Scheme of Arrangement Sec. 230-232: 2026 NCLT Guide

Last verified: 2026-06-19

In March 2017, two of India’s biggest telecom operators announced they would combine into a single entity serving roughly 400 million subscribers. They didn’t do it with a quiet share-purchase agreement signed across a boardroom table. They did it through a scheme of arrangement under Sec. 230-232 of the Companies Act, 2013, routed through the Ahmedabad bench of the National Company Law Tribunal (NCLT). And that distinction matters more than most people realise.

A deal of that scale could not simply be agreed and closed. It carried lakhs of shareholders, thousands of creditors, spectrum, employees, and pending litigation across two listed companies. To bind all of them at once, the merging companies had to walk the statutory arc the law lays down: board approval of the draft scheme, an application to the NCLT, tribunal-convened meetings of members and creditors, a 3/4-in-value majority at those meetings, and finally a sanction order from the tribunal. The scheme was first put before the NCLT in 2017, sanctioned in January 2018, and received final approval by August 2018.

Think about what that timeline tells you. Even for a marquee transaction with the country’s best advisers, the court-supervised route took the better part of eighteen months. That lag is not an accident. It is structural, and it sits at the heart of why the law was amended in 2025 to let many companies skip the tribunal altogether. (We’ll come to that fast-track route in detail later.)

Here’s the thing about a scheme of arrangement. It is the single most powerful restructuring tool in Indian company law, because a tribunal order under it binds every shareholder and creditor in the affected class, including the ones who voted against it. No private contract can do that. A dissenting minority cannot hold up a merger that the requisite majority has approved and the tribunal has sanctioned. That binding force is exactly why the procedure is slow, document-heavy, and watched closely by regulators.

Whether you’re a company secretary structuring a group reorganisation, a corporate lawyer advising on a merger, or a student preparing for transactional practice, the same statutory machinery governs your deal that governed India’s largest telecom merger. The scale changes. The arc does not. Get the arc right and you can run a scheme from a single-room private company to a four-hundred-million-subscriber giant.

Before the procedure, the definition.

A scheme of arrangement under Sec. 230-232 of the Companies Act, 2013 is a court-supervised mechanism for compromises, arrangements, mergers and demergers between a company and its members or creditors. Sanctioned by the National Company Law Tribunal (NCLT) under the 2016 Rules, it binds all stakeholders in the affected class once approved by a majority representing three-fourths in value of those voting.

That single sanction order is what makes the scheme so versatile, and so procedurally demanding. The sections below take you through the whole framework: what each section does, the step-by-step NCLT process, who votes and by what majority, which regulators can object, when the NCLT can reject a scheme, the September 2025 fast-track expansion, and the realistic timeline you should plan for.

What is a scheme of arrangement under Sec. 230-232 of the Companies Act, 2013?

Why does a company need a court to bless a restructuring it has already agreed internally? Because some corporate changes touch people who never signed the deal. A merger reshuffles the creditors of two companies. A demerger splits assets that secured someone’s loan, and a capital reduction returns money to some shareholders and not others. The law’s answer is to route these changes through a single supervised process that can bind everyone affected, fairly and finally.

That process lives in Sec. 230 of the Companies Act, 2013 to Sec. 232 of the Companies Act, 2013 (hereinafter “the Act”), read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (the “2016 Rules”). Together they let a company propose a compromise or arrangement with its members or creditors, get it approved at tribunal-convened meetings by the requisite majority, and obtain a sanction order from the NCLT that makes the arrangement binding on all of them.

The genius of the mechanism is its reach. Once the NCLT sanctions a scheme and the order is filed with the Registrar of Companies (ROC), the scheme operates on every member and creditor of the affected class. A shareholder who voted no is still bound. A creditor who didn’t show up to the meeting is still bound. This is something no shareholders’ agreement or share-purchase contract can achieve on its own, and it’s the reason large mergers and complex restructurings almost always travel this road.

What “compromise” and “arrangement” mean in law

The Act doesn’t tightly define “compromise” or “arrangement,” and that vagueness is deliberate. A “compromise” generally implies a settlement of some dispute or a give-and-take, usually with creditors: think a company in financial stress agreeing with its lenders to accept part-payment or a rescheduling. An “arrangement” is broader. Sec. 230 expressly says it includes a reorganisation of the company’s share capital by consolidation of shares of different classes, division of shares into shares of different classes, or both.

In practice, “arrangement” is the workhorse word, and the practical reality is that most of the heavy lifting in this area gets done under that single label. It’s elastic enough to cover mergers, demergers, capital reductions packaged inside a scheme, debt restructurings, and conversions of one class of security into another. The breadth is the point. If your transaction reorganises rights between a company and its members or creditors, there’s a good chance it fits within “arrangement” and can ride the Sec. 230 machinery.

Compromise vs arrangement vs amalgamation vs merger

These four words get used loosely, and the confusion costs people marks in exams and clarity in practice. Here’s the clean version. A compromise settles claims, typically between a company and its creditors, while an arrangement reorganises rights between a company and its members or creditors.

An amalgamation is the blending of two or more companies into one, where the transferor companies dissolve. A merger is the popular umbrella term for an amalgamation, and Indian statute treats “merger” and “amalgamation” as effectively interchangeable in this context.

So how do they nest? Compromise and arrangement are the genus under Sec. 230. Amalgamation and merger are specific species of arrangement that, when they involve a transfer of undertaking from one company to another, attract the additional machinery of Sec. 232 of the Companies Act, 2013. An acquisition, by contrast, is not a scheme at all in the usual case: it’s a contractual purchase of shares or assets that doesn’t need tribunal sanction (the buyer simply buys, subject to securities and competition law). This is where most newcomers go wrong, and that last distinction trips up more people than any other.

