Introduction to Mergers & Acquisitions of Companies in India

Where could I do a certificate course in company Mergers and Acquisitions laws?

How a law course in mergers and acquisitions can help me?

Career in Mergers and Acquisitions:

Ø  Corporate Lawyer

Ø  Counsel / Attorney

 

Closely Associated Professionals:

Ø  CAs

 

Relevance of CAs and Lawyers regarding M & A

CAs and lawyers both are involved in M & A to who the clients resort. While CAs are more concerned with accountancy, lawyers are more concerned with court presentations.

 

What are corporate mergers?

Mergers

Merger is amalgamation of 2 or more business entities which may have any business constitution like partnership, or company such that the owners of the old entities are now owners of the newly formed entity after the combination or amalgamation of the former entities. E.g.:

1.        PVR - INOX Merger

2.        HDFC LTD - HDFC BANK Merger

3.        Microsoft - Activision Blizzard

4.        Moj - MX TakaTak

 

 What are the different types of company mergers?

Types of Mergers

q  Vertical Merger: Involved parties / businesses involved in same type production but at different stages. E.g. Merger between Zee Entertainment Enterprises Limited Ltd. (ZEEL), a broadcaster, and Dish TV India Limited, a distribution platform operator is an example of vertical merger where both the entities are at different stages of the production / supply chain.

q  Horizontal Merger: Parties / Businesses are in same line of business and may be competitors. E.g. Merger of Vodafone India and Idea Cellular Limited, 2 telecommunication companies.

q  Congeneric Merger: A merger between two parties that are somehow related to each other with no mutual buyer or supplier relationship. E.g. Merger between Thomas Cook India Limited and Sterling Holiday Resorts (India) Limited is an example of a congeneric merger as both the companies were involved in the tourism industry but their customer-bases and process chains were unrelated.

q  Conglomerate Merger: Parties operate in different lines of businesses.

q  Cash Mergers: A kind of merger where shareholders get cash instead of shares of the merged entity.

q  Forward Mergers: When an organization decides to merge with its buyers.

q  Reverse Mergers: When an entity decided to merge with its suppliers of raw material.

q Market-extension merger
A market-extension merger is a merger between companies that sell the same products or services but operate in different markets. The object of a market-extension merger is to gain access to a larger market and thus ensure a larger customer base. E.g. Merger between Mittal Steel and Arcelor Steel, a Luxembourg-based steel company, is an instance of market-extension merger.

q Product-extension merger
A product-extension merger is a merger between companies that sell related products or services and operate in the same market. It is notable that the products and services of the merging companies are not the same, but they are relevant. E.g. This type of merger is not prominently visible in India. However, a classic example of such merger is PepsiCo's merger with Pizza Hut. Both companies worked in the same sector i.e., food and beverages industry, and sold related but not the same products.

                       

 What are acquisitions?

Acquisitions

Under acquisition, a company acquires other company or companies and the previous company is now known by the name of the company which has acquired it.

The company which acquires is called acquiror and the company that acquires is called acquiree. E.g.:

1.        Elon Musk - Twitter

2.        Tata Group - Air India

3.        Adani Group - NDTV

4.        Zomato - Blinkit

 

 

 What are the purposes of Mergers and Acquisitions?

Objectives of M & A

q  Growth: Growth obviously takes place due to any merger or acquisition due to increased business of the uniting companies.

q  Market Exploitation: The resulting market can be exploited due to fewer operators who may be in a position like monopoly.

q  Acquiring Specific Factors: There may be specific factors like skilled employees, patent technologies, copyrights, etc. including goodwill of the merging companies or the acquired company.

q Tax: M&A can sometimes lead to tax benefits if the target company is in a strategic industry or a country with a favorable tax regime. Further, acquiring a company with net tax losses enables the acquiring company to use the tax losses to lower its tax liability.

q  Govt. Policies Compliance: Sometimes government policies may require merger mandatorily (e.g. Government imposing additional duty of certain types of companies and such company may acquire or merge with company which already carries out such duties and already possess a setup for it) or may be voluntarily to secure certain benefits (e.g. There may be a lower limit on turnover for applying for some governmental benefits and when entities get together may be in a position to create cumulative turnover to satisfy the requirement.)

q  Diversification: To diversify into other field or segments of the same field requires a lot of factors of production to be accumulated which is time consuming and may create competition. This situation is easily overcome by merger or acquisition.

           

 

M & A   vs   Partnership & JV

Stage: M & As can only be at a later stage while Partnership and JVs can be since inception.

