Section 230(9) of the Companies Act, 2013 ("the Act") permits the Tribunal to dispense with the calling of a meeting of creditors or a class of creditors where at least ninety per cent in value of the creditors of that class have consented to the scheme by way of affidavit. The provision is an efficiency mechanism: it avoids the cost and delay of a meeting where the consent is already overwhelming. But it is not a rubber stamp, and the NCLAT has recently clarified the limits of the Tribunal's power to dispense and to recall a dispensation.
The Ninety Per Cent Threshold and the Affidavit
The dispensation application must be accompanied by consent affidavits from creditors representing at least ninety per cent in value of the class. The affidavits must be genuine, must identify the creditor and the amount owed, and must state the creditor's consent to the scheme. The Tribunal must be satisfied that the affidavits represent the requisite value and that the consent is informed.
The NCLAT has held that where the consent affidavits represent over ninety per cent in value, the Tribunal has the power to dispense with the meeting, and the refusal to dispense may be set aside as a jurisdictional overreach. The dispensation is particularly appropriate where the scheme does not compromise the rights of the creditors or affect the financial capacity of the company.
The Recall of Dispensation: Fraud, Suppression, and Procedural Defect
The dispensation order is not immune from challenge. The NCLT has the power under Rule 11 of the NCLT Rules, 2016 to recall an order obtained by fraud, suppression of material facts, or fundamental procedural defect. The NCLT Chandigarh has held that the power of recall is exceptional and ordinarily exercisable only where the order is obtained by fraud, suppression of material facts, or fundamental procedural defect.
In the Microtek International case, the Tribunal declined to recall a dispensation order where the applicant creditor alleged that its debt had been understated. The Tribunal found that even taking the applicant's higher figure, the consenting creditors' percentage would stand at 90.33 per cent, still above the ninety per cent threshold, and the applicant's holding would be only 4.80 per cent, below the five per cent threshold for maintaining an objection under the proviso to Section 230(4). The recall was refused because the dispute was an accounting reconciliation, not a fraud on the Tribunal.
The Strategic Dimension
The dispensation route is not available where the scheme compromises the rights of the creditors. A scheme that proposes a haircut, a rescheduling, or a conversion of debt into equity is a scheme that alters creditor rights, and the meeting is the forum in which those rights are debated. A dispensation in such a case is vulnerable to challenge.
A compliant dispensation requires an affidavit that is precise, a value computation that is audited, and a record that demonstrates that the consent is informed and voluntary.
Call to Action
Anuj Desai & Associates advises companies on the Section 230(9) dispensation route—from the compilation of consent affidavits and the value computation to the defence of dispensation orders in recall proceedings and appeals. If you are seeking dispensation or responding to a recall application, we can help you build a record that withstands scrutiny.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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