Process of Merger and Acquisition- Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Process of Merger and Acquisition – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
Elucidate the requirement of registration of offer of schemes involving transfer of shares under the Companies Act, 2013.
Answer:
Section 238(1) of the Companies Act, 2013 provides for the mode of registration of offer of schemes or contract involving the transfer of shares.

As per the legal provision, every offer of a scheme or contract involving the transfer of shares or any class of shares in the Transferor Company to the Transferee Company shall be presented to the Registrar of Companies (ROC). With regard to Section 235 of Companies Act, 2013, every circular containing such offer and recommendation to the members of the Transferor Company by its directors to accept such offer shall be accompanied by such information and in such manner as may be prescribed. Further, every such offer shall contain a statement by or on behalf of Transferee Company, disclosing the steps it has taken to ensure that necessary cash will be available.

Every such circular u/s 235 of the Companies Act, 2013 shall be presented to the ROC for registration and no such circular shall be issued until it is so registered.

The Registrar may refuse to register any such circular. It shall communicate such refusal to the parties within 30 days of the application, along with reasons in writing.

The ROC may refuse to register any such circular, on the following grounds –
(a) which does not contain the prescribed information as required; or
(b) which is likely to give a false impression,
Section 238(2) of the Act states that an appeal may be filed with the National Company Law Tribunal (NCLT) against an order of the Registrar refusing to register any circular.

As per Section 238(3), any director who issues a circular which has not been presented for registration and registered, shall be liable to a penalty of ₹ 1 lakh.

Question 2.
What are the details to be disclosed under the explanatory statement of the notice of the meeting in respect of the scheme of compromise or arrangement?
Answer:
As per Section 230(3), the Tribunal shall instruct the amalgamating company to send notice of the meetings to all the creditors, members or class thereof and debenture-holders. The notice shall be accompanied by an explanatory statement disclosing the details of the scheme of compromise or arrangement and other details as required.

The explanatory statement of the notice of meeting in respect of the scheme of compromise or arrangement include the following –

Brief details of Transferor and Transferee companies,
Latest financial position of companies involved,
Valuation report,
Proposed share exchange ratio,
Main terms of transfer of assets and liabilities from Transferor to Transferee Company,
Appointed Date and expected Effective Date,
Mode of discharge of purchase consideration, Le. shares or cash payment or both etc.
Benefits of compromise or arrangement as perceived by the Board of directors to the company,
Arrangement with secured and unsecured creditors including debenture-holders.
Capital structure of Transferor Company and Transferee Company,
Provision for dissenting shareholders,
Transfer of employees of the Transferor Company to the Transferee Company,
Statement to bear all costs, expenses etc. in connection with the scheme,
Details of pending investigation or proceedings against the company,
Dissolution of Transferor Company (without winding up) on the effective date.

Question 3.
“Dissatisfactory implementation of sanctioned compromise and arrangement for amalgamation or merger may lead to liquidation.” Examine the statement in relation to powers of Tribunal in terms of Companies Act, 2013.
Answer:
A merger or amalgamation is a type of arrangement, whereby assets of two or more companies get transferred or come under control of one company. Basically, it is a legal process whereby two or more companies come together for growth, expansion and prosperity.

Section 230 enables companies to enter into a scheme of compromise and arrangement, whereas Section 231 empowers the Tribunal to sanction such schemes.

As per Section 231(1) of the Companies Act, 2013, the Tribunal has the power to supervise the implementation of any such scheme of compromise or arrangement.

The Tribunal may give directions or make such modifications in the compromise or arrangement as it may consider necessary, for the proper implementation of the compromise or arrangement.

As per Section 231(2), where the Tribunal is satisfied that the scheme could not be implemented even with modifications and the company is unable to pay its debts, the Tribunal may order winding-up of such company.

Thus, dissatisfactory implementation of any scheme of compromise or arrangement may lead to the winding-up or liquidation order passed by the Tribunal.

Question 4.
“Non-compliance or contravention of the requirements prescribed under the Companies Act, 2013 mid rules framed thereunder in framing or implementing the scheme of a compromise, arrangement involving transferor and transferee Companies may lead to prosecution.” Briefly explain.
Answer:
An application u/s 230 made to Tribunal for sanctioning a scheme of compromise, arrangement, must specify that the scheme involves merger or amalgamation of two or more companies.