Ease: M & As are harder to carry out while Partnerships and JVs are much easier to establish.

Joint ventures do not give rise to a fully distinct entity as JV is only for a specific time period or for some specific purpose of the whole entity and not all objectives of the entities forming JV. The entire entities do not become one. So, in case where the entities do not wish to become 1 may form a JV temporarily and who wish to become with a newer company existence may resort to merger or acquisition.

 

 

 

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Shenzhen commends 40 innovative entrepreneurial figures, advanced model figures Ma Huateng and others on list

Commendation by the Shenzhen Municipal Committee of the Shenzhen Municipal People’s Government. 

Innovation and entrepreneurship on the 40th anniversary of the establishment of Shenzhen Special Economic Zone

 

Decisions of characters and advanced models

This year marks the 40th anniversary of the establishment of the Shenzhen Special Economic Zone. 

Over the past 40 years, under the strong leadership of the Party Central Committee, the State Council, the Provincial Party Committee, and the Provincial Government, and with the strong support from all parts of the country, the Shenzhen Special Economic Zone has been determined to reform and make breakthroughs, adhere to the first priority of development, vigorously liberate and develop social productive forces, and take the lead in implementing Market-oriented economic system reform, continue to promote comprehensive innovation with technological innovation as the core, adhere to opening up, and actively utilize both domestic and international markets and two resources to rapidly develop from a backward agricultural county into a charming and dynamic international, innovative city with vigour and innovation has created the miracle of the world’s industrialization, modernization and urbanization.

 

Large number of pioneer models have emerged in construction of SEZ

Over the past 40 years, in the construction of the Shenzhen Special Economic Zone, a large number of pioneer models have emerged that bravely stand up to the trend of the times, are determined to reform and innovate, and dare to practice and explore. 

They firmly support the leadership of the Communist Party of China and my country's socialist system, support reform and opening up, and promote Shenzhen. 

The construction of the special economic zone has made outstanding contributions and played an outstanding exemplary and leading role, and is an excellent representative of the construction of the special zone. 

They dare to try, dare to be the first in the world, and have made outstanding contributions and outstanding influences in technological innovation, management innovation, system innovation, cultural innovation, etc.. They are brave to pioneer, dare to work hard, overcome technical difficulties, innovate business models, and lead the development of the industry 

They have taken the lead in cultivating and practicing the core values ​​of socialism, and they have made extraordinary deeds in respect of work, dedication, solidarity and mutual assistance, and poverty alleviation. 

Encouragement on 40th anniversary of the establishment of the Shenzhen Special Economic Zone

On the occasion of the 40th anniversary of the establishment of the Shenzhen Special Economic Zone, in order to commend the advanced, encourage fighting spirit, further stimulate the enthusiasm of the people of the city, and comprehensively promote the construction of the Guangdong-Hong Kong-Macao Greater Bay Area and the pilot demonstration zone of socialism with Chinese characteristics, the municipal party committee and the municipal government decided to deal with Wanjie Wait for 40 innovative entrepreneurs and advanced model figures to be commended for the 40th anniversary of the establishment of Shenzhen Special Economic Zone.

 

 

The municipal party committee and the municipal government called on the people of the city to take the commended advanced individual as an example, earnestly study and implement Xi Jinping’s thoughts on socialism with Chinese characteristics in the new era, strengthen the "four consciousnesses", strengthen the "four self-confidence", and achieve "two safeguards". "Do not forget the original intention of reform and opening up, continue to hold high the banner of reform and opening up, unite more closely around the Party Central Committee with Comrade Xi Jinping at the core, and unswervingly support the comprehensive deepening of reforms and the full expansion of opening up, continue to emancipate the mind, do hard work, and reform. 

Open up and set off again, to be at the forefront of the new era, and to be a pioneer in the new journey, to move forward in the direction of building a pioneering demonstration zone of socialism with Chinese characteristics, and strive to create an urban example of a modern and powerful socialist country.

 "To strive unremittingly for the goal and the Chinese dream of the great rejuvenation of the Chinese nation!"

 

The 40th anniversary of the establishment of Shenzhen Special Economic Zone

 

List of advanced role models

 

(Arranged in order of surname strokes)

 

Wan Jie Chairman of Yachang Culture Group

 

Ma Huateng Chairman and CEO of Shenzhen Tencent Computer System Co., Ltd.

 

Ma Mingzhe Chairman of China Ping An Insurance (Group) Co., Ltd.

 

Ma Weihua Former President of China Merchants Bank

 

Wang Wei, Chairman of SF Holdings Co., Ltd.

