NCLT Mumbai: Modification of Sanctioned Merger Scheme For Typo Affecting Stamp Duty Not Permissible U/S 231 Companies Act; Fresh Process U/S 230 Required - 2025-05-24

NCLT Rejects Plea to Amend Merger Scheme Over Typo After Four Years, Cites Lack of Power and Limitation Bar

Mumbai , MH | February 4, 2025 – The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Ms. Lakshmi Gurung (Member Judicial) and Sh. Charanjeet Singh Gulati (Member Technical), has dismissed an application by Piramal Corporate Services Private Limited seeking to modify a nearly four-year-old sanctioned Scheme of Merger. The company sought to correct an alleged typographical error in the share exchange ratio, which came to light following a significant stamp duty demand from the Collector of Stamps.

The Tribunal held that its powers under Section 231 of the Companies Act, 2013, for supervising scheme implementation do not extend to rectifying such errors discovered late, especially when the modification is substantial and primarily aimed at mitigating tax liability rather than addressing an impediment to the scheme's workability. The NCLT suggested that the appropriate course for such a change would be to follow the due process under Section 230 of the Act for a new scheme or modification. The application was also found to be barred by limitation.

Case Background: A Costly Typo

Piramal Corporate Services Private Limited (formerly Nicholas Piramal Pharma Private Limited, the Applicant/Transferee Company) approached the NCLT to modify Clause 5.1 of a Scheme of Merger involving three transferor companies, which was sanctioned by the NCLT on August 30, 2018.

The Applicant claimed a typographical error in the Scheme concerning the exchange ratio for preference shareholders of Transferor Company 3 (Piramal Corporate Services Limited). The sanctioned Scheme erroneously stated that 95,721 new preference shares of the Transferee Company would be issued for every 1 preference share held in Transferor Company 3 (a ratio of 95,721:1). The Applicant contended the intended ratio, supported by a valuation report, was 1:1.

This discrepancy led the Office of the Collector of Stamps, Mumbai , to issue a demand notice on March 16, 2022, for stamp duty amounting to ₹37.27 crores, plus a penalty of ₹3.72 crores, calculated based on the 95,721:1 ratio. The Applicant filed the modification application on June 22, 2022, after discovering the error upon receiving this notice.

Arguments Presented

Piramal's Contentions:

* The company argued that the error was purely typographical, and the Valuation Report by Price Waterhouse & Co LLP dated March 16, 2018, clearly intended a 1:1 ratio for preference shares.

* The actual allotment of shares post-merger, as filed with the Registrar of Companies (RoC), reflected the 1:1 ratio (95,721 preference shares issued in total).

* The explanatory statement to shareholders during the scheme approval process also indicated the 1:1 intent through pre and post-merger shareholding patterns.

* The application was within limitation under Section 17 of the Limitation Act, 1963, as the mistake was discovered only on March 16, 2022.

* The NCLT possessed powers under Section 231 of the Companies Act, 2013, and NCLT Rules 153, 154, and 155 to allow such an amendment.

* Consent for rectification from preference shareholders was submitted.

Regional Director's Objections:

* The application was filed after a delay of four years.

* The primary motive appeared to be avoidance of stamp duty.

* Section 420 of the Companies Act, 2013, allows rectification of mistakes apparent from the record only within two years from the order date.

* The proposed change would effectively reverse a shareholder-approved scheme and affect state government revenue.

NCLT's Analysis and Findings

The Tribunal meticulously examined the records and legal provisions.

On the Alleged Error and Intent: The NCLT noted that while the valuation report and post-merger shareholding patterns might infer an intent for a 1:1 ratio, the Scheme document itself, which was approved by shareholders and reviewed by the RoC and Regional Director (RD), explicitly stated the 95,721:1 ratio. > "As a matter of fact, the shareholders and creditors of the Applicant Companies had consented to the Scheme which was annexed to the Petition that provides the consideration as stated above... even in the explanatory statement/note to the notice, the alleged erroneous consideration clause has been reproduced and the preference shareholders have approved the same."

The Tribunal found the post-filing consent from preference shareholders, submitted as a letter and not an affidavit or Board resolution, insufficient to definitively establish the error or the intended correction.

NCLT's Powers to Modify :

* Section 231 (Supervision of Scheme Implementation): The NCLT, citing Supreme Court judgments in Reliance Natural Resources Ltd vs. Reliance Industries Ltd and M/s Meghal Homes Pvt. Ltd. vs. Shree Niwas Girni K. K. Samiti & Ors , clarified that its power under Section 231 is to make modifications necessary for the proper working and implementation of a scheme, not to make substantial changes or correct errors that do not hinder implementation. > "The error brought on record by the Applicant Company cannot be categorised as a ‘hitch, obstacle or impediment’ that hampered the proper implementation/ functioning of the Scheme. Thus, section 231 has no applicability in the present case." The Tribunal concluded that a change in the consideration clause is a substantial alteration requiring the due process under Section 230 of the Companies Act, 2013.

• Section 420 (Rectification of Mistakes) & NCLT Rule 154: Referring to the NCLAT decision in Santosh Wasantrao Walokar vs. Vijay Kumar V. Iyer & Anr , the NCLT stated these provisions allow correction of "clerical or arithmetical mistakes" or "error apparent from the record" within two years. The current error was not deemed "apparent" in this sense and the proposed change was substantial.

• NCLT Rules 153 & 155 (Enlargement of Time & General Power to Amend): Rule 155, allowing amendment of defects or errors in proceedings, is applicable within 30 days of pleading completion and not to disposed-of cases.

Bar of Limitation: The Applicant invoked Section 17 of the Limitation Act, 1963, claiming the limitation period began only upon discovery of the mistake (March 16, 2022). However, the NCLT, citing The Ramanathapuram Market Committee vs. East India Corporation Ltd. , held that Section 17 applies only if the mistake could not have been discovered earlier with reasonable diligence . > "If these procedures needed for implementation of the Scheme were done with due diligence, the Applicant would have come across the error crept in the Scheme... No plausible explanation is given to satisfy this Tribunal for not being able to discover the mistake earlier even with due diligence. Thus, when the Applicant has lately discovered the error due to its own negligence, a rescue under section 17 of the Limitation Act cannot be pleaded." The Tribunal found that the company had multiple opportunities to detect the error before and after the scheme's sanction in 2018.

Decision and Implications

The NCLT dismissed Company Application No. 312/2022, finding no merit in the Applicant's plea for modification. The Tribunal stated: > "We are of considered view that a change in the consideration clause, irrespective of whether it is to be made due to an error or otherwise, should be executed only after following the due process under section 230 of the Companies Act, 2013."

The judgment underscores the importance of due diligence by companies during the scheme approval process and limits the NCLT's power to alter sanctioned schemes for errors discovered significantly later, especially when such alterations are substantial and not directly related to the scheme's workability. Piramal Corporate Services Limited is at liberty to pursue other appropriate remedies as permitted under the law, which may include initiating a fresh process for scheme modification under Section 230.