NCLAT Upholds NCLT's Limited Authority In Scheme Arrangements, Bars Appointment Date Alteration

NCLAT Upholds NCLT's Limited Authority In Scheme Arrangements, Bars Appointment Date Alteration

The National Company Law Appellate Tribunal, Principal Bench of Justice Yogesh Khanna (Judicial Member), and Ajai Das Mehrotra (Technical Member) ruled that the appointed date in a scheme of arrangement cannot be altered by the NCLT. The bench emphasized that once all statutory requirements have been fulfilled and there are no violations of the law or any elements of the proposed scheme that are fundamentally objectionable or against public policy, the jurisdiction of the NCLT is restricted to a supervisory capacity.

The appellants proposed the merger and amalgamation of appellant No. 1 with appellant No. 2, setting the appointed date for the merger as April 1, 2019, after considering various accounting, financial, and taxation factors. 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.

On July 14, 2023, the NCLT approved the Scheme of Amalgamation of Marathon Nextgen Townships Private Limited with Marathon Nextgen Realty Limited after considering shareholders' approval and regulatory authorities' reports. However, the NCLT directed the appellants to revise the appointed date from April 1, 2019, to April 1, 2020, stating that the initially proposed date was more than two years ante-dated and required amendment 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.

The NCLAT referred to Section 232(6) of the Companies Act, 2013, which mandates a clear indication of the appointed date in a scheme of arrangement. Additionally, it considered General Circular No. 09/2019 issued by the Ministry of Corporate Affairs on August 21, 2019, which clarified the interpretation of Section 232(6). The circular stated that companies have flexibility in choosing the appointed date, provided it aligns with the scheme and is not against the public interest.

The NCLAT observed that the NCLT relied on the Circular, particularly Clause (c) of Paragraph 6, to modify the appointed date. However, it was overlooked 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 merger scheme. 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 because it was ante-dated for more than two years, especially when the petition was filed well within the prescribed timeframe.

Referring to its decision in Accelyst Solutions Pvt Ltd v. Freecharge Payment Technologies Pvt Ltd, the NCLAT emphasized that the tribunal's jurisdiction in sanctioning a scheme of arrangement is supervisory. Once statutory procedures are complied with and the proposed scheme is not violative of any law or public policy, the tribunal cannot question 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.