Interpretation of company mergers and acquisitions from the
Indian company law
Before 1990, India’s economic system had been implementing
the planned economic development model. In the early 1990s, the government
began to take some measures to promote economic liberalization, deregulation of
the economy, and more inclined to promote market economic development at the
legislative level. Up to now, the latest FDI policy All of them have
demonstrated their determination to reform. All companies that have resulted in
new establishments, reorganizations, and various cooperation models of foreign
capital have reduced their economic power from an anti-monopoly perspective and
concentrated in the hands of a few Indian family companies.
As part of the
public policy, the government has introduced corresponding measures to
encourage foreign companies to enter India. Therefore, mergers and acquisitions
have become one of the necessary and important means for foreign companies to
enter India.
1. Indian company mergers and acquisitions legal regulations
at a glance
In India, the current government regulations on mergers and
acquisitions include:
1. India Companies Act 2013
2. The Indian Competition Act of 2002
3. The Indian Industry Act of 1951
4. The Income Tax Act of 1961
5. The Indian Securities Exchange Act of 1992 and its equity
acquisition control regulations, etc.
From the many above-mentioned bills, it can be seen that the
Indian legal system strictly regulates mergers and acquisitions in India.
I
will pass the most important bill, the Company Law, and present the
characteristics of "Indian-style" mergers and acquisitions in a legal
way. Due to space issues, it will be posted multiple times.
Article 230 of the Indian Companies Act
The 2013 Corporate Law is the most important legal regulation
of the Indian government on company mergers and acquisitions, which mainly
stipulates the specific procedures of mergers and acquisitions. Different from
the provisions of Articles 391 to 396 of the Old Company Law of 1956 regarding
mergers and acquisitions, the 2013 Company Law expanded the specific procedures,
from Article 230 to Article 240, which described the procedures of company
mergers and acquisitions and the issues that should be paid attention to in the
process of mergers and acquisitions including issues such as the issuance of
announcements, relevant licenses involving courts/arbitrations, compromises,
and reorganizations.
1. The information provided in Article 230 of the 2013
Company Law is the court's approval of the company's merger plan/agreement, the
approval of the letter of intent for mergers and acquisitions, or a recognition
procedure for the interested parties of the acquired party. The purpose is to
bring together all the members who have an interest in the acquired party so
that the court can do some proper sorting out.
Article 03230, paragraph 1, Article 230, paragraph 1:
This
paragraph mainly stipulates which entities can propose a merger plan in the
merger, including the company of both parties, the company’s shareholders, and
any of the company’s creditors or the company’s liquidation in the liquidation
process Group members, these subjects can propose company merger plans.
The
court will issue an issue of whether to host a meeting of creditors or
shareholders of the company based on the application of these entities, and
discuss at the meeting.
The purpose of this paragraph is to integrate the company and
its different nature and level of equity. It is also a guarantee for the rights
and interests of all interested parties of the acquired party, so that the
court can confirm the status of both companies when reviewing the acquisition
agreement.
Article 230 Paragraph 2
Paragraph 2 of Article 230: For the acquisition application
submitted by the company or other right individual who has the right to make an
acquisition application as specified in the preceding paragraph, the following
materials will be publicized in court by way of oath:
a. All documents related to the company, such as the
company's latest financial statements, the latest company account audit report
and any ongoing or pending litigation or investigation against the acquired
company;
b. Whether the company has reduced capital
c. 75% of creditors agree to the company’s debt
reintegration, including the non-objection declaration form filled out by
creditors; protection standards for secured creditors and unsecured creditors;
provide an audit report on the flow of funds after agreeing to debt
reintegration, and must Approved by the board of directors; the proposal for
debt restructuring approved by the board of directors must comply with the
existing guidance of RBI and the evaluation report of all the company's assets.
Notice of meeting
The court mentioned in the first paragraph will issue an
order and preside over the relevant stakeholder meeting. The announcement of
the meeting will be issued to all creditors, company shareholders, bondholders,
etc. (also on the company’s website) It needs to be reflected) and the acquired
company also needs to post a merger agreement and current company's financial
statement at its registered address.
