Mergers & Acquisitions under The Companies Act, 2013

Mr. Satwinder Singh, Partner, Vaish Associates Advocates, addressed the students on the key changes brought in the 2013 Act with regard to mergers and acquisitions.

The 1956 Act defines arrangement under Section 390(b) as including a reorganization of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes, or by both those methods. Under the 2013 Act this definition of the term ‘arrangement’ has been added as an explanation to Section 230. The 2013 Act also expressly provides for two additional forms of amalgamation, namely: by (i) absorption, and (ii) formation of a new company.

Section 233 of the 2013 Act allows for the possibility of initiating a fast-track merger. Accordingly, the 2013 Act provides for a scheme of merger or amalgamation between two or more small companies or between a holding company and its wholly-owned subsidiary or such other class or classes of companies, as may be prescribed.

Cross-border mergers have been introduced under Section 234 of the 2013 Act. As per the provision, a company registered under the 2013 Act may merge into a foreign company in notified jurisdictions, subject to Reserve Bank of India’s approval.

Mr. Singh also talked about the following key changes, as introduced in the 2013 Act:

The following definitions have been introduced:

• “One Person Company” means a company which has only one person as a member [Section 2(62)]
• “Associate Company” in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company having such influence and includes a joint venture company [Section 2(6)]
• “Foreign Company” means any company or body corporate incorporated outside India which – (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode and (b) conducts any business activity in India in any other manner [Section 2(42)]
• “Government Company” means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Government, and includes a company which is a subsidiary company of such a Government Company [Section 2(45)]
• “Listed Company” means a company which has any of its securities listed on any recognized stock exchange
• Definition of the term ‘Control’ under Section 2(27): “Control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

It has been stated under Section 58(2) that arrangements in respect of transfer of securities (even in case of public companies) shall be enforceable as a contract.

In reference to the definition of Associate Company, the definition of ‘significant influence’ has been added as an explanation. “Significant Influence” means control of at least twenty percent of total share capital, or of business decisions under an agreement.

Under Section 2(41) “Financial Year” has been defined as the period ending on the 31st day of March every year. In case a company has been incorporated on or after 1st day of January of a year, then the period ending on the 31st day of March of the following year shall be considered for preparing the financial statements.

Note: This post is part of the report on a conference titled 'Reflections on The Companies Act, 2013' organised by the Michigan-Jindal Centre for Global Corporate and Financial Law and Policy on the 24th of October, 2013