(12.17.2) Compromise and Arrangement for Reconstruction

Section 391 lays down the procedure by which the Court’s assistance may be invoked to facilitate amalgamation and reconstruction. The arrangement can be effected without liquidation of the existing company. Reconstruction or amalgamation may be effected by the following two methods: (i) transfer of the undertakings (s.394); (ii) by the transfer of shares (s.391). Section 394 provides that where, on an application under s.391, it is shown to the Court that the scheme of compromise or arrangement has been proposed for the purposes of, or in connection with, reconstruction of a company, or the amalgamation of any two or more companies and the scheme involves the transfer of the whole or any part of undertaking, property or liabilities by one (i.e Court may sanction the scheme. Section 395 provides for a more common and convenient method of reconstruction or amalgamation, viz., by the transfer os sale of shares under this method one company acquires a controlling interest in second company by buying a sufficient number of shares as would enable it to secure the passing of special resolution at general meetings. Where share purchase can be effected by negotiation and agreement, it is not necessary to resort to the provision of the Act. But s.395 provides a means whereby, if it is so desired, the whole of the capital or the whole of a class of shares can be acquired by enforcing the compulsory purchase of the shares of dissentients subject to the right of the latter to appeal to the court.