Introduction:

The Sikkim High Court has held that an employee-continuity provision contained in a scheme of amalgamation can benefit only those employees who continued to remain on the rolls of the transferor company when the amalgamation became effective. The Court made it clear that persons who had already ceased to be employees of the transferor company before the effective date of amalgamation cannot subsequently rely upon such a clause to claim employment-related benefits from the transferee company.

Justice A. Muhamed Mustaque delivered the judgment while considering the writ petition filed in Homnath Neopaney v. Chang Dorjee Tamang, WP (C) No. 30 of 2025, decided on September 11, 2026. The dispute arose in the context of the amalgamation of Lanco Teesta Hydro Power Limited (LTHPL) with NHPC Limited and the claim of certain former LTHPL employees for permanent absorption in NHPC.

The case involved an important question concerning the interpretation and operation of an amalgamation scheme, particularly the effect of a provision under which employees of the transferor company were to continue with the transferee company following amalgamation. The petitioners had originally been regular employees of LTHPL. However, during the insolvency process concerning LTHPL, they accepted fixed-tenure appointments with NHPC in December 2019 pursuant to the resolution plan.

Thereafter, LTHPL was amalgamated with NHPC under a scheme approved by the Central Government. The scheme contained provisions concerning the continuation of employees of the transferor company. The petitioners sought to rely upon this provision to claim permanent absorption in NHPC, contending that their original status as regular employees of LTHPL entitled them to the benefit of the employee-continuity clause.

The central issue before the High Court was therefore not merely whether the petitioners had once been regular employees of LTHPL, but whether they continued to have the status of employees of LTHPL on the date on which the amalgamation became effective. The Court ultimately answered this question against the petitioners.

The Court found that the petitioners had accepted fixed-tenure appointments with NHPC in 2019, well before the amalgamation. By doing so, they had ceased to be employees of LTHPL. Consequently, when the amalgamation actually took effect, they were no longer part of the workforce of the transferor company.

The Court consequently held that the employee-continuity provision could not be invoked by persons who were not employees of the transferor company on the relevant date. Their previous employment with LTHPL could not, by itself, revive an employment relationship which had already come to an end before the amalgamation.

The judgment therefore draws a significant distinction between persons who were employees of the transferor company at the time of amalgamation and those who had already left its employment before the scheme became operative. According to the Court, the rights flowing from an amalgamation scheme must be examined with reference to the actual employment status of the concerned person on the date on which the scheme took effect.

Arguments of the Parties:

The petitioners’ case was substantially founded on their original employment relationship with LTHPL and the terms of the amalgamation scheme subsequently approved by the competent authority. They contended that they had initially been appointed as regular employees of LTHPL and had therefore acquired a substantive employment status before the insolvency proceedings and subsequent restructuring of the company.

According to the petitioners, their subsequent appointment with NHPC during the insolvency resolution process could not deprive them of the benefits that eventually became available under the amalgamation scheme. Their reliance was particularly placed on the provision dealing with continuation of employees of the transferor company after its amalgamation with the transferee company.

The petitioners essentially sought to establish a connection between their original employment with LTHPL and the subsequent employee-continuity provision in the amalgamation scheme. Their contention was that since they had originally been regular employees of LTHPL, their employment history had to be considered while determining their status and entitlement following the amalgamation.

They sought permanent absorption in NHPC by relying upon the scheme’s provision relating to employees of LTHPL. The petitioners’ claim was therefore premised on the argument that the scheme should not be interpreted in a manner that disregarded their earlier regular employment merely because they had subsequently accepted fixed-tenure appointments with NHPC during the insolvency process.

The underlying grievance of the petitioners was that their employment with NHPC remained confined to a fixed tenure even though LTHPL had subsequently been amalgamated with NHPC. They sought to derive a more permanent employment status from the amalgamation scheme and argued that their original relationship with LTHPL was relevant to determining the benefits available to them.

On the other hand, the respondents opposed the claim for permanent absorption. Their case was based on the petitioners’ employment status at the time the amalgamation actually became effective. It was contended that the petitioners could not invoke a provision intended for employees of the transferor company when they were no longer employees of that company on the relevant date.

