Non-compliances and irregularities or any illegal act already committed by the Company cannot ratified under umbrella of Scheme of Arrangements

The National Company Law Appellate Tribunal (NCLAT) has ruled that existing non-compliances, irregularities, or illegal acts committed by a company cannot be retrospectively approved through a 'Scheme of Arrangements' under the Companies Act, 2013. The NCLAT set aside a previous NCLT order, stating that procedural aspects must be complied with before sanctioning such schemes and directed the company to reverse any actions taken under the flawed arrangement.

Ashish O. Lalpuria (Appellant) vs. Kumaka IndustriesLtd. & Ors. (Respondents)- Dated: 20.10.2020[NCLAT]

HELD THAT

The non-compliances and irregularities or any illegal act already committed by the company cannot be ratified under the umbrella of "Scheme of Arrangements" as envisaged under Section 230-232 of the Companies Act, 2013.

FACT OF THE CASE

1. The Appellant is a shareholder of Respondent No. 1 Company and he pointed out certain irregularities and non-compliances and raised the objections that the Scheme of Arrangementspresented by Respondent No. 1 company before NCLT, Mumbai bench is a mere rectification of action already taken by the Respondent company without obtaining approval of Tribunal and other Regulatory Authorities as required under the provisions of the Companies Act.

2. Since,NCLT, Mumbai in its order dated July 6, 2020 held that the Scheme of Arrangement appeared to be fair and reasonable and does not violate any provision of law and is not contrary to public policy or public interest, the Appellant being aggrieved with the same filed the present appeal.

JUDGMENT

3. The NCLAT observed from the records that there were irregularities and non-compliances which were present at the time of sanctioning of scheme by the NCLT which was objected by the Stock Exchanges & Regional Director.

4. These non-compliances and irregularities or any illegal act already committed cannot be ratified under the umbrella of "Scheme of Arrangements" as envisaged under Section 230-232 of the Companies Act, 2013.
5. Even if the objections are procedural but it is the jurisdiction of the Tribunal that such procedural aspects need to be duly complied with before sanctioning of the scheme.

6. The NCLAT held that before the scheme gets approved, there must be no actions pending against the company by the public authorities before sanctioning of a scheme under Section 230 of the Companies Act, 2013.

7. Hence, the appeal is allowed and the impugned order passed by NCLT, Mumbai bench is set aside and the Respondent No. 1 Company is directed to undo all the actions taken in line with the sanctioned "Scheme of Arrangement"

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