CS Professional · Corporate Restructuring, Valuation and Insolvency

Regulatory Approvals of Scheme: formula sheet

Full chapter guide

Key formulas

Documents to circulate for meetings: Draft scheme + Registrar filing confirmation + directors' report (share exchange ratio, valuation difficulties) + expert valuation report, if any + supplementary accounting statement, if needed; Section 232(2). The supplementary statement is needed if the last annual accounts end more than six months before the first meeting.
Auditor's certificate: No sanction unless the auditor certifies accounting treatment conforms to standards under section 133; Proviso to section 232(3). It must be filed with the Tribunal.
Filing of order: Certified copy of order to Registrar within 30 days of receipt; Section 232(5). Default penalty under section 232(8): ₹20,000 plus ₹1,000 per day after the first, maximum ₹3,00,000, on the company and every officer in default.
Appointed date: Scheme must state an appointed date and is effective from it, not a later date; Section 232(6).
Annual compliance statement: Yearly statement to Registrar, certified by CA, CMA or PCS, until the scheme is completed; Section 232(7).
Listed transferor, unlisted transferee: Transferee stays unlisted until it lists; opting-out shareholders paid at a price not less than the SEBI-specified price; Section 232(3)(h).
Status of section 262: Section 262 (Sanction of scheme) = omitted w.e.f. 15-11-2016; Omitted by section 255 and the Eleventh Schedule. Sections 254 and 261 are omitted the same way.
Tribunal's sanction power for mergers: Section 232(3): Tribunal, after satisfying itself that sub-sections (1) and (2) are complied with, may sanction the scheme; Sanction is discretionary ("may"), not automatic.
Auditor's certificate proviso: No sanction unless the company's auditor certifies the accounting treatment conforms to accounting standards under section 133; Certificate must be filed with the Tribunal.
Appointed date: Section 232(6): scheme must state an appointed date and is effective from that date, not a later one; Do not confuse with the effective date of the order.
Filing of order: Certified copy of order filed with Registrar within 30 days of receipt (section 232(5)); Default: penalty of ₹20,000 on company and each officer in default, plus ₹1,000 per day after the first, maximum ₹3 lakh (section 232(8)).
Conditions on sanction: Section 459(1): approval or sanction may be given subject to conditions, and withdrawn on breach; General power of the Tribunal and Central Government.
Annual compliance statement: Section 232(7): until completion, file yearly statement certified by CA, cost accountant or CS in practice; States whether the scheme is complied with as per Tribunal orders.
Status of section 261: Section 261 (scheme of revival and rehabilitation) = omitted w.e.f. 15-11-2016; Section 254 is omitted from the same date. Do not apply either as current law.
Who may appeal (section 421(1)): Any person aggrieved by a Tribunal order → appeal to the Appellate Tribunal; The appellant must be aggrieved by the order.
No appeal on consent orders (section 421(2)): Order made with the consent of parties → no appeal; A common trap in case questions.
Time limit for appeal (section 421(3)): 45 days from the date a copy of the order is made available + condonation up to a further 45 days; Condonation only if the Appellate Tribunal is satisfied of sufficient cause for the delay.
Powers of Appellate Tribunal (section 421(4)): Confirm, modify or set aside the order appealed against; Only after a reasonable opportunity of being heard to the parties.
Rectification by Tribunal (section 420(2)): Amend within 2 years from the date of order for a mistake apparent from the record; Not allowed if an appeal has been preferred against that order.
Status of Section 263 and Section 262: Section 263 and Section 262 = omitted w.e.f. 15-11-2016; Both were omitted by Act 31 of 2016 (Eleventh Schedule). Do not cite them as current law.
Binding effect today: Approval by three-fourths in value at the meeting + Tribunal sanction order = scheme binds (Section 230(6)); Both conditions are needed. Approval alone, or an unsanctioned scheme, does not bind.
Who is bound: Company + creditors/class + members/class + liquidator + contributories; The liquidator and contributories are bound where the company is being wound up.
Contents of the sanction order: Section 230(7): preference share conversion option, protection of creditor classes, variation of rights under Section 48, abatement of BIFR proceedings, exit offer to dissenters and other necessary matters; The order must provide for all or any of these matters, as applicable.
Auditor's certificate: No sanction unless auditor certifies accounting treatment conforms to accounting standards under Section 133; This is the proviso to Section 230(7).
Filing of order: Order filed with Registrar within 30 days of receipt (Section 230(8)); The company has this duty.
Objection threshold: Objection only by holders of at least 10% of shareholding, or creditors with at least 5% of total outstanding debt (Section 230(4) proviso); Debt is measured as per the latest audited financial statement.
Dispensing with creditors' meeting: Creditors holding at least 90% in value agree by affidavit: Tribunal may dispense with the meeting (Section 230(9)); This applies to creditors or a class of creditors, not to members.
Status of Section 264: Section 264 = omitted w.e.f. 15-11-2016; Section 262 is also omitted. Do not apply old rules from either section.
Tribunal's supervisory power: Section 231(1): supervise implementation + give directions + make modifications; Directions can be given when the order is made or at any time afterwards.
Winding up on failure: Section 231(2): scheme cannot be implemented satisfactorily AND company unable to pay debts as per scheme → Tribunal may order winding up (deemed under Section 273); Both conditions are needed. The power is discretionary ('may').
Filing of order: Section 232(5): certified copy of order to Registrar within 30 days of receipt; The period runs from receipt of the certified copy of the order.
Appointed date: Section 232(6): scheme effective from the appointed date, not a later date; The scheme must clearly indicate the appointed date.
Annual compliance statement: Section 232(7): yearly statement to Registrar until scheme completes, certified by CA / CMA / CS in practice; It states whether the scheme is being complied with as per Tribunal orders.
Penalty for non-filing: ₹20,000 + ₹1,000 per day after the first, maximum ₹3,00,000; Applies to the company and every officer in default (Section 232(8)).