The respondents relied on the fact that the petitioners had accepted fixed-tenure appointments with NHPC in December 2019. Those appointments were made pursuant to the resolution plan during the insolvency proceedings concerning LTHPL. Therefore, according to the respondents, the petitioners had voluntarily entered into a separate employment arrangement with NHPC before the amalgamation.

The respondents argued that the petitioners’ earlier status as regular employees of LTHPL could not be treated as continuing indefinitely after their employment with LTHPL had ceased. The employee-continuity clause in the amalgamation scheme was intended to protect and continue the employment of those who were employees of the transferor company when the scheme took effect. It could not be extended to former employees merely because they had once served the transferor company.

The respondents therefore maintained that the petitioners were already fixed-tenure employees of NHPC when the amalgamation took place. Their rights were consequently governed by the terms of their NHPC appointments and the applicable resolution plan rather than by the provision concerning continuation of LTHPL’s employees.

The dispute thus turned on the interpretation of the relevant clause of the amalgamation scheme and, more specifically, the meaning of the expression relating to continuation of employees of the transferor company. The petitioners sought to rely upon their historical employment with LTHPL, whereas the respondents placed emphasis on their actual employment status on the effective date of amalgamation.

The Court was therefore required to determine whether the employee-continuity provision operated retrospectively so as to cover persons who had ceased to be employees before amalgamation, or whether it was confined to employees who remained in service when the scheme became effective.

Court’s Judgment:

The Sikkim High Court dismissed the writ petition, holding that the petitioners could not claim permanent absorption in NHPC under the amalgamation scheme because they were no longer employees of LTHPL on the date on which the amalgamation became effective.

At the heart of the Court’s reasoning was the distinction between a person’s past employment with the transferor company and the person’s actual employment status on the date of amalgamation. The Court treated the latter as decisive for determining whether the employee-continuity clause could be invoked.

Justice A. Muhamed Mustaque observed that if the petitioners were not employees of LTHPL as on the date of amalgamation, they could not claim any relief on the basis of the amalgamation order and the scheme of amalgamation. The Court specifically held that the provision relating to continuation of employees of the transferor company could not be invoked by persons who were no longer employees of that company when the scheme became effective.

This reasoning rests on the nature of an amalgamation scheme itself. When two corporate entities are amalgamated, the scheme may contain specific provisions dealing with assets, liabilities, contracts, proceedings and employees. Where the scheme provides for continuation of employees of the transferor company, the expression “employees” necessarily refers to persons who have an existing employment relationship with the transferor company at the relevant point in time.

The Court therefore rejected an interpretation under which a former employee could rely indefinitely on his earlier employment relationship to claim benefits created by a later amalgamation. Such an interpretation would effectively enlarge the class of persons covered by the scheme beyond those to whom the provision was directed.

The factual chronology was particularly important to the Court. The petitioners were admittedly regular employees of LTHPL at an earlier stage. However, the insolvency proceedings resulted in a resolution plan under which they accepted fixed-tenure appointments with NHPC in December 2019.

This was not a situation where the petitioners continued to remain employees of LTHPL while merely performing duties under the control or supervision of NHPC. Rather, their employment status had changed before the amalgamation. They had accepted appointments with NHPC on a fixed-tenure basis, and therefore the earlier employer-employee relationship with LTHPL had already ceased.

The Court consequently treated the date of amalgamation as the critical point for determining the applicability of the employee-continuity provision. By that date, the petitioners were not employees of LTHPL. They were employees of NHPC under fixed-tenure appointments.

The Court’s approach also reflects a basic principle of interpreting statutory or scheme-based employment benefits: the person claiming a benefit must fall within the class of persons identified by the relevant provision. The mere fact that a claimant once belonged to that class does not necessarily confer a continuing right after the underlying relationship has ended.

In the present case, the amalgamation scheme contemplated continuation of employees of the transferor company. It did not, according to the Court’s interpretation, create a general right of permanent employment in favour of every person who had previously worked for LTHPL.

