The Statutory Protection
Sections 230–232 of the Companies Act do not contain a standalone employee-protection provision, but the NCLT’s scheme orders routinely include a clause that all staff, workmen, and employees of the transferor company in service on the effective date become employees of the transferee company without any further act or deed. The scheme’s employee-continuation clause is the primary source of the employees’ rights.
The Continuity of Service
The NCLT-approved scheme provides for continuity of employment, with no interruption in service, and the transfer of the terms and conditions of employment to the transferee company. The transferee company steps into the shoes of the transferor for the purposes of the employees’ accrued benefits, including provident fund, gratuity, and leave.
The Timing Trap
The employee-continuity benefit applies only to employees who are in service on the amalgamation date. The Sikkim High Court has held that employees who ceased to be employees of the transferor company before the amalgamation date are not entitled to the continuity benefit. The scheme’s effective date is therefore critical for employees whose status is disputed.
The Consultation Obligation
While the Companies Act does not prescribe a formal consultation process, the NCLT expects the scheme to address the impact on employees. A scheme that proposes retrenchment or a change in service conditions should include a transition plan, and the NCLT may require the parties to address the employees’ concerns before sanction.
The Documentation
The scheme file should contain: the employee-continuity clause; the list of employees as on the effective date; the terms of transfer; the provident fund and gratuity transfer documentation; and the board resolutions of both companies accepting the transfer. A scheme that is silent on employee terms is likely to attract objections and delays.
Call to Action: For scheme employee-continuity drafting, transfer documentation, or NCLT objection response, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.
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