Companies Act Section 231

Companies Act, Section 231: Power of the Tribunal to Enforce Compromise or Arrangement

Section 231 of the Companies Act, 2013, sets out the powers and responsibilities of the National Company Law Tribunal (NCLT) after it has sanctioned a scheme of compromise or arrangement under Section 230. The section is designed to ensure that the scheme approved by the Tribunal is not only legitimate but also implementable and effectively followed. This provision equips the Tribunal with extensive powers to monitor, modify, and, where necessary, enforce the terms of a compromise or arrangement involving a company, its creditors, or its members.

1. Supervisory Jurisdiction of the Tribunal Post-Sanction of Scheme

Once a scheme of compromise or arrangement has been sanctioned under Section 230 of the Act, the Tribunal assumes an active supervisory role over its implementation. This supervisory power ensures that the scheme is not merely approved in form, but also carried out in substance.

(a) Tribunal’s Authority to Supervise the Implementation of the Scheme

The Tribunal is statutorily empowered to supervise the actual implementation of the sanctioned scheme. This means the Tribunal may oversee how the terms of the compromise or arrangement are being executed by the company, its creditors, and its members. The Tribunal may call for progress reports, seek clarifications, and summon parties involved to ascertain whether the scheme is being complied with in good faith.

This authority is not limited in time and may extend until the scheme has been fully executed or until the Tribunal is satisfied with its completion.

(b) Tribunal’s Power to Issue Further Directions or Modify the Scheme

In addition to supervision, the Tribunal is vested with the power to issue further directions relating to any aspect of the scheme that requires clarification or improvement. It may also modify the terms of the compromise or arrangement, either:

At the time of passing the order of sanction under Section 230; or
At any subsequent time, when it is brought to the Tribunal’s attention that certain modifications are necessary for the effective implementation of the scheme.
This provision enables the Tribunal to respond to practical difficulties or unforeseen circumstances that may arise after the approval of the scheme and to act in the best interest of all stakeholders to ensure its proper enforcement.

2. Power of Tribunal to Order Winding Up on Failure of Implementation

In some cases, despite approval, the scheme may fail in its implementation whether due to impracticability, non-cooperation among stakeholders, or continued financial distress of the company.

If, in the Tribunal’s opinion:

The sanctioned scheme under Section 230 cannot be satisfactorily implemented, even if modifications are attempted; and
The company is unable to meet its financial obligations or pay its debts as envisaged under the compromise or arrangement,
then the Tribunal has the authority to take a much stronger remedial measure to order the winding up of the company.

Such a winding-up order shall be deemed to be an order made under Section 273 of the Companies Act, 2013. Section 273 provides the legal basis for winding up of a company by the Tribunal in various circumstances, including the company’s inability to pay its debts. Hence, if a compromise or arrangement fails and insolvency becomes apparent, the Tribunal may initiate liquidation proceedings to protect the interests of creditors and stakeholders.

This provision ensures that companies do not use compromise or arrangement schemes as a shield to delay insolvency proceedings where genuine financial incapacity exists.

3. Application to Pre-Existing Orders under Earlier Laws

The enforcement and supervisory powers of the Tribunal under Section 231 are not limited only to schemes sanctioned under the Companies Act, 2013. This section further provides that:

The provisions of Section 231 shall, so far as may be applicable, also apply to companies for which an order sanctioning a compromise or arrangement was made prior to the commencement of the Companies Act, 2013.
This means that even if the order approving a scheme was passed under the Companies Act, 1956, the Tribunal may still exercise its powers under Section 231 to oversee, enforce, and, if necessary, modify or terminate such schemes.

This ensures continuity in the regulatory framework and enables the Tribunal to exercise a consistent supervisory function over all compromise and arrangement schemes, regardless of when they were originally approved.