Scheme of Arrangements explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A court-sanctioned scheme can lawfully depart from accounting standards. This disclosure makes the company say so when it does.
The requirement
Where any Scheme of Arrangements has been approved by the Competent Authority in terms of sections 230 to 237 of the Companies Act, 2013, the company shall disclose that the effect of such Scheme has been accounted for in the books of account of the company "in accordance with the Scheme" and "in accordance with accounting standards" — and deviation in this regard shall be explained.
This requirement shall be applicable for schemes that have been approved earlier and have an ongoing accounting impact as on the date of current or comparative period financial statements where such requirements are applied. A scheme sanctioned years ago that still drives a carrying amount today remains within the disclosure.
Which declaration applies to the Scheme of Arrangements
| Situation | Disclosure |
|---|---|
| The approved Scheme proposes an accounting treatment that is given effect in the books | The effect is "in accordance with the Scheme". If there is any deviation between the accounting treatment given in the Scheme and as per the accounting standards, the fact shall be stated along with an explanation of the deviation. |
| The approved Scheme does not propose an accounting treatment — it is silent, or simply refers to the relevant accounting standards — and effect is given accordingly | The effect is "in accordance with the accounting standards". |
The starting point is section 133, under which accounting standards are prescribed. But where a law requires a different treatment, accounting standards are considered to be overruled to that extent.
And a scheme of arrangement sanctioned by the competent authority under prevalent laws will have the effect of overriding the requirements of the accounting standards where differing requirements are present in the sanctioned scheme vis-à-vis the requirement of the relevant accounting standards.
The sanction is an order of a competent authority, and it therefore carries the force that lets it displace the standard. That is precisely why the disclosure exists: financial statements prepared under a scheme may not be Ind AS-compliant in a particular respect, and the reader has no way of knowing unless told.
Section 232 supplies the check at the front end — no compromise or arrangement shall be sanctioned by the competent authority unless a certificate by the company's auditor has been filed to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.
So the auditor certifies conformity before sanction, and the company discloses any deviation after it. Where a scheme is sanctioned notwithstanding a departure, the disclosure is the only remaining mechanism that surfaces it.
Reading the two phrases in a Scheme of Arrangements
The two quoted phrases are not alternatives the company may choose between for presentational convenience. They describe two different factual situations — whether the Scheme itself prescribed the accounting, or left it to the standards — and the correct one follows from the Scheme's own terms.
Where the Scheme prescribed the treatment and that treatment departs from the standards, both limbs operate: the disclosure says the effect is in accordance with the Scheme, and the deviation is separately stated and explained.
A Scheme of Arrangements at the consolidated level
Compliance with an approved Scheme of Arrangements is among the requirements disclosed at CFS level only if material — more than 10% of the respective financial statement line item in the CFS.
Common mistakes
- Treating the disclosure as applying only to schemes sanctioned in the current year.
- Stating conformity with the Scheme while omitting the deviation from standards.
- Assuming an auditor's section 232 certificate removes the need for the disclosure.
- Applying the CFS disclosure without the 10% materiality test.