An NCLT scheme of amalgamation or demerger transfers the employees of the transferor company to the transferee company. Section 232(3)(e) of the Companies Act, 2013 empowers the Tribunal to make an order for the transfer of the employees, and the order typically provides that the employees shall become the employees of the transferee company “without interruption of service” and on terms and conditions “not less favourable” than those applicable to them immediately before the transfer.
The Statutory Protection
The protection is not the same as the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”) in the United Kingdom. India does not have a TUPE-equivalent statute. The protection is derived from the NCLT’s order and the scheme, and it is enforceable through the scheme’s terms. The NCLT has consistently included employee-protection clauses in its orders: the Air India-Vistara merger order provided that all employees of the transferor companies “shall be deemed to become employees of the transferee company without interruption of service”; the Fortis merger order protected the employees’ terms and conditions; and the Poonawalla Finance demerger order ensured that the employees of the demerged companies transitioned without interruption.
The Industrial Disputes Act
Section 25FF of the Industrial Disputes Act, 1947 provides that where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, the workmen are entitled to notice and compensation, unless the transferee undertakes to continue their service on the same terms and conditions. The NCLT scheme’s employee-protection clause is designed to satisfy the Section 25FF exception, so that the transfer does not amount to a retrenchment.
The Practical Issues
The transfer of employees raises issues relating to the continuity of service, the recognition of prior service for gratuity and leave, the transfer of provident fund and ESI accounts, and the harmonisation of the terms and conditions across the combined workforce. The scheme should address these issues, and the transferee company should communicate with the employees before the effective date.
A technically sound scheme includes a detailed employee-transfer clause, a communication plan, and a transition framework that addresses the harmonisation of the terms and conditions.
Call to Action
Anuj Desai & Associates advises companies on the employee aspects of an NCLT scheme—from the Section 232(3)(e) protection and the Section 25FF compliance to the continuity of service and the harmonisation of the terms. If your scheme involves a workforce transfer, we can help you structure the employee protections.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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