Section 230(5) of the Companies Act, 2013 ("the Act") requires that a notice of the meeting convened to consider a scheme be sent to the statutory authorities who are likely to be affected by the scheme. The requirement is not a courtesy; it is a condition of the scheme's validity, and the NCLT routinely insists on an affidavit of service before it will sanction the scheme.
The Authorities to Be Served
The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 prescribe the authorities who must be served. These include the Central Government, the Registrar of Companies, the Income-tax authorities, and, where the scheme involves a listed company, the Securities and Exchange Board of India and the stock exchanges. Where the scheme involves a bank or a non-banking financial company, the Reserve Bank of India must be served. Where the scheme involves a company regulated by a sectoral regulator, that regulator must be served.
The notice must be accompanied by a copy of the scheme and the explanatory statement. The authority must be given a reasonable opportunity to make representations. The NCLT may direct that the notice be served within a specified time and that the service be proved by an affidavit.
The Purpose and the Limits
The purpose of the notice is to ensure that the statutory authorities are aware of the scheme and can raise objections where their interests are affected. The NCLT's sanction does not extinguish the authorities' statutory powers. The Income-tax Department retains the power to assess tax, the GST authorities retain the power to demand tax, and the ROC retains the power to take action for non-compliance. The scheme's sanction is not a tax clearance, and it does not preclude the authorities from taking action after the scheme is implemented.
The Supreme Court's decision in Reliance Jio Infocomm confirms that the NCLT's approval of a scheme does not preclude the Income-tax Department from taking proceedings for the recovery of tax statutorily due. The scheme is binding on the companies, but it is not binding on the tax authorities in the exercise of their statutory functions.
The Consequence of Non-Service
A scheme that is sanctioned without notice to a statutory authority that was entitled to notice is vulnerable to challenge. The authority may apply to the NCLT for recall of the sanction order, or it may challenge the scheme in appeal. The NCLT has the power to direct that the notice be served and that the scheme be reconsidered.
A compliant notice process requires a list of the authorities who are likely to be affected, a service record that is documented, and an affidavit that proves service. The notice is not a formality; it is the procedural condition that makes the scheme binding on the authorities.
Call to Action
Anuj Desai & Associates advises companies on the Section 230(5) notice process—from the identification of the authorities to be served and the drafting of the notice to the proof of service and the response to objections. If you are planning a scheme, we can help you build a notice record that withstands the Tribunal's scrutiny.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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