If it is a listed company, then the notice of the meeting
needs to be sent to the Securities Exchange Center for notification, and the
announcement will be made on its company website and designated newspapers.
Vote
Any subject who
has the right to vote in the notice of the meeting mentioned in the preceding
paragraph shall determine to participate in the meeting or select an agent to
vote within one month after receiving the notice. If there is any objection, it
needs to be raised by shareholders who hold at least 10% of the shares or
holders of 5% or more of corporate bonds.
File submission
The notice of the meeting mentioned in paragraph 3 needs to
be submitted to the central government, tax authorities, RBI, competition
commission, securities and exchange commission and other administrative
departments along with all documents in paragraph 2) in the specified format.
Based on the submitted materials, it will be reviewed to confirm whether the
company is required to make a corresponding statement within 30 days from the
date of receipt of the notice by the committee. If it is not requested within
30 days, it will be deemed that no relevant statement is required.
Vote on the merger proposal
The meeting mentioned in paragraph 1 in accordance with the
court's request and presided over will require 3/4 of all the company's
interested parties who have proposed the acquisition agreement to attend the
meeting and vote whether to approve the merger plan approved by the court. If
the plan is passed by a vote, it will be binding on everyone, and the court
will also issue corresponding orders based on the results of the vote.
Court order
At least one of the orders issued by the court mentioned in
the preceding paragraph contains the following content:
a. Change in the nature of the shares in the acquisition plan
and give shareholders an option to accept overdue dividends in cash or to
accept equity equivalent to overdue dividends.
b. The people attending the meeting will also be written into
the order form, emphasizing the protection of their rights. Colleagues and
dissenting shareholders will also reflect this and record their dissenting
statements.
c. If the corresponding purchaser has a related lawsuit or a
corresponding investigation is ongoing, it will also be reduced. And other
content.
From paragraph 8) to paragraph 12), after the court has
issued the order, the company needs to file with the ROC within 30 days of
receiving the order, and any share repurchase unless it meets the requirements
of the 2013 Company Law On the 68th day, otherwise it cannot be supported. The
statement of takeover in the merger plan will also be emphasized by the court.
Regarding the acquisition of listed companies, the relevant
details will be specified by the Securities and Exchange Commission after the
order is issued.
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| Company Legal Rules in India |
In general, the entire section 230 addresses one issue, the
scope of the court’s powers and the role it plays in corporate mergers and
acquisitions. From the approval of the M&A plan, to the holding of voting
meetings ex officio, to the issuance of orders, the protagonist of this main
line is the court, and the additional procedures extended under the main line
are also complicated, including not only the preparation of the M&A
agreement, but also the proposal of an acquisition.
All documents submitted by
the parties to the agreement are submitted by the court. It is important to
point out that the scope of the court’s jurisdiction is not limited to the
above-mentioned aspects.
If the acquired company has some pending
investigations or lawsuits in a timely manner after the approval of the M&A
agreement, the court can reduce it according to the situation. In India where
the three powers are separated, the dominance of judicial power is evident.
Compared with the mergers and acquisitions of other
countries, India is by no means a unique country. Due to its own historical and
cultural background, judicial and legislative systems, and national structures,
we cannot use inherent legal thinking. Looking at the mergers and acquisitions
in India from the same perspective, only by taking into account all aspects can
the road of mergers and acquisitions in India go smoothly.
Before 1990, India’s economic system had been implementing
the planned economic development model. In the early 1990s, the government
began to take some measures to promote economic liberalization, deregulation of
the economy, and more inclined to promote market economic development at the
legislative level. Up to now, the latest FDI policy All of them have
demonstrated their determination to reform.
All companies that have resulted in
new establishments, reorganizations, and various cooperation models of foreign
capital have reduced their economic power from an anti-monopoly perspective and
concentrated in the hands of a few Indian family companies. As part of the
public policy, the government has introduced corresponding measures to
encourage foreign companies to enter India. Therefore, mergers and acquisitions
have become one of the necessary and important means for foreign companies to
enter India.
