Procedure & Process of M&As under the New NCLT Regime

Private & confidential Section - I Overview of M&A Provisions under Companies Act, 2013 NCLT Transitional Provisions Procedural Changes Section – II Conceptual Changes Process & Procedure of New M&A Concepts Comparative Merger Process under Companies Act, 1956 and Companies Act, 2013

Overview of M&A Provisions under Companies Act, 2013

1956 ERA Re- organization Provisions as per Companies Act, 1956 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

2013 ERA Re- Organization Provisions as per Companies Act, 2013 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 230- 234 Deals with section 235 - 236 Corporate Debt Restructuring - section 230 Fast Track Merger - section 233 Cross Border Merger - section 234 NOTE –under Section 237 of Companies Act, 2013 Central Government may Amalgamate two Companies in public interest

Pragmatic reforms of M&A NCLT CDR Treasury Shares Merger of Listed Company with Unlisted Company Fast Track Merger Registered Valuer Dissenting Shareholder Approval of Scheme through Postal Ballot Cross Border Merger Notice of Meeting to be sent to various regulatory authorities Minority Squeeze out Limit for Objection to Compromise/ Arrangement 4/20/2017

“SINGLE WINDOW CLEARANCE FOR CORPORATE RE-STRUCTURING” NCLT “SINGLE WINDOW CLEARANCE FOR CORPORATE RE-STRUCTURING”

NCLT Introduction of NCLT BIFR High Court CLB NCLT The creation of a single forum (NCLT) which is dedicated to corporate matters is a welcome move, and removes the problem of multiple regulators.

Introduction of NCLT SC (Only on the Question of Law) Appeal Can be made to NCLAT Powers Vested to NCLT Particulars High Court CLB BIFR Other Powers High Courts primarily in relation to winding-up, amalgamation, restructuring and appeals from CLB CLB under the Companies Act, 1956 primarily oppression and mismanagement BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 Seeking exemption for having FY of a company which ends on a day other than 31 March; Issue of further redeemable preference shares in lieu of arrears of dividend or failure to redeem existing reference shares as per the terms of issue; Preparation of revised financial statement or board report for past 3 FYs, where BOD believes that they do not comply with the relevant provisions; Conversion of a public limited company into a private limited company; Filing Class action suits; Appeals Within the HC and then to Supreme Court (SC) High Court (HC), then appeal to SC AAIFR , then writ petition to HC  

Structure of NCLT Existing CLB offices to be converted in NCLT; President and Every Member of Tribunal shall hold office as such for a term of Five years and shall be eligible for reappointment for another term of Five Years

Notified Provisions wrt NCLT Section Particulars 407 Definition 408 Constitution of National Company Law Tribunal 409 Qualification of President and Members of Tribunal 410 Constitution of Appellate Tribunal 411 Qualification of Chairperson and Members of Appellate Tribunal 412 Selection of Members of Tribunal and Appellate Tribunal 413 Term of office of President, Chairperson and other Members 414 Salary, allowance and other terms and conditions of service of Members Issue: Madras Bar Association which sort of half won the case against company law tribunals in 2010 is agitating again. It has filed a petition in the SC against the Companies Act, 2013 and seek to challenge constitutional validity of the setting of NCLT and NCLAT by the Companies Act, 2013

Transitional Provisions

Transitional Provisions Restructuring Matters at time NCLT becomes operational >> Transferred from High Court to NCLT and NCLT will continue from the stage and before transfer and complete it. M&A Cases (High Court) Any appeal Pending to AAIFR or procedure pending to BIFR under SICA, 1985 before the commencement of Companies Act, 2013 >> Shall stand abated >> Fresh reference require to be made to the Tribunal under the Companies Act, 2013 within 180 days from the day this, Act becomes effective. SICA Cases (BIFR) Cases pending before CLB >> Transferred to NCLT (High Court power under 10F of the Companies Act, 1956 has been saved) CLB Cases

Procedural Changes

Procedure revamp under Companies Act, 2013 An application under Section 230 for Compromise / Arrangement / Amalgamation, have to disclose following to the NCLT :- All material facts relating to the Company ; Latest Financial position of the Company & Latest Auditor’s report Any investigation and proceeding against the Company, If Reduction of Share Capital is part of scheme

Procedure revamp under Companies Act, 2013 (Cont) Notice of proposed meeting required to be sent to :- All Creditors / Members / debenture holders (even if right is not affected) Central Government, Income Tax Authority RBI SEBI ROC Respective Stock Exchanges Official Liquidator CCI Sectoral Regulators or Authorities which are likely to be affected All these authorities will give their representation within 30 days of receipt of notice.