 

Wang Chuanfu Chairman and President of BYD Co., Ltd.

 

Ye Qing (female) Secretary of the Party Committee and Chairman of Shenzhen Academy of Building Research Co., Ltd.

 

Feng Guanping Former Dean of Shenzhen Tsinghua University Research Institute

 

Liu Xiaochun Party Secretary and Dean of Shenzhen International Arbitration Court

 

Liu Lei, Secretary of the Party Committee and Dean of Shenzhen Third People's Hospital

 

Sun Xizhuo, Dean of Shenzhen Luohu Hospital Group

 

Sun Lei, Chief Designer of FIYTA Precision Technology Co., Ltd.

 

Li Xiting, Chairman of Shenzhen Mindray Biomedical Electronics Co., Ltd.

 

Li Yi Chairman of Shenzhen Guangfeng Technology Co., Ltd.

 

Li Zexiang, Professor of Hong Kong University of Science and Technology, Chairman of Googol Technology (Shenzhen) Co., Ltd.

 

Li Jianquan, Chairman of Shenzhen Wenjian Medical Products Co., Ltd.

 

Yang Feifei Futaihua Industry (Shenzhen) Co., Ltd. Technical Manager

 

Wu Fenghua, Founder and Creative Director of TTF High Jewelry Brand, Shenzhen Tongtaifu Jewelry Co., Ltd.

 

Shen Qingfang Chairman and CEO of Pengding Holdings (Shenzhen) Co., Ltd.

 

Lu Jianxin, Chief Engineer, South China Region, China State Construction Engineering Group Co., Ltd.

 

Chen Ning, Chairman and CEO of Shenzhen Yuntian Lifei Technology Co., Ltd.

 

Chen Zhilie, Chairman of the Board of Directors of EVOC Hi-Tech Holding Group Co., Ltd.

 

Jin Mizhi, CEO of TCL Huaxing Optoelectronics Technology Co., Ltd.

 

Zhou Chuangbin, Senior Expert of Special Test of China General Nuclear Power Engineering Co., Ltd.

 

Zhao Xinzhu (female) Chairman of Shenzhen Zhongyi Group Co., Ltd.

 

Zhao Huizhou (female), founder and chief designer of EACHWAY brand, Yizhihui Fashion Group (Shenzhen) Co., Ltd.

 

Hu Yingxiang, Chairman of Hopewell Industrial Co., Ltd.

 

Yu Guogang Former Deputy General Manager (Legal Representative) of Shenzhen Stock Exchange

 

Yuan Geng Former Executive Vice Chairman of China Merchants Group, Former Director of the Management Committee of Shekou Industrial Zone

 

Xu Yangsheng, President of The Chinese University of Hong Kong (Shenzhen), Academician of the Chinese Academy of Engineering

 

Gao Yunfeng, Chairman and General Manager of Han's Laser Technology Industry Group Co., Ltd.

 

Guo Liying (Female) Head of Shenzhen Phoenix Nirvana Art Troupe

 

Huang Sanwen, Director and Researcher, Shenzhen Institute of Agricultural Genomes, Chinese Academy of Agricultural Sciences

 

Huang Yuanhao Chairman of Shenzhen Aobi Zhongguang Technology Co., Ltd.

 

Cao Yan (female) Party Secretary and Principal of Shenzhen Yuanping Special Education School

 

Gong Guoxiang Former Principal of Shenzhen Foreign Language School

 

Jiang Kairu, creator of the Federation of Literary and Art Circles in Luohu District, Shenzhen

 

Lu Xianping, Chairman and General Manager of Shenzhen Microchip Biotechnology Co., Ltd.

 

Fan Jianping, Dean and researcher, Shenzhen Institute of Advanced Technology, Chinese Academy of Sciences

 

Dawei Huo Senior Consultant of the 2012 Laboratory Mentor Department of Huawei Technologies Co., Ltd.

 

 

Cross-border Investment / Mergers and Acquisitions Rules and Regulations Procedures Law

When companies of a country invest overseas, in addition to considering the relevant domestic approvals and their own food and salary supply, they also need to pay attention to the differences in the political system, economic policy, and culture of the target country. In addition, it is more important to understand and abide by the relevant laws and regulations of the target country, so as to ensure legal investment behavior and effectively avoid legal risks in overseas investment. The legal problems encountered by Chinese companies in overseas investment cannot be said to be like tigers, but they can be overcome as long as they are handled carefully.

