Once Company Board Finds That Proposed Scheme Is Not Against Public Policy, NCLT Can't Sit In Appeal: NCLAT

Brief Facts:

The matter pertained to a scheme filed before the National Company Law Tribunal (NCLT), which sought to demerge the Demerged Undertaking from the Appellant to the Respondent on a going concern basis. The purpose was to create separate entities focusing on specific business verticals, with the aim of enhancing operational efficiency and growth opportunities.

The Appointed Date, defined in the Scheme as an Effective Date or as decided by the Parties, was agreed upon by the Board of Directors of both companies to be the Effective Date. Additionally, it was approved by shareholders and creditors. Despite the absence of objections from stakeholders or regulatory bodies, the NCLT allegedly modified the Appointed Date. The modification was based on an incorrect interpretation of legal precedent and directed it to be the date of pronouncement of the impugned order. Feeling aggrieved, the Appellant approached the NCLAT.

Observations by the NCLAT:

The NCLAT referred to the scheme at hand and noted that it appeared prima facie beneficial to the company. The NCLT in its order noted that all requisite statutory compliances have been fulfilled and sanctioned the scheme of demerger after finding that no investigation/proceedings are pending against the demerged or resulting company and no winding up petition is pending against the petitioner companies under the provisions of Companies Act.

However, the NCLAT noted that the NCLT changed the appointed date as per the Scheme of Amalgamation viz. to be considered from the date of pronouncement of the impugned order. The NCLAT referred to its decision in Accelyst Solutions Pvt Ltd Vs Freecharge Payment Technologies Pvt Ltd, where it was held that once the Company Court finds that the statutory procedures have been complied with, it would have no further jurisdiction to sit in appeal over the commercial wisdom of the parties who have approved the scheme, even if the court believes that a better scheme could have been framed. The NCLAT held that the tribunal's role is supervisory, not appellate, ensuring that the scheme is not violative of any law, unconscionable, or contrary to public policy.

The NCLAT noted that Appellant Company fulfilled all requisite statutory compliances. However, the NCLT modified the Appointed date. The NCLAT held that the alteration of the appointed date would affect calculations, and none of the shareholders opposed the Appointed date proposed in the scheme of amalgamation.

Further, the NCLAT emphasized that if the parameters for sanctioning the scheme are complete, then the Tribunal would only have a supervisory jurisdiction. Therefore, there was no justification for changing the appointed date as proposed in the scheme of merger.

Consequently, the appeal was allowed, holding the Appointed Date to be the one fixed by the scheme, and not the date of pronouncement as determined by the NCLT.

Case Title: Oriental Carbon & Chemicals Ltd vs OCCL Ltd

Case Number: COMPANY APPEAL (AT) NO.144 OF 2024

Advocate for the Appellant: Mr Arun Kathpalia, Sr Advocate, MR Prateek Kumar, Mr. Mehul Shah, Ms Raveena Rai, Mr Rushabh Dala, Mr Kshitiz,

Advocate for the Respondent: Mr. Vikrant N Goyal

Date of Judgment: 27.05.2024

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