This is also the cleanest way to see the difference from an IBC resolution. A scheme is a solvent, consent-based restructuring driven by the company and its stakeholders, while an insolvency resolution plan under the Insolvency and Bankruptcy Code, 2016 is a distressed, creditor-driven process triggered by default. They look superficially similar (both rescue or reshape a company), but they sit in entirely different statutes with different gatekeepers.

A later section treats that contrast fully. The Vodafone-Idea composite scheme we opened with is a textbook amalgamation: two operators, one surviving entity, executed under Sec. 230-232.

How Sec. 230, 231, 232, 233 and 234 differ

If you remember one thing from this guide, make it this: these five sections are not five separate routes you choose between freely. They’re a layered structure.

Sec. 230 is the base. Sec. 231 supervises. Sec. 232 adds the merger machinery. Sec. 233 is a faster bypass for a defined class, and Sec. 234 extends the whole thing across borders. Confusing them is the single most common error in this area, so let’s lay them side by side first.

Sec. 230: compromise and arrangement

Sec. 230 is the foundation stone. It empowers the NCLT, on an application, to order a meeting of the creditors or members (or any class of them) to consider a proposed compromise or arrangement. If the requisite majority approves, the tribunal may sanction the scheme, and the sanctioned scheme binds the company, its members, its creditors, and (if relevant) the liquidator and contributories. Every merger, demerger, and capital reorganisation done by scheme rests on this section.

Sec. 230 also carries the procedural safeguards: the disclosure of all material facts by affidavit, the requirement that notice of the meeting go to the Central Government and a list of named regulators, and the bar on the tribunal sanctioning a scheme unless a certificate from the company’s auditor confirms the accounting treatment conforms to the standards. These aren’t footnotes. They’re the gates that catch defective schemes.

Sec. 231: power to enforce and supervise

The mistake we see most often here is that people forget Sec. 231 exists, and then they’re surprised when a sanctioned scheme runs into trouble. This section gives the NCLT continuing supervisory jurisdiction after sanction. If questions arise in working the scheme, the tribunal can give directions or make modifications it considers necessary for the proper working of the arrangement. And if it’s satisfied the scheme cannot be worked satisfactorily, with or without modifications, it can order the company to be wound up. So the tribunal’s role doesn’t end at sanction; it can be called back.

Sec. 232: mergers and amalgamations

Sec. 232 of the Companies Act, 2013 is where mergers and demergers live. It applies when a compromise or arrangement is proposed for the purposes of reconstruction or amalgamation, and the scheme involves the transfer of the whole or any part of the undertaking, property, or liabilities of one company to another. On top of the Sec. 230 meeting-and-sanction process, Sec. 232 requires extra disclosures: the draft scheme, a report from the directors explaining its effect on shareholders (with the share-exchange ratio and any special valuation difficulties), and the supervisory mechanics for vesting assets and liabilities in the transferee.

In practice, almost every “merger” you read about is a Sec. 232 transaction layered on the Sec. 230 base. The two sections are read together, never in isolation, and if you ask us, treating them as separate routes is the fastest way to misread the whole area. What experienced corporate counsel know is that the drafting discipline lives here: a sloppy Sec. 232 scheme that doesn’t cleanly identify which assets, contracts, and liabilities vest in the transferee creates years of downstream disputes over title and stamp duty.

Sec. 233 and 234 in one line each

Sec. 233 is the fast-track merger: a defined class of companies can merge with Regional Director approval and no NCLT sanction at all (full treatment in its own section below). Sec. 234 extends the merger framework to cross-border deals, letting an Indian company merge with a foreign company (and vice versa) subject to RBI and FEMA clearance (again, its own section follows).

From High Court to NCLT: the 1956 to 2013 shift

[HISTORICAL] For decades, schemes of arrangement were the High Court’s business. Under Sec. 391 to 394 of the Companies Act, 1956, the company petitioned the relevant High Court, which convened the meetings and sanctioned the scheme. That regime produced a rich body of precedent, much of which still governs how schemes are read today. The shift came with the Companies Act, 2013: Sec. 230-232 transferred this jurisdiction to the NCLT, and the change was notified on 15 December 2016 along with the 2016 Rules.

Why does the 1956-to-2013 history still matter? Because the leading Supreme Court authority on the scope of judicial review of a scheme predates the NCLT entirely, yet it remains the governing standard. The shift was institutional, not doctrinal: the forum moved from the High Court to a specialised tribunal, but the core principles about what the sanctioning authority may and may not do carried straight across. Practitioners cite 1996 and 2004 rulings in NCLT pleadings every week.

Step-by-step NCLT procedure for a scheme of arrangement

This is the section most readers come for, so let’s be precise. The procedure has a fixed spine, and missing a step or filing the wrong form sends the application back at the first hearing. What does the full journey actually look like, from boardroom to ROC? Broadly, it runs in this sequence:

1. Board approval of the draft scheme by each company involved.
2. First-motion application to the NCLT (Form NCLT-1 with the relevant CAA forms) seeking directions to convene or dispense with meetings.
3. NCLT directions on meetings: who must meet, notice period, quorum, scrutiniser, and chairperson.
4. Notices and advertisement of the meetings to members, creditors, and the named regulators, plus newspaper advertisement.
5. Holding the meetings, with voting by show of hands, poll, postal ballot, and e-voting as directed.
6. Reporting the result to the NCLT (the chairperson’s report).
7. Second-motion petition for sanction of the scheme (Form NCLT-1 again, with the petition).
8. Hearing and sanction order by the NCLT, after regulator responses.
9. Filing the order with the ROC in Form INC-28, which makes the scheme effective.

The forms map onto these stages, and getting them right is half the battle. Here’s the working checklist deal teams keep on the wall.

Board approval and the draft scheme

Everything starts in the boardroom. The board of each company approves the draft scheme, which sets out the parties, the appointed date, the share-exchange ratio (for a merger), the treatment of authorised capital, employees, and pending litigation, and the conditions precedent. For a listed company, this approval triggers a separate disclosure and pre-NCLT approval path through SEBI and the stock exchanges (covered later). Get the draft scheme tight here, because every later document keys off it.

