Regulatory Approvals – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
Question 1.
What is the entitlement of dissenting shareholders in case of amalgamation between banking companies? What are the information and documents required to be submitted by the banking companies to the Reserve Bank of India for determination of the value of shares by the Reserve Bank of India
Answer:
→ Any scheme of merger and amalgamation between two banking companies shall be approved by the Reserve Bank of India. Section 44A of the Banking Regulation Act, 1949 provides for the procedure w! for amalgamation of banking companies. S
→ Basically, dissenting shareholders means the shareholders who have | validly exercised their vote against the resolution for such merger and z amalgamation. Such shareholders have a right to oppose the merger, unless they have withdrawn or lost their rights.
→ As per section 44A(3) of the Banking Regulation Act, 1949, where a scheme of amalgamation is sanctioned by Reserve Bank of India, a dissenting shareholder is entitled to claim the value of the shares held by him in that company. Such claim shall be made within 3 months from the date of the RBI sanction.
→ The value per share shall be determined by the Reserve Bank of India and such value of shares to be paid to the dissenting shareholders shall be full and final for all purposes.
→ To compute such value per share, the amalgamating banking company shall submit the following details to the Reserve Bank of India –
(a) A report on the valuation of the shares of the amalgamating company made for this purpose by the valuers appointed for the determination of the swap ratio.
(b) Detailed computation of such valuation.
(c) Where shares of the amalgamating company are quoted on the stock exchange
- Details of the monthly high and low of the quotes on the exchange where the shares are widely traded together with number of shares traded during the six months immediately preceding the date on which the scheme of amalgamation is approved by the Boards.
- The quoted price of the share at close on each of the fourteen days immediately preceding the date on which the scheme of amalgamation is approved by the Boards.
(d) Such other information and documents as the Reserve Bank of India may require.
Question 2.
Several Credits Finance Company Ltd., a Non-Banking organization is in the discussion for a merger with Hatak Bank Ltd., a scheduled Bank. Recommend the action points briefly.
OR
Question 3.
Certain aspects should be ensured by designated authority other than the High Court while granting approval of amalgamation of a non-banking financial company (NBFC) with a banking company. Name the authority and discuss the aspects to be ensured.
Answer:
→ Amalgamation of a banking company with another banking company is governed by the provisions of the Banking Regulation Act, 1949. In such cases, the provisions of the Companies Act, 2013 are not applicable in this case.
→ Where a Non-Banking Financial Company (NBFC) merges into a banking company, the NBFC shall obtain approval from the Tribunal and the banking company should obtain the approval of the Reserve Bank of India (RBI).
→ Following factors shall be ensured
(a) the NBFC has not violated any RBI/SEBI norms;
(b) the NBFC complied with KYC of all its accounts holders;
(c) if the NBFC has availed credit facilities from banks or financial institutions, whether the loan agreement requires the NBFC to seek consent of the lending bank/financial institution for such merger/amalgamation.
→ The banking company shall furnish to the Reserve Bank of India, information as specified in the schedule to the direction and also the information and documents relating to the valuation along with its computation and the quoted price details.
Question 4.
“Amalgamation of Government Companies requires a simplified procedure for compliance”. List out the steps involved upto the stage of approval by Central Government for amalgamation of Government companies.
Answer:
→ Section 237 of the Companies Act, 2013 empowers the Central Gov-ernment 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.
→ Broad steps involved in the amalgamation of Government companies are as under:
1. Government companies applying for amalgamation should obtain approval of Central Cabinet. In case of State Undertakings approval of State Council of Ministers is required.
2. In case of amalgamation of Joint Holding of State and Central Government in companies, approval of both Central and State Government is to be obtained.
3. Government companies intending to amalgamate should pass resolution at a general meeting of members of both the companies with all necessary compliances.
4. Every resolution of a government company should be passed at the general meeting by members holding 100% of the voting power and such resolution should contain complete details showing assets and liabilities of amalgamating companies.
5. Before passing resolution as above, 30 days’ notice in writing together with a copy of proposed resolution should be given by the Govt, company to all the members and creditors.
6. A resolution passed by the Government company is not valid and does not take effect, unless
- the assent of all creditors has been obtained, or
- assent of 90% of the creditors by value has been received and the company certifies that there is no objection from any other creditor.
7. Resolution passed by both the amalgamating companies along with approval of Cabinet should be sent to the Central Government. On being satisfied, the Central Government may order by notification in the Official Gazette, that the said amalgamation shall take effect.
Question 5.
ABC Bank Ltd. contemplates to merge with PQR Bank Ltd. Accordingly, draft scheme of amalgamation is placed before the Board of Directors of both the banks. The said scheme is aimed to be placed in the shareholders meeting thereafter. Mention the aspects which board of both the companies should consider in approving draft scheme of amalgamation.
