A presentation ‘Compromises, Arrangements & Amalgamations with Special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013 ‘ given by Mr. Chander Sawhney at IICA

1. "It's all about where your mind's at"
Compromises, Arrangements & Amalgamations with Special
reference to Protection of Minority & Dissenting Shareholders
under Companies Act, 2013

2. Particulars
Pg. No.
What and Why
3
How under Companies Act, 1956
7
Paradigm Shift
12
Comparison between Companies Act, 1956
and
Companies Act, 2013
16
Issue and Impact analysis
23
Indian Institute of Corporate Affairs (IICA)

3. WHAT & WHY

4. Tools of Re- structuring
TOOLS OF RESTRUCTURING
Merger /
Amalgamation
Demerger
Financial
Reconstruction
Acquisition of
shares
Consolidation of
businesses / entities
Divest non-core
business
Restructuring within the
Company
Acquiring interest in
new business/ entity
Deals with section 391- 394
Deals with section 395
NOTE –under Section 396 of Companies Act, 1956 Central Government may Amalgamate two
Companies in public interest
Indian Institute of Corporate Affairs (IICA)

5. Key Drivers for Re- structuring
Unlocking of Value and
its Sustainability
Restatement of Balance
Sheet
Business clarity to
Investors and Analysts
Improving Governance
Processes
Positioning the
businesses to be more
competitive
Making Businesswise
Fund raising possible
Business Risk
Management
Stock & Credit Rerating
Investor Relations

6. Regulatory aspects under various statues
Takeover
Regulations
Accounting
Competition
Commission
of India
Standards
(IFRS)
Companies
Act, 2013
SEBI and
Stock
Exchanges
Income Tax
(DTC)
Indirect Tax
(GST)
FEMA
Stamp Duty
Indian Institute of Corporate Affairs (IICA)

7. HOW

8. Procedure under Sec 391-394 of Companies Act, 1956
Procedure to be followed
Considering proposal for Merger and Amalgamation
Preparation of Scheme of Amalgamation , Valuation and Fairness Opinion (if Co.
is listed)
Approval of the Scheme by Board of Directors of the Companies
Filing of Scheme with the designated Stock Exchanges for SEBI approval, if Co. is
listed
Filing of Application in High Court
Convening of Shareholders and Creditors Meetings – decision reported to Court
Indian Institute of Corporate Affairs (IICA)

9. Procedure under Sec 391-394 of Companies Act, 1956
Procedure to be followed
Notice to Regional Director and Official Liquidator and submission of their NOC
with High Court
Final Hearing by High Court
Obtaining High Court Order and filing with Registrar of Companies
Annexing the copy of High Court order with Articles of Association
Post Merger compliances
Indian Institute of Corporate Affairs (IICA)

10. Regulatory Moves in case of restructuring
involves listed Company
SEBI
SEBI has also increase Transparency and more disclosure to protect the interest of
investors after 4th February and 21st May 2013 Circular
Valuation by independent chartered account mandatory other than those specifically exempted.
''Valuation Report from an Independent Chartered Accountant'' is not required in cases where
there is no change in the shareholding pattern of the listed company / resultant company.
As per SEBI circular, vote by public shareholder through postal ballot and E-voting is required in such
a case when additional shares have been allotted to promoters / promoter group, related party of
promoter, associates of promoters.
Indian Institute of Corporate Affairs (IICA)

11. Acquisition of shares (Section – 395 of Companies Act, 1956)
Section 395 is the only provision in the Companies Act that deals with the
compulsory acquisition of shares of minority shareholders.
When 9/10th Value of shareholder accept the offer of Acquirer Company
Acquirer company will give notice to Minority Dissenting Shareholders
The Dissenting Shareholder have the right either negotiate the term condition or
they have right to file their objection to Company Law Board
Wide powers of discretion have been conferred on the Company Law Board to
allow or reject an offer to squeeze out a minority group under section 395
Indian Institute of Corporate Affairs (IICA)

12. A paradigm shift
12/16/2013

13. Introduction of NCLT
High
Court
BIFR
CLB
NCLT
Indian Institute of Corporate Affairs (IICA)

14. Modifications for Merger and Amalgamation
under Companies Act, 2013
Companies Act 2013
If Reduction of Capital is the part of Scheme then it has to be
disclosed to NCLT through affidavit
Notice of any meeting relating to any Compromise and Arrangement shall also
be given to CG, Income Tax Authorities, RBI, SEBI, Stock Exchanges, OL, CCI
for their representation
Representation has
to give within a
period of 30 Days
from the date of
receipt of letter
Notice of any meeting relating to any Compromise and Notice of the meeting will also
specify the impact of scheme on Creditors, KMP, Promoter, Non-promoters Members
Wider shareholder participation through voting by postal ballot possible
Only those shareholder’s can raise objection to the scheme who holds not less than 10% of the
shareholding
Indian Institute of Corporate Affairs (IICA)

15. Modifications for Merger and Amalgamation
under Companies Act, 2013
Companies Act 2013
Only those creditors can raise objection to the scheme who holds 5 %
of the total outstanding debt
The tribunal may provide the order for Exit option to dissenting shareholders
based upon the valuation by Registered Valuer
In case of buyout of a company when the majority holding ≥ 75 negotiate secretly for a
higher price then such gain shall be shared with the minority shareholders on pro-rata basis
Creditors meeting not required if > = 90% in value agree and confirm by affidavit
Titled of Single window clearance has been taken off in case of Buy Back of shares (including
cooling period of one year)
Takeover through scheme of arrangement allowed in accordance with regulations to be framed by
SEBI
Certificate from Statutory Auditor that accounting treatment complies with prescribed accounting
standards (Currently applicable to listed Companies)