Application to the NCLT

The company (or any member, creditor, or the liquidator in a winding-up) files the first-motion application before the NCLT bench having jurisdiction over its registered office. The application uses Form NCLT-1, supported by CAA-1 and an affidavit in CAA-2, and asks the tribunal to order meetings of the relevant classes. Crucially, the NCLT can dispense with a meeting where the class’s consent is already obtained: for instance, where every shareholder consents by affidavit, or in a wholly-owned subsidiary merger where there’s effectively one shareholder. That dispensation power saves months on simple intra-group deals.

In the Vodafone-Idea composite scheme, the Ahmedabad bench directed meetings of the equity shareholders and creditors of the companies involved, exactly as Sec. 230 contemplates, before it would consider sanction. That’s the first motion in action at scale.

Documents that accompany the application

A scheme application is a thick file, and incomplete disclosure is the number-one reason for an early bounce-back. The core set includes the draft scheme, the latest audited financials, a supplementary accounting statement if the accounts are more than six months old, the registered-valuer’s report and fairness opinion, the auditor’s certificate on accounting treatment, the board resolutions, and the company’s memorandum and articles. For a merger, you also need the directors’ report under Sec. 232 explaining the effect on each class of shareholder.

A common question practitioners raise is whether the object clause of the memorandum needs amending before a merger. The practical reality is this: if the transferee company will carry on a business or hold assets outside its existing objects, yes, the scheme itself should provide for the consequential alteration of the memorandum’s object clause, and the sanction order then effects it. Folding the alteration into the scheme avoids a separate, later Sec. 13 process.

Appointed date vs effective date

These two dates confuse even experienced teams, and the difference has real accounting and tax consequences. The appointed date is the date from which the scheme is deemed to operate: assets, liabilities, and the business are treated as transferred from this date, and it anchors the financial cut-off for the merger. The effective date is when the scheme actually comes into force, which is when the certified copy of the NCLT order is filed with the ROC.

In practice, the appointed date is usually earlier (often a clean financial-year start), while the effective date arrives months later once the order is sanctioned and filed. The MCA’s circular guidance clarifies that the appointed date may be a specific calendar date or tied to an event, but it can’t be an unreasonable date that distorts the accounts. Worth flagging: between the appointed date and the effective date, the transferor company typically runs the business in trust for the transferee, and the scheme should say so expressly.

Member and creditor meetings, voting and e-voting

A scheme isn’t approved by the board or by management. It’s approved by the people it affects, voting in meetings the tribunal convenes. This is the democratic core of the process, and it’s also where schemes most often go wrong on a technicality. What majority does the law actually require, and who gets to vote? Let’s settle both.

The 3/4-in-value majority explained

The threshold under Sec. 230 is precise and frequently misquoted. A scheme passes only if it’s approved by a majority of persons representing three-fourths in value of the creditors or members (or the relevant class) present and voting, in person or by proxy. Notice the dual test: it’s a majority in number and three-fourths in value, both measured among those actually voting. Abstainers and absentees don’t count against you. So a class with a few large holders can carry a scheme even if many small holders stay home, provided the value threshold is met.

Who must vote: members, creditors or both

Whose approval you need depends on whom the scheme affects. If the arrangement touches only shareholders (say, a capital reorganisation), only members vote. If it compromises creditor claims, creditors vote, often split into secured and unsecured classes. A merger usually requires meetings of both members and creditors of each company, unless the tribunal dispenses with a class whose consent is already secured or whose rights aren’t varied. Class composition is everything, and this is where most schemes go wrong on a technicality: members or creditors whose rights are treated differently should sit in separate classes, because lumping dissimilar rights into one class can void the vote.

A simplification worth knowing: under Sec. 230(6) and the related procedure, where creditors or members representing at least 90% in value agree to the scheme by affidavit, the tribunal can dispense with the meeting. That’s a real time-saver for closely-held companies and intra-group deals where consent is a formality.

E-voting and postal ballot under Sec. 230(4)

Sec. 230 of the Companies Act, 2013 expressly modernised the voting mechanics. Under Sec. 230(4), members and creditors can vote in the meeting, by proxy, or by postal ballot (which includes electronic voting) within one month of receiving the notice. For companies above the prescribed thresholds and for listed companies, e-voting is mandatory, not optional. The notice must carry the scheme, the valuation report’s basis, and an explanatory statement, and it goes out at least one month before the meeting.

How does e-voting actually work here? The company appoints a scrutiniser, members vote remotely through the registrar’s platform during the open window, and the votes are tallied with the in-meeting poll into a single result. The chairperson then reports the consolidated outcome to the NCLT. For a 400-million-subscriber merger, e-voting isn’t a convenience; it’s the only practical way to poll a shareholder base that large.

The six-month supplementary accounting statement rule

Here’s a deadline that catches people out. The notice of the meeting must be accompanied by the latest financial position. If the company’s last audited accounts are more than six months old as of the date of the first-motion application (or the meeting notice), the company must prepare and circulate a supplementary, un-audited statement of accounts not older than six months. Skip this, and the scheme is vulnerable to challenge for inadequate disclosure. What goes wrong most often is teams relying on stale year-end figures when the application slips past the six-month window; our recommendation is to track that clock from day one and refresh the accounts before notices go out.

Valuation report, fairness opinion and share exchange ratio

Why should a dissenting shareholder accept being merged out at a ratio they didn’t negotiate? Because an independent valuation says the ratio is fair, and the tribunal won’t sanction a scheme where the valuation is exposed as a sham. Valuation is the financial backbone of any merger scheme, and based on what we’ve seen, it’s the part deal teams under-resource at their peril.