List of Legal Regulations on M&A of Indian Companies
In India, the current government regulations on mergers and
acquisitions include:
1. India Companies Act 2013
2. The Indian Competition Act of 2002
3. The Indian Industry Act of 1951
4. The Income Tax Act of 1961
5. The Indian Securities Exchange Act of 1992 and its equity
acquisition control regulations, etc.
From the many above-mentioned bills, it can be seen that the
Indian legal system strictly regulates mergers and acquisitions in India. I
will pass the most important bill, the Company Law, and present the
characteristics of "Indian-style" mergers and acquisitions in a legal
way. Due to space issues, it will be posted multiple times.
Section 231 of the 2013 Companies Act
For the previous analysis of mergers and acquisitions in the
corporate law, many people have recognized it.
First of all, thank you for your
attention and recognition of our published articles. This time the legal
analysis continues the topic of the last time.
The role of the court in
corporate mergers and acquisitions and the powers it enjoys are not only
manifested in 230 items.
The more the main line of mergers and acquisitions
develops, the more it feels that the court will never leave the main line of
mergers and acquisitions.
Section 231 of CA 2013 can be summarized as the power of the
court to enforce merger agreements/plans. In Article 230, the court has the
authority to approve and approve the merger agreement by convening the
corresponding pre-merger meeting, so in the future, the court will require the
implementation of the agreement that has passed and bound all interested
parties in accordance with its authority. .
Section 231 Paragraph 1
The first paragraph of Article 231 of CA2013 stipulates that
when the court allows the acquisition agreement/plan passed under the premise
of Article 230 and issues the corresponding order, the order is binding on all
the company's interested parties. On this basis, the court's follow-up power
distribution:
a). The court has corresponding supervision powers to
supervise the specific implementation of the merger agreement/plan;
b). At the same time when the order stipulated in Article 230
is issued or at any time thereafter, if the court considers that some
amendments are necessary or more beneficial to the implementation of the merger
agreement/plan, the court may give Corresponding guidance or amendments to the
implementation details of the merger agreement/plan.
Section 231 Interpretation of Paragraph 1
From the first paragraph of Article 231, we can see that the
scope of the court’s jurisdiction is not only at the level of
approving/recognizing merger agreements/plans, but at the substantive level of
implementation, as long as the court considers certain plans or implementation
details to be unfavorable.
The specific implementation of the M&A
agreement/plan can be modified by the court at any time in accordance with its
authority.
Such a regulation also reminds investors who need to merge in
India. They cannot ignore the power of the court in mergers and acquisitions.
When formulating merger agreements/plans, they must not use the inherent
thinking mode. Case by case is required. The treatment, because once there are
some small mistakes, then the overall planning may be a fatal mistake. It's
still an old saying, preparatory work for investment is a must.
Article 231 Paragraph 2
Paragraph 2 of Article 231 stipulates that if the merger
agreement/plan passed under Article 230 cannot be implemented satisfactorily
and does not meet the expectations of the court even if it is amended or not,
and the company repays it in accordance with the agreement.
If there is a
situation of insolvency, the court can issue an order in accordance with
Article 273 of CA 2013 to allow the company to enter the liquidation process.
Section 231 Interpretation of Paragraph 2
According to Article 273 of CA2013 involved in this
regulation, the liquidation of the company shall be carried out in accordance
with the petition of the debtor, shareholders, the company itself, and other
rights obligors, and a letter of order shall be issued within 90 days of
receiving the petition, requiring.
The liquidated company will appear in court
to make a detailed statement (it can be submitted in writing for special
reasons). However, if the court considers that there are other remedial
measures, the liquidation order may not be issued.
From Article 231, paragraph
2 and Article 273, it can be understood that the role of the court is no longer
a neutral judge, and its scope of power is extended to interfere with the
implementation of the merger plan/plan and unilaterally demand the company as a
judicial agency. Enter the liquidation process.