Quick revision

Sections 254, 261, 262, 263, 264, 269 and 321 are omitted by the IBC with effect from 15-11-2016.
Section 232 governs merger and amalgamation, including division, and applies sub-sections (3) to (6) of section 230 mutatis mutandis.
Directors of merging companies must circulate the draft scheme, confirmation of filing with the Registrar, a directors' report on effects and share exchange ratio, any valuation expert report, and a supplementary accounting statement where needed.
A supplementary accounting statement is needed if the last annual accounts relate to a year ending more than six months before the first meeting.
No scheme is sanctioned unless the auditor certifies the accounting treatment conforms to accounting standards under section 133.
The scheme must state an appointed date, and it is effective from that date, not a later one.
A certified copy of the order must be filed with the Registrar within 30 days of receipt.
Penalty for failing to file: ₹20,000 on the company and each officer in default, plus ₹1,000 per day after the first, capped at ₹3 lakh.
Until the scheme is complete, a certified yearly statement by a CA, cost accountant or company secretary in practice is filed.
Under section 231, the Tribunal supervises implementation and may modify the scheme or order winding up.
Shares the transferee company would hold in itself as a result of the scheme are cancelled or extinguished.
Section 343: in a winding up by the Tribunal, the Company Liquidator needs Tribunal sanction for certain compromises and arrangements.

Common mistakes

Treating NCLT sanction as the only approval. Fix: Always scan the facts for listing, thresholds, regulated entities and foreign elements before answering.
Forgetting the auditor's certificate on accounting treatment. Fix: Remember it as a pre-condition: no certificate under section 133 standards, no sanction.
Writing that section 262 is currently in force and describing its procedure. Fix: Always state it is omitted w.e.f. 15-11-2016 and move to section 232.
Treating the Tribunal's sanction as automatic once shareholders approve. Fix: Remember section 232(3) says the Tribunal "may" sanction after satisfying itself on procedure.
Explaining section 261 as if it is in force and listing steps of a revival scheme. Fix: Start with the omission w.e.f. 15-11-2016 and then explain the current routes.
Saying an appeal is always possible against a Tribunal order. Fix: Also recall section 421(2): no appeal against an order made with the consent of parties.
Quoting Section 263 as the current provision on binding effect. Fix: State that Section 263 was omitted w.e.f. 15-11-2016 and cite Section 230(6).
Treating the shareholders' or creditors' vote as enough to bind everyone. Fix: Always write both conditions: three-fourths in value and Tribunal sanction.
Quoting rules under Section 264 as if it were in force. Fix: State that Section 264 is omitted w.e.f. 15-11-2016 and cite Sections 231 and 232 instead.
Saying the Tribunal must wind up the company whenever the scheme fails. Fix: Write that the Tribunal may order winding up only if the scheme cannot be implemented satisfactorily and the company cannot pay its debts as per the scheme.

Exam tips

Answer in the order provision, facts, conclusion, and name every approval authority the facts trigger.
Use headings like NCLT, SEBI, CCI, RBI in your answer so the examiner can tick them quickly.
Quote section 232 sub-section numbers exactly: (2) documents, (3) sanction and proviso, (5) filing, (6) appointed date.
Add practical drafting points such as the appointed date clause and the annual compliance statement.
Do not state thresholds or SEBI circular details unless the question gives them.
Open any section 262 question with the omission fact and date; this earns the provision mark.
Pivot to section 232 and name its sub-sections, since graders look for correct provision numbers.
Learn the contents of the sanction order (a) to (j) as a short list and use it in analysis.