The registered-valuer report

Under the Act, the valuation of shares, assets, or liabilities for a scheme must be done by a registered valuer (a person registered with the Insolvency and Bankruptcy Board of India under the Companies (Registered Valuers and Valuation) Rules, 2017). The valuer applies recognised methodologies (net asset value, comparable companies, discounted cash flow) and explains the weighting. This report is part of the disclosure file and goes to the shareholders before they vote, so they’re voting on an informed basis. The valuer’s independence and method are exactly what objectors attack, so the report has to withstand cross-examination.

This is also the stage where the broader deal hygiene matters. A valuation rests on accurate inputs about the target’s assets, liabilities, and contingent exposures, which is why a merger scheme should be preceded by the due-diligence stage that precedes a scheme. Garbage in, garbage out: a valuation built on un-diligenced numbers is a valuation waiting to be challenged.

The fairness opinion requirement

For listed companies, SEBI’s framework requires a fairness opinion from a SEBI-registered merchant banker, sitting alongside the registered-valuer’s report. The two serve different functions. The valuer computes the ratio; the merchant banker opines that the ratio is fair to the company’s public shareholders. The audit committee and the independent directors of a listed company review both before recommending the scheme. What experienced advisers know is that a divergence between the valuer’s number and the merchant banker’s comfort range is a red flag that SEBI and the exchanges will probe.

How the share exchange ratio is set

The share exchange ratio (or swap ratio) is how many shares of the transferee a shareholder of the transferor gets for each share held. It flows from the relative valuations of the two companies. If Company A is valued at twice the per-share value of Company B, B’s shareholders receive one A share for every two B shares, roughly speaking. The ratio is the single most contested number in a merger, because it directly redistributes value between the two shareholder bases. A frequent question is what stops the controlling group from setting a self-serving ratio: the answer is the combination of an independent registered valuer, the fairness opinion, the class-based voting, and the tribunal’s residual power to refuse sanction if the ratio is manifestly unfair.

Which regulators approve a scheme and who can object

A scheme isn’t just a deal between a company and its stakeholders. It’s a transaction the State watches, because mergers move tax bases, affect competition, touch listed-market investors, and can be misused. Why does a single merger need clearance from so many different authorities? Because each one guards a different public interest. Here’s the map no competitor lays out cleanly in one place.

NCLT, Regional Director and ROC

The NCLT sanctions the scheme, but it doesn’t act alone. Sec. 230(5) requires that notice of the meetings and the scheme go to the Central Government, which acts through the Regional Director (RD). The RD examines the scheme for compliance and public interest and files a representation, often flagging issues like the object-clause amendment, employee treatment, or accounting treatment. The Registrar of Companies feeds the RD information on the companies’ filing and compliance history. If the RD or the ROC has no objection within 30 days of receiving the notice, the tribunal presumes they have none.

The Official Liquidator’s report

In an amalgamation where the transferor company will be dissolved without winding up (the usual case under Sec. 232), the tribunal directs the Official Liquidator to scrutinise the transferor’s books and report whether its affairs were conducted in a manner prejudicial to its members or to the public interest. Why this extra step? Because dissolution wipes the transferor off the register, and the OL’s report is the safeguard that a company isn’t being merged away to bury misconduct. The tribunal won’t pass the dissolution order until it has that report.

SEBI and the stock-exchange route for listed companies

For listed companies, the regulatory clock starts well before the NCLT. Under SEBI’s master circular regime on schemes of arrangement (consolidated in the June 2023 master circular), a listed company must file the draft scheme with the stock exchanges, which forward it to SEBI. SEBI examines it and issues an observation or no-objection letter, and only then can the company file the scheme with the NCLT. The exchanges check the valuation, the fairness opinion, the protection of public shareholders, and (in many cases) require approval by a majority of the minority public shareholders through e-voting.

A common point of confusion in the community is why a merger needs both SEBI and the NCLT. They’re not duplicating each other. SEBI guards the listed-market investor (disclosure, fair ratio, minority protection) before the deal reaches court; the NCLT supervises the corporate-law process (meetings, classes, sanction, dissolution). One is securities regulation, the other is company-law adjudication. The better approach, in our view, is to treat them as two sequential gates rather than one combined approval: a listed-company scheme has to clear both, in that order.

RBI, CCI and the Income Tax Department

Three more authorities can enter the picture depending on the deal. The RBI is involved where a bank, NBFC, or cross-border element is present, and its sectoral and FEMA clearances are conditions precedent. The Competition Commission of India (CCI) must approve the combination separately where the merging parties cross the asset or turnover thresholds prescribed under the Competition Act, 2002; CCI approval is a parallel process, not part of the NCLT sanction. The Income Tax Department receives notice and can object where the scheme has tax implications, especially if it suspects the structure is designed to avoid tax (more on that in the next section).

The NCLT’s powers: can it reject or modify a scheme?

Here’s a question that decides whether your scheme is safe: once the requisite majority approves, is the NCLT a rubber stamp, or can it still say no? The answer, settled across decades of authority, is that the tribunal is neither a rubber stamp nor a free hand. It supervises within defined limits. Understanding exactly where those limits lie is what separates a confident filing from a nervous one.

The “peripheral and supervisory, not appellate” standard

The governing standard comes from Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579, where the Supreme Court held that the sanctioning authority’s jurisdiction is “peripheral and supervisory, not appellate.” The court will not sit in judgment over the commercial wisdom of the requisite majority. If the statutory procedure is followed, the classes are correctly constituted, the disclosures are complete, and the scheme is not unconscionable or contrary to law or public policy, the court will sanction it even if it personally thinks a better deal was possible. The tribunal checks the process and the fairness floor; it does not re-negotiate the bargain.

What does that mean for an objector in practice? It means a complaint that “the ratio could have been better” almost never succeeds on its own. The objections with teeth are procedural and structural: a class that was wrongly constituted, a material fact that was concealed, a scheme that violates a statute, or a fraud on the minority. An objector who can show the majority was misinformed or that a class was gerrymandered to swamp dissenters has a real case. This is where most objections fail: an objector who simply disagrees with the price does not.