Answer:
- Amalgamation of one banking company with another banking company is governed by the provisions of the Banking Regulation Act, 1949. The provisions of the Companies Act are not applicable in this case.
- Section 44A of the Banking Regulation Act, 1949 provides for the procedure for amalgamation of banking companies. Section 44A requires that the draft scheme of amalgamation has to be approved by the shareholders of each banking company.
- The resolution shall be passed by simple majority in number as well as 2/3rd majority in value of the shareholders. Such resolution can be passed by members present in person or by proxy at a meeting called for the purpose.
- Before convening the said meeting, the draft scheme of amalgamation shall be approved by the Boards of Directors of the two banking companies. The Board of Directors of the merging companies shall consider the following factors
- Values at which the assets, liabilities and reserves are proposed to be incorporated into the books of the amalgamated banking company.
- Whether due diligence exercise has been undertaken in respect of the company.
- Nature of consideration, which a bank will pay to shareholders of other company.
- Whether swap ratio is determined by independent valuers having required competence and experience and whether in the opinion of the Board such swap ratio is fair and proper.
- Shareholding pattern after the swap ratio, shall not violate the RBI guidelines,
- Impact of amalgamation on the profitability and the capital ad-equacy ratio of the company,
- Compliance with Basel Committee Norms,
- Changes which are proposed to be made in the composition of the board of directors of the amalgamated banking company, in conformity with the RBI guidelines in that behalf.
Question 6.
“In amalgamation of two or more banking companies, Company Law is not applied.” Comment, briefly explaining the procedure for amalgamation of banking companies.
Answer:
- Amalgamation of one banking company with another banking company is governed by the provisions of the Banking Regulation Act, 1949. The provisions of the Companies Act are not applicable in this case.
- Section 44A of the Banking Regulation Act, 1949 provides for the procedure for amalgamation of banking companies. Section 44A requires that the draft scheme of amalgamation has to be approved by the shareholders of each banking company.
- The resolution shall be passed by simple majority in number as well as 2/3rd majority in value of the shareholders. Such resolution can be passed by members present in person or by proxy at a meeting called for the purpose.
- Before convening the said meeting, the draft scheme of amalgamation shall be approved by the Boards of Directors of the two banking companies.
- The Board of Directors of the merging companies shall consider the following factors
- Valuation of assets, liabilities and reserves;
- Effective due diligence exercise has been undertaken;
- Nature of consideration, payable as a part of the merger;
- Computation of swap ratio by independent valuers.
- Shareholding pattern after the swap ratio, shall not violate the RBI guidelines etc.
- The amalgamating banking company should submit to RBI the information and documents such as draft scheme of amalgamation, copies of the notices of every meeting of the shareholders, copies of valuers’ reports, appointed for the determination of the swap ratios etc.
- If the scheme of amalgamation is approved by requisite majority of shareholders in accordance with the provisions of this section, it shall be submitted to RBI (Reserve Bank of India) for its sanction. The RBI may sanction a scheme by an order in writing. A scheme sanctioned by the RBI shall be binding on the banking companies concerned and on all the shareholders thereof.
- Once the scheme of amalgamation is sanctioned by RBI, the property and liabilities of the transferor banking company, shall, by virtue of the order of sanction, be transferred to the transferee company. No further document will be necessary for effecting the transfer of the property from the transferor to the transferee company.
- Where RBI sanctions a scheme of amalgamation, it may direct that on the date specified in the order, the transferor banking company shall stand dissolved. A copy of the order directing dissolution of the transferor banking company shall be forwarded by the RBI to the office of the ROC at which it has been registered. On receipt of such order, the Registrar shall strike off the name of the company.
Question 7.
“Prior approval of the Reserve Bank of India is required before acquiring controlling stake in a deposit taking NBFC.” Do you agree? Justify your answer
Answer:
- Amalgamation of a banking company with another banking company is governed by the provisions of the Banking Regulation Act, 1949. In such cases, the provisions of the Companies Act, 2013 are not applicable in this case.
- Where a Non-Banking Financial Company (NBFC) merges into a banking company, the NBFC shall obtain approval from the Tribunal and the banking company should obtain the approval of the Reserve Bank of India (RBI).
- Basically, RBI permission is not required for merger between two or more NBFCs. However, RBI approval shall be needed, where an NBFC had license (authorization) to accept deposits from the general public.
- As per Non-Banking Financial Companies (Deposit Accepting) (Approval of Acquisition or Transfer of Control) Directions, 2009, any takeover
or acquisition of control of a deposit taking NBFC, shall require prior written approval of Reserve Bank of India. - The Reserve Bank of India may, exempt any NBFC from all or any of the provisions of these directions either generally or for any specified period, subject to conditions.