The Regional Director’s power under Section 233 is not a rubber stamp. Where the Regional Director is satisfied that the scheme is not in the interest of the company or its members or creditors, or that the scheme is not in compliance with the law, the Regional Director may reject the scheme or refer it to the NCLT. The rejection is a serious setback, but it is not the end of the road.
The Grounds of Rejection
The Regional Director may reject the scheme where the declaration of solvency is defective, where the requisite consents have not been obtained, where the ROC or OL has raised a substantive objection that has not been addressed, or where the scheme is not in compliance with the statutory provisions. The rejection must be supported by reasons, and the reasons are subject to judicial review.
The Reference to the NCLT
Section 233(3) permits the Regional Director to refer the scheme to the NCLT where the Regional Director is of the view that the scheme requires the Tribunal’s consideration. The reference is not a rejection; it is a transfer of the matter to the NCLT, and the scheme is then considered under Sections 230 to 232.
The Remedy
A company whose scheme is rejected by the Regional Director can challenge the rejection by way of a writ petition or an appeal, depending on the nature of the order. The challenge is directed at the legality of the rejection, not at the merits of the scheme. The company must show that the Regional Director erred in law or in fact, or that the rejection is perverse.
A technically sound response to a rejection identifies the error in the Regional Director’s reasoning and the material that contradicts it. The company should also consider whether to cure the defect and re-file the scheme, or to challenge the rejection.
Call to Action
Anuj Desai & Associates advises companies on the rejection of a Section 233 scheme—from the grounds of rejection and the reference to the NCLT to the appellate remedies. If your fast-track scheme has been rejected, we can help you assess the options.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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