A scheme of arrangement under Sections 230 to 232 of the Companies Act, 2013 is a commonly used legal structure for the acquisition of a business undertaking. A Scheme is preferred over a business transfer agreement due to certain advantages such as ease in obtaining regulatory approvals and stamp duty benefits.
However, there are several aspects and timelines which should be considered and strategised while considering whether a Scheme is the appropriate course of action.
In this article, we highlight one such key aspect - the timing of filing Form INC-28 with the Registrar of Companies (RoC). Form INC-28 is filed to provide a notice to RoC of the order of the National Company Law Tribunal (NCLT) approving the Scheme. The article focusses on aspects in relation to filing of Form INC-28 which are more relevant for transactions where:
The acquirer entity and the target entity are unrelated entities,
The target entity is not dissolved post acquisition of its business, and
The Scheme has certain conditions precedent which are to be fulfilled prior to the effectiveness of the Scheme.
Timeline for filing Form INC-28
The Act provides that every company in relation to which an order is passed shall cause a 'certified copy' of the order to be filed with the RoC for registration within thirty days of receipt of the certified copy of the order. It may be noted that the Act imposes a penalty in the event of failure to file Form INC-28 within the prescribed timeline. Further, typically, orders passed by the NCLT approving a Scheme also provide for filing of certified copy of the order within thirty days with the RoC.
Once a Scheme is approved by the NCLT, the acquirer entity and the target entity are required to file Form INC-28 with the RoC within the above-mentioned timeline intimating acquisition/sale of a business undertaking. Please note that in the event the acquirer entity and the target entity are in different Indian states, then approvals of both jurisdictional NCLTs are required for the Scheme. In fact, in such circumstances, typically an order of NCLT approving a Scheme specifically provides that the Scheme is subject to approval of the other jurisdictional NCLT.
Situations where meeting statutory timeline becomes challenging
Complying with the timeline prescribed under the Act for filing Form INC-28 becomes challenging in the following circumstances:
When there is a substantial time lag in passing of orders approving the Scheme by different NCLTs (where the parties to the Scheme are in different states); and/or
The conditions precedent of the Scheme are not fulfilled within thirty days of passing of the NCLT order approving the Scheme.
As an example, say the acquirer entity is subject to the jurisdiction of NCLT, Delhi and the target entity is subject to the jurisdiction of NCLT, Mumbai. NCLT Delhi passes an order approving the Scheme on July 30, 2021. However, NCLT Mumbai passes an order approving the Scheme on September 15, 2021.
In such a scenario, considering the thirty day time period for filing of the Delhi NCLT order with RoC, the timeline for filing Form INC 28 in relation to the same will be August 29, 2021, provided that an application to the NCLT for obtaining certified copy of the order was submitted immediately. Any delay in filing the application for obtaining certified copy will reduce such thirty day period by the period of such delay.
It has been generally understood to mean that the date on which the order of NCLT is filed with the RoC, the Scheme is considered as effective from such date. However, in our view, the Scheme in the instance cited above may not become effective if Form INC-28 is filed for the Delhi NCLT order on or before August 29, 2021 as the Mumbai NCLT order has not been passed by this date. If Form INC-28 is filed in such a scenario, then as an additional safeguard, a letter should be annexed to Form INC-28 stating:
The Mumbai NCLT order has not been passed and the Scheme is not yet effective; and
e-Form INC-28 has been filed to comply with the timelines prescribed in the Act.
However, the general view is that even in such circumstances, the RoC may consider the Scheme to be effective after filing of Form INC-28. Hence, filing of the Delhi NCLT order within the timeline stated above could potentially run the risk of the Scheme being considered as effective.
A similar situation would arise if the Scheme has certain conditions precedent which were not completed by August 29, 2021. In such circumstances, the key question that arises is whether the Delhi NCLT order should be filed with the RoC on or before August 29, 2021 considering that the Scheme is pending approval from NCLT Mumbai and the conditions precedent mentioned in the Scheme are not fulfilled.
Recourse in case of non-filing of Form INC 28 within the timeline
In the event Form INC-28 is not filed within the prescribed timeline, the company is required to seek condonation of delay. Typically, condonation of delay is sought from the RoC. However, in case of a Scheme approved by the NCLT, the company has to approach the jurisdictional NCLT which has approved the Scheme for seeking condonation of delay. Further, as the NCLT order generally provides for filing of certified copy of the order within thirty days with the RoC, not filing the order within the prescribed timeframe will lead to non-compliance, triggering the requirement of approaching NCLT for condonation.
NCLTs usually take 2-3 months’ time to decide applications for condonation of delay. Further, NCLT may consider rejecting such application, though this is highly unlikely.
Considering that the RoC may treat the Scheme to be effective after filing of Form INC-28, in such circumstances, usually the NCLT is approached for condonation of delay. However, going to the NCLT has time and cost implications. Therefore, filing Form INC 28 could also be considered.
The way forward
As the Scheme route is common in case of business transfer transactions as discussed above, a clarification should be issued by the Union Ministry of Corporate Affairs to remove the ambiguity and provide additional time for filing of Form INC-28 under such circumstances, i.e., either after completion of conditions precedent or after receipt of the order of the other NCLT. Such clarification could then be utilised by the NCLTs to state that Form INC-28 be filed on or before the date, after the date on which the conditions precedent are met or the date of receipt of the order of other NCLT.