Section 231 Paragraph 3
Paragraph 3 of Article 231 stipulates that, as long as
possible, the detailed provisions of this article can also be applied before
the meeting presided over by the court to approve the merger plan/scheme, and
the corresponding order will be issued.
From the provisions of Article 231 and its clauses, we cannot
ignore the power of the court in M&A activities, whether it is to modify
the implementation details for the successful implementation of the M&A
plan/plan, or to prevent the company from implementing the M&A plan. The
plan is in a state of insolvency.
The court can issue an order to cause the
company to enter the liquidation process. We can all see a problem, that is,
the strict control of some mergers and acquisitions in economic activities by
the judicial authorities is also reflected in the side. Regardless of whether
it is from the level of formulating M&A agreements/plans or in the actual
implementation of M&A activities.
India’s M&A activities must not be
limited by the inherent legal thinking mode, the premise of controlling and
eliminating risks, or a thorough understanding of every detail in the merger.
The laws involved do not fight unprepared battles.
We can summarize Article 232 of the 2013 Company Law as the
basic procedure of the court in the early stage of mergers and acquisitions.
In
sections 230 and 231, the court has the right to decide whether to approve and
enforce the merger agreement by convening the corresponding pre-merger meeting,
and then the court will implement the agreement that has been passed and bound
all interested parties in accordance with its authority.
Interpretation of section 232 Paragraph 1 of the 2013 Company
Law
Article 232, paragraph 1, the merger application submitted to
the court in Article 230, so that the court can approve the merger
plan/agreement ex officio. The merger application submitted to the court should
reflect the following:
a). The acquisition plan/agreement should specify the number
of companies that need to be reorganized or are involved in the merger/merger;
b). The acquisition plan/agreement needs to specify the
assets under the target company's name and need to be transferred to one or
more companies of the transferee.
The court may approve the merger plan/agreement in accordance
with Article 230 and preside over the merger meeting based on the application
of the interested party.
Article 232 Interpretation of Paragraph 2
Article 232, paragraph 2, if the court approves the
plan/agreement and issues a letter of order, then if the company involved in
the merger proposes other distribution plans, the information should also be
submitted to the court in time:
a). The acquisition draft may be formally approved by the
board of directors of the companies involved in the merger;
b). Submit the draft acquisition plan to the company
registration department;
c). The directors of the company involved in the merger need
to issue a report in the name of the company, and use the form of the report on
the impact of the acquisition on shareholders, executives, etc., and state the
value that the acquisition can bring;
d). As well as the accounting/auditing statements required by
the company involved in the merger and the approval of the acquisition plan by
convening a shareholder meeting 6 months before the end of the financial year.
Section 232 Interpretation of Paragraph 3
Section 232, paragraph 3, after reviewing the materials
required by the above two paragraphs, the court considers that it is complete,
then it can issue a letter of order to approve the acquisition plan according
to its authority, including
a). The transferor transfers all or part of the assets under
its name to the transferee and confirms that the transfer is completed at a
time point agreed by both parties;
b). How to redistribute the equity structure within the
transferee company after the transfer
c). Whether the companies participating in the merger and
acquisition are in ongoing litigation or other judicial procedures
d). The company's labor relationship status
e). If there is a foreign shareholder in the acquiring
company, then during the merger process, whether the foreign shareholder meets
the specific FDI regulations will be reviewed.
f). If the target company is a listed company and the
transferee is a non-listed company, it should be noted that the subject nature
of the transferee still needs to be maintained at the non-listed level, and if
the target company’s shareholders decide to sell their holdings.
Then the
transferee company shall, according to the regulations, consume the shares it
holds according to a reasonable estimation formula or valuation.
g). If the target company is dissolved, the corresponding
expenses incurred need to be paid in its subscribed capital, and then merged
with the transferee company.
Article 232 Paragraph 4-Interpretation of Paragraph 6
Article 232, paragraph 4, once the order is issued, whether
in accordance with the order or in accordance with business ethics, the assets
and debts of the target company will also be transferred to the transferee
company. If the instruction of the order is too clear, then follow The fees
paid by business custom can be rejected.