Rejection on public-interest grounds

Can a scheme that ticks every procedural box still be refused? Yes, on public-interest grounds. The line of authority running through Hindustan Lever Employees’ Union v. Hindustan Lever Ltd., 1995 Supp (1) SCC 499 confirms that the sanctioning court can withhold approval where the scheme, though approved by the majority, is contrary to public interest or public policy. The Sec. 230 process itself builds this in by requiring notice to the Central Government and sectoral regulators precisely so that public-interest concerns reach the tribunal. Post-2016, NCLT benches have shown a noticeably greater willingness than the old High Courts to probe public-interest and revenue concerns before sanctioning.

Can the NCLT modify a scheme on its own?

This one surprises people. The NCLT generally cannot rewrite a scheme to its own liking, because the scheme is the bargain the members and creditors approved, not the one the tribunal would have designed. What it can do is decline to sanction, or sanction subject to modifications that the parties accept, or require the scheme to be re-put to the meeting if a material change is needed. Under Sec. 231, after sanction, the tribunal can direct modifications necessary for the proper working of the scheme. So the modification power is real but bounded: it’s about workability and the parties’ consent, not about substituting the tribunal’s commercial judgment.

Schemes structured for tax avoidance

Are schemes built purely to dodge tax allowed? In a word, no. The tribunal can refuse sanction where it’s satisfied the scheme is a device to evade tax or defraud the revenue, and the Income Tax Department’s right to object exists for exactly this reason. A legitimate scheme can have favourable tax consequences (that’s fine), but a scheme whose only commercial rationale is the tax saving is exposed. The practical discipline this imposes is documentation, and we’d recommend treating it as non-negotiable: deal teams now build a clear, contemporaneous record of the genuine commercial rationale for the structure, so that if the revenue objects, the company can show the tax outcome is a consequence of a real reorganisation, not its purpose.

Who is bound by a sanctioned scheme

Once sanctioned and filed, the scheme binds the company and every member and creditor of the affected class, including dissenters and absentees. But there’s a limit, and it matters. A scheme cannot bind persons who are not members or creditors of the company in that arrangement.

The National Spot Exchange Ltd. matter before the NCLT Mumbai Bench raised exactly this: the extent to which a Sec. 230-232 scheme can reach persons outside the company’s own members and creditors. The principle is that the scheme’s binding force runs to the classes within the company’s arrangement, not to strangers to it. That’s why schemes can’t be used to override the rights of third parties who never had a seat at the meeting.

How a scheme interacts with the IBC and barred promoters

The boundary between a Sec. 230 scheme and the insolvency regime used to be fuzzy, and clever promoters exploited the fuzziness. The Supreme Court has since drawn a hard line. If you advise on distressed assets, this interaction is one you cannot afford to get wrong.

Scheme of arrangement vs IBC resolution plan

A scheme of arrangement and an IBC resolution plan can both rescue a company, but they’re different instruments for different situations. A scheme is a solvent, company-driven process: the company proposes it, its members and creditors vote, and the NCLT sanctions it under company law. An IBC resolution plan is a distress process triggered by default: a resolution professional runs it, the committee of creditors approves a plan submitted by a resolution applicant, and the NCLT approves it under the Insolvency and Bankruptcy Code, 2016. Different trigger, different driver, different statute. A solvent group restructuring uses a scheme; a defaulted company in insolvency uses a resolution plan.

Can a barred Sec. 29A promoter use a Sec. 230 scheme?

This is where the two regimes collided. A promoter disqualified under Sec. 29A of the IBC from submitting a resolution plan tried to regain control of the same company through a Sec. 230 scheme of compromise during the company’s liquidation. The Supreme Court shut the door in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd., (2021) 7 SCC 474. It held that a person ineligible under Sec. 29A (read with the bar in the liquidation provisions) cannot use a Sec. 230 scheme to do indirectly what the IBC forbids directly. To read the two statutes harmoniously, the Sec. 29A disqualification carries into the Sec. 230 route during liquidation.

The lesson for practice is a warning. The loophole the court closed was the idea that company-law machinery sits in a silo, untouched by insolvency disqualifications. It doesn’t. Where a company is in liquidation under the IBC, a scheme of compromise is read subject to the Code’s eligibility bars, and a barred promoter can’t launder their way back through Sec. 230. In our view, advisers who structure a “scheme” to sidestep a Sec. 29A bar are setting up their client for rejection and worse.

Fast-track merger under Sec. 233 and the September 2025 amendment

Remember the eighteen months our opening telecom merger took? For a large, complex deal, that’s the price of the tribunal route. But for many smaller and intra-group transactions, parliament decided the full NCLT process was overkill. That’s what Sec. 233 fixes, and a September 2025 amendment just made it dramatically more useful. This is the freshest, most important part of this guide, because no stale competitor reflects it.

What the Sec. 233 fast-track route is

Sec. 233 of the Companies Act, 2013 creates a fast-track merger (FTM) that skips the NCLT entirely. Instead of two motions, convened meetings, and a tribunal sanction, an eligible merger is approved by the members and creditors (typically by the same 3/4 threshold, often obtained by written consent), then filed with the Regional Director, the ROC, and the Official Liquidator. If the RD has no objection (or doesn’t act within the statutory window), the merger is registered and takes effect. No tribunal hearing, no sanction order, months saved.

Who is eligible after the September 2025 Rule 25 amendment

This is the headline change. The MCA amended Rule 25 of the 2016 Rules, effective 4 September 2025, to widen the fast-track route well beyond its original narrow class. The eligible categories now include:

• Two or more small companies merging.
• A holding company merging with its subsidiary, with the “wholly-owned” requirement removed, so a holding company can now fast-track a merger with a subsidiary it doesn’t fully own.
• Two or more fellow subsidiaries of the same holding company (subsidiary-to-subsidiary FTM).
• Unlisted companies, subject to a ceiling: aggregate outstanding loans, debentures, or deposits not exceeding ₹200 crore, and no default in repayment.
• Demergers, brought into the fast-track route via Rule 25(9) applying the provisions “mutatis mutandis.”

