An NCLT scheme is rarely approved without an objection. The objectors may be shareholders, creditors, the Income Tax Department, the ROC, SEBI, or a sectoral regulator. The response to the objection determines whether the scheme is sanctioned on the first hearing or whether it is adjourned, modified, or rejected.
The Categories of Objectors
The shareholder objection is typically directed at the share exchange ratio or the treatment of the minority. The creditor objection is directed at the security of the debt or the repayment terms. The Income Tax Department's objection is directed at the tax avoidance or the valuation. The ROC's objection is directed at the procedural compliance. SEBI's objection is directed at the securities law compliance for a listed-company scheme.
Each category requires a different response. The shareholder objection is addressed by the valuation report and the fairness of the scheme. The creditor objection is addressed by the security package and the consent of the requisite majority. The tax objection is addressed by the commercial rationale and the distinction between tax benefit and tax avoidance. The ROC objection is addressed by the rectification of the procedural defect. The SEBI objection is addressed by the observation letter and the compliance with the LODR.
The Response Strategy
The response should be filed before the hearing, and it should address each objection specifically. A general denial is not sufficient. The response should attach the supporting documents, the valuation, the consents, and the statutory approvals. Where the objection reveals a genuine defect, the company should consider rectifying it before the hearing rather than defending it.
The NCLT's approach is to examine the objection on merits, but it is also conscious of the commercial wisdom of the approving majority. The company's response should therefore emphasise the approval of the classes, the fairness of the scheme, and the absence of any legal prohibition.
The Hearing
The hearing is the opportunity to address the Tribunal's concerns directly. The company should be prepared to answer questions on the valuation, the treatment of the dissenting shareholders, the tax consequences, and the procedural compliance. The response should be supported by the documents, and the company should be ready to offer a modification where the Tribunal indicates that a condition is necessary.
Call to Action
Anuj Desai & Associates advises companies on the response to Section 230 scheme objections—from the analysis of the objection and the drafting of the reply to the hearing strategy and the negotiation of a modification. If your scheme is facing objections, we can help you build a response that addresses the Tribunal's concerns.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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