The legal procedure of merger and acquisition in India [2020]

Author- Gopa Mahali 
Content writer

Keyword: legal procedure of merger and acquisition in India, Merger process in India, mergers and acquisitions in India 2019, legal procedure for merger and acquisition

Introduction

Business identification goes for mergers and acquisitions for strengthening a disjointed market and for elevating their purposeful competence in order to improve their aggressive streak. Many countries have propagated merger and acquisition laws to manage the operations of the alternate units within.

Most of the mergers and acquisitions have been successful in elevating the functional competence of corporations but on the flip aspect, this activity can lead to the formation of monopolistic power. The anti-competitive results are executed each with the resource of synchronized outcomes or by using the capacity of one-sided effect.

An open and impartial opposition is perfect for capitalizing on the consumer’s pastimes both in contexts of capability and worth.

Law governing the legal procedure of merger and acquisition in India

  • Mergers and acquisitions in India are ruled through the Indian Companies Act, 1956,[i] under Section 391 to 394. Although mergers and acquisitions can be instigated by mutual agreements between the two firms, the procedure is highly court driven. The approval of the high court is highly acceptable for the commencement of any such approach and the proposal for any merger or acquisition is to be sanctioned with the resource of a 3/4th of the shareholder at the General Board meetings of the involved firm.
  • Indian antagonism law allows the utmost time duration of 210 days for the agencies for going ahead with the system of merger and acquisition. The distributed time duration is certainly exceptional from the minimum obligatory stay period for claimants.
  • The entry limits for companies merging under the Indian law are appreciably high. The entry limit is allocated in the context of asset worth or in the context of the company’s annual incomes. The entry limits in India are greater than the European Union and are twofold as in contrast to the United Kingdom.

There have been recent changes in the Competition Act, 2002[ii]. It has changed the voluntary announcement process with the mandatory one. Out of 106 nations that have formulated opposition laws, solely 9 are acclaimed with a voluntary announcement system. Voluntary announcement structures are frequently correlated with enterprise ambiguities and if the corporation is identified for practicing monopoly after merging, the law strictly orders them to choose for de-merging of the business identity.

Merger process in India

  1. Examination of object clauses
  2. Intimation to stock exchanges
  3. Approval of the draft merger proposal by the respective boards
  4. Application to high courts
  5. Dispatch of notice to shareholders and creditors
  6. The holding of meetings of shareholders and creditors
  7. Petition to the High Court for confirmation and passing of High Court orders
  8. Filling the order with the registrar
  9. Transfer of assets and liabilities
  10. Issue of shares and debentures

Examination of object clauses

  • The merger and acquisition of each of the companies need to be examined the power to amalgamate is available.
  • Further, the object clause of the merging corporation allows it to lift on the industrial enterprise of the merger company.
  • If such clauses do not exist, quintessential approval of the shareholders, board of directors, and enterprise regulation board is required.

Intimation to stock exchanges

  • The stock exchanges where merging and merger companies are listed must be knowledgeable about the merger proposal.
  • From time to time, copies of all phrase resolutions and orders must be mailed to the concerned stock exchange.

Approval of the draft merger proposal by the respective boards

  • The draft merger notion ought to be permitted through the respective BOD’s.
  • The board of the company needs to pass a resolution authorizing its directors/executives to follow the matter further.

Application to high courts

  • Once the draft of the merger proposal is authorised by the respective board, each company has to make an application to the high court where its registered office is situated.
  • It can convene the assembly of shareholders and lenders for passing the merger proposal.

Dispatch of notice to shareholders and creditors

  • In order to convene the meeting of shareholders and lenders a note and an explanatory announcement of the meeting as authorised by the excessive court need to be dispatched by means of every employer of its shareholders and creditors so that they get 21 days to improve intimation.
  • The notice of the meeting also needs to be published in two newspapers.
legal procedure of merger and acquisition in India

The holding of meetings of shareholders and creditors

  • A meeting of shareholders is held through every enterprise employer for passing the scheme of merger at least 75% of the shareholders.
  • The same approach applies to all creditors for approval.

Petition to the High Court for confirmation and passing of HC orders

  • As the merger scheme is surpassed through the shareholders and lenders, the companies involved in the merger need to file a petition to the HC for confirming the scheme of merger.

Filing the order with the registrar

  • Registrar of companies is the centralized body for all the companies registered.
  • Certified actual copies of the high court orders need to be filed with the registrar of the agencies within the time limit specified by the court.

Transfer of assets and liabilities

  • After the order passed by the HC’s all the property and liabilities of the merger business enterprise corporation will have to be transferred to the merging company.
  • The target company’s property and liabilities will be transferred to the obtaining company.

Issue of shares and debentures

  • The merging companies after accomplishing the provisions of the law should issue shares and debentures of the merging company.
  • The new shares and debentures so issued will then be listed on the stock exchange.

The procedure under the Indian Company’s Act

  1. Filling the application
  2. Tribunal order for members meeting
  3. Approval of the stakeholder
  4. Disclosure
  5. Registrar report in case of amalgamation
  6. Filing certified copy

Filling the application

Any company, lenders of the company, members of the class of contributors can file an application under section 391[iii] seeking sanction of any scheme of compromise or arrangement. However, through its very nature, it can be understood that the scheme of amalgamation is normally introduced by means of the company. While filling an application under section 391 or 394 the applicant is supposed to expose all matter particulars in accordance with the provision of the Act.[iv]

Tribunal order for members meeting

Upon the satisfaction that the scheme is prima facie the tribunal order for the assembly of the members, lenders, or the type of creditors, rather than passing an order calling for a meeting. If the requirements of maintaining a meeting with a class of shareholders are specially dealt with in the order calling a meeting, then there won’t be any subsequent litigation. The scope of meeting with such members or the shareholders is wider in case of amalgamation than where a scheme of compromise or association is sought under section 391.

Approval of the stakeholder

The scheme should get approved by the majority of the stakeholders by the members, classification of members, creditors, or such category of creditors. The scope of conduct of meeting with the members, classification of members, lenders, or such category of lenders will be restrictive in an application for compromise or arrangement.

Disclosures

There need to be due aware disclosing all matter particulars and annexation the copy of the scheme as the as the case can also be while calling the meeting.

Registrar report in case of amalgamation

Where amalgamation of two companies is sought for, before approving the scheme of amalgamation a file is to be received from the registrar of organizations the approval of the scheme will no longer prejudice the interest of the shareholders.

Filing certified copy

After complying with all the requirements if the scheme is permitted then the certified copy of the order is to be filed with the involved authorities.


Reference

[i]  Indian Companies Act, 1956

[ii]  The Competition Act, 2002

[iii]  Indian Companies Act, 1956 Sec 391

[iv]  Indian Companies Act, 1954 Sec 394

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