The second motion petition is the stage at which the Tribunal considers the scheme on merits and decides whether to sanction it. The petition is filed after the meetings have been held and the chairperson's reports have been submitted. It is the final stage of the NCLT process, and the sanction order is the instrument that gives the scheme legal effect.
The Contents of the Second Motion Petition
The second motion petition must be accompanied by the chairperson's reports, the minutes of the meetings, the affidavits of service on the statutory authorities, and the scheme as approved by the classes. The petition must disclose any objections received, any modifications proposed, and any conditions that the Tribunal may be asked to impose.
The petition must also disclose the compliance with the conditions of the first motion order, including the notice, the quorum, and the voting. A petition that does not disclose a material non-compliance is a petition that is vulnerable to rejection.
The Sanction Power and the Conditions
Section 231(1) empowers the Tribunal to sanction the scheme, to supervise its implementation, and to give such directions as it considers necessary for the proper implementation of the scheme. The Tribunal may impose conditions relating to the transfer of assets and liabilities, the preservation of records, the payment of stamp duty, and the protection of the interests of dissenting shareholders or creditors.
The sanction order is not a blanket approval. It is a conditional order, and the conditions must be complied with. A scheme that is sanctioned subject to the payment of stamp duty is not effective until the stamp duty is paid. A scheme that is sanctioned subject to the filing of the certified copy with the ROC is not effective until the filing is done.
The Limits of the Modification Power
Section 231(1)(b) permits the Tribunal to make modifications in the scheme as it considers necessary for the proper implementation of the scheme. The NCLT Mumbai has held that the power to modify can be used where the scheme is unworkable, but it cannot be used as a lever to alter the commercial terms agreed by the parties. The modification power is a corrective power, not a rewriting power.
The NCLAT has also held that the Tribunal has the power to sanction a scheme in part, where the composite scheme contains severable parts. The power to sanction in part is a power to save the workable parts of a scheme that is otherwise defective.
The second motion is the stage at which the scheme's technical soundness is tested. A scheme that is procedurally compliant at the first motion but commercially unworkable at the second motion is a scheme that will not be sanctioned.
Call to Action
Anuj Desai & Associates advises companies on the second motion petition—from the compilation of the chairperson's reports and the affidavits of service to the response to objections and the compliance with the sanction conditions. If your scheme is approaching the second motion stage, we can help you prepare a petition that meets the Tribunal's requirements.
📧 office@anujdesaiassociates.com
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