This article has been written by Sunandeni R, pursuing the Diploma Programme in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.

What is the appointed date in the Scheme of Arrangement?

A scheme of arrangement is a court-approved compromise between the creditors and a said company. This arrangement leads to the re-organisation of basic structuring of a company when a business transfer, sale of assets or amalgamation is in progress. 

The Appointed date can be mentioned as a specific calendar date or maybe mentioned in line with the occurrence of the event such as transfer of licences, shares or other conditions precedent. 

The ministry of corporate affairs vide its circular dated 21/08/2019 bearing No. 09/2019 addressed the issue whether it is mandatory to mention the specific date in regard to appointed date in a scheme of arrangement  and whether acquisition date is to be considered as appointed date the following was clarified under Section 232(6) of the Companies Act,2013 as follows:

1. 1. 1. The date of appointed date may either be a specific calendar date or tied up with event actualisation wherein the action regarding transfers take place in terms of licences, and fulfilment of other mentioned preconditions. 
      2. Secondly, confirmed the appointed date is deemed to be the acquisition date under Ind AS 103 for the purpose of transfer of control of Business combinations. 
      3. However, the circular highlights the appointed date to not be against the public interest in referring the same in any manner. 
      4. An intimation of the appointed date may be filed with the Registrar of Companies within 30 days as given under Section 232(5) of the Companies Act,2013 as mentioned in the circular referred to above. 

What is an appointment date and effective Date?

The Companies Act refers to the Appointment Date Section 232 (6) – “The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date”.

It is seen that the appointed date is a simple agreement between the transferring company and acquiring company and both the parties in respect of the amalgamation to be undertaken have fixed the terms and conditions in terms of the appointed date. On the date of complete transfer of such assets and liabilities from the transferor company, the acquiring company will mention the same as the effective date subsequently.

Difference between appointment date and effective date

The effective date is the last of the dates by which the Company in relation to which the order is made shall file a certified copy of the order with the Registrar of Companies and all other required statutory authorities if any. As per Section 232(5) The order is to be filed within 30 days of the receipt of the certified copy of the order. When the order has so filed, the amalgamation or arrangement becomes effective or has come into force from the ‘Appointed Date’.

Appointed Date is relevant to know in whose hand net income will be taxable under the Income Tax Act, 1961 and to determine the market value of assets and investments getting transferred under State Stamp Act of the respective state in which immovable property is situated.

Under all other laws and under procedural aspects of all the laws, Effective Date is more relevant.

Prospective or retrospective?

When it comes to the transfer of assets of the Company, the nature of transfer to be prospective wherein there is no change in the reporting authority.

However, when it comes to transferring of shares or the business in itself wherein there is a change in the reporting entity/authority a retrospective application may arise until the power of position and processes are in place. 

The significance of an appointed date in Mergers and Acquisitions is more informal than formal, however, while the scheme is deemed to be effective from such date in terms of agreement and documentation and subsequent to the completion of the agreed-upon transfer the acquiring company shall fix an acquisition date to which the actual course of control is bestowed upon the acquiring company since the said date. 

And this date of acquisition wherein the transferring company received the consideration for the sale/transfer of assets and liabilities to the acquiring company is generally tagged with or identified as the acquisition date, which is also known as the closing date. Nevertheless, the acquiring company might at its convenience take charge either prior to the acquisition date or at a later date upon the documentation of agreements post the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.

As per Ind AS 103, the business collaboration must be recorded from the acquisition date, and the acquisition date is the date on which the acquirer officially obtains control of the acquiree since the acquiring company gains control generally is  deemed to be the date when the acquiring company legally transfers the consideration and acquires and assumes the assets and liabilities.

Marshall Sons & Co. India Ltd. v. ITO, 223 ITR 809

In a Scheme of Arrangement wherein, a business restructuring process takes effect from the execution date in simple terms from when the course of action upon agreed terms occurs as per the effective date. 

It is from this effective date that the financial transactions involving the two or more companies shall start reflecting as a single cumulative transaction since the effective date. The companies involved in the merger or amalgamation start the course of a transaction with an aim to complete the same within the given financial year, with a set of objectives which are capable of achieving them within a given duration. In the given scenario the date of agreement documented or written which is referred to as the “appointed date” and from when the actual course of action regarding the transfer takes effect is known as “effective date”, of the both the appointed date is an illusionary date of graphing the actions and as a matter of fact the effective date is legally considered for any further references primarily. 

The usage of appointed date and the effective date is in place for decades now and in the Landmark Case Marshall Sons and Co. India Ltd., Vs ITO, the Supreme Court has acknowledged the usage of the Appointed date wherein it noted that “Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz., January 1, 1982. It is true that while sanctioning the scheme, it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer.”

However, the Court does not set down any exact day for the said purpose and merely allows the scheme on hand there to – as occurred in the current case the date of collaborating or actual transfer is to be specified as the date of transfer and not otherwise.

A quick understanding of the Supreme Court’s decision showcases that the significance of the appointed date however in its absence the effective date is considered from the Scheme of Arrangement takes effect from. In the above referred to case the question of perspective and retrospective application of appointed date arose and also it was asked when in ambiguous situations whether the appointed date is to be predetermined prior to the occurrence of events. However, in general, the market practices involved varied permutations and combinations to begin a transaction date with and as seen the aforesaid case flexibility to some extent was rendered by Marshall Sons. 

However, the dimension of the appointed date changed with the statutory recognition for the first time in the form of section 232(6) of the Companies Act, 2013. The act denotes that the plan under this section clearly indicates an appointed date wherein a date is effective and the scheme is deemed to be effective from the said date and not at a date subsequent to the appointed date.

With this special consideration, it was seen that different benches of the National Company Law Tribunal (NCLT) began adopting a more provisional view, including that the appointed date has to be a predetermined calendar date and not connected with the occurrence of a prospective event.

Conclusion

An appointed dated refers to the date on which the merger/transfer takes place wherein the property, assets, or liabilities of the transferor shall vest the transferee-company however effective date denotes whether the merger is completed and the companies merged are dissolved by way of the Registrar of Companies (“RoC”). 

An appointment is a primary undertaking by the transferee company from the transferor company while the effective date is statutory recognition of amalgamation regarding the successful completion of business transfer as agreed upon. 

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