Once Statutory Requirements Of Amalgamation Scheme Are Met, NCLT Has Supervisory Role, Can't Change Appointment Date: NCLAT
The National Company Law Appellate Tribunal, Principal Bench of Justice Yogesh Khanna (Judicial Member), and Ajai Das Mehrotra (Technical Member) held the appointed date in a scheme of arrangement cannot be changed by the NCLT. The bench held that once the statutory requirements have been met, and there are no violations of the law or any aspects of the proposed scheme that are...
The National Company Law Appellate Tribunal, Principal Bench of Justice Yogesh Khanna (Judicial Member), and Ajai Das Mehrotra (Technical Member) held the appointed date in a scheme of arrangement cannot be changed by the NCLT. The bench held that once the statutory requirements have been met, and there are no violations of the law or any aspects of the proposed scheme that are inherently objectionable or against public policy, then the jurisdiction of the NCLT is limited to a supervisory role.
Brief Facts:
The Appellants proposed to merge and amalgamate Appellant No.1 with Appellant No.2. They determined the appointed date for the merger as April 1, 2019. This date was chosen after considering various accounting, financial, and taxation aspects. To facilitate the amalgamation, they filed an application with the NCLT, Mumbai Bench, which was admitted on February 6, 2020, and subsequently, the scheme petition was admitted on August 24, 2021. Despite several hearings being delayed due to various reasons, including lack of time, the appellants filed interlocutory applications for an urgent hearing.
The NCLT, after considering the shareholders' approval and regulatory authorities' reports, approved the Scheme of Amalgamation of Marathon Nextgen Townships Private Limited with Marathon Nextgen Realty Limited on July 14, 2023. However, the NCLT directed the Appellants to revise the appointed date from April 1, 2019, to April 1, 2020, and held that the initially proposed date was more than two years ante-dated and needed to be amended to a more recent date, without providing any cogent reasons for this decision. Feeling aggrieved, the Appellants approached the National Company Law Appellate Tribunal, Principal Bench (“NCLAT”), and challenged the decision of the NCLT.
Observations by the NCLAT:
The NCLAT referred to provisions of Section 232(6) of the Companies Act, 2013, which mandate that a scheme of arrangement must clearly indicate an appointed date from which it shall be effective. The bench also considered the General Circular No.09/2019 issued by the Ministry of Corporate Affairs on August 21, 2019, which provided clarification regarding the interpretation of Section 232(6) of the Act. The Circular clarified that companies have the flexibility to choose an appointed date, which may be a specific calendar date or tied to the occurrence of an event relevant to the scheme, provided it is not against public interest.
The NCLAT noted that the NCLT relied on the Circular, particularly Clause (c) of Paragraph 6, to modify the appointed date. However, the NCLT overlooked the fact that the scheme application was filed on December 1, 2019, and the appointed date of April 1, 2019, fell within a year of filing, as per the Circular. Therefore, there was no justification for changing the appointed date.
Furthermore, during the final hearing, the Regional Director expressed satisfaction with the explanations provided by the appellant companies and raised no objections to the scheme of merger. All statutory compliances were fulfilled, including setting the appointed date as April 1, 2019. Hence, the NCLAT held that there was no valid reason to amend it to April 1, 2020, merely on the grounds that it was ante-dated more than two years, especially when the petition was filed well within the prescribed timeframe.
The NCLAT referred to its decision in Accelyst Solutions Pvt Ltd Vs Freecharge Payment Technologies Pvt Ltd, where it emphasized that the tribunal's jurisdiction in sanctioning a scheme of arrangement is supervisory in nature. Once statutory procedures are complied with and the proposed scheme is not violative of any law or public policy, the tribunal cannot sit in appeal over the commercial wisdom of the parties involved.
Therefore, the NCLAT held that the modification of the appointed date was unwarranted. Consequently, it set aside the NCLT's order regarding the change in the appointed date and affirmed April 1, 2019, as the appointed date in accordance with the scheme proposed by the appellant company.
Case Title: Marathon Nextgen Townships Pvt Ltd and anr vs Regional Director, Western Region, Ministry of Corporate Affairs
Case Number: COMPANY APPEAL (AT) NO.190 OF 2023
Advocate for the Appellant: Mr. Tishampati Sen, Ms. Ridhi Sancheti, Mr. Ashish Parwani, Ms. Geetika Makhija, Mr. Anurag Anand and Mr Mukul Kulhari, Advocates.
Advocate for the Respondent: Mr. Durga Dutta, and Ms Rashi Verma, Advocates.