16. Comparison

17. Cross Border Mergers
Companies Act 1956
Permits
only
inbound
Companies Act 2013
foreign
 Permits
outbound
mergers
i.e.
amalgamation of Indian companies
with Foreign companies
company mergers
 Requirements relating to inter alia
notified
foreign
jurisdiction
and
compliance with prescribed rules
applicable to inbound as well as
outbound merger
 Scope of inbound mergers may get
restricted to notified jurisdictions
Indian Institute of Corporate Affairs (IICA)

18. Demergers
Companies Act 1956
 No
Companies Act 2013
 Demerger defined to mean a demerger
specific
demerger
definition
under
the
of
a
current
Companies Act
 Also, no prescribed accounting
treatment
for
as per Income-tax Act, 1961
 Accounting treatment for demerger also
now prescribed
 Such
recording
accounting
treatment
applicable till the date of notification
demergers
of the relevant AS
 Consistency
with
Income
tax
definition?
 Revaluation reserve beyond two
years allowed under the draft rules
Indian Institute of Corporate Affairs (IICA)

19. Treasury Shares
Companies Act 2013
Companies Act 1956
 Prohibits
On merger of wholly or partially
owned subsidiary with its parent,
new shares in lieu of shares held
by parent itself may be allotted to a
trust which will hold such shares
for parent’s benefit
companies
from
holding
shares in the name of trusts either on
its
behalf
or
on
behalf
of
any
subsidiaries or associate companies
on corporate restructuring
 Negates the advantage available
earlier to the company to indirectly
hold such shares to provide access
to liquidity
 Would existing trust structures be
grandfathered?
Indian Institute of Corporate Affairs (IICA)

20. Merger of listed company with unlisted company
Companies Act 2013
Companies Act 1956
 On
merger
of
listed
unlisted
company,
company
shall
company
until
company
the
remain
it
with
transferee
an
unlisted
becomes
a
exit
listed
route
company
No specific provisions governing
merger of listed company with
unlisted company
 Provision
for
an
for
shareholders of the transferor company
 Payment of value of shares and other
benefits
in
determined
accordance
price
formula
with
pre-
or as
per
prescribed valuation
 Indirect way of minority squeeze-out /
delisting?
Impact
on
amalgamation
tax
if
neutrality
more
than
shareholders opt for exit route?
Indian Institute of Corporate Affairs (IICA)
of
25%

21. Exemption from court process
Companies Act 2013
Companies Act 1956
 Option to following companies to undertake
corporate
reorganizations
like
amalgamation, demerger, etc. without Court
process
 Between two or more small companies as
No provisions for exemption from
court
process
for
defined in the Cos Act 2013. Small co. is
corporate
reorganisations
private co. having capital <50 lacs or
like
turnover <2cr.
amalgamation, demerger, etc
 Between holding company and WOS
 Other prescribed class of companies

Procedure involves
Notice of the meeting to be sent to
Registrar and Official Liquidators inviting
suggestion / objections to scheme
Approval from >=90% shareholders and
>=90% of creditors (value)
Representation of approval not required
Indian Institute of Corporate Affairs (IICA) (RBI, Income Tax etc)

22. Rehabilitation of Sick Companies
 All the Companies, whether Industrial Company or not, are covered
now
 Criteria for erosion of 50% Net Worth erosion knocked off
 Power has been entrusted with Secured Creditors, representing 50%
or More of the Debt of the Company.
 Net Worth (old law )Vs Repayment of debt(New law ), Provisions of
new Act are on lines with Chapter XI of US Bankruptcy Law
 Introduction of “Rehabilitation and Insolvency Fund”
Indian Institute of Corporate Affairs (IICA)

23. Issue and Impact Analysis
Indian Institute of Corporate Affairs (IICA)

24. Issues
 Due to Involving of so many authorities the speed of Compromise Arrangement
may effect,
 In case of fast track merger approval required form Members holding 90%
Shares and Creditors holding 90% in value, this may be difficult,
 Other statutory regulations need alignment;
 Income Tax
 RBI
 SEBI
 FEMA
 Accounting Standards
 Delisting regulations
Indian Institute of Corporate Affairs (IICA)

25. Impact
 Internal Restructuring will increase due to separate provision for Small
Companies (Only Private Companies) and Holding and Wholly Owned
Subsidiary Company under Fast Track Merger,
 Only relevant issue on Compromise and arrangement will be raised due to
prescribed limit for objecting the Scheme,
 Dissenting shareholder will easily exit the Compromise and Arrangement,
 There will be more Cross – Border Transaction in form of Merger and
Amalgamation
 Role of other authority like Income Tax, RBI etc becomes important,
Indian Institute of Corporate Affairs (IICA)

26. That is what learning is, you suddenly
understand something you have understood
all your life, but in a new way
…………………………….. Doris Lessing
Indian Institute of Corporate Affairs (IICA)

27. Chander Sawhney,
Vice President
Corporate Professionals Capital Pvt. Ltd.
SEBI registered merchant banker
Email : chander@indiacp.com
Mobile: 9810557353; Direct: 40622252
www.corporateprofessionals.com;
D-28, South Extension, Part-I, New Delhi-110049