Answer ... In the M&A process under the Companies Act, various authorities – including the RoC, a regional director of the central government, the official liquidators and the NCLT – may play distinct roles. The NCLT has the pivotal role of granting final approval for mergers. According to Section 230(5) of the Companies Act, a notice under Section 230(3), along with all the required documents in the prescribed format, must be sent to various authorities, including:
- the central government;
- the income tax authorities;
- the RBI;
- SEBI;
- the RoC;
- stock exchanges;
- the official liquidators; and
- the CCI.
These notices should be sent within a specified timeframe, typically 30 days, requesting any representations to be made by them within that period. If no representations are received within this timeframe, it will be assumed that they have no objections to the proposed compromise or arrangement.
Regional directors: The regional directors represent the central government and are tasked with:
- examining the scheme from all aspects, including its implications on various laws; and
- offering comments and views to the court.
The court is mandated to consider these views before sanctioning the scheme. The regional director must ensure that the scheme complies with the law and does not prejudice the interests of shareholders or the public.
Each regional director oversees a specific region, which includes several states and union territories. The regional directors:
- supervise the operations of the RoC and the official liquidator in their regions; and
- coordinate with state and central governments regarding the administration of the Companies Act and the Limited Liability Partnership (LLP) Act, 2008.
Some powers of the central government under these acts are delegated to them and they are designated as heads of their departments.
RoC: Once the sanctioned by NCLT, the involved companies must file a certified copy of the order with the RoC within 30 days. Failure to do so incurs a penalty. This form, known as Form INC-28, notifies the RoC of the acquisition or sale of a business. If the involved companies are in different Indian states, both NCLTs of the respective states must approve the scheme. In such cases, the scheme’s approval is contingent upon the other NCLT’s approval.
In general, the RoCs in different states and union territories are responsible for registering companies and LLPs formed in their respective areas. They ensure that these entities follow the legal requirements outlined in the law. These RoC offices serve as repositories of records related to registered companies and LLPs, which can be accessed by the public upon payment of a fee. The central government oversees these offices through the regional directors.
NCLT: Before the NCLT was established, there was no centralised institution to handle all company-related matters in India. Instead, parties had to go to different institutions, such as:
- the high courts, which dealt with the winding up of companies and mergers;
- the Company Law Board, which handled cases of oppression or mismanagement; and
- the Board for Industrial and Financial Reconstruction, which was approached to declare a company as sick.
This decentralised system led to many difficulties, due to the different procedures and rules governing each institution. However, with the formation of the NCLT, all of these procedures, rules and powers were consolidated under one authority. The NCLT can now:
- adjudicate disputes;
- approve or reject mergers and acquisitions; and
- oversee the actions of Indian companies.
In relation to mergers, the NCLT ensures fairness and compliance with the Companies Act. It plays a crucial role in overseeing deals and ensuring that they are carried out according to the law.
Companies that intend to merge must submit a petition with a detailed merger scheme to the NCLT. Prior approval from shareholders and creditors representing 75% in value is required, obtained at NCLT-prescribed meetings. The NCLT has the discretion to dispense with creditors’ meetings upon receiving affidavits from 90% of the creditors. Similarly, if 90% or more of the members consent via affidavit, the NCLT may waive the requirement for a members’ meeting. Objections to the merger can be raised by members with a shareholding of at least 10% or creditors with outstanding debt comprising at least 5% of the total outstanding debt per the latest audited financial statement.
Official liquidators: Official liquidators are appointed by the central government and are attached to different high courts. They are supervised by the regional director, who ensures that they carry out their duties properly and follow all requirements of the law. Although the regional directors oversee their work, official liquidators are responsible for winding up companies’ affairs.
M&A in the Indian jurisdiction are principally governed by a comprehensive set of laws, encompassing the following key statutes and regulatory frameworks:
CA, 2013: This legislation, along with its associated rules, orders, notifications, and circulars, establishes the overarching framework governing companies in India. It delineates the procedures for the issuance and transfer of securities in Indian incorporated companies and outlines processes for schemes of arrangements concerning such entities.
Competition Act, 2002: Regulating corporate combinations, including M&A, the Competition Act, 2002 prohibits anti-competitive agreements that may have or are likely to have a considerable adverse effect on competition within India.
ITA, 1961: This act, along with subsequent amendments, prescribes taxation considerations related to M&A activities in India, particularly those with cross-border elements. Double tax avoidance agreements (DTAAs) also play a significant role in this context.
Central Goods and Services Tax Act, 2017, along with relevant state laws. Additionally, DTAA are crucial in this context.
ICA: The ICA governs contractual relationships and delineates the rights that parties may contractually agree upon under Indian legal principles.
Specific Relief Act, 1963: This legislation outlines the remedies available to private parties in the event of a breach of contract.
FEMA: In conjunction with rules and regulations issued under FEMA, notably by the RBI, this framework regulates foreign investments in India. The Foreign Exchange Regulations, including the Cross Border M&A Regulations of 2018, govern mergers involving Indian and foreign companies.
Foreign Direct Investment Policy Circular, 2020: This policy circular, in tandem with press notes issued by the DPIIT, guides and regulates foreign direct investment activities.
Labor Legislation (Central and State): Various enactments at both the central and state levels govern employment-related matters, encompassing terms of service, wage payments, working conditions, and the safety, health, and welfare of workers.
SEBI Act, 1992: This statute, along with its associated rules and regulations, circulars, notifications, guidelines, and directions issued by the SEBI, regulates the securities markets in India. This includes oversight of acquisitions involving companies listed on Indian stock exchanges, as stipulated in the SEBI Regulations.
Stamp duty considerations for transaction documents, agreements, and share certificates are outlined in the Indian Stamp Act, 1899, along with relevant state laws.
The Insolvency and Bankruptcy Code, and its accompanying regulations oversee the restructuring and acquisition processes of corporate debtors undergoing insolvency.