Implications of Appointed Date in the Scheme of Merger

Section 232(6) of the Companies Act, 2013 states that the appointed date with respect to a scheme of merger and amalgamation means the date from which the scheme becomes effective. That means the appointed date and effective date of the scheme has to be one and same.  Since there needed some clarity on the subject, the Ministry of Corporate Affairs vide its General Circular dated – 21.08.2019 has issued clarification on the following issues:

1. Whether it is mandatory to indicate a specific calendar date as ‘appointed date’ in the schemes referred to in the section.
2. Whether the acquisition date’ for the purpose of Ind-AS 103 (Business combinations) would be the ‘appointed date’ referred to in section 232(6).

We previously looked at the importance of Appointed Date and Effective Date.

Clarification provided by the Ministry

1. Appointed date can be specific calendar date or Event based.
2. If the appointed date is specific calendar date more than one year prior to the filing of application (i) justification for the same to be given in the scheme and (ii) It should not be against public interest should be examined by NCLT.
3. If the appointed date is event based:
   • The Trigger event shall be clearly indicated in the scheme
   • If the event is subsequent to the filing of the order copy with ROC (INC-28), the company shall file an intimation of the same with ROC within 30 days of such scheme coming into force i.e. within 30 days from the appointed date
   • It is not clarified whether specific calendar date can be subsequent to the filing of the order copy with ROC (INC-28)
4. As regard to Ind-AS 103 and other accounting standards, appointed date under the Companies Act, and Acquisition Date under the Accounting Standards and the date of transfer of control are all one and the same.

Reasons for issuance of the clarification:

By this Circular:

1. The MCA has put compliances of conditions to have the appointed date more than 1 year previous to the filing of application for opting. The intention behind the same is not only to allow genuine commercial transactions to have older Appointed date but also to curb the practice of taking disadvantage by the companies keeping appointed date much previous to the date of filling of the scheme.
2. The MCA has required companies to update them about the post appointed date effect, in case of appointed date coming after the filing of the copy of NCLT Order with the ROC.

Conclusion:

1. Based on this, now it would be important to decide as to:
   • What will be the status of the company after filing of INC-28 but before the forthcoming appointed date since as per the present practice, the company becomes inactive on MCA on filing of INC-28. Even after filing of the Form INC 28, now Ministry will be required to keep the Company active on MCA to enable it to file further intimation form after the subsequent appointed date. However, no time limit has been specified for keeping the Appointed date subsequent to the filing of the Order with ROC.
   • Whether any filing requirement like filing of Annual Return etc., will arise for the company in question on account of its active status on the MCA during the period between filing of INC-28 and filing of intimation of the subsequent Appointed date.
   • In case of the subsequent appointed date, requirement of 60 days time limit for the filing of the NCLT Order with the Stamp Authority so as to make it from the date of intimation and not from the date of receipt of the Order.
2. Further, since the circular refers only to Section 232 of the Companies Act, 2013, the stakeholders will require further clarity from the Ministry on the implication of the Appointed Date in case of arrangements (especially demergers) which are covered by Section 230 of the Act.
3. Additionally, it will be helpful if the legislature/judiciary provide guidelines in which circumstances the appointed date would be allowed to be more than 1 year prior to filing of the application to avoid hardship to the stakeholders if objected by NCLT/SEBI/ROC/any other statutory authority at a later stage on account of unacceptable justification.