Also, it shall specify the nature of the transaction, Le. transfer of whole or any part of the undertaking, assets, and liabilities of Transferor Company to the Transferee Company.

On receiving such details, the Tribunal may order a meeting of the creditors or members or class thereof. The meetings shall be called, held and conducted as per the Tribunal directions.
As per Section 232(3), the Tribunal has the power to issue directions for the smooth functioning of the scheme.

As per Section 232(8) of the Companies Act, 2013, if transferor company or transferee company contravenes the provisions of this section, it shall be punishable with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 25 lakhs.

Further, in case of such contravention, every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment up to one year or with fine of minimum of ₹ 1 lakh, but which may extend to 3 lakhs, or with both.

Hence, a thorough compliance needs to be undertaken in any proposal for a scheme of merger or amalgamation.

Question 5.
“Contracts entered into and in force need to be replaced by fresh contracts after merged or takeovers entities that have been integrated pursuant orders passed by Courts or Tribunals.” Do you agree?
Answer:
Mergers, amalgamations, acquisitions, takeovers or any other kind of corporate restructuring is undertaken for the purpose of expansion, growth or diversification of business.

However, corporate restructuring is much more than economic synergies, but it covers other intangible factors as well, such as corporate cultures, practices, policies, and environment etc.

Thus, timely integration of systems, applications and data provide the corporate information needed to achieve the post-merger objectives.

Post-merger reorganization includes the reorganization of each and every aspect of a company’s functional area for the purpose of achieving the planned objectives of takeover, amalgamation, merger or demerger.
Every scheme of merger and amalgamation is sanctioned by the Court or Tribunal.

Post-merger, transferor company is dissolved and all its assets and liabilities are transferred to the transferee company. Further, the companies shall also ensure that the contracts entered by the merging entity shall continue to be transferred in the name of merged entity.

However, other aspects in the contracts with a third party may require company to inform about merger or may give rise to other parties to terminate the contract.

Normally lease agreements, that contain fixed tenure may release the landlord from such restriction in the event of restructuring of lessee entity.

Further, the merged entity would need to check various rights and obligations mentioned in the contracts with third parties and should allocate teams to identify and ensure compliance of those requirements. In short, all existing contracts with its terms shall be reviewed.

Question 6.
In cases of takeovers or demergers, dissenting shareholders have a right to voice a grievance – enumerate briefly the procedure.
Answer:
‘Dissenting Shareholder’ includes a shareholder who has not assented (consented) to the scheme. He has voted against a scheme of compro¬mise or arrangement. However, dissenting shareholders have a right to be heard and express their reservations.

As per Sec. 230(4) of the Companies Act, 2013, in a scheme of com¬promise or arrangement, dissenting shareholders shall be members holding not less than 10% shares in value.

Similarly, as per section 235 of the Companies Act, 2013, the dissenting shareholders have been put at the limit of 10% of the value of the shares of the company.

In case of listed companies, SEBI considers even a single shareholder to initiate investigation for remedial action under SEBI (SAST) Regulations, 2011.

Dissenting shareholders- have been provided with an opportunity to approach Tribunal. If the price fixed is not acceptable, even a single shareholder can approach National Company Law Tribunal to seek clarification and justice.

Question 7.
Rama Khadi Industries Ltd. is a fully owned subsidiary of Karishma Gramudyog Ltd, a State Government Company. The State Govt took a policy decision to amalgamate the former with the latter. Illustrate briefly the steps to be taken in the matter.
Answer:
Section 237 of the Companies Act, 2013 empowers the Central Government to provide for amalgamation of companies in public interest.

As per Section 237(1), where the Central Govt, is satisfied that it is essential in the public interest that two or more companies should amalgamate, it may provide for the amalgamation of those companies into a single company through an order in Official Gazette. Further, the Central Govt shall specify the terms of such amalgamation in the order.

Post amalgamation, every member or creditor (incl. debenture holder), of Transferor Company, shall have the same rights against the Transferee Company. However, if such interest or rights are reduced, they are entitled to compensation, duly computed by a competent authority and payable to him by the Transferee Company.

The Central Govt shall pass an order u/s 237(1) after the following actions –

a draft copy of proposed order to be sent to each of the companies concerned;
ensure that the time limit for filing an appeal has expired, or such appeal has been disposed off by the Tribunal
the Central Govt may modify order u/s 237(1) based on objections received from concerned companies; and
The copies of every order shall be laid before each House of Parliament.

