What is a scheme of arrangement?

What can a scheme of arrangement do?

A scheme of arrangement is the legal container India uses for almost any reshaping of a company’s structure that affects its shareholders or creditors. Sections 230–232 of the Companies Act, 2013 set it out, and the range is wide: a merger of two companies into one, a demerger spinning a division into a separately listed entity, an amalgamation of group companies, a capital reduction, or a debt restructuring agreed with lenders.

What ties these together is that they cannot be done by ordinary board resolution alone. They rearrange who owns and who is owed, so the law routes them through a tribunal that checks the deal is fair and properly approved. The output is a court order that rewrites the cap table, the balance sheet, or both — and once it lands, it is final and binding.

How does a scheme get approved?

For a listed company the path has a step that surprises people: the stock exchange comes before the court. Under SEBI’s master circular, the company must obtain a no-objection letter from a nationwide exchange — which routes the draft to SEBI for comments — before it can file the scheme with the NCLT. SEBI’s comments and the exchange clearance are a gate the deal passes through first.

Then come the meetings. The NCLT directs the company to convene separate meetings of each class of shareholders and creditors. The bar to clear is precise: a majority in number representing 75% in value of those present and voting, in each class. Headcount and rupee value both matter — a handful of large holders cannot carry a class on value alone if most members vote against.

With the votes in, the tribunal holds its hearing, weighs any objections, and either sanctions the scheme or sends it back. A sanctioned scheme binds every member and creditor of every class, including those who voted no — and that binding effect is the whole point, and the reason the approval process is this demanding.

Scheme of arrangement vs open offer

These two get confused because both reshape ownership, but they are opposites in one respect. An open offer is an invitation: an acquirer crosses SEBI’s takeover thresholds and must offer to buy from the public, and each shareholder decides individually whether to tender. A scheme is compulsory: once the NCLT sanctions it, no shareholder can opt out, because the order itself effects the change.

Large transactions often use both. An acquirer might make an open offer to take control, then run a scheme to merge the target into itself. The label on the filing settles a practical question: with an open offer you get to decide, with a scheme the tribunal decides for you.

What it means for shareholders

The numbers that matter to a holder are the swap ratio and the appointed date. In a merger or demerger, the swap ratio fixes how many new shares you receive for your old ones — set by independent valuers and a fairness opinion, and the single figure most likely to move the price. The appointed date is when the scheme takes economic effect: assets, liabilities, and profits transfer as of that date even though the court order arrives months later.

The record date is a separate, later milestone, fixed only once the scheme is sanctioned, that decides which shareholders actually receive the new shares. A swap ratio that quietly flatters the acquirer, or a demerger that parks the debt with the listed shell and walks the clean assets out the door, is worth the read; our methodology scores each filing accordingly.

Where to track a live scheme

A scheme leaves a long, public trail, and each marker is a chance to act before the next one: the board’s approval and first exchange intimation; the no-objection letter and SEBI’s observations; the meeting notices and voting results; the NCLT hearings; and finally the sanction order and the record date. Anyone reading the trail in order sees the deal take shape stage by stage rather than learning of it on completion day. Those stages stream through our M&A digests, scored as they land, so the sanction order that resets your cap table reaches you the day it posts.