Procedure revamp under Companies Act, 2013 (Cont) Notice shall be accompanied by :- A statement disclosing details of compromise arrangement i.e. explanatory statement; A copy of Valuation Report by Registered Valuer Explaining the effect of Compromise and arrangement on creditors, KMP, Promoter, Non- promoter members, Debenture holders; Any material interest of the Director of the Company and debenture trustee; Expert report on Valuation is needed in case of merger & amalgamation ; Supplementary Accounting statement is also required in case of merger & amalgamation ;

Procedure revamp under Companies Act, 2013 (Cont) Notice shall also provide an option to vote through postal ballot Only those shareholder’s can raise objection to the scheme who holds not less than 10% of the shareholding 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 Certificate from Statutory Auditor that accounting treatment complies with prescribed accounting standards (Currently applicable to listed Companies) Every Company has to file a yearly statement with ROC until the completion of the scheme, certifying that compliance is as per an order of tribunal

Procedure revamp under Companies Act, 2013 (Cont) Now NCLT have jurisdiction over CORPORATE DEBT RESTRUCTURING SCHEME also and following are the disclosure with application :- A Creditors Responsibility Statement; Safeguard to the protection of other Creditors; Report by Auditor that fund requirement as approved after CDR will confirm to liquidity test; Statement to the effect, if Company proposes to adopt CDR guideline specified by RBI; Valuation Report of assets by registered valuer

Section - II

Private & confidential Section – II Conceptual Changes Process & Procedure of New M&A Concepts Comparative Merger Process under Companies Act, 1956 and Companies Act, 2013

Fast Track Merger SMALL CO. FAST TRACK MERGER HOLDING CO. SMALL CO. WHOLLY OWNED SUB CO. Small Company means Company other than PUBLIC CO. having PAID Up CAPITAL Rs. 50 Lakh and TURNOVER Rs. 2 Crores but not include Holding Co., Subsidiary Co. and Charitable Co. Central Government has the power to sanction the scheme, no requirement to approach NCLT NOTICE to ROC, OL and person affected to the scheme inviting Objection / Suggestion (if any) within 30 Days (starting point of thirty days is not specified); Each company involved in merger has to file declaration of solvency with the ROC; APPROVAL OF SCHEME : - Objection and suggestions received from ROC and OL are considered in the general meeting; Scheme is approved by members holding Ninety Percent of the total number of shares;

Fast Track Merger (Cont.) Creditors majority representing Ninety Percent in value in meeting or approved in writing; Only Transferee Company shall file the approved scheme with the Central Government (power should be delegated to Regional Director), ROC and OL; ROC and OL shall communicate their objections / suggestions to the scheme within Thirty days from the receipt of notice with the Central Government; If no communication is received from ROC and OL or they have communicated positive remarks and given no objection to the scheme ; Or Central Government believe that scheme is in the public interest then Central Government shall register the scheme and issue confirmation order to the companies; If Central government has opinion that scheme is not in public interest or creditors, then within Sixty days of the receipt of the scheme, Central Government may file an application to NCLT and requesting NCLT to consider the scheme under normal merger provisions;

Impact Analysis of Fast Track Merger Encourage corporate restructurings for small and group companies Will result in faster disposal of the matter No need of separate RBI / IT approval Provisions of Registered Valuer are not specified Approval required form Members holding 90% Shares and Creditors holding 90% in value, may be difficult,

UNDER SECTION 234, COMPANIES ACT, 2013 Cross Border Merger CROSS BORDER MERGER UNDER COMPANIES ACT, 1956 Foreign Company (can be only Transferor Co.) Indian Company (Only can be Transferee Co.) UNDER SECTION 234, COMPANIES ACT, 2013 Foreign Company Indian Company Notified by CG Now Indian Co. can be transferor as well as transferee co. CG may make the Rules, in consultation with RBI Prior approval of RBI is also required

Impact Analysis of Cross Border Merger Flexibility for company structuring overseas Cross Border restructuring will increase Opportunity for Indian companies to form corporate strategies on a global scale Scope of inbound mergers may get restricted to notified jurisdictions

TAKEOVER THROUGH COMPROMISE ARRANGEMENT SCHME acquisition of control of a company other than a listed company pursuant to a scheme of compromise or arrangement under section 230; or acquisition of fifty percent or more of the total share capital of a company other than a listed company pursuant to a scheme of compromise or arrangement under section 230 LISTED COMPANY UNLISTED COMPANY AS PER SEBI TAKEOVER CODE DRAFT RULE -15.11

Impact Analysis of Takeover / Acquisition Takeover of unlisted co’s will get impacted with the increase in stringent provisions to be followed.

Minority Squeeze Out ACQUISITION U/S 235 / 236 Where acquirer becomes registered holder of 90% or more of the issued shares due to scheme or contract involving transfer of shares or by virtue of an amalgamation, shares exchange, Conversion of Securities, then ; Acquirer have to buy the minority shares as per following formula for price determination :- IN CASE OF LISTED COMPANY Price as per SEBI Regulations; Registered valuer to provide valuation report to the Board of Directors of the company justifying the methodology of arriving at such price IN CASE OF UNLISTED CO. (INCLUDING PVT) The highest price paid by the acquirer, person or group of persons for acquisition during last twelve months; fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters

Minority Squeeze Out (Cont) ACQUISITION U/S 235 / 236 Registered Valuer shall also provide a proper valuation report to the to the Board of directors of the Company justifying the mythology of arriving such price; fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters

