Section 231(1)(b) of the Companies Act, 2013 empowers the NCLT, while sanctioning a scheme, to give such directions or make such modifications in the scheme as it may consider necessary for the proper implementation of the scheme. The power is a corrective power, not a rewriting power, and the NCLT and the NCLAT have drawn a clear line between a modification that is necessary for implementation and a modification that alters the commercial bargain approved by the members and creditors.
The “Unworkable” Test
The NCLT Mumbai, in the NSEL case, held that the power to modify a sanctioned scheme can be used where the scheme is unworkable, and it cannot be used as a lever to alter the scheme or to extend its benefits to a person who is not entitled to them. The Tribunal observed that Section 231(1)(b) can be used to seek modification where the scheme seems to be unworkable, not where there is no allegation that the sanctioned scheme is not working properly and a party is merely seeking an order for realising an alleged debt. The Tribunal also held that it cannot alter the basic fabric of the scheme.
The Prohibition on Substantial Modifications
The NCLAT has held that Section 231 does not permit the Tribunal to make substantial modifications to a scheme that has been approved by its members. In CMS Info Systems, the NCLAT set aside an NCLT order that had substantially modified a scheme, holding that the Tribunal’s power is confined to modifications that are necessary for the proper implementation of the scheme as approved.
The Partial Sanction
The NCLAT has also held that in the case of a composite scheme of amalgamation, the NCLT has the power to sanction the scheme in part. The power to sanction in part is a power to save the workable parts of a scheme that is otherwise defective, and it is exercised where the parts are severable.
The Practical Consequences
A party that seeks a modification must show that the modification is necessary for the implementation of the scheme, not that it is commercially desirable. A party that seeks to alter the share exchange ratio, the treatment of a class of creditors, or the allocation of synergies is seeking a substantial modification, and the NCLT will decline to exercise the power. The remedy lies in a fresh scheme, not in a modification application.
A technically sound modification application identifies the specific implementation difficulty and the minimal modification that addresses it. A broad application that seeks to re-open the commercial terms is likely to be dismissed.
Call to Action
Anuj Desai & Associates advises companies on the NCLT’s power to modify a scheme—from the “unworkable” test and the prohibition on substantial modifications to the partial sanction and the drafting of a modification application. If you are seeking a modification or opposing one, we can help you assess the scope of the power.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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