NCLAT overturns employee transfer order citing scheme implementation completed in 2011 with union knowledge and limitation period expired

NCLAT Principal Bench set aside NCLT order directing transfer of all employees from transferor company's ATM and Cash Management Division to appellant company. The Tribunal held that the scheme of arrangement was fully implemented in 2011 with union's knowledge, followed by multiple wage settlements without objections. Union's 2015 flash strikes and unfair labor practices caused client contract terminations and business losses. The miscellaneous application filed five years post-implementation was barred by limitation. NCLT erroneously modified scheme terms by directing blanket employee transfer, when only specific ATM and Cash Management businesses were transferred, not entire workforce. Appeal allowed.

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Issues Involved:

1. Whether the Respondent No.1 Union was aware of the Scheme of Arrangement and its implementation.
2. Interpretation of Clause 7.1 of the Scheme regarding the transfer of employees.
3. Whether the National Company Law Tribunal (NCLT) erred in its order regarding the transfer of employees.
4. The legality of the Respondent No.1's belated objections to the Scheme's implementation.
5. The implications of the Scheme on the employment status of the employees of the Transferor Company.

Issue-wise Detailed Analysis:

1. Awareness of the Scheme:

The Respondent No.1 Union alleged it was unaware of the Scheme of Arrangement until 2016. However, the judgment highlights that public notices regarding the Scheme were published in local newspapers on 07.07.2009. Additionally, meetings were held between July and August 2011, where the demerger was discussed, and details were provided to the Respondent No.1. The Union had also entered into various agreements and settlements from 2011 to 2016, indicating its awareness and acceptance of the Scheme's implementation. Thus, the Tribunal found that the Union was indeed aware of the Scheme from its effective date, 1st April 2011, if not earlier.

2. Interpretation of Clause 7.1:

Clause 7.1 of the Scheme stated that the employees identified by the Board of Directors of the Transferor Company, who were in service on the effective date, would become employees of the Transferee Company. The Tribunal clarified that this clause did not imply the transfer of all employees of the Transferor Company to the Transferee Company. Only those employees identified by the Board and in service on the effective date were covered under the Scheme. The Tribunal found the NCLT's interpretation of this clause, which suggested the transfer of all employees, to be erroneous.

3. NCLT's Order on Employee Transfer:

The judgment criticized the NCLT for erroneously directing the Board of Directors to take all employees of the ATM and Cash Management Division of Respondent No.2, contrary to the Scheme's provisions. The Tribunal emphasized that Section 231 of the Companies Act, 2013, does not permit the Tribunal to make substantial modifications to a Scheme approved by its Members. The intention of the Transferor and Appellant was clear, and the NCLT's interpretation was contrary to this intention.

4. Belated Objections by Respondent No.1:

The Respondent No.1 filed a Miscellaneous Application in 2016, objecting to the Scheme's implementation after more than five years. The Tribunal found this objection to be barred by limitation, as the Scheme had been fully implemented in April 2011, with multiple wage settlements entered into thereafter. The Union's actions, such as entering into agreements and acknowledging the Transferor Company as their employer, further demonstrated their acceptance of the Scheme.

5. Implications on Employment Status:

The judgment clarified that the Scheme only transferred the ATM and Cash Management businesses of the Transferor Company to the Appellant, while other businesses remained with the Transferor Company. Therefore, it was impractical to interpret the Scheme as transferring all employees to the Appellant. The Tribunal emphasized that the purpose of the Scheme was not to retrench any staff, and those not identified for transfer continued to be employed by the Transferor Company under favorable terms.

Conclusion:

The Tribunal set aside the NCLT's order and dismissed the Miscellaneous Application filed by Respondent No.1. The appeal was allowed, and all pending applications were disposed of. The judgment underscored the importance of adhering to the clear and unambiguous provisions of the Scheme and respecting the intentions of the parties involved.

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