Adv. Lazim Vengattil, Associate, Alishahz Legal LLP
INTRODUCTION
The Companies Act 2013 in India contains important rules and guidelines for mergers and acquisitions (M&A). These rules, primarily detailed in Sections 230 to 240 of the Act, cover various aspects of M&A. While the Act doesn’t offer a precise definition of a ‘merger,’ it broadly characterizes it as the transfer or division of an undertaking, properties, or liabilities of one or more companies to another existing or new company. The application of the Companies Act’s provisions in the context of mergers and acquisitions depends on the type of company, whether it is private or public, its listing status on a stock exchange, the presence of foreign investment, and the sectoral regulations governing its operations all play a significant role in shaping the course and manner of M&A transactions.
PHASES WITHIN THE MERGER PROCESS
In the process of mergers and acquisitions (M&A), several important steps guide the way. Initially companies must ensure that their Memorandum of Association grants them the authority to undergo such transactions or make amendments if required. A draft amalgamation scheme is presented and approved during a board meeting, and subsequently filed with the Registrar of Companies. An application, along with various documents, is submitted to the National Company Law Tribunal (NCLT). The application should also disclose how each class of members or creditors has been identified for approval. The NCLT orders a meeting, notices are issued to creditors, members, and debenture holders for the NCLT-ordered meeting, during which the scheme necessitates approval by a majority representing 3/4th in value through various voting methods. Notice of the meeting, along with a copy of the amalgamation, should be sent to various authorities, including the Central Government, the Registrar of Companies, and income-tax authorities. The chairperson submits a report on the meeting’s proceedings to the NCLT, and if the scheme garners approval, the company presents a petition for confirmation to the NCLT. Subsequently, the NCLT schedules a hearing, advertises it, and serves notices to any objectors and pertinent authorities. Upon approval, the NCLT issues an order containing directions and modifications. Finally, the company is required to file the NCLT’s order with the Registrar within 30 days to complete the M&A process.
FAST-TRACK MERGERS
The Section 233 of Companies Act 2013 in India has introduced a streamlined process for fast-track mergers, designed to make the merger procedure quicker and more straightforward for certain types of mergers. This approach mainly applies to two categories of mergers: mergers between small companies meeting specific financial criteria (i.e., paid-up share capital not exceeding Four Crores Rupees and turnover not exceeding 40 Crores Rupees), and mergers between holding companies and their wholly-owned subsidiaries. One notable feature of the fast-track merger process is that it removes the necessity for involvement from the National Company Law Tribunal (NCLT), the regulatory authority overseeing company law in India. Instead, approval is expedited under this process. To qualify for the fast-track route, specific conditions must be met, including the absence of objections from regulatory bodies like the Regional Director (RD), Registrar of Companies (ROC), or Official Liquidator (OL). Additionally, the merger must gain the majority approval of its members and creditors, with this approval representing 90% of the total shares held by members and 90% of the total value of the creditors.
M&A WITH FOREIGN COMPANIES
The Companies Act, 2013 extends its regulatory purview to encompass mergers and amalgamations involving foreign companies, facilitating cross-border corporate restructuring. The section 234 of the Act delves into guiding M&A activities between Indian companies registered under the Companies Act 2013 and companies incorporated in foreign jurisdictions. The Central Government, in consultation with the Reserve Bank of India, has the authority to make rules concerning mergers and amalgamations conducted under this section. Foreign companies can merge into Indian companies registered under the Companies Act 2013, and vice versa, subject to prior approval from the Reserve Bank of India. The terms and conditions of the merger scheme can include elements such as the payment of consideration to the shareholders of the merging company, which may be in the form of cash, Depository Receipts, or a combination of both, in accordance with the scheme devised for this purpose. The definition of a “foreign company” encompasses any company or body corporate incorporated outside India, whether or not it maintains a place of business within India.
CONCLUSION
In the context of mergers and acquisitions (M&A) in India, several key regulatory bodies come into play, including the Registrar of Companies (ROC), the Regional Director (RD), the Official Liquidator (OL), and National Company Law Tribunal (NCLT). The NCLT, with its authority to grant final approvals, stands at the heart of the M&A process. Additionally, the complexity of M&A transactions is further compounded by the application of various additional laws, contingent on the company’s size and type. These includes competition law, FEMA (Foreign Exchange Management Act), and SEBI (Securities and Exchange Board of India) regulations, which will be elaborated upon in our upcoming articles.