What is a "First Motion" Application?

Before a company can even present a Scheme of Compromise or Arrangement (C&A) to its shareholders or creditors for a vote, it must first get permission from the National Company Law Tribunal (NCLT) to hold the meetings.

This initial application, filed under Section 230(1) of the Companies Act, 2013, is commonly called the "First Motion" or "Summons for Directions." Its sole purpose is to ask the NCLT for directions on:

• Classification: Confirming the different "classes" of shareholders and creditors who will vote separately.
• Meeting Logistics: Setting the date, time, and venue for each class meeting.
• Chairperson: Appointing a Chairperson (and often an Alternate Chairperson) to preside over the meetings as an officer of the Tribunal.
• Notice: Approving the content of the notice and explanatory statement to be sent to stakeholders.
• Publication: Specifying the newspapers in which the meeting notice must be advertised.

This application (in Form NCLT-1) must be supported by a detailed affidavit (in Form NCLT-6). This affidavit is the central document, as it provides the NCLT with all the information needed to grant these directions.

Infographic: The Affidavit's Evolving Role

Infographic: Mandatory Disclosures under Sec. 230(2)

The affidavit in Form NCLT-6 is the vehicle for delivering all mandatory disclosures required by Section 230(2) of the Act. Failure to include any of these can lead to the NCLT rejecting the application.

Modern Affidavit Template: Form NCLT-6 (Annotated)

Historical Affidavit Format: Form 34 (Annotated)

Infographic: The C&A Application Lifecycle

The affidavit is just the first step. This interactive chart shows how the 'First Motion' fits into the entire process, from application to final NCLT sanction. (Click nodes to expand/collapse).

Critical Step: Notice to Regulators (Sec. 230(5))

The affidavit in Form NCLT-6 must also form the basis of a notice that is sent to all relevant statutory and regulatory authorities. This is a non-negotiable requirement under Section 230(5).

Once the NCLT hears the First Motion, it directs the company to send a notice (in Form CAA-3) along with the scheme and all supporting documents (including the affidavit) to:

• Central Government (through the Regional Director).
• Registrar of Companies (ROC).
• Income Tax Department.
• Reserve Bank of India (RBI) (if applicable, e.g., for NBFCs or forex implications).
• Securities and Exchange Board of India (SEBI) (for listed companies).
• Official Liquidator (if the company is in liquidation).
• ...and any other sectoral regulator (e.g., IRDAI for insurance).

These regulators have 30 days to make representations or objections. If they fail to respond, it is *deemed* they have "no objection." Any objections they raise must be addressed by the company and considered by the NCLT before the final sanction.

Practical Breakdown of the Historical Form 34

The structure of the old Form 34 from the 1959 Rules provides a clear, logical skeleton that remains relevant for drafting affidavits today. It was a masterclass in "what to ask for."

• 1
  Clause 1 (Deponent): Establishes the authority of the person swearing the affidavit (e.g., Director, Company Secretary).
• 2-6
  Clauses 2-6 (The "Who" and "What"): These paragraphs set out the company's "statutory" facts: incorporation date, registered office, share capital, and primary business objects. This establishes the Tribunal's jurisdiction.
• 7
  Clause 7 (The "Why"): This was the heart of the old affidavit. It required the affiant to detail the *circumstances* necessitating the C&A (e.g., financial distress, need for restructuring), the *objects* to be achieved, and the *terms* of the scheme itself. It also required annexing a copy of the scheme as an exhibit. This is the direct forerunner to the "material facts" and "valuation" disclosures required by Section 230(2) today.
• 8
  Clause 8 (Classification): This clause required the applicant to explicitly state the "class of creditors or members with whom the compromise... is to be made." As discussed in the next section, this remains one of the most litigated and strategically vital parts of any C&A application.
• 9
  Clause 9 (Necessity of Meeting): This was the formal "ask" or prayer—stating that it is *necessary* for the court to order a meeting (or meetings) of the defined classes to vote on the scheme.
• 10
  Clause 10 (Venue & Chairperson): The applicant *suggested* a venue (typically the company's registered office) and, most importantly, requested the Court to *appoint a chairperson* for the meeting. This chairperson acts as an officer of the Court to ensure the meeting is conducted fairly.
• 11
  Clause 11 (Advertisement): This clause proposed the newspapers (e.g., one English daily, one vernacular daily) in which the notice of the meeting should be published, ensuring public dissemination.
• 12
  Clause 12 (Final Prayer): A concluding prayer asking the Court to grant all the necessary directions for convening and holding the meetings as outlined in the preceding clauses.

The Critical Task: Strategic Classification of Creditors

The single most important strategic decision in the affidavit is the *classification* of creditors and members (Clause 8 in the old form). Why? Because the scheme must be approved by a 75% majority *in value* in *each class*.

Improperly "lumping" dissenting creditors with a large group of consenting creditors can be a fatal flaw. The guiding legal principle (from *MijBain v. Somes*) is that a class should be confined to those persons whose "rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."

The affidavit must not only list the classes but implicitly *justify* them based on this test. Common classifications include:

• Equity Shareholders (separate from Preference Shareholders).
• Preference Shareholders (who have different rights).
• Secured Creditors (often further divided by the nature of their security).
• Unsecured Creditors (e.g., bond-holders, fixed deposit holders).
• Related-Party Unsecured Creditors (e.g., promoters, directors).
• Unrelated Unsecured Creditors (e.g., trade suppliers).

An improper classification is a common ground for objection and can lead to the NCLT dismissing the petition outright.

Beyond the First Motion: The Full Lifecycle

The First Motion affidavit is just the beginning. The entire process unfolds in three distinct "motions" or stages.

Common "Circumstances" Necessitating a Scheme

The affidavit (and the Explanatory Statement that follows) must explain the "circumstances" (as Clause 7 of Form 34 put it). These often include:

• Financial Restructuring: The most common reason. The company is under financial distress and needs to "compromise" with its creditors (e.g., by reducing debt, converting debt to equity, or extending payment terms).
• Merger / Amalgamation: While Sections 232-234 are specific to mergers, the C&A process under Sec. 230 is often used for complex restructurings that *include* an amalgamation.
• Demerger / Spin-off: Carving out a specific division or undertaking of the company into a new, separate company.
• Internal Reorganisation: "Arrangements" with members, such as a reduction of share capital, consolidation of share classes, or buy-back of shares.

Director Interests: The Explanatory Statement (Sec. 230(3))

The old Form 34 (Clause 7) vaguely mentioned disclosing the "effect... on the material interests of the directors." The Companies Act, 2013, makes this a major, non-negotiable disclosure.

This disclosure is *not* typically made in the NCLT-6 affidavit itself. Instead, the affidavit supports the application to convene a meeting, and the NCLT then *orders* that the notice of that meeting (Form CAA-2) must be accompanied by a detailed Explanatory Statement as required by Section 230(3).

This statement, which is sent to every single stakeholder, *must* disclose:

• The terms of the scheme, including its valuation.
• The "effect of the compromise or arrangement on the material interests of the directors, key managerial personnel (KMP), and debenture trustees."
• Crucially, it must detail any effect on their interests *as distinct from* the interests of other shareholders or creditors.
• For debenture holders, the statement must also include a report from the Debenture Trustee (as mentioned in Form 34) stating that the scheme is not prejudicial to their interests.

This ensures that when a shareholder or creditor casts their vote, they are fully aware of any special benefit or differing treatment that the company's management or their fiduciaries might be receiving from the scheme.