The Court therefore declined to treat the petitioners’ earlier regular employment as sufficient to bring them within the scope of the scheme. Their status had to be assessed as it stood when the amalgamation took effect.

An important aspect of the judgment is that the Court did not disregard the petitioners’ original employment. It accepted the factual position that they had initially been regular employees of LTHPL. However, the Court considered that fact insufficient for establishing a continuing entitlement because the petitioners had subsequently accepted a different employment arrangement with NHPC.

The Court’s reasoning effectively recognises that an employment relationship can undergo a legally significant change during a corporate restructuring or insolvency process. Where employees accept fresh appointments on specified terms, those terms cannot automatically be ignored merely because the corporate entity with which they were originally employed is later amalgamated with the new employer.

The insolvency resolution process was therefore relevant to the determination of the petitioners’ employment status. Their acceptance of fixed-tenure appointments with NHPC in 2019 meant that their status was no longer that of employees of LTHPL when the subsequent amalgamation occurred.

The Court further found that the petitioners’ fixed-tenure status with NHPC could not be converted into permanent employment merely through reliance on the amalgamation provision. The amalgamation scheme did not provide a mechanism for treating former LTHPL employees as though they continued to be employees of LTHPL despite the intervening change in their employment status.

The judgment thus places emphasis on the actual legal relationship existing between the employee and the employer rather than on the historical circumstances of employment. The Court’s interpretation prevents the employee-continuity clause from being applied beyond its textual and factual context.

The Court’s observation that the petitioners could not claim relief “based on the amalgamation order and scheme of amalgamation” is particularly significant. The amalgamation scheme was not treated as an independent source of permanent employment rights for every person who had previously been associated with the transferor company. Its benefits had to be claimed in accordance with the conditions and scope of the scheme itself.

The Court did not identify any basis for treating the petitioners as continuing employees of LTHPL after they had accepted the fixed-tenure appointments with NHPC. Once their employment with LTHPL had ceased, their subsequent rights had to be examined in the context of their new employment relationship.

The judgment also illustrates the importance of the effective date of a corporate restructuring scheme. Rights flowing from a scheme can depend upon the status of an individual on the date when the scheme becomes operative. A person who was within the relevant class before that date but outside it on that date cannot necessarily claim the same benefit.

The Court therefore drew a clear temporal boundary. The relevant question was not whether the petitioners had ever been employees of LTHPL, but whether they were employees of LTHPL when the amalgamation became effective.

Since the answer was in the negative, the Court held that the employee-continuity provision could not be invoked in their favour.

The Court consequently dismissed the writ petition and rejected the claim for permanent absorption in NHPC. The petitioners remained governed by the terms of their fixed-tenure employment with NHPC, rather than receiving permanent absorption through the amalgamation scheme.

The judgment is significant for employees affected by insolvency resolutions, corporate mergers and amalgamations because it demonstrates that an employee’s status at the critical stage of restructuring can determine whether protections contained in an amalgamation scheme are available to them. A former employee cannot necessarily claim the benefit of a clause framed for existing employees merely by relying on his earlier service.

At the same time, the ruling should be understood in the context of the specific facts before the Court. The petitioners had not merely ceased working for LTHPL; they had accepted fixed-tenure appointments with NHPC in 2019 as part of the resolution process. This intervening employment arrangement was central to the Court’s conclusion.

The decision consequently underscores the importance of examining the precise language of an amalgamation scheme, the date on which it becomes effective, and the employment status of the individual claiming benefits under it. Where the scheme protects existing employees of the transferor company, that protection cannot ordinarily be extended to persons who had already ceased to be employees before the relevant date.

The Sikkim High Court’s ruling ultimately rests on a straightforward principle: employment benefits arising from an amalgamation scheme must be claimed by persons who satisfy the conditions of the scheme when the relevant right comes into existence. Past employment, by itself, does not create a continuing entitlement to benefits intended for existing employees.

Accordingly, since the petitioners had become fixed-tenure employees of NHPC in 2019 and were no longer employees of LTHPL when the amalgamation took effect, the Court held that they could not claim permanent absorption under the employee-continuity clause. The writ petition was therefore dismissed.