Further, Section 233 enables holding and wholly-owned subsidiary company to merge through a fast-track process. In the given case, Karishma Gramudyog may apply to amalgamate with Rama Khadi Industries through the route given under section 233.

Question 8.
XYZ Resources Ltd., a listed company, is in the process of merging into ABC Transactions Ltd., which is not a listed Company. As a Company Secretary, detail the additional aspects to be noted for the merger of XYZ Resources Ltd. and ABC Transactions Ltd. in terms of Companies Act, 2013 and Securities and Exchange Board of India (SEBI) Regulations.
Answer:
A merger or amalgamation is a type of arrangement, whereby assets of two or more companies get transferred or come under control of one company. Basically, it is a legal process whereby two or more companies come together for growth, expansion and prosperity.

In a scheme of merger or amalgamation, where one or more companies are listed, compliance of SEBI (LODR) Regulations, 2015 is mandatory.

In the given question, XYZ Resources Ltd. (listed company) is the Transferor Company and ABC Transactions Ltd. (unlisted company) is the Transferee company. Hence, any order of NCLT sanctioning the Scheme of Amalgamation does not automatically make the Transferee Company (ABC Transactions Ltd.) a listed company.

Further, XYZ Resources Ltd., being a listed company need to file the draft scheme with stock exchange well before filing it with the Tribunal to obtain No Objection or Observation Letter in compliance with SEBI (LODR) Regulations, 2015. The validity of such a “No Objection or Observation” Letter is six months and such letter need to be placed before the Tribunal considering the sanction of the Scheme.

The company shall file copies of notices, circulars, etc. issued concerning amalgamation with the Stock Exchange where the company is listed. Requirement of auditors’ certificate for accounting treatment under schemes of arrangement.

XYZ Resources Ltd. shall submit to the concerned stock exchange, an auditor’s certificate to the effect that the accounting treatment complies with all the applicable Accounting Standards.

Question 9.
The main purpose of a merger or acquisition is to achieve the expected financial results namely the earnings and cash flow. But there are certain other measures that serve as key indicators for measuring post-merger i efficiency. What are these key indicators?
OR
Question 10.
What are the key indicators that need to be measured apart from expected financial results such as earnings and cash flow to evaluate extent of success of merger?
Answer:
Different factors may be considered for making value judgments such as growth in profit, dividend, company’s history, and increase in size, base for growth, etc.

There are certain measures that serve as key indicators for measuring post-merger efficiency.

The indicators may be grouped as –

Financial outcomes
Revenues, cost, net working capital and capital investments
Organizational structure such as customers, employees and operations
Yielding financial and strategic objectives so intended and are not resulting in value leakage

There are broadly four possible reasons for business growth and expansion which is to be achieved by the merged company.

These are –

Operating economies achieved due to large size of the combined entity. These economies may arise due to better utilization of production capacities, distribution network, engineering services, R&D, reduction in inventory levels, cost reduction etc.
Financial economies are achieved in the form of income tax benefits, higher debt capacity, better bargaining power, and reduction of floating cost incurred in raising funds.
Growth and diversification resulting in gaining competitive advantage and achieving a position of dominance in the market. Higher market share and risk reduction.
Managerial effectiveness due to better infusion of expert and experienced manpower. The well-coordinated effort brings synergies.

Question 11.
“Due Diligence starts much before the process of restructuring and helps in better negotiation of deals, to handle taxation and stamp duty aspects in better manner, to minimise and resolve the human and cultural issues that may arise out of mergers/amalgamation etc.”. Discuss the statement in view of the fact that Due Diligence is considered as background check’.
Answer:
Due Diligence refers to the investigations made to gather all relevant facts and information that can influence a decision to enter into a transaction or not.

Due diligence is a duty of every party to the transaction. M&A due diligence helps to avoid litigation due to insufficient knowledge.

Due diligence is the process by which confidential, legal, financial and other material information is exchanged, reviewed and appraised by the parties to a business transaction, which is conducted prior to the transaction.

It is the analysis and risk assessment of a future business transaction. It is the careful and methodological investigation of a business or persons, or the performance of an act with a certain standard of care to ensure that information is accurate and to uncover information that may affect the outcome of the transaction.

Due diligence is a meaningful analysis of the collected information. In this process the financial and non-financial information of the Target Company is collected and analyzed, to arrive at a decision about the potential transaction.

