Compromise and Arrangement :

Though Companies Act defines “arrangement”, it does not define “compromise”. These terms have no definite legal connotation. ‘Compromise’ means an amicable agreement between parties to a controversy to settle their differences by making mutual concessions, as distinguished from adjudication on the basis of an exact ascertainment of the opposing rights. In a compromise, “the parties agree to try to settle it between themselves by a give-and-take arrangement”. For the purpose of a compromise, it has been held that it is but essential that each party thereto should be empowered to make the necessary concessions. [Dani Chand & Co. vs. Narain Das & Co. (1947) 7 Comp. Case 195 F.B.]. Thus, compromise envisages the existence of a dispute, e.g. one relating to rights. But the word “arrangement” is of wide import and its meaning should not be limited to something analogous to a compromise.

Section 390(b) provides that the expression ‘arrangement’ includes a reorganisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both these methods. An arrangement may also involve debenture holders being given an extension of time for payment, releasing their security in whole or in part or exchanging their debentures for the claims and the balance in shares or debentures of the company; preference shareholders giving up their rights to arrears of dividends, further agreeing to accept a reduced rate of dividend in the future, etc.