NCLT lacks jurisdiction to question commercial judgment once Company Board finds Proposed Scheme is against Public Policy: NCLAT [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) held that the National Company Law Tribunal has no jurisdiction to question commercial judgment once Company Board finds Proposed Scheme is against the public policy.

The present Appeal has been filed by Oriental Carbon & Chemicals Limited (“Appellant” or “Demerged Company”) under Section 421 of the Companies Act, 2013, against an order by the National Company Law Tribunal, Ahmedabad Bench (“Company Application”). The Impugned Order, while approving a Scheme of Arrangement of Demerger (“Scheme”) between the Appellant and OCCL Limited (referred to as the Respondent or Resulting Company), modified the terms of the Scheme by altering the Appointed Date to the date of pronouncement of the Impugned Order.

The Appointed Date, defined in the Scheme as an Effective Date or as decided by the Parties, was agreed upon by the Board of Directors of both companies to be the Effective Date. This decision was vetted by the regulatory statutory authorities before giving their no-objection letters and was also approved by the shareholders and creditors. Despite the absence of objections from stakeholders or regulatory bodies, it is alleged the NCLT by way of the impugned order, modified the Appointed Date based on an incorrect interpretation of legal precedent and directed it to be the date of pronouncement of the impugned order.

A Two-Member Bench of Justice Yogesh Khanna, Member (Judicial) and Ajai Das Mehrotra, Member (Technical) held that “If the Court comes to a conclusion that the provisions of statute have been complied with; and that there is no violation of any provision of law, or the proposed scheme of compromise or arrangement is not unquestionable, unconscionable or contrary to public policy, then the NCLT has no further jurisdiction to sit in appeal over the commercial wisdom of the class of person who with their eyes open have given their approval, even if, the Court is of the view that better scheme could have been framed.”

“We thus hold there was no reason to change the appointed date as was given in the scheme of merger and even the reliance on Sterlite Port was incorrect since in the said case the definition of the term “Appointed Date” itself gave an authority to the NCLT to fix a date other than the date fixed by the Scheme but though the NCLT had fixed another date than the Appointed Date yet in the cited case this Tribunal retained the Appointed Date to be the one as fixed under the Scheme” the Tribunal noted.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates