Procedure & Process of M&As under the New NCLT Regime
Section - I
Overview of M&A Provisions under Companies Act, 2013
NCLT
Transitional Provisions
Procedural Changes
Section – II
Conceptual Changes
Process & Procedure of New M&A Concepts
Comparative Merger Process under Companies Act, 1956 and
Companies Act, 2013
Overview of M&A Provisions
under Companies Act, 2013
Re- organization Provisions as per Companies Act, 1956
TOOLS OF RESTRUCTURING
Merger /
Amalgamation
Demerger
Financial
Reconstruction
Acquisition of
shares
Consolidation of
businesses / entities
Divest non-core
business
Restructuring within the
Company
Acquiring interest in
new business/ entity
Deals with section 391- 394
Deals with section 395
NOTE –under Section 396 of Companies Act, 1956 Central Government may Amalgamate two
Companies in public interest
Re- Organization Provisions as per Companies Act, 2013
TOOLS OF RESTRUCTURING
Merger /
Amalgamation
Demerger
Consolidation of
businesses / entities
Divest non-core
business
Financial
Reconstruction
Acquisition of
shares
Restructuring within the
Company
Acquiring interest in
new business/ entity
Deals with section 230- 234
Corporate Debt Restructuring - section 230
Deals with section 235
- 236
Fast Track Merger - section 233
Cross Border Merger - section 234
NOTE –under Section 237 of Companies Act, 2013 Central Government may Amalgamate two
Companies in public interest
Pragmatic reforms of M&A
NCLT
Treasury Shares
CDR
Merger of Listed
Company with
Unlisted Company
Fast Track
Merger
Registered Valuer
Cross Border
Merger
Limit for
Objection to
Compromise/
Arrangement
3/24/2016
Approval of
Scheme through
Postal Ballot
Notice of Meeting
to be sent to
various regulatory
authorities
Minority Squeeze
out
Dissenting
Shareholder
NCLT
“SINGLE WINDOW CLEARANCE FOR
CORPORATE RE-STRUCTURING”
Introduction of NCLT
High
Court
BIFR
CLB
NCLT
The creation of a single forum (NCLT) which is dedicated to corporate
matters is a welcome move, and removes the problem of multiple regulators.
Introduction of NCLT
SC (Only on the Question of Law)
Appeal Can be made to NCLAT
Powers Vested to NCLT
Particulars
High Court
CLB
BIFR
Other
Seeking exemption for having FY of a company
which ends on a day other than 31 March;
Powers
Issue of further redeemable preference shares in
lieu of arrears of dividend or failure to redeem
High Courts primarily
existing reference shares as per the terms of
BIFR under the Sick
in
CLB under the
issue;
Industrial
relation to winding-up, Companies Act, 1956
Companies (Special
amalgamation,
primarily oppression
Preparation of revised financial statement or
Provisions) Act,
restructuring and
and mismanagement
board report for past 3 FYs, where BOD believes
1985
appeals from CLB
that they do not comply with the relevant
provisions;
Conversion of a public limited company into a
private
limited
company;
Filing Class action suits;
Appeals
Within the HC
and then to
Supreme Court
(SC)
High Court (HC),
then appeal to SC
AAIFR , then
writ petition to
HC
Structure of NCLT
Existing
CLB
offices
to
be
converted in NCLT;
President and Every Member of Tribunal shall hold office as such for a term of Five years
and shall be eligible for reappointment for another term of Five Years
Notified Provisions wrt NCLT
Section
Particulars
407
Definition
408
Constitution of National Company Law Tribunal
409
Qualification of President and Members of Tribunal
410
Constitution of Appellate Tribunal
411
Qualification of Chairperson and Members of Appellate Tribunal
412
Selection of Members of Tribunal and Appellate Tribunal
413
Term of office of President, Chairperson and other Members
414
Salary, allowance and other terms and conditions of service of Members
Issue: Madras Bar Association which sort of half won the case against company law
tribunals in 2010 is agitating again. It has filed a petition in the SC against the Companies
Act, 2013 and seek to challenge constitutional validity of the setting of NCLT and NCLAT by
the Companies Act, 2013
Transitional Provisions
Transitional Provisions
>> Transferred from High Court to
Restructuring Matters at time NCLT
NCLT and NCLT will continue from
becomes operational
the stage and before transfer and
M&A Cases (High
Court)
complete it.
>> Shall stand abated
SICA Cases (BIFR)
Any appeal Pending to AAIFR or
>> Fresh reference require to be
procedure pending to BIFR under
made to the Tribunal under the
SICA, 1985 before the commencement
Companies Act, 2013 within 180
of Companies Act, 2013
days from the day this, Act
becomes effective.
>> Transferred to NCLT
Cases pending before CLB
(High Court power under 10F of the
Companies Act, 1956 has been saved)
CLB Cases
Procedural Changes
Procedure revamp under Companies Act, 2013
An application under Section 230 for Compromise / Arrangement / Amalgamation, have
to disclose following to the NCLT :-
 All material facts relating to the Company ;
 Latest Financial position of the Company & Latest Auditor’s report
 Any investigation and proceeding against the Company,
 If Reduction of Share Capital is part of scheme
Procedure revamp under Companies Act, 2013 (Cont)
Notice of proposed meeting required to be sent to : All Creditors / Members / debenture holders (even if right is not affected)
 Central Government,
 Income Tax Authority
 RBI
 SEBI
 ROC
 Respective Stock Exchanges
All these authorities will give their
representation within 30 days of
receipt of notice.
 Official Liquidator
 CCI
 Sectoral Regulators or Authorities which are likely to be affected
Procedure revamp under Companies Act, 2013 (Cont)
Notice shall be accompanied by : A statement disclosing details of compromise arrangement i.e. explanatory statement;
 A copy of Valuation Report by Registered Valuer
 Explaining the effect of Compromise and arrangement on creditors, KMP, Promoter, Nonpromoter members, Debenture holders;
 Any material interest of the Director of the Company and debenture trustee;
 Expert report on Valuation is needed in case of merger & amalgamation ;
 Supplementary Accounting statement is also required in case of merger & amalgamation ;
Procedure revamp under Companies Act, 2013 (Cont)
Notice shall also provide an option to vote through postal ballot
Only those shareholder’s can raise objection to the scheme who holds not less than 10% of the
shareholding
Only those creditors can raise objection to the scheme who holds 5 % of the total outstanding debt
The tribunal may provide the order for Exit option to dissenting shareholders based upon the
valuation by Registered Valuer
Certificate from Statutory Auditor that accounting treatment complies with prescribed accounting
standards (Currently applicable to listed Companies)
Every Company has to file a yearly statement with ROC until the completion of the scheme, certifying
that compliance is as per an order of tribunal
Procedure revamp under Companies Act, 2013 (Cont)
Now
NCLT
have jurisdiction over CORPORATE DEBT RESTRUCTURING SCHEME also
and following are the disclosure with application : A Creditors Responsibility Statement;
 Safeguard to the protection of other Creditors;
 Report by Auditor that fund requirement as approved after CDR will confirm to liquidity test;
 Statement to the effect, if Company proposes to adopt CDR guideline specified by RBI;
 Valuation Report of assets by registered valuer
Section - II
Section – II
Conceptual Changes
Process & Procedure of New M&A Concepts
Comparative Merger Process under Companies Act, 1956 and
Companies Act, 2013
Fast Track Merger
SMALL CO.
FAST TRACK MERGER
SMALL CO.
HOLDING CO.
WHOLLY OWNED
SUB CO.
Small Company means Company other than PUBLIC CO. having PAID Up CAPITAL Rs. 50 Lakh and
TURNOVER Rs. 2 Crores but not include Holding Co., Subsidiary Co. and Charitable Co.
Central Government has the power to sanction the scheme, no requirement to approach NCLT
 NOTICE to ROC, OL and person affected to the scheme inviting Objection / Suggestion (if
any) within 30 Days (starting point of thirty days is not specified);
 Each company involved in merger has to file declaration of solvency with the ROC;
APPROVAL OF SCHEME :  Objection and suggestions received from ROC and OL are considered in the general
meeting;
 Scheme is approved by members holding Ninety Percent of the total number of shares;
Fast Track Merger (Cont.)
 Creditors majority representing Ninety Percent in value in meeting or approved in
writing;
 Only Transferee Company shall file the approved scheme with the Central Government
(power should be delegated to Regional Director), ROC and OL;
 ROC and OL shall communicate their objections / suggestions to the scheme within Thirty
days from the receipt of notice with the Central Government;
 If no communication is received from ROC and OL or they have communicated positive
remarks and given no objection to the scheme ; Or
 Central Government believe that scheme is in the public interest then Central Government
shall register the scheme and issue confirmation order to the companies;
 If Central government has opinion that scheme is not in public interest or creditors, then
within Sixty days of the receipt of the scheme, Central Government may file an application
to NCLT and requesting NCLT to consider the scheme under normal merger provisions;
Impact Analysis of Fast Track Merger
 Encourage
corporate
restructurings for small and
group companies
 Will result in faster disposal
of the matter
 No need of separate RBI / IT
approval
 Provisions of Registered
Valuer are not specified
 Approval
required
form
Members
holding
90%
Shares and Creditors holding
90% in value, may be
difficult,
Cross Border Merger
UNDER COMPANIES
ACT, 1956
Foreign Company
(can be only
Transferor Co.)
CROSS BORDER MERGER
Indian Company
(Only can be
Transferee Co.)
UNDER SECTION 234,
COMPANIES ACT, 2013
Foreign Company
Notified by
CG
Indian Company
 Now Indian Co. can be transferor as well as transferee co.
CG may make the Rules, in consultation with RBI
Prior approval of RBI is also required
Impact Analysis of Cross Border Merger
 Flexibility
for
company
structuring overseas
 Cross Border restructuring
will increase
 Opportunity
for
Indian
companies to form corporate
strategies on a global scale
 Scope of inbound mergers
may get restricted to notified
jurisdictions
Takeover through Compromise / Arrangement
TAKEOVER THROUGH
COMPROMISE
ARRANGEMENT SCHME
LISTED COMPANY
AS PER SEBI
TAKEOVER
CODE
acquisition of control of a
company other than a listed
company
pursuant
to
a
scheme of compromise or
arrangement under section 230;
or
UNLISTED
COMPANY
DRAFT RULE -15.11
acquisition of fifty percent or
more of the total share capital
of a company other than a
listed company pursuant to a
scheme of compromise or
arrangement under section 230
Impact Analysis of Takeover / Acquisition
 Takeover of unlisted co’s will get impacted with the increase in
stringent provisions to be followed.
Minority Squeeze Out
ACQUISITION U/S 235 / 236
 Where acquirer becomes registered holder of 90% or more of the issued shares due to
scheme or contract involving transfer of shares or by virtue of an amalgamation, shares
exchange, Conversion of Securities, then ;
 Acquirer have to buy the minority shares as per following formula for price determination : IN CASE OF LISTED COMPANY

