Ketan Dalal
The wait for the new avatar of the Companies Act has got longer, with the Bill not being introduced in the winter session of Parliament.
The Bill is likely to be based on the recommendations of the J.J. Irani committee report which was issued as far back as May 2005. The committee has, among other things,recommended changes tothe existing provisions dealing with mergers and acquisitions (M&As) of companies inIndia.
In view of the significant M&A activity, there is a serious need to facilitate it. The extent of the activity can be gauged from the fact that there were 339 M&A deals with a total value of about Rs1.76 trillion during the first six months of 2007 against 480 deals of about Rs80,000 crore in all of 2006.
One of the important dimensions on M&A is the intent to have the merger applications heard by the National Company Law Tribunal (NCLT), as distinct from the high court, which is the position today. The NCLT issue has been hanging fire and is currently before the Supreme Court. One hopes that thisissue will be resolved soon and NCLT will function in a transparent and efficient manner to further facilitate M&As on the fast track. The NCLT issue does not emerge out of the Irani committee report, but needs to be borne in mind as an important dimension.
This article seeks to take a close look at the merger provisions recommended by the committee.
The committee took note of the fact that the process of M&A is time-consuming and court-driven. In relation to mergers, the Union government plays a role through the official liquidator (OL) and the regional director (RD) of the ministry of corporate affairs. The committee suggested that OL and RD be asked to furnish information that may have a bearing on the proposed merger, that the information be furnished within a stipulated time and if nothing is furnished within the time, it may be presumed that they have no comments to offer. Such a “presumed no objection” clause will clearly require RD and OL to respond within a reasonable time.
‘Differential’ provisions
According to the committee, mergers between private companies should be distinguished from mergers between public limited companies. The concept of mergers through agreements between two parties (that is, contractual mergers) may be given statutory recognition. Mergers where no public interest is involved should be effectuated by following a simple procedure without the intervention of the court, that is, by the approval of shareholders. The methodology on how this would work is unclear, but this is an important suggestion and can work well, subject to certain safeguards.