Every time a new Act is introduced, it brings with itself a fresh set of regulations. The Companies Act, 2013 (‘the Act’) is one astounding example of the same. What makes this Act stand out is the fact that it replaced decades old Companies Act, 1956. With the Act in force, several erstwhile concepts have been modified, replaced or even struck down; some new concepts have been drawn in with much emphasis on the peculiarity of present economic scenario in the country. Though, substantial portion of the Act has replaced the old version; some matters hold the same attributes, mutatis mutandis along with specific inclusions clarifying what was always assumed to subsist. One such matter pertains to the concept of ‘Appointed Date’ and ‘Effective Date’ in any Scheme of Arrangement vis. Scheme of Amalgamation/Merger/Demerger.
Under the Erstwhile Act
Companies Act, 1956 did not define or mention ‘Appointed date’ anywhere. It has, however, been the understanding and as is evident from various schemes, that any date decided by the Company for the purpose of transfer of business/undertaking, shall be the Appointed Date for the scheme or the date as mentioned in the order of the High Court. Either way, it is the date when all the assets and liabilities of one company (‘the transferor’) shall be transferred to another company (‘the transferee’).
Besides, ‘Effective Date’ has been understood to mean such date on which the order of the High Court is filed with the Registrar of Companies (‘RoC’), denoting that the scheme shall then become effective. The question however arose, as to whether the scheme was effective from the Appointed Date, in other words, the date when the transfer takes place or the Effective Date itself.
Relevant case laws and judgments:
Relevant extract of explanation given by Hon’ble Supreme Court under Marshall Sons & Co. [India] Ltd vs Income Tax Officer on 27 November, 1996
“Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it – as has happened in this case – it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as “the transfer date”. It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the court may take some time; indeed, they are bound to take some time because several steps provided by Sections 391 to 394-A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with affect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences. It is equally relevant to notice that the Courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and on behalf of the Transferee Company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment or shares etc. may have all taken place subsequent to the date of amalgamation/transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. The Bank of Upper India Ltd. [A.I.R.1919 P.C.9].”
It was explained by ITAT Pune in Finolex Cables Ltd., Pimpri vs Assessee on 11 January, 2012:
“14. On this aspect, we have carefully considered the rival assertions. We may recapitulate what has been earlier observed by us in earlier paragraph 6 that every scheme of amalgamation/merger would have two crucial dates, namely, the ‘Appointed date’ and ‘Effective date’. Their import and relevance in the income-tax proceedings have already being discussed by us in the earlier paragraphs and same are nor being repeated for the sake of brevity. At this point it may only be appreciated that the ‘Appointed date’ can be understood as a date anterior to the formulation and presentation of amalgamation scheme to the Court as this is the date on which the transfer of the undertaking of the transferor company to the transferee company is stated to take place. The latter is a future date and is generally a date subsequent to the final order of the Court sanctioning the scheme of amalgamation and if one may refer to section 394(3) of the Companies Act, such date can be understood to be the date on which copy of the High Court’s order sanctioning the amalgamation is filed with the Registrar of Companies. The difference between the two dates has indeed been also appreciated by the Hon’ble Supreme Court in the case of Marshal Sons & Co (India) Ltd (supra). The Hon’ble Supreme Court has noticed that even before applying to the Court under section 391(1) of the Companies Act, 1956 a scheme has to be framed and “such scheme has to contain a date of amalgamation/transfer”. The proceeding before the Court may take some time inasmuch as several steps provided by sections 391 to 394A of the Companies Act, 1956 have to be followed and complied with. It is, therefore, to be understood that merely because there is a time lag between the appointed date and the effective date, the fixation of the appointed date cannot be rejected by the Revenue as a colorable device only intended with intention of avoidance of tax.”
It was further highlighted in Deputy Commissioner Of Income Tax vs Aimil Limited on 25 January, 2005, by ITAT-Delhi:
“From the above clauses it is clear that the scheme has to take effect from 1st April, 1995, that is, the transfer/vesting of assets from the transferor companies have to take place on 1st April, 1995 which, as per the scheme, is called the “appointed date“. The Court approved the scheme on 18th March, 1996 with effect from the appointed date, i.e., 1st April, 1995, as is evident from its order. The Court further ordered that the transferor companies shall within 30 days of the date of the order of the Court, cause certified copies of the Court order to be delivered to the ROC for registration and on such certified copies being so delivered, the transferor companies shall be dissolved, and the ROC shall place all documents relating to the transferor companies and registered with him on the file kept by him in relation to the transferor company and the files relating to the said companies shall be consolidated accordingly. This date, i.e., the date on which the certified copies of the order are to be delivered to the ROC finds a mention in sub-cl. (b) of cl. 4 of the scheme. It was on 3rd April, 1996 that the Court order was delivered to the ROC and on that day, the transferor companies stood dissolved. This date, as per the scheme, is called the “effective date”. Clause 4 of the scheme mentions that the scheme, though effective from the appointed date shall be operative from the “effective date”. The contention on behalf of the assessee is that till the effective date, the transferor companies were having their independent existence. If this contention is accepted, then the appointed day from which the scheme is to be effective (as mentioned in cl. 4) will be rendered totally otiose and redundant. The High Court has also approved the scheme as to be effective from 1st April, 1995 and not from the “effective date”.