Price as per SEBI Regulations;

Registered valuer to provide valuation report to the Board of Directors of the
company
justifying the methodology of arriving at such price
 IN CASE OF UNLISTED CO. (INCLUDING PVT)

The highest price paid by the acquirer, person or group of persons for acquisition during
last twelve months;

fair price of shares of the company to be determined by the registered valuer after taking
into account valuation parameters
Minority Squeeze Out (Cont)
ACQUISITION U/S 235 / 236

Registered Valuer shall also provide a proper valuation report to the to the Board of
directors of the Company justifying the mythology of arriving such price;

fair price of shares of the company to be determined by the registered valuer after taking
into account valuation parameters
Impact Analysis of Minority Squeeze out
Provides an exit option to minority shareholders in unlisted companies as well .
Issue: Inconsistency between Companies Act, 2013 and SEBI delisting regulations
which provide that purchase price for minority shareholders should be
determined as per reverse book building
Merger of listed company with unlisted company
 On merger of listed company with unlisted company, the transferee company shall
remain an unlisted company until it becomes a listed company
 Provision for an exit route for shareholders of the transferor company
 Payment of value of shares and other benefits in accordance with pre-determined price
formula or as per prescribed valuation
Impact Analysis of Merger of listed company
with unlisted company
 Streamlined the entire process of merger
 Dissenting shareholder will get exit opportunity
Issue: Inconsistency between Companies Act, 2013 and SEBI delisting regulations
Rehabilitation of Sick Companies
 All the Companies, whether Industrial Company or not, are
covered now
 Criteria for erosion of 50% Net Worth erosion knocked off
 Power
has
been
entrusted
with
Secured
Creditors,
representing 50% or More of the Debt of the Company.
 Net Worth (old law )Vs Repayment of debt(New law ),
Provisions of new Act are on lines with Chapter XI of US
Bankruptcy Law
 Introduction of “Rehabilitation and Insolvency Fund”
Rehabilitation of Sick Companies: Process

Secured creditors shall make an application (u/s 254) for revival and rehabilitation of the company within a period of 60
days, to the Tribunal, from the date of determination of the company as a sick company by the Tribunal (u/s 253).

Tribunal On receipt of Application for revival and rehabilitation (upon declaration as sick company) shall appoint an Interim
Administrator within 7 days from the receipt such application to convene meeting of creditors and submit report to the
Tribunal determining the possibility of revival and rehabilitation of the company;

On submission of report by the Tribunal may
 If it is not possible to revive the Company order that the proceeding for the Winding up of the Company;
 appoint a Company Administrator for the company and prepare a scheme of revival and rehabilitation of the SICK
Company if revival is possible

Approval of Scheme
 Creditors meeting within 60 days (may be extended to 120 days by Tribunal ) of the appointment of Company
Administrator.
Separate meetings for secured and unsecured creditors
 Scheme shall be approved by the Unsecured Creditors representing One – Fourth in value of the amount and the
Secured Creditors, representing three – fourth in value of the amount

No such scheme shall be deemed to be approved where it relates to Amalgamation of Sick company with any other
Company and such scheme has also been approved by shareholder of both the Company by a Special resolution with
or without Modification.
Rehabilitation of Sick Companies: Process (Cont)

The sanction accorded by Tribunal shall be conclusive evidence.

A copy of the Sanctioned scheme shall be field with Registrar by Sick Company within a period of 30 days from the
date of receipt of a copy thereof
Impact Analysis of Rehabilitation of Sick Co’s
 A rational move to correlate ‘sickness’ with a company’s inability to
pay its debts rather than with erosion of net worth which is more
governed by accounting considerations
Comparative Merger Process under Companies Act, 1956 and Companies
Act, 2013
Companies Act, 2013
Particulars
Companies Act, 1956
Sanctioning Body
High Court
Normal
Fast Track Merger
NCLT
Central Government
 Shareholders and Creditors;
 Shareholders and Creditors;
 Shareholders and Creditors;
 High Court ;
 NCLT ;
 CG (through RD);
 OL;
 OL;
 OL;
 ROC;
 ROC;
 ROC;
 RD (IT department
representation also to be
 RBI;
considered);
Approval Required
 SEBI approval through Stock
Exchange (in case of Listed Co's)
 IT department;
 CCI;
 CG (through RD);
 SEBI approval through Stock Exchange (in case of
Listed Co's);
 Any other sectoral Authority
Approximate Time
Additional Time
5 -6 Months (in case of
Unlisted Company)
4 – 5 Months (in case of Unlisted Company)
1 to 2 Months in case of Listed Company
3 – 4 Months (in case of Unlisted
Company)
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Vice President
Mob. +91 9810557353
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