The amendment also extended the filing window from 7 days to 15 days and made it mandatory to give notice to the relevant sectoral regulators (RBI, SEBI, IRDAI, PFRDA) where applicable. Who’s eligible now that wasn’t before? Crucially, unlisted companies within the debt ceiling, holding-subsidiary mergers that aren’t wholly-owned, fellow-subsidiary mergers, and demergers, all of which previously had to grind through the full NCLT route.

So does a wholly-owned subsidiary merger still need a scheme? It needs a scheme, yes, but post-2025 it can almost always use the Sec. 233 fast-track rather than the Sec. 232 NCLT route, which is the whole point. And can two small companies merge without going to the NCLT? Yes: that was the original FTM case, and it remains the cleanest example of the route.

Regular route vs fast-track: which to choose

[FUTURE] So how should a deal team decide? The practical reality is that if your transaction fits an eligible category and carries no contentious minority or creditor opposition, the fast-track route is faster, cheaper, and far more predictable, and early signals suggest a growing share of intra-group reorganisations will migrate to it as advisers get comfortable with the widened Rule 25. The regular Sec. 232 route remains necessary for listed companies, for mergers above the FTM thresholds, for cross-border deals that don’t fit Rule 25A, and for any deal where a dissenting class is likely to litigate and you want the protection of a tribunal sanction. Practitioners expect the RD route to come under more scrutiny on minority protection precisely because non-wholly-owned subsidiary mergers can now bypass the tribunal.

Cross-border mergers under Sec. 234 and listed-company schemes

Indian companies don’t operate in a domestic vacuum any more, and neither do their restructurings. When a merger crosses a border, an entire second layer of regulation switches on. Sec. 234 is the gateway, but it’s far from the whole story.

Inbound vs outbound cross-border mergers

Sec. 234 of the Companies Act, 2013 permits mergers between Indian and foreign companies, in both directions. An inbound merger is where a foreign company merges into an Indian company, so the surviving entity is Indian. An outbound merger is the reverse: an Indian company merges into a foreign company, with a foreign survivor. India permitted outbound mergers only after Sec. 234 and the supporting rules were notified, and only with companies in jurisdictions notified by the Central Government. The procedural spine is the same NCLT process as a domestic merger, with the cross-border element bolted on.

The September 2024 Rule 25A fast-track route

There’s a fresh development here too. The MCA amended Rule 25A in September 2024 to allow a specific cross-border merger, a foreign holding company merging into its wholly-owned Indian subsidiary, to use the fast-track Sec. 233 route rather than the full NCLT process, subject to prior RBI approval. That’s a meaningful simplification for multinational group reorganisations that want to collapse a foreign holding layer into the Indian operating company. Can a cross-border merger use the fast-track route now? Yes, but only this defined category, and only with the RBI clearance in hand first.

RBI and FEMA as the gating factor

Whatever the corporate-law route, the real gate on a cross-border merger is the exchange-control regime. The transaction must comply with the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, and the NCLT will sanction only a scheme that is compliant with them. These regulations deem certain compliances and require others (on borrowings, overseas assets, and the treatment of resident and non-resident shareholders). What experienced cross-border counsel know is that the FEMA analysis should drive the structure from the start, and a smarter strategy is to run the exchange-control analysis before the corporate-law drafting, not after: a scheme that’s perfect under company law but non-compliant under FEMA is dead on arrival.

Future outlook: declogging, cross-border liberalisation and faster listed-company schemes

[FUTURE] Three forward signals are worth watching. First, the deliberate declogging of the NCLT: as fast-track eligibility widens, a larger share of transactions is likely to migrate off the Sec. 232 route to the Sec. 233 RD route, easing the tribunal’s load. Second, continued cross-border liberalisation: the Rule 25A change is an early step, and commentators expect further easing of inbound merger routes, with RBI and FEMA remaining the gating layer. Third, faster listed-company schemes: SEBI’s evolving master-circular regime is tightening timelines and standardising the pre-NCLT process, which should make listed-company schemes more predictable over the next few years. None of this is guaranteed, but the direction of travel is clear.

Demergers, restructuring variants and what changes after a merger

Not every restructuring is a straightforward merger of two into one. The scheme machinery is flexible enough to split companies apart, flip control upward, and reorganise groups in ways a simple share sale never could. And the day after the order is filed, a lot of practical things change.

How a demerger is done under a scheme

A demerger splits a business: one company hives off an undertaking (a division, a business unit) into another company, usually with the demerged company’s shareholders receiving shares in the resulting company. It’s done as an arrangement under Sec. 230 read with Sec. 232, because it involves the transfer of part of an undertaking. The scheme identifies the demerged undertaking precisely (assets, liabilities, employees, contracts), fixes the share-entitlement ratio for the resulting company, and provides for the vesting. Post-September 2025, a qualifying demerger can also use the fast-track route under Rule 25(9).

Demerger vs slump sale: the tax angle

Companies often choose between a demerger by scheme and a slump sale, and the driver is usually tax. A slump sale is the transfer of an undertaking for a lump-sum consideration without assigning values to individual assets, taxed under the slump-sale provisions of the Income Tax Act, 1961. A demerger by scheme, if it meets the statutory conditions, can be tax-neutral: no capital gains in the hands of the demerged company and a continuity of cost and holding period for shareholders.

Which is better? It depends on whether the parties want cash consideration (slump sale) or a mirror shareholding in the resulting company (demerger), and on the tax-neutrality conditions. There’s no universal answer, and in our view anyone who offers one without seeing the numbers is guessing; the structure follows the commercial and tax objective.