Clauses 5 and 6 of Article 232, companies involved in the
acquisition plan/agreement shall submit a copy of the order to the Companies
Registry for filing within 30 days after the order is issued. And after the
time node needs to be confirmed in the acquisition plan, the acquisition plan
will take effect on that date.
Article 232 Interpretation of paragraph 7
Article 232, paragraph 7, companies involved in the
acquisition plan/agreement have the right to submit a statement report
submitted by the accounting/audit to the company registration department every
year until the completion of the acquisition. Do it truthfully.
Article 232 Article 232 Interpretation of Paragraph 8 Interpretation
of Paragraph 8
Article 232, paragraph 8, if during the merger process, the
companies of both parties to the merger have violated regulations, the company
will be fined 100,000-2.5 million rupees, and the company’s executives or other
members will be punished with 1 Annual penalty and pay a fine of 100,000 to
300,000 rupees.
The legislative purpose of Article 232 is that once a merger
plan is involved, how the rights and obligations of the companies of both
parties are transferred, including existing assets, existing liabilities,
obligations, etc., and the form of company mergers.
The court will regulate
them within the scope of the court's control, avoid mistakes that may lead to
the abortion of the merger plan.
According to Article 232 of CA2013, one of my feelings is
that the role of the court has begun to change, from an approver to a
supervisor.
At this time, mergers and acquisitions have actually begun to go on
the road, the court will still be beaten whether the merger enterprises are using
the correct pace to make sure that they are all within the planned route, and
if there is any violation of the court’s command, then Will also face some
penalties and fines.
Of course, there are two sides to everything. No matter from
which point of view, only one thing is certain. It is not only the owners
themselves that worry about the mergers and acquisitions in India, but the
courts will also worry about the owners.
Generally speaking, It will move
forward with regard to the M&A event. Therefore, for mergers and
acquisitions in India, it may be necessary to consider balancing the overall
value relationship between justice and business.
Article 233 of the Indian Companies Act 2013 mainly
stipulates detailed operations and related procedural requirements at the
company level after the court approves the merger agreement/plan.
At this
stage, the most important and need to pay attention to is the background of the
target company. The following is a specific interpretation of Article 233.
1. Article 233, paragraph 1
Article 230 and Article 232
stipulate that the merger plan/agreement can include two or more small
companies or companies existing between the holding company and its
wholly-owned subsidiaries or other types of companies. The following is the
specific procedure:
a) Proposal announcement of the M&A plan/agreement is
required: The registered office of the relevant company’s registration place or
directly affected individuals can raise objections/other suggestions based on
the proposed plan of the M&A plan. This announcement needs to be made by
the target company or The transferee company issues the M&A plan/agreement
within 30 days from the date;
b) Once the company receives objections/other proposals, the
company needs to convene a general meeting of shareholders to determine whether
these objections/other proposals are established. The conditions for the
establishment of objections/other proposals are that all types of shareholders
who hold 90% of the shares are present. Congress and passed the proposal;
c) Companies involved in the merger plan/agreement need to
fill in the form and make a statement of current repayment ability at the
corresponding authority in the company's registration place;
d) The M&A plan/agreement needs to be resolved through a
meeting. The company holding the general meeting of shareholders will issue a
notice of the meeting 21 days before the start of the meeting, and the meeting
will be voted and approved by shareholders holding 9/10 shares, or in writing The
form passed.
It is necessary to pay attention to whether there are
corresponding objections raised in paragraph 1, and if so, the method of
handling and the procedures to be followed should be clarified.
2. Article 233, paragraph 2
If the M&A plan/agreement is
passed under the circumstances of the preceding paragraph, the transferee
company shall submit a copy of the M&A plan/agreement to the central
government, the company registration agency in the place where the transferor’s
company is registered, and the official liquidation agency. (Used for local
filing for later supervision)
3. Article 233, paragraphs 3 and 4. Clause 3 stipulates:
After the administrative department mentioned in the preceding paragraph
receives a copy of the M&A plan/agreement, if the company registration
agency and the official liquidation agency in the place where the transferor’s
company is registered do not have any objections/other suggestions to the
plan/agreement
The relevant filing of mergers and acquisitions, and the central
government will also file the plan/agreement based on this situation and issue
a certification document.