 

1. Weather vane-foreign investment policy of target country

The country where foreign investment activities are located must have its own unique system. Therefore, before starting investment, you must go to the countryside to study and understand the relevant laws and regulations of the target country and the policy and legal environment related to foreign investment in order to conduct investment feasibility analysis and transaction structure. The determination and subsequent operational planning lay the foundation. 

Indian Mergers and Acquisition Policies

For example, in addition to understanding Indian laws and regulations, companies investing in India should also understand the FDI policies, which industries are allowed to invest, where are forbidden areas, recognize the automatically permitted part of the investment, and also understand that the government and RBI can Only by grasping the "wind vane" of the boundary of the hand, can the enterprise move forward and retreat freely.

 

👉 Foreign investment incentives in the target country

Most countries support and welcome foreign investment to varying degrees. Some countries have even introduced a series of preferential policies to attract foreign investment, such as low-priced land, opening of special economic zones, tax reduction and exemption policies, etc. Understand and make full use of these preferential policies. Only when Chinese companies increase revenue and reduce expenditure and strengthen themselves in overseas investment Rely on.

 

👉 Foreign investment restrictions

Before investing, it is necessary not only to see the preferential policies provided by the target country, but also to have an overall understanding of the legal environment of the target country. Many countries also have different degrees of restrictions on foreign investment, such as industrial restrictions, foreign ownership, or foreign exchange. Therefore, there must be laws and regulations for understanding this area, as well as corresponding government regulatory agencies.

 

Most of the forms of foreign investment restrictions are embodied in the form of additional conditions (proportion of foreign equity) or requirements for review or permits. It is worth noting that some countries completely prohibit foreign investment in certain sensitive industries. For example, Indian law prohibits foreign investment in the lottery industry, gambling industry, tobacco industry, etc. Of course, there are also industries that restrict investment. To control the proportion of foreign ownership. 

Although foreign direct investment in certain areas is restricted or prohibited, the laws of the country are always changing, especially foreign investment policies may be constantly adjusted due to the influence of domestic and international political and economic situations. Therefore, Chinese companies must keep abreast of the latest situation of the "weathervane" in order to respond actively and effectively.

 

2. Understanding the "double-edged sword"-the impact of antitrust laws on cross-border investment

The legal supervision of mergers and acquisitions in various countries in the world is largely related to anti-monopoly. Developed countries often have relatively mature anti-monopoly laws. 

Since mergers and acquisitions of enterprises may cause certain negative effects on market competition, all countries are starting to maintain market competition. From the perspective of certain regulations on mergers and acquisitions.

 

India promulgated the Competition Law in 2002, the scope of regulation includes anti-competitive agreements, abuse of market dominance, and business mergers. Taking this country as an example, in overseas M&A transactions, the antitrust legal requirements for investment in India need to be considered from the following aspects:

 

👉 Will the acquisition result in violation of anti-competitive agreements?

Enterprise mergers and acquisitions will inevitably lead to the elimination of competitors in the market, and may therefore lead to or strengthen a monopolistic market structure. The purpose of this control is not to limit the absolute scale of the enterprise, but to ensure that effective competition can still be carried out in the market after the transaction, thereby protecting the interests of consumers.

 

👉 Does the acquisition abuse its dominant market position?

Occupying a dominant market position is not illegal in itself, but abuse of such status so that the company’s operations can be protected from external competition or negatively affected its competitors or consumers can be regarded as abuse of dominant market position. 

Although the influence of Chinese companies under the scale of the global economy is still relatively limited, there are still relatively few transactions that may really have a significant negative impact on the competition in the target country's market. 

However, with the continuous expansion of Chinese enterprises' own strength, the scale and market position of the required acquisition targets will increase day by day, and overseas mergers and acquisitions of Chinese enterprises will also face anti-monopoly regulations.

 

3. Localized operation-labor law issues in overseas investment

Chinese companies' overseas investment involves a wide range of legal issues, including not only the laws directly related to investment mergers and acquisitions, but also the laws and regulations involved in the continuous operation of the local after investment. Just like labor law, social insurance, foreign exchange control and other aspects of legal norms and regulations are also very different.

 

In the main target countries for Chinese companies' overseas investments, these legal systems protect the legitimate rights and interests of employees and maintain the standards of social welfare, but on the other hand, they also bring a greater economic burden to the company. 

When Chinese companies conduct overseas investment and mergers, they need to adapt to local conditions and follow the local customs, which usually involves local employees’ labor contracts, compensation, retention, or layoffs. It is important to understand the requirements of local laws and regulations, rather than simply bringing some domestic concepts and practices abroad.

