rather that having a cold war within themselves
Example : Ultrad and roger limited companies are having a 20 years long relation the relation boosted both of the companies business . But Now ultrad companies are having an issue with roger limited companies with respect to the supply of raw materials and the cost ultrad have to pay . ultrad previously used to buy 60 tons of raw materials for 25 lakhs roger limited argues that there is an increase in price and they are expecting a price of 28 lakhs for the same quantity . Both parties being mutually benefited by relation wanted to continue the relationship and also get a benefited outcome so bath parties sat and compromised Ultrad agreed to purchase 60 tons of raw materials at a revised price of ₹27 lakhs, effective immediately. This price reflects a fair adjustment, taking into account market fluctuations and the interests of both parties.
The compromise in the above example where Ultrad agreeing for the price adjustment and paying 27 lakhs instead of 25 lakhs above is a compromise same with roger limited as they expected 28 lakhs previously but lastly compromised for 27
What is an arrangement ?
Arrangement under companies act 2013, section 230(1) Arrangement has more wider difference than compromise though both concepts resolve the problem arrangement means reorganising rights of shareholders without existence of dispute . the arrangement can be made though there is no dispute but compromise can only be made when there is dispute
Example : Krishna and Vasudev are directors of ratnadeep mills both parties thought having an agreement about shares will save them from any confusions later on or disputes so they had an agreement . in this case there is no dispute but parties reorganized their rights for saving the company being wound up
A company may opt for scheme of compromise or arrangement to take itself out from the winding up proceedings. Look into the example for better understanding
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ARTICLE WRITTEN BY – Gaddam Sneha Deepthi
EDITOR – Nancy Sharma