Due diligence report should provide information and insight on aspects such as the risks of a transaction, the value at which a transaction should be undertaken, the warranties and indemnities that needs be obtained from the vendor, etc.

Hence, it is basically a “background check” to make sure that the parties to the transaction have the required information that is needed to proceed with the transaction.

Question 12.
Corporates encounter pitfalls in post-merger statutory approval due to certain common errors, that need to be taken care of. Try to point out certain errors that need to be taken care of.
OR
Question 13.
Enumerate the common mistakes made by the corporate leading to pitfalls in mergers and acquisition? ‘
Answer:
Mergers, amalgamations, acquisitions, takeovers or any other kind of corporate restructuring is undertaken for the purpose of expansion, growth or diversification of business.

However, corporate restructuring is much more than economic synergies, but it covers other intangible factors as well, such as corporate cultures, practices, policies, and environment etc.

Due to lack of planning and vision, various companies commit some common mistakes while handling post-merger integration –
(a) Ego problems on both sides – buyer and seller – have frequent frictions, resulting in clashes and the situation turns bad to worse. Hence, having distinct leadership may work out well.

(b) Attempt to hasten the integration between both the companies increases the chances of making serious errors. Sudden and radical changes such as relocating the company’s entire production operations should be carefully considered before implementation.

(c) Many buyers assert their ownership by moving quickly to convert the acquired company. This does not always work in the right direction.

(d) A cautious approach should be checked with competitor actions. Thus, while a company is focused on integration, it gives ample time for competitors to control the market.

(e) One of the most common and damaging mistakes is to lay off crucial employees from the acquired company. This is a very complicated, delicate matter and even the seller might not have an accurate idea as job titles can be misleading.

Question 14.
Is it possible for a shareholder to seek an amendment to exchange ratio embodied in the scheme while considering the resolution, put forth for approval? Support your answer with decided case law(s).
Answer:
A merger or amalgamation is a type of arrangement, whereby assets of two or more companies get transferred or come under control of one company.

The Tribunal shall convene and hold meetings of members and/or creditors for the purpose of passing resolutions for approval of the scheme. The members shall vote on the swap ratio computed by the Registered Valuer(s).

A shareholder attending, the meeting either can assent or dissent the resolution but cannot suggest any alteration in the scheme.

In the case of Dinesh Lakhani vs. Parke Davis (India) Ltd. it was held that the swap ratio forms an integral part of scheme of amalgamation.

The exchange ratio is a matter of expert determination. Hence, any change or alteration in the swap ratio shall invalidate the basis. Thus, a shareholder has no right to change the swap ratio or any other aspect of the scheme.

Question 15.
XYZ Ltd. and ABC Ltd. filed applications before National Company Law Tribunal (NCLT) for amalgamation of both the companies to form a new Company PQR Ltd. Regional Director by an affidavit pointed out the following inconsistencies in the application(s):
(a) Main objects of XYZ Ltd. sue not similar to that of ABC Ltd; and
(b) Authorized capital of PQR Ltd. is not sufficient to cover the total consideration.
As a Company Secretary, you are requested to brief the facts and background, along With the judicial precedents, to the counsel enabling him to proceed in the matter.
Answer:
As per section 230 of the Companies Act, 2013, an application shall be made to Tribunal for sanctioning a scheme of amalgamation.

The Tribunal has the power to sanction the scheme u/s 231 of the Companies Act, subject to approval in the shareholders’ meeting(s) and creditors’ meeting(s). The resolution shall be passed in the respective meeting through dual majority as given under section 230(6).

In the case of Sadanand Varde vs. State of Maharashtra, the High Court held that provisions relating to compromise, arrangement and amalgamations are a complete code. If a scheme of compromise or arrangement includes increasing share capital or reduction of share capital etc., it can be done as a part of the scheme, without complying i with specific provisions of the Act.

In other words, a scheme of compromise or arrangement is intended to be a single-window clearance system, so that the parties are not put to avoidable, unnecessary and cumbersome procedures of making separate applications for various changes.

Further, in the case of Rangkala Investments Ltd. it was held that Court will sanction the scheme if alteration of the memorandum is by reshuffling of the Objects Clause by shifting Other Objects to Main Objects as per procedure prescribed under the Act.

In the case of Mcleod Russel (India) Ltd. the High Court held that there need not be similarity between objects of Transferor and Transferee companies. Companies carrying entirely dissimilar businesses can amalgamate.