 

👉 Employee employment

After completing the overseas investment, the employment of employees in the company's operations must meet the legal requirements of the target country. To this end, Chinese companies that invest in need to understand the labor laws of the target country in detail. For example, what are the restrictions on the employment of local employees in Indian laws, what benefits and insurances need to be provided to employees, and what employment methods are legal and efficient, etc. 

 Only after dealing with the relationship with employees can we "make money with peace"

 

👉 Layoffs and dismissals

After the completion of the acquisition, if the target of the acquisition is a "distressed household", the acquirer often needs to make arrangements in line with the commercial strategy of the acquired party. How to integrate the "difficult household" into itself and reduce the debt burden of the acquirer as soon as possible Create profits, so sometimes layoffs become an inevitable part.

 The procedures and costs required for layoffs must be fully planned in advance. For example, study in advance the requirements of local laws on layoffs and dismissal of employees, analyze the government's possible attitude to layoffs, and avoid the purchaser's commitment to unreasonable restrictions and foreseeable labor disputes in the future.

 

👉 Chinese companies' response measures when facing labor problems in the target country

Before the acquisition, the acquirer should try its best to rely on the role that Chinese lawyers can play in the acquisition project. For example, in the due diligence stage of the lawyers in the early stage of the acquisition, the labor issues involving the acquiree should be amplified and timely feedback:

 

1. Investigations related to labor issues should be carried out in detail. At the same time, it is also necessary to have a macro understanding of the labor legal environment of the country where the acquired party is located, and understand the requirements of labor contracts, layoffs, social welfare, insurance and other aspects;

 

2. The other two aspects should be microscopically grasp the specific labor situation of the acquired party, such as employees, total number and structure, labor contract, collective contract, social welfare, employee equity incentive plan, etc.

 

Indian Investment Law

For every labor law issue that may be involved in the transaction, the purchaser must formulate a response plan. Even after the completion of the acquisition, Chinese shareholders should urge the acquiree to continue to comply with local labor laws.

 

4. Bundled gold rope-foreign exchange management system

The purpose of a company's overseas investment is to obtain a return on investment, so the investor can remit profits or other funds back to the country is a key step in investment behavior. If there are foreign exchange control measures in the target country, the impact of these measures on the flow of foreign exchange funds needs to be considered.

 

If the country where the M&A target is located is a foreign exchange control country, it must fully understand its foreign exchange laws and regulations. For example, India, in addition to the “Reserve Bank of India Act of 1934” and “Foreign Exchange Management Act of 1999”, there are a large number of specific areas involved in foreign exchange management. 

Management rules, such as "Foreign Exchange Management (Establishment of Branches, Offices or Other Business Places in India) Rules 2000", "Foreign Exchange Management (Transfer and Issuance of Foreign Securities) Rules 2000" and so on. 

In the foreign exchange management system, how to make full use of soft regulations to avoid corresponding risks. For example, in which countries the funds transferred from companies can avoid being charged corresponding taxes, and the control rules are less restrictive than other countries. Reference alternative.

 

5. Recruitment of talents-the recruitment of executives and core personnel

In many mergers and acquisitions, the key to successful acquisition is to retain senior management and core technical personnel of the acquired party. Therefore, how to ensure that key personnel can continue to be retained to serve the acquirer after the completion of the acquisition requires planning during the transaction negotiation stage. 

The acquirer can require the seller to urge the company to sign a lock-up agreement with these personnel, and make the signing of the lock-up agreement one of the prerequisites for delivery, so that the seller's interests are bound to the acquirer. 

In addition, Chinese companies should also consider granting key personnel retention incentives or design and implement executive equity incentive plans in accordance with the usual practices of the local market, so that the interests of core personnel are consistent with those of the company, so as to ensure the retention of core personnel and the stability of the acquired party. Transition operations.

 

From the beginning to the landing, cross-border investment and mergers and acquisitions are full of commercial risks, but in the final analysis, the so-called commercial risks are particularly obvious at the legal risk level. "It affects the whole body" is especially reflected in cross-border investment and mergers.

 However, this sentence is not about emphasizing what cannot be done, but about which risks can be treated flexibly to achieve avoidance. Cross-border investment needs to give full play to the "monopoly spirit"-this depends on whether we truly understand the "rules of the game" in the target region. Since we are not the rulers of the game, we must understand the rules of the game to achieve the top.