Impact Analysis of Minority Squeeze out Provides an exit option to minority shareholders in unlisted companies as well . Issue: Inconsistency between Companies Act, 2013 and SEBI delisting regulations which provide that purchase price for minority shareholders should be determined as per reverse book building

Merger of listed company with unlisted company On merger of listed company with unlisted company, the transferee company shall remain an unlisted company until it becomes a listed company Provision for an exit route for shareholders of the transferor company Payment of value of shares and other benefits in accordance with pre-determined price formula or as per prescribed valuation

Impact Analysis of Merger of listed company with unlisted company Streamlined the entire process of merger Dissenting shareholder will get exit opportunity Issue: Inconsistency between Companies Act, 2013 and SEBI delisting regulations

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”

Rehabilitation of Sick Companies: Process Secured creditors shall make an application (u/s 254) for revival and rehabilitation of the company within a period of 60 days, to the Tribunal, from the date of determination of the company as a sick company by the Tribunal (u/s 253). Tribunal On receipt of Application for revival and rehabilitation (upon declaration as sick company) shall appoint an Interim Administrator within 7 days from the receipt such application to convene meeting of creditors and submit report to the Tribunal determining the possibility of revival and rehabilitation of the company; On submission of report by the Tribunal may If it is not possible to revive the Company order that the proceeding for the Winding up of the Company; appoint a Company Administrator for the company and prepare a scheme of revival and rehabilitation of the SICK Company if revival is possible Approval of Scheme Creditors meeting within 60 days (may be extended to 120 days by Tribunal ) of the appointment of Company Administrator. Separate meetings for secured and unsecured creditors Scheme shall be approved by the Unsecured Creditors representing One – Fourth in value of the amount and the Secured Creditors, representing three – fourth in value of the amount No such scheme shall be deemed to be approved where it relates to Amalgamation of Sick company with any other Company and such scheme has also been approved by shareholder of both the Company by a Special resolution with or without Modification.

Rehabilitation of Sick Companies: Process (Cont) The sanction accorded by Tribunal shall be conclusive evidence. A copy of the Sanctioned scheme shall be field with Registrar by Sick Company within a period of 30 days from the date of receipt of a copy thereof

Impact Analysis of Rehabilitation of Sick Co’s A rational move to correlate ‘sickness’ with a company’s inability to pay its debts rather than with erosion of net worth which is more governed by accounting considerations

Comparative Merger Process under Companies Act, 1956 and Companies Act, 2013 Particulars Companies Act, 1956 Companies Act, 2013 Normal Fast Track Merger Sanctioning Body High Court NCLT Central Government Approval Required Ø  Shareholders and Creditors; Ø  High Court ; Ø  NCLT ; Ø  CG (through RD); Ø  OL; Ø  ROC; Ø  RD (IT department representation also to be considered); Ø  RBI;   Ø  SEBI approval through Stock Exchange (in case of Listed Co's) Ø  IT department; Ø  CCI; Ø  SEBI approval through Stock Exchange (in case of Listed Co's); Ø  Any other sectoral Authority Approximate Time 5 -6 Months (in case of Unlisted Company) 4 – 5 Months (in case of Unlisted Company) 3 – 4 Months (in case of Unlisted Company) Additional Time 1 to 2 Months in case of Listed Company

That is what learning is, you suddenly understand something you have understood all your life, but in a new way …………………………….. Doris Lessing

Mr. Chander Sawhney Vice President Mob. +91 9810557353 E-Mail: chander@indiacp.com Mr. Manoj Kumar Vice President Mob. +91 9910688433 E-Mail: manoj@indiacp.com

Bedford Office (United Kingdom) As Close As You Need As Far As You Go…… Delhi Office D-28, South Ex., Part-I, New Delhi-110049, D-38, South Ex., Part-I, New Delhi-110049, T: +91 11 40622255 M:+ 91 9871026040, E: info@indiacp.com Mumbai Office 520, Mastermind- I, Royal Palms Estate, Aarey Colony, Goregaon East, Mumbai -400065 T: +91 2267109044 M:+ 91 9820079664 E: mahipal@indiacp.com Indian Offices Bedford Office (United Kingdom) 2-4 Mill Street, MK40 3HD, Bedford Switchboard: +44 (0) 2030063240, E: ukoffice@indiacp.com Overseas Offices India Ahmedabad, Allahabad, Bangalore, Bhopal, Bhubaneshwar, Chandigarh, Chennai, Coimbatore, Goa, Guwahati, Gwalior, Hyderabad, Indore, Jaipur, Jammu, Kanpur, Kochi, Kolkata, Lucknow, Ludhiana, Patna, Pune. Overseas Bulgaria, Belgium, British Virgin Islands, Canada, China, Costa Rica, Cyprus, European Union, Germany, Hongkong, Ireland, Japan, Kenya, Malaysia, Mauritius, Singapore, Sri Lanka, Switzerland, The Netherlands, Turkey, United Arab Emirates, United Kingdom, United States. Our Associates