In the case of Mahavir Weaves Pvt. Ltd. it was held that the Transferee Company may increase its authorized capital, after approval of the scheme.

The Counsel in the matter can be briefed with the above judicial precedents to the objections or observations made by the Regional Director before the National Company Law Tribunal.

Question 16.
An Ltd. was a listed Company with Kanpur Stock Exchange hut got delisted in 2012. In the year 2017, the Board passed a resolution approving a scheme of arrangement and petitioned before the National Company Law Tribunal (NCLT). Subsequent to that, scheme was placed before the members which the NCLT ordered. Two (2) shareholders holding 80% shares opposed the scheme. As a Company Secretary, advise the Board on the next course of action(s) pursuant to the provisions of the Companies Act, 2013.
Answer:
As per section 230 of the Companies Act, 2013, an application shall be made to Tribunal for sanctioning a scheme of amalgamation.

As per section 230(6) of the Companies Act, 2013, compromise or arrangement would require approval by a majority of persons representing three-fourths (75%) in value of the creditors, or class of creditors or members or class of members, as the case may be.

Once the required approval is received in the members’ and creditors’ meeting, the scheme of compromise or arrangement shall be sanctioned by the Tribunal. Once the scheme is approved by the Tribunal, the same is binding on the company, all the creditors and members.

In the given case, the proposed scheme was opposed by two share¬holders holding 80% shares. Hence, it does not fulfil requirement of Section 230(6) and will not be approved by the Tribunal based upon the reports received from Scrutinizer and Chairman of the meeting.

Moreover, it is given that A Ltd. was delisted in 2012 and hence it was not required to submit the scheme with SEBI, so observations, if any, from SEBI or stock exchanges were not required.

The Board of ‘A’ Ltd. may review the said scheme of arrangement and prepare a revised scheme of arrangement considering the observations of shareholders, if any, and present it for shareholder’s approval upon NCLT directions.

Question 17.
“Consequent to restructuring, more particularly through mergers, amalgamations or takeovers, the management needs to be sensitive to employees’ morale”. Briefly comment on the validity of the statement.
Answer:
Mergers and amalgamations are a type of corporate restructuring strategies undertaken for the purpose of expansion, growth or diversification of business.

However, corporate restructuring is much more than, economic benefits, but it covers other intangible factors as well, such as corporate cultures, practices, policies, and environment etc.

A merger can join two cultures, two sets of procedures and protocols, two sets of policies and change the employment environment and prospects of several hundreds of employees, who have been the bedrock of past successes and the key to future value.

Companies need to be sensitive with regard to terms and conditions of employment specifically at senior levels in order to ward off high labour turnover.

Usually, Tribunal would uphold terms of employment to be no less favourable than existing terms and conditions. Post-acquisition, parent company may want the acquired to adopt compensation structure of the parent entity.

The Company needs to carefully handle such sensitive areas to ensure employee satisfaction and comfort, which pays in the long run in building an image apart from preventing or reducing employee turnout.

At times, in support functions, allocation becomes a challenge for senior positions like CFO, HR Head, etc. A careful planning is needed to avoid overlapping, underutilization.

Question 18.
What Is the Purpose of observation letter Issued by Stock Exchange(s) under SEBI (Obligations and Disclosure Requirements) Regulations, 2015?
Answer:
A merger or amalgamation is a type of arrangement, whereby assets of two or more companies get transferred or come under control of one company. Basically, it is a legal process whereby two or more companies come together for growth, expansion and prosperity.

In a scheme of merger or amalgamation, where one or more companies are listed, compliance of SEBI (LODR) Regulations, 2015 is mandatory.

As per Regulation 37 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed entity involved in a scheme of arrangement shall under file the draft scheme of arrangement with the stock exchange(s).

Such scheme shall be filed with the stock exchange for obtaining its Observation Letter or its No-objection Certificate (NOC) (letter with the comments of the stock exchange and SEBI on the draft scheme), before filing such scheme with any Tribunal, in terms of requirements specified by the Board or stock exchange(s) from time to time.

The listed entity shall place the Observation letter or No-objection letter of the stock exchange(s) before the Tribunal at the time of seeking approval of the scheme of arrangement.

The validity of the Observation Letter or NOC shall be six months.

