An NCLT scheme transfers the transferor company’s contracts to the transferee company by statutory vesting. The vesting operates by force of the NCLT order, and it does not require the counterparty’s consent. But the contract may contain an anti-assignment clause or a change-of-control clause that is triggered by the scheme, and the counterparty may have a right to terminate or to demand a renegotiation.
The Statutory Vesting and the Contract
Section 232(3) vests the transferor company’s contracts in the transferee company. The vesting is a statutory transfer, not an assignment, and it does not require the counterparty’s consent. But the statutory vesting does not override the contractual terms that regulate the parties’ rights. If the contract provides that it cannot be assigned without the counterparty’s consent, the question is whether the statutory vesting is an “assignment” within the meaning of the clause.
The Anti-Assignment Clause
An anti-assignment clause prohibits the transfer of the contract without the counterparty’s consent. The NCLT has the power to sanction the scheme notwithstanding the clause, but the counterparty may challenge the transfer on the ground that the clause has been breached. The scheme should identify the contracts that contain anti-assignment clauses and should obtain the counterparty’s consent where possible.
The Change-of-Control Clause
A change-of-control clause is triggered by a change in the ownership or control of the counterparty. An NCLT scheme may result in a change of control, and the counterparty may have a right to terminate the contract, to demand a renegotiation, or to exercise a put option. The scheme should identify the change-of-control clauses and assess the consequences.
The Practical Approach
The transferee company should conduct a contract due diligence before the effective date, identify the anti-assignment and change-of-control clauses, and initiate the consent process. The scheme should include a clause that the transfer of the contracts is subject to the counterparty’s consent where required, and the consideration should reflect the risk of termination.
A technically sound scheme addresses the contractual consents as a separate workstream, and it does not assume that the NCLT order overrides the counterparty’s contractual rights.
Call to Action
Anuj Desai & Associates advises companies on the contractual consent aspects of an NCLT scheme—from the contract due diligence and the anti-assignment clauses to the change-of-control analysis and the counterparty negotiations. If your scheme involves material contracts, we can help you manage the consents.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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