Further to the understanding, in Reliance Money Infrastructure … vs Pr Cit 1, Mumbai on 23 December, 2016, the Bombay High Court observed the following:
“Pursuant to the scheme of arrangement (“the Scheme”) under Sections 391 to 394 of the Companies Act, 1956 sanctioned by the Hon‟ble High Court of Judicature at Bombay vide its Order dated 15th October 2010 and filed with the Registrar of the Companies (RoC), Maharashtra on 4th February, 2011 and by the Hon‟ble High Court of Gujarat at Ahmedabad vide its order dated 13th January, 2011 and filed with the RoC, Gujarat on 17th February, 2011 the infrastructure services division of the company has been damaged and transferred to Reliance Capital Asset Management Ltd (“RCAM”) with effect from the Appointed Date (Effective Date) i.e. 17th February 2011.”
Provisions of Law
Companies Act, 1956 (the Erstwhile Act):
“Section 391. POWER TO COMPROMISE OR MAKE ARRANGEMENTS WITH CREDITORS AND MEMBERS
(3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.”
J.J. Irani Committee Report
Further to the provisions of Companies Act, 1956, the Concept Paper on Company Law (2004) contemplated that an order of the Scheme of merger will be effective only if a certified copy of the order of the Court is filed with the Registrar and duly registered. The Committee felt that it should be enough if the company complies with the filing requirement with the Registrar of Companies as is presently provided, to make the Scheme effective.
Companies Act, 2013 (‘the Act’) 
“Section 230. POWER TO COMPROMISE OR MAKE ARRANGEMENTS WITH CREDITORS AND MEMBERS.
(8) The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order. “
“232. MERGER AND AMALGAMATION OF COMPANIES.
(5) Every company in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order.”
(6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.
It was a well settled principle that the merger takes effect from the Appointed Date. Filing of order with the Registrar and allotment of shares takes place after the Appointed Date, however, the date of amalgamation is Appointed Date.
This logic was explained by Hon’ble Supreme Court in the matter of Marshall Sons (supra) which has been cited in various judgments thereafter. The said principle has now been incorporated in Section 232 (6) and filing of the order with the Registrar is regarded as compliance process. Therefore, the reference of words ‘shall have no effect’ as provided under Section 391 (3) has not been incorporated in filing requirement specified under Sections 230 (8) and 232 (5).
Finalization of consolidated/ standalone accounts in case of Schemes pending approval
There is no doubt on the fact that every scheme of arrangement has some impact on the financials of the transferor and transferee companies as well their holding companies. We have analyzed few scenario considering transferee company/ transferee company [X Ltd] and its holding company [Y Ltd] that is a listed company.
Scenario 1: Merger order is received after date of Board Meeting of Y Ltd held for approval of annual accounts but before May 31st, 2017 (last date for submission of annual accounts for listed companies)
Since, the order approving scheme of amalgamation of X Ltd (one of the subsidiary of Y Ltd which is a listed entity) is received before the last date to hold Board meeting to approve financial results for submitting to stock exchanges, the ACM & BM of Y Ltd shall be required to be re-convened to approve consolidated results that reflect post-merger effect. If X Ltd is also listed, the same shall apply likewise.
Scenario 2: Merger order is received after May 31st, 2017 but before dispatch of Annual Report
While submitting the results to stock exchanges on or before May 31st, 2017 suitable disclosure to be made on the pending approval of the scheme of amalgamation of X Ltd which is likely to impact the consolidated financial results of Y Ltd submitted. Further, it is to be stated that since the consolidated results should provide correct picture to the stakeholders, Y Ltd will re-convene the Audit and Board meeting to approve the revised consolidated results that reflects post-merger effect in order to ensure approval of such results at the AGM.
Accordingly, where the merger order is received after May 31st but before dispatch of Annual Report, Audit and Board meeting of Y Ltd shall be required to be re-convened to approve consolidated results that reflect post-merger effect. If X Ltd is also listed, the same shall apply likewise.
Scenario 3: Merger order is received after dispatch of Annual Report but before AGM
The Annual Report of X Ltd and Y Ltd shall contain a disclosure, under Board’s Report, to the effect that the scheme of amalgamation of X Ltd is pending to be approved by NCLT. This will have an impact on consolidated financial results of Y Ltd that forms part of the Annual Report. Therefore, Y Ltd shall try best to ensure that revised consolidated results that reflect post-merger effect are sent to the shareholders, if the order is received at least 2 weeks before the AGM (Y Ltd will have to ensure it reaches the shareholders before commencement of remote-e-voting period).
In case of X Ltd, being the transferor/ transferee company, it is most logical to await the order and convene AGM likewise.
Scenario 4: Merger order is received after AGM
Approval of consolidated financial statements is an ordinary business and therefore, required to be transacted at the AGM only. Hence, where it is reasonably expected that approval will be obtained in near future, X Ltd as well as Y Ltd may consider deferring the AGM or seeking extension for holding AGM, in case approval is expected to be received on or after 30th September.
In case the approval is likely to get delayed beyond 31st December, there is no scope to obtain approval of shareholders for revised consolidated financial results that reflect post-merger effect.
 Came into force on April 1, 2014
 Effective from 15-12-2016
 Not provided under Companies Bill, 2009 but was incorporated in Companies Bill, 2011
Valari Dubey (firstname.lastname@example.org)