Question 19.
As a Company Secretary, one should advise the Board regarding compliances under various legislations. Referring the cases of mergers or amalgamations, state the circumstances that warrant compliances under any or all of such legislations.
Answer:
A merger or amalgamation is a type of arrangement, whereby assets of two or more companies get transferred or come under control of one company. Basically, it is a legal process whereby two or more companies come together for growth, expansion and prosperity.

The entire responsibility is on the Company Secretary to ensure compliance of various legislations. In case of merger or amalgamations, the following legislations are required to be looked into for the purpose
of compliances –

The Companies Act, 2013 (Sections 230 – 240)
National Company Law Tribunal Rules, 2016
Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
Income-tax Act, 1961 (Income-tax Act, 1961 covers aspects like tax reliefs to the concerned companies, carry forward of losses, exemptions from capital gains tax etc.)
SEBI (LODR) Regulations, 2015 (Where scheme of arrangement involves a listed company, it is necessary to send a copy of the scheme to Stock Exchanges where the shares of such company are listed to obtain their No Objection Certificate)
Competition Act, 2002 – compliance with the Competition Act, and Competition Commission of India (CCI) Regulations relating to Combinations
Indian Stamp Act, 1899
The Insolvency and Bankruptcy Code, 2016 – as a part of resolution plan
FEMA (Cross Border Merger) Regulations, 2018 – for international mergers.

Question 20.
A scheme of Merger of Happy Limited with Lucky Pvt. Ltd. was filed with the National Company Law Tribunal (NCLT). The Regional Director raised objections that the additional filing fees and stamp duty on the increased share capital of the Lucky Pvt. Ltd. is to be paid and also against the changing name of the transferee company, for not complying with Section 61 of the Companies Act, 2013. Will the objection of the Regional Director hold good? Explain.
Answer:
As per section 230 of the Companies Act, 2013, an application shall be made to Tribunal for sanctioning a scheme of amalgamation. The Tribunal has the power to sanction the scheme u/s 231 of the Companies Act, subject to approval in the shareholders’ meeting(s) and creditors’ meeting(s).

In the case of Sadanand Varde vs. State of Maharashtra, the High Court held that provisions relating to compromise, arrangement and amalgamations are a complete code. Thus, a scheme of compromise or arrangement is intended to be a single-window clearance system, so that the parties are not put to avoidable, unnecessary and cumbersome procedures of making separate applications for various changes.

As per Section 232(3), where the Transferor Company is dissolved, the stamp duty fees, paid by it on its authorized capital shall be set off against any fees payable by the Transferee Company on its authorized capital subsequent to the amalgamation. After a merger or amalgamation, the authorised share capital of Transferor and Transferee company could be clubbed and additional fees may not be required to be paid.

In the case of Jaypee Cement vs. Jayprakash Industries Ltd. it was held that where the authorized share capital of the Transferor Company is combined with that of the Transferee Company, it does not require the payment of registration fee or the stamp duty because there is no reason why the same fee should be paid again by the Transferee Company on the same authorized capital.

In other words, where the Transferor Company is dissolved, the fees, paid by it on its authorized capital shall be set off against any fees payable by the Transferee Company on its authorized capital subsequent to the amalgamation.

Question 21.
M/s Happy Exports Limited was merged with M/s Smart Exports Limited. The order passed by High Court was filed with the Registrar of Companies (ROC). But the same was not taken on record by ROC. Will the scheme still be effective?
Answer:
As per section 230 of the Companies Act, 2013, an application shall be made to Tribunal for sanctioning a scheme of amalgamation. The Tribunal has the power to sanction the scheme u/s 231 of the Companies Act, subject to approval in the shareholders’ meeting(s) and creditors’ meeting(s).

As per Section 230(8) of the Companies Act, 2013, the sanction order of the Tribunal shall be filed with Registrar of Companies (ROC), within 30 days of the receipt of the order.

The compliance of Section 230(8), requires filing of the Tribunal order with the ROC and it does not specify the need for Registrar to register it. In other words, the order becomes effective only by filing the same with the ROC, within the time frame.

The ROC is bound to register the certified copy of the Tribunal order which is filed by the company. Therefore, if the company files the Tribunal Order sanctioning the scheme of amalgamation or merger with the Registrar of Companies then the scheme becomes effective.

Question 22.
The Tribunal can modify transfer date proposed in a scheme of amalgamation.
Answer:
Section 230 of the Companies Act, 2013 enables a company to enter into scheme of compromise and arrangement, whereas Section 231 empowers the Tribunal to sanction such schemes.

