An order of the NCLT sanctioning or refusing to sanction a scheme is appealable to the National Company Law Appellate Tribunal ("NCLAT") under Section 421 of the Companies Act, 2013 ("the Act"). The appeal must be filed within forty-five days from the date of the order, and the NCLAT has the power to condone delay on sufficient cause being shown. The grounds of appeal are not unlimited, and the NCLAT has consistently deferred to the commercial wisdom of the classes that approved the scheme.
The Commercial Wisdom Standard
In Marathon Nextgen Townships Pvt. Ltd. v. Regional Director, the NCLAT held that where the NCLT is satisfied that the statutory provisions have been complied with, that there is no violation of law, and that the scheme is not unconscionable or contrary to public policy, the NCLT has no jurisdiction to sit in appeal over the commercial wisdom of the class of persons who, with their eyes open, approved the scheme—even if the NCLT believes that a better scheme could have been framed.
The standard is deferential. An appellant who disagrees with the scheme's commercial terms—the share exchange ratio, the treatment of a particular class of creditors, the allocation of synergies—will not succeed merely by showing that a different bargain was possible. The appellant must show a violation of law, a procedural defect that goes to the validity of the approval, or a sanction order that is perverse or contrary to public policy.
The Valuation Ground
The Indiabulls-Embassy appeal demonstrates the limits of the valuation ground. The NCLT had refused to sanction the merger over concerns about the valuation of a project, but the NCLAT held that the NCLT erred in interfering with a valuation conducted by experts using the DCF method, particularly where the profit-sharing ratio had been revised to address the discrepancy and the scheme had near-unanimous shareholder and creditor approval.
An appellant who challenges a valuation must show that the valuation was conducted by a person who lacked the requisite qualification, that the methodology was not a recognised one, or that the valuation was based on demonstrably false assumptions. A disagreement between two qualified valuers is not, without more, a ground for appellate interference.
The Procedural Grounds
The NCLAT will interfere where the NCLT has failed to comply with the statutory requirements—where the notice was not served, where the meeting was not properly convened, where the requisite majority was not obtained, or where the auditor's certificate under Section 232(3) was not filed. These are jurisdictional defects, and they are the strongest grounds of appeal.
An appeal against a scheme sanction is not a rehearing on the merits. It is a review of the NCLT's order for legality, procedural regularity, and perversity. An appellant who approaches the NCLAT without a clear legal or procedural ground will face a high bar.
Call to Action
Anuj Desai & Associates advises companies and objectors on appeals against NCLT scheme orders—from the identification of the grounds of appeal and the limitation analysis to the commercial wisdom standard and the valuation defence. If you are considering an appeal or defending a sanction order, we can help you assess the strength of the case.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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