Clause 4 stipulates
If there are objections/other
suggestions, the relevant administrative department will communicate with the
central government in writing within 30 days from the date of the objection. If
there is no corresponding communication within the prescribed time limit, it is
presumed that there are no objections/other suggestions to the merger
plan/agreement.
4. Article 233, paragraph 5
If the central government, after
receiving the objections/other suggestions mentioned in paragraph 3, believes
that the M&A plan/agreement reflects the interests of the M&A party
greater than the public interest, then within 60 days after receiving the
M&A plan/agreement you can submit a statement to the court, stating your
objections in detail, and the court will consider whether the objections/other
recommendations put forward by the central government are valid based on
Article 232.
5. Article 233, paragraph 6
After the central government’s
objection/other proposal is submitted to the court, the court will give written
reasons for the objection/other proposal submitted by the government based on
Article 232, stating whether it supports the objection/other proposal, or
directly through the merger plan/agreement.
If the central government does not submit any objections to
the merger plan/agreement, or raises objections/other suggestions but does not
submit the application to the court for review, the court will consider that
the central government has not raised any objections/other suggestions to the
merger plan/agreement .
6. Article 233, paragraph 7
The court considers that the
objection is established according to paragraph 6, then it will issue an order
to request the registration department where the transferee company is located
to conduct a specific review of the objection/other recommendations, and then
make a confirmation letter confirming whether the objection actually exists, and
will confirm The book is sent as a copy to the company registration department
where the target company is located.
7. Article 233, paragraphs 8 and 9
If the objections/other
suggestions in paragraphs 3 and 7 are not established and the merger plan/agreement
has been filed in the company registration department, the target company is
deemed to be dissolved and does not need to go through bankruptcy liquidation
procedures.
It is clearly stated in paragraph 9 that the adopted M&A
plan/agreement has the following effects and effects:
a) All the assets and liabilities of the target company are
transferred to the transferee company and become its assets and liabilities;
b) If costs are incurred during the transfer of assets, they
will also be paid by the transferee company;
c) The litigation/arbitration of the target company will also
become the litigation/arbitration of the transferee company;
d) If the merger plan/agreement proposes to purchase shares
held by dissenting shareholders or settle debts held by different creditors, it
shall become the debts of the assignee.
8. Article 233, paragraph 10
During the M&A process, the
transferee company is not allowed to hold the corresponding shares in its name,
nor can it hold trust assets in its name or in the name of its subsidiary. If
such shares exist or the trust assets need to be cancelled, they can enter
M&A procedures.
9. Section 233, paragraph 11
The transferee company shall
submit an application and attach a merger plan/agreement to the company
registration department of the place of registration for filing, explain its
revised registered capital after the merger, and pay the fees required to
revise the registered capital.
If this part of the cost is paid in advance by
the registered capital of the target company during the M&A process, the
transferee company needs to deduct it from its revised registered capital after
the completion of the merger.
As mentioned at the beginning, in Article 233, the most
important aspect is the target company. Because when the target company merges
into the transferee company, all assets, existing or pending responsibilities
will then enter the transferee company’s "stomach".
The so-called
illness is imported from the mouth. One or two hidden dangers
"virus", and it may affect the entire transaction and even the final
settlement.
What I want to emphasize is that at this stage, it is important
to understand the background of the entire target company, assess the existing
risks, and whether there are hidden dangers that affect the transaction.
This
may seem to be an optional process, but it is risky. Pre-judgment and control
are the prerequisites for deciding whether the delivery can be successful. In
fact, looking at Guo Guangchang's large-scale work, you can understand that
Fosun's acquisition in India has been relatively smooth for a reason.