 

 

New SEBI regulations on Indian Companies Mergers and acquisitions 

In February 2017, in order to protect the interests of public shareholders, the Securities and Exchange Commission of India (SEBI) approved a number of proposals to modify and streamline the merger and merger rules of listed and unlisted entities. Such new regulations of SEBI will target some large-scale Of non-listed companies hope to achieve the goal of going public through reverse merger of a small listed company. 

In addition, SEBI has also raised the disclosure standards. Non-listed companies that merge with listed companies must meet the requirements for disclosure of materials and information.

 

 

SEBI, as the security regulator in India and the protector of the interests of public shareholders, has been paying attention to the risks associated with the governance of certain corporate mergers and acquisitions. In order to achieve the above objectives, SEBI revised the company’s listing-related agreements, requiring the stock exchange to pre-approve all mergers and acquisitions plans of listed companies and formulating strict guidelines for listed companies. 

At the board meeting held in February 2017, SEBI has revised the existing management framework of the merger and spin-off plan. At the same time, it also stated that in order to streamline and strengthen regulations, mergers and acquisitions of listed companies can only be classified as listed companies when they are listed on stock exchanges with national trading terminals.

 

 

After further testing and analysis of the latest trends and arrangements proposed by listed companies, SEBI has now approved the arrangements for approval of listed and non-listed entities mergers and mergers. According to the revised specifications, SEBI stated that the purpose of modifying such regulations is to "expand the proportion of public shareholding and prevent non-listed companies from adopting reverse mergers—namely, backdoor listings."

 

 

Proposed outstanding features

 

 

Involve more public shareholders

a. The shareholding ratio of expected shareholders of listed companies and qualified institutional buyers of non-listed companies shall not be less than 25% of the combined listed company.

 

b. The following plans need to be approved by public shareholders, and need to be voted through the electronic voting mechanism:

 

1) The merger plan/plan of the unlisted company will reduce the proportion of the total assets of the merged company by more than 5%, which requires public shareholders to vote;

 

2) The consideration for transferring all or substantially all of the business of a listed company in a form other than the listed equity;

 

3) The unlisted subsidiary is merged with the listed holding company, and the shares of the unlisted subsidiary are acquired by the holding company from the promoter/sponsor group.

 

 

Tighter disclosure standards

 

 

a. Non-listed companies must compulsorily disclose all important information in the form of a brief prospectus before merging with a listed company.

 

b. Issuing shares to a larger audience. In order to ensure that all types of shareholders receive fair treatment in such plans, listed companies must strictly follow the "ethical and law-abiding" pricing methods.

 

c. The wholly-owned subsidiary (WOS) merges with its parent company. SEBI also believes that it is necessary to relax certain procedures concerning the arrangement of the merger between WOS and its parent company. This scheme does not require submission or pre-approval from SEBI. These plans will need to be submitted directly to the stock exchange for the limited purpose of disclosure.

 

 

Other key recommendations

a. Non-listed companies can only merge with listed companies if they are listed on a stock exchange with a national trading terminal.

 

b. The company needs to submit a compliance report to confirm compliance with the SEBI circular, and the accounting standards need to be certified by the company secretary, chief financial officer, and managing director.

 

 

Recent reports in the press indicate that SEBI has effectively avoided listing obligations and disclosed an alarming number of large non-listed companies through mergers with small listed companies. In order to alleviate concerns, the SEBI Board of Directors has approved these recommendations to ensure greater public participation and review of these plans, thereby protecting the interests of public shareholders.

 

 

Generally speaking, these recommendations will increase the compliance burden of listed companies merging with non-listed companies. However, certain suggestions, such as the nature of important information that non-listed companies need to disclose in a simplified prospectus, will require SEBI to be more clarified. This is because at present, non-listed companies need to provide an information memorandum in order to obtain approval for the listing of their shares. But the exact distinction needs to be refined by SEBI. 

Of course, in this new regulation, SEBI is likely to over-regulate all types of mergers.

 

 

In addition, in accordance with Article 233 of the Indian Companies Act 2013, the SEBI board of directors agreed to amend the “approval requirements” to only “disclosure specifications” for wholly-owned subsidiaries (WOS) that quickly merged with their parent companies. This distribution will reduce any ambiguity in sections 230 and 233 of the 2013 Act.

 

 

Although SEBI’s regulatory intent may be clear, there has not been any formal amendment to the relevant SEBI regulations and therefore does not have legal effect. The specific rules will be promulgated from July to September 2017. At that time, the revised regulations need to be further analyzed to understand the extent to which SEBI's intentions are reflected.