Reverse merger and other variants

A reverse merger is where a larger or operating company merges into a smaller or shell company (often a listed one), so the surviving entity is the smaller company, frequently used to achieve a listing without an IPO. The scheme mechanics are identical; only the direction is unusual. Why use a scheme at all instead of a plain share purchase? Because a contractual share purchase transfers shares but can’t, by itself, vest an entire undertaking, bind dissenting stakeholders, or achieve a clean amalgamation with statutory effect. When you need the binding, all-stakeholder, asset-vesting outcome, only a court-sanctioned scheme delivers it; a contractual route is for simpler control transfers.

What happens to employees, contracts, litigation and stamp duty

The morning after the order is filed, the practical transfers kick in, and this is where pitfalls cluster. Employees of the transferor typically transfer to the transferee on the same terms, because the scheme so provides and the law treats their service as continuous; a scheme that worsens employee terms invites RD objection. Contracts and licences vest in the transferee by operation of the sanction order, though counterparties with change-of-control clauses may still need to consent. Pending litigation continues, with the transferee substituted for the transferor. The employee and equity-transfer questions are exactly where deal teams should study how an ESOP scheme is reviewed during legal due diligence, because unvested options and trust structures don’t transfer automatically.

And stamp duty? It’s payable. A common misconception is that a court-sanctioned order is exempt; it isn’t. An NCLT order sanctioning a merger is an instrument of conveyance for stamp-duty purposes in most states, and stamp duty is levied on the transfer of the transferor’s property, at rates that vary state to state. This is where most first-time deal teams trip up: those who forget to budget for it get an unpleasant surprise after the order is filed.

Realistic timeline and the NCLT backlog reality

How long will this actually take? It’s the first question every client asks, and the honest answer depends entirely on the route, the complexity, and the bench’s docket. Let’s set realistic expectations rather than the optimistic ones in most procedure guides.

Regular route: 9 to 18 months, stage by stage

For a regular Sec. 230-232 NCLT scheme, plan for roughly nine to eighteen months end to end, longer for a contested or listed-company deal. The rough stages: drafting and board approval (one to two months), the SEBI/exchange pre-clearance for listed companies (two to four months), the first-motion application and directions (one to three months), the meeting notice period and meetings (one to two months), and the second-motion petition, regulator responses, hearing, and sanction (three to six months, depending on objections and the bench’s load). Filing with the ROC is quick once the order is in hand.

The backlog and how fast-track addresses it

[SECOND-ORDER] Why does it take so long? The NCLT is congested. As of March 2025, roughly 15,000 company-law matters were pending before the tribunal, and scheme petitions queue behind insolvency matters that carry statutory deadlines. That backlog is the real reason the government keeps widening the fast-track route: every deal that moves to the Sec. 233 RD process is a petition that never joins the NCLT queue. The appeal route, by the way, runs from the NCLT to the National Company Law Appellate Tribunal (NCLAT), and from there to the Supreme Court on a question of law, so a contested sanction can extend well beyond eighteen months.

The downstream effects of all this are easy to miss. As fast-track bypasses the tribunal, demand in the legal market is shifting from NCLT advocacy toward transactional and company-secretarial compliance skill: drafting clean schemes, mapping forms, and coordinating regulators matters more than courtroom time for a growing share of deals. At the same time, the widening of fast-track to non-wholly-owned subsidiary mergers is raising minority-protection scrutiny that courts and commentators are already flagging. And the anti-avoidance line is pushing deal teams toward heavier contemporaneous documentation of commercial rationale. The reform solves the backlog, but it reshapes the work around it.

Frequently asked questions

1. What is a scheme of arrangement under Sec. 230-232 of the Companies Act, 2013? It’s a court-supervised mechanism for compromises, arrangements, mergers and demergers between a company and its members or creditors. The NCLT convenes the required meetings and sanctions the scheme under the 2016 Rules. Once sanctioned and filed with the ROC, it binds the whole affected class.

2. What is the difference between Sec. 230, 231 and 232? Sec. 230 is the base provision for any compromise or arrangement. Sec. 231 gives the NCLT power to supervise and enforce a scheme after sanction. Sec. 232 adds the specific machinery for mergers and amalgamations involving the transfer of an undertaking, and is always read together with Sec. 230.

3. What majority is needed to approve a scheme? A majority in number representing three-fourths in value of the members or creditors (or class) present and voting, in person or by proxy. Both tests must be met, but only votes actually cast are counted. Abstainers and absentees don’t count against the scheme.

4. What is the step-by-step NCLT procedure for a scheme of arrangement? Board approval of the draft scheme, a first-motion application to the NCLT for directions, tribunal-convened meetings of members and creditors, the chairperson’s report, a second-motion petition for sanction, the sanction order after regulator responses, and finally filing the order with the ROC in Form INC-28 to make it effective.

5. Which forms are required for a scheme application? The main forms are NCLT-1 for the applications and the CAA series: CAA-1 (notice of admission), CAA-2 (affidavit and meeting notice), CAA-3 (notice to regulators), CAA-4 (chairperson’s report), CAA-5 (advertisement), and CAA-6/CAA-7 (the sanction order). The final order is filed with the ROC in Form INC-28.

6. How long does a scheme of arrangement take through the NCLT? For the regular route, plan for roughly nine to eighteen months, longer for a contested or listed-company deal. The biggest variables are SEBI pre-clearance for listed companies, the bench’s docket, and whether anyone objects. The fast-track route under Sec. 233 is considerably quicker because it skips the tribunal.

7. What is a fast-track merger under Sec. 233? It’s a simplified merger route for a defined class of companies that skips the NCLT entirely. The merger is approved by members and creditors and filed with the Regional Director, the ROC, and the Official Liquidator. If the RD has no objection within the statutory window, the merger is registered and takes effect.

