Provision on Articles 234 and 235 of the Companies Law, India

 

Interpretation of relevant provisions of Articles 234 and 235 of the Company Law on the merger of Indian companies

Article 234, paragraph 1

 Unless otherwise provided by law, the provisions of this chapter will apply. For mergers between companies, if necessary, changes should be made in accordance with the submitted M&A transaction plan/agreement, and the parties to the merger must comply with the company registration procedures specified in this law, if any. For foreign companies, the company needs to comply with the jurisdiction of the country where the company is registered, and the specific announcement of the government of the country where the company is registered shall prevail.

 

In the case of foreign companies, the central government will negotiate with the Reserve Bank of India and finally determine the specific details of the merger.

 

Through this regulation, we can see that if a foreign company is involved in an M&A transaction, there are other regulations for foreign companies and the Reserve Bank of India has more detailed requirements for foreign companies. Therefore, foreign companies will have more detailed requirements than domestic companies. There are more rigid requirements when making an acquisition.

 

 

Article 234, paragraph 2

 If other laws provide otherwise, foreign companies' mergers and acquisitions in India must first be approved by the Reserve Bank of India, and the acquisition procedures must be carried out in accordance with the provisions of the company law if the regulations are met. 

Conversely, the same is true for foreign companies being acquired. The time and conditions involved in the M&A transaction plan/agreement also need to be provided. 

In addition, it is necessary to consider the payment method to the target company’s shareholders in the M&A transaction, whether in the form of cash, depository receipts or partial cash deposits The form of entrusted receipts needs to be determined according to the specific circumstances.

 

 

Note: The "foreign company" mentioned here refers to any company or legal entity established in accordance with the laws of the country of registration outside India, and it is necessary to determine whether it has corresponding business in India.

 

 

Articles 230 to 234 are a summary of the merger process

 Whether it is the acquisition of listed companies, non-listed companies, or government enterprises, the basic acquisition process relies on is stipulated in these 5 articles. The provisions of the Foreign Exchange Administration Act and the Indian Securities Regulatory Commission, India 

The rules formulated by the Reserve Bank serve as auxiliary provisions for the acquisition of listed companies. Therefore, these five provisions in the company law are the main lines, and there will be corresponding auxiliary provisions to determine the specific direction of the merger process depending on the specific circumstances.

 

Beginning with Article 235, it deals with the specific details of the acquisition plan. Article 235 gives the transferee the right to purchase shares held by shareholders who disagree with the M&A transaction plan/agreement after the M&A transaction plan/agreement is voted on.

 

Article 235, paragraph 1

 Once the acquisition agreement or equity transfer contract involves the (transferor company) transferring any class of shares to (transferee company), if the acquisition agreement is approved by 9/10 of the transferor’s shareholders, the transferee needs to Complete the purchase of these shares within 4 months.

 Regarding the shares held by the remaining dissenting shareholders, the transferee may issue a tender offer notice to the dissenting shareholders in the manner specified in the M&A transaction plan/agreement within 2 months after the above-mentioned 4-month period.

 

 

Article 235, paragraph 2

 Unless the dissenting shareholder submits an application to the court to change the share purchase conditions within one month after receiving the share purchase notice mentioned in the preceding paragraph and is supported by the court, the transferee will follow the original acquisition transaction plan/agreement Under the terms of the purchase of shares, purchase the shares of dissenting shareholders.

 

 

Article 235, paragraph 3

 The transferee company issued a share purchase notice in accordance with paragraph 1 and the court did not issue an order based on the application submitted by the dissenting shareholder. On the contrary, the transferee company must wait for one month since the notice has been issued or after the dissenting shareholder’s application is submitted.

 The decision was not accepted by the court. The share purchase notice needs to be sent to the transferee company in the form of a copy with conditions for the transfer, and then the representative designated by the transferor company’s shareholders will negotiate with the transferee company. They will agree to implement the corresponding share purchase conditions and complete the transfer in accordance with the provisions of this article, the transferee company shall:

 

a) Filing with the registration authority: the transferee company will become the holder of the above-mentioned shares;

 

b) Within one month of the completion of the filing, notify the dissenting shareholders of the transferor company that their shares have been transferred to the transferee company and will pay the corresponding transfer amount (according to the original share purchase agreement or paragraph 3 Reasonable price later).

 

 

Article 235, paragraph 4

 The transfer money received by the transferor company in accordance with the provisions of this article must be paid to an independent bank account, and the management of any such money and other remuneration funds must be kept in trust by shareholders who have the right to distribute the money, and The distribution of the funds shall be completed within 60 days after the establishment of the trust.

 

a) In the first paragraph of this article, for the statement: Compared with the shares that have been agreed to be transferred, the shares held on the date of the offer are transferred, or are held by the nominee holder, the transferee company or its subsidiary The expression "effectiveness of shares" should be replaced.

 

 

b) In the third paragraph of this article, the expression "the representative appointed by the shareholders of the transferor company shall negotiate with the transferee company to agree to implement the corresponding share purchase conditions and complete the transfer in accordance with the provisions of this article".

 

 

As far as Article 235 is concerned, “dissenting shareholders” include shareholders who have not agreed to the purchase conditions in the M&A transaction plan/plan or share purchase contract, and also include refusal to transfer their shares in accordance with the M&A transaction plan/plan or share purchase contract. To the shareholders of the transferee company.

 

 

After the end of Article 234, the procedure for acquiring a company in India is basically over. Articles 235 to 240 are supplementing the details of the merger procedure. 

For example, Article 235 explains how the transferee company can acquire the shares of the transferor in accordance with this article, including how to purchase shares held by dissenting shareholders. 

Everyone can also find that from Article 234 onwards, the court's role has gradually decreased and gradually withdrew from the dominant position, but retreated to the position of neutral, and exercised discretion in accordance with its authority.