The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that companies need not obtain a No-Objection Certificate (NOC) or certification from the Directorate of Enforcement (ED) or the Reserve Bank of India (RBI) to implement a merger or demerger scheme when there is no allegation of violation of FEMA or RBI guidelines.
A Bench comprising Judicial Member Justice Sharad Kumar Sharma and Technical Members Arun Baroka and Indevar Pandey observed,
“In our view, the action on the part of RBI or FEMA will arise, only if, there is something on record showing violation of the guidelines of the RBI which has been brought to the notice of the RBI by any other agency or any financial intermediary like banks, foreign exchange, dealers etc. Similarly, the role of ED only arises in cases where there is violation of FEMA or Prevention of Money Laundering Act. In cases of merger or demerger of companies, there is no requirement of the NOC or certification by ED and RBI for the completion of scheme.”
The case arose from a composite scheme of arrangement involving L-1 Identity Solutions Operating Company Private Limited and other companies. The Delhi Bench of the National Company Law Tribunal (NCLT) sanctioned the scheme on October 13, 2026, subject to certain conditions.
The NCLT directed that the scheme would become operative only after payment of outstanding statutory dues. It also stipulated that if any violation of RBI guidelines or the Foreign Exchange Management Act, 1999 (FEMA), was detected subsequently, the scheme would become non-est. The companies would then be treated as continuing in existence as if the order had never been passed.
Aggrieved by the conditions concerning certification from the ED and RBI, the companies approached the NCLAT. They contended that there was no violation of FEMA or RBI guidelines. They argued that RBI was a regulatory authority, while the ED was an investigating agency under FEMA. No provision of law required them to obtain such clarification from these authorities, they submitted.
During the appeal, the NCLAT directed the companies to comply with the NCLT's conditions, subject to the outcome of the appeal. The transferor and transferee companies subsequently filed a compliance affidavit stating that they had paid the outstanding government dues. They clarified that the payments were made without prejudice to their rights and contentions concerning the underlying dues.
The tribunal noted that the dues had been paid and that the only issue remaining was whether certification from the ED and RBI was required. It observed that RBI's role would arise only when material indicating a violation of its guidelines was brought to its notice by another agency or a financial intermediary, such as a bank or foreign exchange dealer.
The ED's role, similarly, would arise only in cases involving violations of FEMA or the Prevention of Money Laundering Act. The tribunal noted that no agency had alleged any violation of FEMA or RBI guidelines in the present case.
It further held that a merger or demerger scheme did not require an NOC or certification from either authority. The NCLT's order itself provided for action under FEMA if any violation was detected subsequently.
Holding that the companies had complied with the NCLT's directions, the NCLAT concluded that no further certification from the ED or RBI was required to complete the merger process. It also granted them liberty to pursue legal remedies concerning any disputed dues.
The tribunal directed the companies to submit a certified copy of its order to the Registrar of Companies for registration within 30 days from the date of issue of the order or sanction of the scheme with respect to the transferee company, whichever was later.
Accordingly, the appeal was disposed of with modifications to the NCLT's order.
For Appellants: Senior Advocate Arun Kathpalia with Advocates Ishan Gaur, Ananya Kumar, Utkarsh Khandelwal, Vaibhav Khanna, Harsh Shukla, Aditya Dhupar