NCLT Mumbai permits amendment to approved Scheme of Amalgamation regarding change in accounting method

 The National Company Law Tribunal (NCLT), Mumbai Bench, has recently delivered an Order in the matter of Ecospace IT Park Pvt. Ltd. (“Applicant Company”), clarifying the scope of modifications to Schemes of amalgamation after its approval, especially with regard to amendments in accounting treatment under the Companies Act, 2013.

The Applicant Company, which had earlier obtained NCLT approval for the merger of its wholly owned subsidiary, approached the Tribunal seeking to amend the sanctioned Scheme, pertaining to the accounting methodology, from the “Business Combination Method” to the “Asset Purchase (Asset Acquisition) Method” in line with accounting practices followed by its corporate group and as mandated by its parent entity in Singapore.

While deliberating on the above matter, the NCLT had the following key observations:

• The NCLT noted that post-sanction modifications to a Scheme are allowed under Section 231 of the Companies Act, 2013, as well as Rule 17 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, provided they do not alter the fundamental structure of the scheme.
• The Supreme Court ruling in S.K. Gupta & Ors. v. K.P. Jain & Ors. was relied upon, emphasizing that amendments can be made so long as the core fabric of the scheme remains intact.
• The need to change the accounting method from Business Combination to Asset Acquisition arose from the current auditor's insistence on compliance with Indian Accounting Standards (Ind AS) and alignment with the parent company’s accounting policies.
• The Registrar of Companies raised concerns about the delay in identifying the accounting difference and the auditor's assertion after scheme sanction; however, the NCLT acknowledged that the Scheme provided for amendments with NCLT approval.
• It was observed that the proposed change in accounting method would not affect the rights of shareholders or creditors and would keep the amalgamation tax-neutral under the Income Tax Act.

Based on the above considerations, the NCLT held that the proposed change in accounting treatment was permissible, aligned with Ind AS, and did not affect the core structure of the amalgamation.

This ruling confirms that a scheme of arrangement or amalgamation, once sanctioned by the NCLT, may be amended post-approval, provided such modifications do not alter the Scheme’s core structure and is necessary for its effective implementation. It also reaffirms that group-level financial reporting requirements and regulatory harmonisation may constitute valid grounds for a limited post-sanction amendment.