Summary: The “appointed date” and “effective date” are key elements in a scheme of arrangement. The appointed date marks when transactions under the scheme are deemed effective, while the effective date signifies the scheme’s operational start upon fulfilling all conditions. The Ministry of Corporate Affairs (MCA) clarified in Circular No. 09/2019 that companies can choose an appointed date as either a specific calendar date or an event-linked date, provided it aligns with Section 232(6) of the Companies Act, 2013. This flexibility allows companies to tie the appointed date to milestones like granting of licenses or meeting preconditions. Courts have upheld this discretion, as seen in the Supreme Court’s Marshall & Co. judgment and the Madras High Court’s Equitas Housing Finance case. However, the appointed date must not significantly precede or exceed the scheme’s filing date, and companies must justify deviations to ensure public interest. Recent NCLT rulings show a mixed approach. For instance, in Haldirams Snacks, a future appointed date was accepted, while in Suzlon Global Services, it was revised to an earlier date. This highlights ongoing ambiguity regarding the permissibility of future appointed dates. The MCA’s clarification serves as guidance but is not binding. Thus, the legal stance on using future appointed dates in schemes remains unsettled, necessitating further regulatory or judicial clarity.
In a scheme of arrangement, two important dates are “appointed date” and “effective date”. “Effective date” is when all the conditions of the scheme are met, making it operational. “Appointed date” is the date when the transactions under the scheme are deemed to have occurred.
Effective date is tied to the satisfaction of conditions, whereas appointed date is chosen so that it falls on the specific events or milestones, like the granting of a license or the fulfilment of certain pre-conditions.
What were the Issues?
The Ministry of Corporate Affairs (“MCA”) has received several queries about determining “appointed date” and “acquisition date” under a scheme. A common question was whether it is mandatory to specify particular calendar date as “appointed date” or it can be linked to any event.
The MCA Weighs In: A Circular of Clarification
On August 21, 2019, MCA issued General circular No. 09/2019 to answer these queries. The circular explained that Section 232(6) of the Companies Act is an enabling provision, meaning companies have the flexibility to choose the appointed date. This date could either be:
- A specific calendar date, or
- Tied to occurrence of specific event.
MCA considered the following two court judgements for the purpose of providing clarification in Circular:
- Supreme Court’s Judgment in case of Marshall & Co. India Ltd. v. ITO [223 ITR 809]:In the above case, Hon’ble Supreme Court held that every scheme of amalgamation must provide a date with effect from which the amalgamation/transfer shall take place, and such date may well antedate the date of sanctioning of the scheme by the Court, the date of filing of certified copies of the orders of the Court before the Registrar of Companies and the date of allotment of shares, etc. It was noted that though the scheme would come into effect from the transfer date itself, the scheme would work.
- Madras High Court’s judgement in case of Equitas Housing Finance Ltd. [C.P.Nos.119 to 121 of 2016]:In the above case, Hon’ble Madras High Court held that the provisions of section 394 (1) of the Companies Act, 1956 (corresponding to section 232 of the Companies Act, 2013) provided enough leeway to a company to delay the date on which the scheme of amalgamation shall take effect and tie the same to the occurrence of an event. Thus, the Court rejected the argument that the ‘appointed date’ in the scheme should necessarily be a specific calendar date.
What Did the MCA Clarify?
- The provision of section 232(6) of the Act enables the companies in question to choose and state in the scheme an ‘appointed date. This date may be a specific calendar date or may be tied to the occurrence of an event such as grant of license by a competent authority or fulfilment of any preconditions agreed upon by the parties, or meeting any other requirement as agreed upon between the parties, etc., which are relevant to the scheme.
- The ‘appointed date’ identified under the scheme shall also be deemed to be the ‘acquisition date’ and date of transfer of control for the purpose of conforming to accounting standards (including Ind-AS 103 Business Combinations).
- Where the ‘appointed date’ is chosen as a specific calendar date, it may precede the date of filing of the application for scheme of merger/amalgamation in NCLT. However, if the ‘appointed date’ is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest.
- The scheme may identify the ‘appointed date’ based on the occurrence of a trigger event which is key to the proposed scheme and agreed upon by the parties to the scheme. This event would have to be indicated in the scheme itself upon occurrence of which the scheme would become effective. However, in case of such event based date being a date subsequent to the date of filing the order with the Registrar under section 232(5), the company shall file an intimation of the same with the Registrar within 30 days of such scheme coming into force.
Key Questions those still Linger
- Whether MCA’s circular binding?To summarize, the circular by the MCA can clarify and fill in the law lacunas but cannot contradict the Companies Act. The clarification by MCA is to guide companies but is not binding as the Companies Act itself.
- Whether future appointed date will be possible?The circular by the MCA suggests that the appointed date may precede the date of filing the first motion application before NCLT. (To illustrate this, if a first motion is filed on December 5, 2024, then the appointed date should not be April 1, 2025).
Recent NCLT Orders:
Two recent NCLT orders make clear the practical application of appointed dates in schemes:
- Chandigarh Bench of NCLT in case of Haldirams Snacks Private Limited [CA (CAA) No.42/Chd/Hry/2023 (1st Motion) And CA No. 178/23]:NCLT approved a scheme on 19 January 2024, with an appointed date of 1 April 2024. No objections to the future appointed date were filed by the NCLT and the scheme was accepted.
- Ahmedabad Bench of NCLT in case of Suzlon Global Services Limited [C.A.(CAA)/25(AHM)/2024]:In this case, the scheme had initially specified the appointed date as December 1, 2024. However, the NCLT ordered that the appointed date be shifted to any earlier date, which the Company subsequently modified to August 15, 2024.
Conclusion:
The question of whether a future appointed date can be used in a scheme of arrangement remains open to interpretation and subject to judicial discretion. Legal clarity surrounding this practice under the present law remains debatable and requires further clarification from regulatory authorities or future judicial decisions.
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