Can NCLT Modify a Scheme of Arrangement Without Stakeholder Objections?
Backdrop: The National Company Law Tribunal (NCLT) is vested with the power to sanction schemes of arrangement, including mergers, demergers, and other forms of corporate restructuring. Typically, these schemes are designed and agreed upon by the parties involved, including shareholders and creditors, and are subject to regulatory approvals.
Conundrum: Can NCLT alter the terms of a scheme of arrangement, such as the appointed date, even if there are no objections from any stakeholders or regulatory bodies?
Dissection: As illustrated by a recent case, the NCLT Ahmedabad Bench modified the appointed date of a demerger scheme despite no objections from stakeholders or regulatory bodies. In the case of Oriental Carbon & Chemicals Ltd, the appointed date was changed by the NCLT to the date of the pronouncement of the order, deviating from the date agreed upon by the parties.
However, the appellate Tribunal, NCLAT, later overturned the decision of the NCLT, and observed that while the NCLT has broad supervisory powers, its ability to modify key terms of a scheme of arrangement without stakeholder objections is limited. Such modifications should be backed by cogent reasons and a thorough interpretation of relevant legal precedents. It also emphasised that once the statutory requirements and stakeholder approvals are met, the NCLT’s jurisdiction is primarily supervisory, not appellate. The NCLAT reiterated that the commercial wisdom of the parties who approved the scheme should be respected, as long as the scheme complies with the statutory provisions and is not contrary to public policy.