8. What is a cross-border merger under Sec. 234? It’s a merger between an Indian company and a foreign company, in either direction (inbound or outbound). It follows the NCLT process plus the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. Outbound mergers are permitted only with companies in jurisdictions notified by the Central Government.

9. Can a cross-border merger use the fast-track Sec. 233 route now? For one specific category, yes. After the September 2024 Rule 25A amendment, a foreign holding company merging into its wholly-owned Indian subsidiary can use the fast-track route, subject to prior RBI approval. Other cross-border mergers still go through the regular NCLT process.

10. When is CCI approval required for a merger? When the merging parties cross the asset or turnover thresholds prescribed under the Competition Act, 2002, the combination needs separate approval from the Competition Commission of India. CCI approval is a parallel process and is not part of the NCLT sanction. Deals below the thresholds (or within de minimis exemptions) don’t need it.

11. What approvals does a listed company need from SEBI before the NCLT? A listed company must file the draft scheme with the stock exchanges, which route it to SEBI under the June 2023 master circular. SEBI issues an observation or no-objection letter, and only then can the company file the scheme with the NCLT. Many schemes also require approval by a majority of the minority public shareholders.

12. What is a valuation report and who prepares it? It’s the independent valuation of shares, assets, or liabilities that underpins the share-exchange ratio, prepared by a registered valuer registered with the IBBI. The report explains the methodology and goes to shareholders before they vote. For listed companies, a SEBI-registered merchant banker also provides a fairness opinion alongside it.

13. Can the NCLT reject a scheme even if shareholders approved it? Yes. Approval by the requisite majority is necessary but not sufficient. The tribunal can refuse sanction if the procedure wasn’t followed, a class was wrongly constituted, material facts were concealed, the scheme breaches a statute, or it’s contrary to public interest. What it won’t do is second-guess the commercial wisdom of a properly informed majority.

14. Can a scheme be rejected for being against public interest? Yes. The sanctioning authority can withhold approval where the scheme is contrary to public interest or public policy, even if the majority approved it. This is why notice goes to the Central Government and sectoral regulators, so public-interest concerns reach the tribunal before sanction.

15. Why does the NCLT scheme process take so long? Mainly because of congestion: as of March 2025, roughly 15,000 company-law matters were pending before the NCLT, and scheme petitions queue behind insolvency matters with statutory deadlines. Listed-company schemes add a SEBI pre-clearance stage, and any objection extends the timeline further. Declogging through fast-track mergers is the government’s answer.

16. What is the difference between a scheme and a slump sale for tax? A slump sale transfers an undertaking for a lump-sum consideration and is taxed under the slump-sale provisions of the Income Tax Act, 1961. A demerger by scheme, if it meets the statutory conditions, can be tax-neutral with continuity of cost for shareholders. The choice turns on whether the parties want cash consideration or a mirror shareholding.

17. What is the ₹200 crore threshold in fast-track mergers? After the September 2025 Rule 25 amendment, unlisted companies can use the fast-track route only if their aggregate outstanding loans, debentures, and deposits don’t exceed ₹200 crore and there’s no default in repayment. It’s the ceiling that keeps the simplified route limited to lower-debt unlisted companies.

18. Is stamp duty payable on a court-sanctioned merger? Yes. An NCLT order sanctioning a merger is treated as an instrument of conveyance for stamp-duty purposes in most states, and duty is levied on the transfer of the transferor’s property. The rate varies state to state. The common misconception that a court order is exempt costs unprepared teams real money.

19. What is the difference between a merger, an amalgamation and an acquisition? A merger and an amalgamation mean effectively the same thing in Indian company law: two or more companies combining, with the transferor dissolving. An acquisition is different: it’s a contractual purchase of shares or assets that usually doesn’t need NCLT sanction. Mergers and amalgamations use the scheme route; most acquisitions don’t.

20. What is the appeal route from an NCLT scheme order? An appeal from an NCLT order sanctioning or rejecting a scheme lies to the National Company Law Appellate Tribunal (NCLAT). From the NCLAT, a further appeal lies to the Supreme Court of India, but only on a question of law. A contested scheme can therefore extend well beyond the usual eighteen-month timeline.

References

Case Law

1. Arun Kumar Jagatramka v. Jindal Steel and Power Ltd., (2021) 7 SCC 474. AIR 2021 SC 1563 (Supreme Court of India, 15 March 2021).
2. Hindustan Lever Employees’ Union v. Hindustan Lever Ltd., 1995 Supp (1) SCC 499. AIR 1995 SC 470 (Supreme Court of India, 24 October 1994).
3. Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579. AIR 1997 SC 506 (Supreme Court of India, 11 September 1996).
4. National Spot Exchange Ltd. (composite scheme of arrangement), NCLT, Mumbai Bench. Order on tribunal jurisdiction to sanction a Sec. 230-232 scheme affecting persons other than the company’s members or creditors. (Free primary-source URL not confirmed; see verification note.)
5. In re Vodafone Mobile Services Ltd. / Idea Cellular Ltd. (composite scheme of amalgamation), NCLT, Ahmedabad Bench, sanctioned 11 January 2018. Illustrative deal reference, not a legal-proposition citation.

Statutes

1. Companies Act, 1956. Sections cited: 391 to 394 (predecessor regime, High Court jurisdiction).
2. Income Tax Act, 1961. Demerger and slump-sale provisions.
3. Competition Act, 2002. Combination provisions.
4. Companies Act, 2013. Sections cited: 230, 230(4), 230(5), 230(6), 231, 232, 233, 234.
5. Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. Rule 25, Rule 25(9), Rule 25A (notified with effect from 15 December 2016; Rule 25 amended with effect from 4 September 2025; Rule 25A amended September 2024).
6. Companies (Registered Valuers and Valuation) Rules, 2017.
7. Foreign Exchange Management (Cross Border Merger) Regulations, 2018.

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult a qualified legal professional.