Recent changes in law towards fast-track M&A

Sections 391 to 394 of India’s Companies Act, 1956, provide a comprehensive legal framework that enables corporate entities to enter into multi-faceted arrangements with their shareholders and creditors by way of a court-approved scheme. The word “arrangement” has been interpreted to include merger/amalgamation/acquisition, demerger/slump sale/hive-off, debt/capital restructuring, and all other forms of corporate restructuring, and courts have declared these provisions to be a complete code in themselves, in relation to giving effect to such corporate restructuring proposals.

The Companies Bill, 2011, which would overhaul the whole act, provides for fast-track mergers among group companies, cross-border mergers, etc. Certain provisions of the bill would facilitate mergers and acquisitions (M&A) between two or more small companies (as defined in the bill) or between a parent and its wholly owned subsidiary, which could be consummated without approaching a high court.

Under this mechanism, a notice of the proposed scheme inviting any objections or suggestions from the Registrar of Companies (RoC), the Official Liquidator (OL) or persons affected by the scheme, is to be issued by the companies proposing the scheme. Any objections or suggestions received within the specified time frame of 30 days must be considered by the companies in their respective general meetings and then the scheme has to be approved by members or classes of members representing at least 90% of the total share capital of the companies.

Kalpataru Tripathy is a partner and Kirti Mahapatra is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.