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- CA NITIN GUTKA
PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
Currently Mergers and Acquisitions is governed by Section 391 to 394 of the companies Act, 1956. Under New
Companies Act, 2013 it will be governed by Section 230 to 232 of the Act, 2013.
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
Key changes and requirements Analysis and implications
Notice of meeting
The 2013 Act, requires that notice of meeting for The existing simple procedure of submitting
approval of the scheme of compromise or documents with Court will become multi-party with
arrangement along with other documents shall be the inclusion of various regulatory authorities. It will
sent to various other regulatory authorities which are increase the paperwork and the process may become
likely to be affected by the compromise or more cumbersome with the direct involvement of
arrangement in addition to Central Government other regulatory authorities.
This Process will slow down and more planning would be required with respect to
time as well as strategy for prescrutiny by various regulators.
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
a
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
Key changes and requirements Analysis and implications
Compliance with Accounting Standards:
Under new Act 2013 The companys auditor has given a The 2013 Act aligns the SEBI requirement which existed
certificate that the accounting treatment of the proposed for listed companies for all companies, to ensure that the
scheme is in conformity with the prescribed accounting scheme aimed to use innovative accounting treatments
standards. for financial re-modeling are not sanctioned by the
Courts.
Further, the application with respect to reduction of
share capital has to be sent to the Tribunal along with the As the scheme tends to have overriding effect with
auditors certificate stating it is in compliance with respect to accounting treatment (specifically mentioned
accounting standards. in accounting standard 14 with respect to treatment of
reserves), the onus has been shifted on the auditor to
confirm that accounting standards have been followed
Auditor will have to be involved to ratify the accounting treatment of the scheme. The Company, whether listed or
unlisted, has to obtain an auditor's certificate before proceeding with the filing of scheme with the regulatory
authorities.
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
Key changes and requirements Analysis and implications
Objection to compromise or arrangement:
Under the 1956 Act, any shareholder, creditor or other The new threshold limit for raising objections in regard to
interested person can object to the scheme of scheme or arrangement will protect the scheme from
compromise or arrangement before a court if such small shareholders and creditors frivolous litigation and
persons interests are adversely affected. objection.
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
a Key changes and requirements Analysis and implications
Merger or amalgamation of company with foreign
company: The 2013 Act will provide an opportunity of growth and
The 1956 Act does not contain provisions for merger of expansion to Indian Company by permitting
Indian company into a foreign company (transferee amalgamation with foreign company or vice versa. This
company has to be an Indian company). will provide opportunity to form corporate strategies on a
The 2013 Act states that merger between Indian global scale. It has to be seen if the implementation
companies and companies in notified foreign mechanism is smooth enough.
jurisdiction shall also be governed by the same The 2013 Act suggests that all cross border merger will
provisions of the 2013 Act. now be governed by the said chapter. Presently, its
Prior approval of Reserve Bank of India would be possible for a foreign company of any jurisdiction to
required and the consideration for the merger can be in merge into an Indian company. This may now be limited
the form of cash and or of depository receipts or both. to only companies in notified jurisdiction.
Companies can enter into various arrangement with its foreign related company to increase their market
share and efficiency. However, prior approval of RBI has to be sought.
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PROVISION OF COMPANIES ACT 1956 /2013 RELATED TO M&A
aKey changes and requirements Analysis and implications
Fast-track merger:
Under the 1956 Act, all mergers and amalgamations require This will reduce the time consumed in court proceedings and will
court approval. result in faster disposal of the matter.
The 2013 Act requires that mergers and amalgamations between It will help remove the bureaucratic barriers involved in court
two or more small companies or between holding companies proceedings and in turn simplify the process.
and its wholly-owned subsidiary (or between such companies as
may be prescribed) does not require court approval. Presently, it seems that in such fast-track mergers, there is also
no requirement for sending notices to RBI or income-tax or
However, notice has to be issued to ROC OL and Objections / providing a valuation report or providing auditor certificate for
suggestions has to be placed before the members. The scheme complying with the accounting standard.
needs to be approved by members holding at least 90 percent of
the total number of shares or by creditors representing nine- The 2013 Act does not specify transitional provisions relating to
tenths in value of the creditors or class of creditors of respective restructuring in progress and presently there is a lack of clarity in
companies. this regard.
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OBJECTORS TO THE SCHEME
Shareholders
Creditors
Regulators
Regional Director, Department of Corporate Affairs
Stock Exchange & SEBI
Official Liquidator.
Income Tax Authorities
Sectorial Regulators.
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OBJECTION IN M&A
SHAREHOLDERS OBJECTIONS
At Meeting:
To attend court convened meeting and raise objection and seek amendment or modification to Scheme
Move motion to reject the Scheme in toto.
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OBJECTION IN M&A
CREDITORS OBJECTION
At Meeting
To attend court convened meeting (if directed) and raise objection and seek amendment or modification
to Scheme
Move motion to reject the Scheme in toto.
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OBJECTION IN M&A
REGULATORS OBJECTION:
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OBJECTION IN M&A
Official Liquidator
Accounting Policy.
Accounting Standard followed by Co. while preparing Balance Sheet.
SEBI
Dilution in public shareholding.
Achieving listing status of unlisted company w.r.t. IPO
Valuation of shares and fairness of Share Exchange Ratio.
Swap ratio skewed in favour of unlisted company and resulting public shareholding of listed company
get reduced.
Valuation of Listed Company should not be less than prevailing market price.
Treatment of Reserve after Merger or Demerger.
Dilution of Net Worth of the Company.
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THANK YOU
About the Author :
He is a CA and a MBA with over 2 decades of experience in the field of Corporate Restructuring and
Taxation, expertise in scheme engineering and execution
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