‘Appointed date’ in a scheme of arrangement – More flexible and effective

09 十月 2019

by Rohit Subramanian

A scheme for reconstruction of a company or companies involving merger or amalgamation under Chapter XV of the Companies Act, 2013 (“Companies Act”) envisages two dates i.e. the “appointed date” and “effective date”. The effective date of the scheme denotes the date on which the scheme is sanctioned by the National Company Law Tribunal (“NCLT”) or the relevant High Court (under erstwhile Companies Act, 1956), as the case maybe. Ironically, the “appointed date” of the scheme is the day on which the scheme is deemed to have taken effect, which could also be a retrospective date, agreed by the parties to the scheme and approved by the relevant adjudicating authority.

The provisions of sub-section (6) of Section 232 of the Companies Act mandates every scheme proposed by a company or companies to clearly indicate an “appointed date”. Although the Companies Act, 1956 (“Erstwhile Companies Act”) had no such mandate, the adjudicating High Court(s) were authorized to make requisite provisions, to fully and effectively carry out the reconstruction or amalgamation proposed in the scheme. Unfortunately, the absence of explicit provision(s) on the effectual date of a scheme of arrangement gave rise to various judicial deliberation(s) on the matter.

The Supreme Court, has opined on the “transfer date” stated in an amalgamation scheme, in the matter of Marshall Sons & Co. [India] Ltd v. Income Tax Officer [1996 (88) (SC) Comp Cas 528]. The Court observed that the adjudicating authority may, while sanctioning a scheme of arrangement, modify the “transfer date” stated therein, depending on the specific facts and circumstances. However, if the Court does not prescribe a specific date but merely sanctions the scheme, the date of amalgamation/date of transfer shall be the date specified in the scheme as “the transfer date” and not otherwise. Further, as a logical consequence of the Court sanctioning the scheme, the business carried on by the transferor company, from the “transfer date” till the actual date of order (scheme/arrangement approved by the relevant High Court), shall deemed to have been carried for and on behalf of the transferee company. In the said case, there were a series of events that occured after the stipulated “transfer date” such as the court sanctioning the scheme, filing of order with the Registrar of Companies (“RoC”), allotment of shares etc. Notwithstanding the above, the date of amalgamation/transfer, shall still be the date stipulated in the scheme.

Pursuant to its efforts to consolidate the existing provisions on company law, the Ministry of Corporate Affairs (“MCA”) issued a concept paper on company law(s) containing model codified law(s)[see endnote 1]. Although, the MCA did not affirm SC’s view(s) on the appointed/effective date of a scheme of arrangement as stated hereinabove, in review of the provisions of the Erstwhile Companies Act, the MCA contemplates that an order of the scheme of merger will be effective only if a certified copy of the order of the court is filed with the registrar and duly stamped and registered.

The Madras High Court formed a different view, in the matter of Equitas Finance Limited v. C.I.T. [C.P. Nos. 119 to 121 of 2016]. The scheme of amalgamation (between affiliated entities), in this matter, did not stipulate a specific calendar date as the effective date of the scheme. The Parties were unable to specify definite terms with respect to the “appointed date”, “effective date or share exchange ratio(s) in the amalgamation scheme, as the reconstitution of the group entities were contemplated only as a pre-condition to the “in-principal” approval obtained by the holding entity to establish a Small Finance Bank.

The Madras High Court upon detailed scrutiny of the relevant provisions, was satisfied of the leeway provided under the erstwhile Companies Act, to decide on matters related to the “appointed date” of a scheme, suiting the facts and circumstances of each case. Since the Regional Director had not demonstrated that the provisions of the scheme were in any way prejudicial to the members/creditors of the transferor or transferee companies, the Court did not find any reason to modify the provisions of the scheme.

Given the polarizing view(s) of the judiciary, it was pertinent for the MCA to address concerns regarding interpretation of Section 232(6) of the Companies Act. Therefore, after much deliberation, the MCA vide General Circular No. 09/2019, dated August 21, 2019 (“Circular”) clarified its stand on the tenability of “appointed date” stipulated in a scheme of arrangement under the Companies Act, which are as follows:

  • Section 232(6) of the Companies Act is an enabling provision. Therefore, subject to agreement of the parties and approval of the NCLT, an “appointed date” can be a specific calendar date or any such date which is tied to the occurrence of an event or fulfilment of certain preconditions/requirement(s) as is identified and agreed by the parties; 
  • In the event the 'appointed date' is a specific calendar date, it cannot precede the date of filing of application of the scheme, for a period beyond 1 (one) year, unless a justification in this regard is specifically brought out in the scheme. Such ante-dated scheme should not be against public interest; 
  • In the event, the parties agree for the ‘appointed date’ to be conditional or event specific, such preconditions or events should be appropriately captured in the scheme. If the ‘appointed date’ happens to precede the date of filing of sanctioned scheme with the relevant RoC, an intimation to the RoC shall also have to be made within the prescribed timelines stated in the Circular; 
  • As per Indian Accounting Standards-103 (Business Combinations) (“Ind-AS 103”), the acquirer is required to identify an “acquisition date” which shall be the date on which it obtains control of the acquiree. MCA has clarified that the “appointed date” stipulated in the scheme shall be deemed as the “acquisition date” for the purposes of Ind-AS 103.

Since the “appointed date” of the scheme is the date on which operations are transferred from the transferor to the transferee company, there are a numerous factors, that parties to the scheme shall have to bear in mind while agreeing on the appointed date. These factors inter-alia include the date of valuation of business(es), employee transfer, accounting practices as well as tax considerations. Moreover, a single scheme of arrangement, cannot have different appointed/effective dates for different purposes. The companies entering into a scheme of arrangement, are required to weigh-out the potential risk(s) and consolidate requirement(s) under various law(s) to arrive at an amenable date of effectuation. This Circular provides companies with much needed flexibility with respect to the timelines and manner of effectuating the provisions of the scheme and is yet another example of the government’s drive towards improving the regulatory environment and facilitation of doing business in India.

[The author is a Principal Associate in Corporate law practice, Lakshmikumaran & Sridharan, Bangalore]


  1. Concept Paper on Company Law issued vide Press Note No: 1/2004 dated August 4, 2004


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