Jayanta Bandyopadhyay 27 September 2024

Scheme of arrangement -demerger

In 2018, NCLT approved the scheme of Arrangement (Demerger). However, for some reasons, Share certificates in respect of equity shares issued to each of the shareholders pursuant to the Scheme of Arrangement have not yet been issued. Auditors are mentioning in the report. Is it violative of any Laws/AS etc? Please guide.

Regards,

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T. Kalaiselvan, Advocate (Advocate) 27 September 2024

The National Company Law Tribunal (NCLT) can approve a scheme of arrangement for a demerger after reviewing and sanctioning the proposed scheme. The NCLT can reject a scheme of arrangement only if it is a sham or a colorable device to avoid tax, or if it violates fundamental provisions.

If the NCLT does not receive a response from the authorities within 30 days, it will be presumed that they have no objection to the scheme.

A demerger is the transfer of one or more undertakings to a resulting company under a scheme of arrangement. All the property and liability of the undertaking becomes the property and liability of the resulting company.

The responsibility to issue share certificates may fall under the resulting company.