As per Section 23 1(1) of the Companies Act, 2013, the Tribunal has the power to supervise the implementation of any such scheme of compromise or arrangement.

The Tribunal may give directions or make such modifications in the compromise or arrangement as it may consider necessary, for the proper implementation of the compromise or arrangement.

Appointed Date or Transfer Date is the cut-off date from which all properties and liabilities are required to be transferred from the Transferor Company to the Transferee Company. As per Section 232(6), the appointed date must be clearly stated in the scheme of amalgamation.

In case of Marshall Sons & Co. Ltd. v. Income Tax Officer, the Supreme Court observed that it is true that while sanctioning the scheme, it is open to the Tribunal to modify the transfer date if there is little doubt that such date would be the date of amalgamation or date of transfer.

Hence, based on the above legal provisions and decided case law, we can say that the Tribunal has the power to modify the Transfer Date proposed in a scheme of amalgamation.

Question 23.
Narrate the conditions precedent and subsequent to Tribunal’s order sanctioning a scheme of arrangement.
Answer:
Section 230 of the Companies Act, 2013 enables a company to enter into scheme of compromise and arrangement, whereas Section 231 empowers the Tribunal to sanction such schemes.

As per Section 231(1) of the Companies Act, 2013, the Tribunal has the power to supervise the implementation of any such scheme of compromise or arrangement.

Following are the conditions, precedent and subsequent to Tribunals order sanctioning a scheme of arrangement –
(a) As per Section 230(3) the Tribunal shall instruct the company to send notice of the meetings to all members, creditors, or class thereof. The notice shall be accompanied by a statement disclosing the details of compromise/arrangement, copy of valuation report if any.

(b) As per Section 230(6), approval of the creditors and members or class thereof, is needed by simple majority in number and 3/4th majority in race

(c) After the Tribunal convened meeting and submission of Chairman’s report, the company shall file a petition to the Tribunal for sanctioning the scheme.

(d) Upon receipt of petition, the Tribunal shall fix a date for hearing of the petition. Such hearing date shall be published in newspapers, as above, at least 10 days before the hearing. After the hearing, the Tribunal may pass its order on the scheme.

(e) Where the company is under winding-up, the Tribunal shall not sanction a scheme of arrangement unless it has received a report from the Registrar of Companies to the effect that the affairs of the company have not been conducted in a manner prejudicial to public interest.

(f) Where the company is being dissolved, the Tribunal shall not an order for dissolution of a Transferor Company unless it has received a report from the Official Liquidator that the affairs of such company have not been conducted in a manner prejudicial to the interests of its members or to public interest.

(g) A certified copy of Tribunal order is required to be filed with the concerned ROC within 30 days of the receipt of the order. The Tribunal order shall be attached to the Memorandum Association of the Transferee Company.

Question 24.
Ludhiana Berry Ltd. has proposed merger of Jalandhar Berry Ltd. with itself. The merger scheme has been approved by 76% shareholders of Ludhiana Berry Ltd. and 98% shareholders of Jalandhar Berry Ltd. (in value terms). Explain with the help of relevant provisions and decided cases, whether this will be binding on all the shareholders (including dissenting shareholders).
Answer:
Section 230 of the Companies Act, 2013 enables a company to enter into scheme of compromise and arrangement, including merger and amalgamation.

As per Section 230(6), where 3/4th majority (in value) and simple majority in number of the creditors or members or any class thereof, agree to any compromiše or arrangement, it shall be binding on the company, all creditors, members or class thereof, if sanctioned by Tribunal.

The scheme must be approved by a resolution passed with the extraordinary majority, Le. a simple majority in number of members, creditors and representing 3/4th in value.

Thus, simple majority in number and not less than 75% in value present and voting at the meeting must approve the scheme. Hence, there is dual majority, Le. in number and in value.

In the given case, the merger scheme has been approved by 76% shareholders of Ludhiana Berry Ltd. and 98% shareholders of Jalandhar Berry Ltd. (in value terms).

However, the information is incomplete about the number of members present and voted in favour and against the resolution. Hence, in the given case, the data is insufficient to decide whether the requisite majority is achieved. In the absence of requisite majority u/s 230(6), the scheme shall not be approved.

Process of Merger and Acquisition- Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Process of Merger and Acquisition – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Corporate Restructuring Insolvency Liquidation & Winding-Up Notes