Chapter 10 Regulatory Approvals of Schem – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.
Regulatory Approvals of Scheme – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material
What is the entitlement of dissenting shareholders in case of amalgamation between banking companies? What are the information and documents required to be submitted by the banking companies to the Reserve Bank of India for determination of the value of shares by the Reserve Bank of India? (Dec 2019, 5 marks)
Dissenting Shareholders means the holders of the shares who have validly exercised and not effectively withdrawn or lost their rights to dissent from the merger and to receive payment of the fair value of their shares. In terms of Section 44A(3) of the Banking Regulation Act, 1949, a dissenting shareholder is entitled, in the event of the scheme being sanctioned by the Reserve Bank of India, to claim within 3 months from the date of sanction, from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank of India when sanctioning the scheme and such determination by the Reserve Bank of India as to the value of the shares to be paid to the dissenting shareholders shall be final for all purposes.
To enable the Reserve Bank of India to determine such value, the amalgamating/amalgamated banking company shall submit the following:
(a) A report on the valuation of the shares of the amalgamating/ amalgamated Company made for this purpose by the valuers appointed for the determination of the swap ratio.
(b) Detailed computation of such valuation.
(c) Where the shares of the amalgamating / amalgamated company are quoted on the stock exchange
(i) Details of the monthly high and low of the quotes on the exchange where the shares are most widely traded together with number of shares traded during the six months immediately preceding the date on which the scheme of amalgamation is approved by the Boards.
(ii) The quoted price of the share at close on each of the fourteen days immediately preceding the date on which the scheme of amalgamation is approved by the Boards.
(d) Such other information and documents as the Reserve Bank of India may require.
Mango Communications Ltd. is a new company that is willing to take over Telecommunications licenses to operate in 20 telecom circles and get itself listed on stock exchange but present Government Policy does not permit issuing new licences. There is another telecom company by name Tango Telecom Limited having listed with BSE and NSE holding licenses for 22 telecom circles. Latter Company is looking for some external reconstruction through merger or acquisition due to its operational ineffectiveness. As a Company Secretary, you are asked to find out the way through which a merger deal can happen so that the Mango Communications Ltd. could resolve the issues relating to listing and licenses. (Dec 2020, 5 marks)
Strategy adopted in this case is reverse merger in order to achieve the objectives of lower taxes, economies of scale, broadening market network, protecting trademarks, license agreements and avoiding hassles of complying with listing requirements of a stock exchange. Reverse Merger is a simplified process as it minimizes the risk due to less dependent on Market.
Similar Strategies were adopted in the mergers of Vodafone India and Idea Cellular, Kingfisher and Air Deccan, ICICI and ICICI Bank, Godrej Soaps and Gujarat Godrej Innovative Chemicals.
In the given case, if Mango Communications Ltd., adopts normal merger to absorb Tango Ltd., it may lose telecom licenses. Hence, reverse merger is suggested because Mango Communications Ltd. becomes a listed company and there is no need to acquire fresh licenses.
MNP Ltd. is a listed company and is in the process of merging SQW Ltd. not being a listed company. The management of. MNP Ltd. desires your suggestions and process in getting the No objection or observation letter from the concerned stock exchange in the matter. Guide the management of MNP Ltd on the issue. (Aug 2021, 5 marks)
Any listed company desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement, proposed to be filed before Tribunal under Sections 230-234 and Section 66 of Companies Act, 2013, along with a non-refundable fee as specified in Schedule XI, with the concerned stock exchange for obtaining Observation Letter or No-Objection letter, before filing such scheme with any Court or Tribunal, in terms of requirements specified by the Securities & Exchange Board of India or concerned Stock Exchange from time to time.
The listed entity shall place the letter of the stock exchange before the Tribunal at the time of seeking approval of the scheme of arrangement. The validity of such letter is six months from date of issue. On sanction of the scheme by the Tribunal, order needs to be filed with the Stock exchange.
The listed entity shall ensure compliance with the other requirements as may be prescribed by the Securities & Exchange Board of India from time to time.
MNP Ltd is advised to comply the requirements as suggested.
Regulatory Approvals of Scheme Notes
Approval under Competition Act, 2002
- Section 5 of the Act prescribes the jurisdictional thresholds limits (based on asset and turnover of combining companies) for transactions that must be notified to CCI prior to implementation of mprger and acquisition.
- If the jurisdictional thresholds are met and exemptions are unavailable, it is mandatory to notify the Competition Commission of India (CCI) of the combination.
- Approval of CCI is must
- CCI will consider whether proposed Combination is having any appreciable adverse impact on competition in India or not
- The Combination Regulations provide that the CCI will “endeavour” to pass an order or issue directions within a period of 180 days from the date of notification. The Competition Act provides for a deemed clearance if the CCI does not pass an order within 210 days from the date of notification.
Approval under Income Tax Act, 1961
The Income Tax Act, 1961 contemplates and recognizes the following types of merger and acquisition activities:
- Demerger or spin-off;
- Slump sale/asset sale; and
- Transfer of shares
Approval from SEBI / Stock Exchange(s)
Following are requirements under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015:
Regulation 11: Scheme of Arrangement – The listed entity shall ensure that any scheme of arrangement /amalgamation /merger /reconstruction /reduction of capital etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchange(s)
Regulation 37: Draft Scheme of Arrangement & Scheme of Arrangement – the listed entity shall file the draft scheme of arrangement, proposed to be filed before Tribunal along with a non-refundable fee as specified in Schedule XI, with the stock exchange(s) for obtaining Observation Letter or No-objection letter, before filing such scheme with any Court or Tribunal Upon sanction of the Scheme by the Court or Tribunal, the listed entity shall submit the documents, to the stock exchange(s), as prescribed by the Board and/or stock exchange(s) from time to time.
Regulation 94: Draft Scheme of Arrangement & Scheme of Arrangement
- The designated stock exchange, upon receipt of draft schemes of arrangement and the documents prescribed by the Board, as per sub-regulation (1) of regulation 37, shall forward the same to the Board
- The stock exchange(s) shall submit to the Board its Objection Letter or No-Objection Letter on the draft scheme of arrangement
- The stock exchange(s), shall issue Observation Letter or No-objection letter to the listed entity within seven days of receipt of comments from the Board
- The stock exchange(s) shall bring the observations or objections, as the case may be, to the notice of Court or Tribunal at the time of approval of the scheme of arrangement.
Regulatory approvals from RBI
The RBI vide its circular No. RBI/DBR/2015-16/22 Master Direction DBR. PSBD. No. 96/16.13.100/2015-16, dated April 21, 2016 has issued the Master Direction relating to the amalgamation of Private Sector Banks, Directions, 2016.
a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa
Regulatory approvals from RD / ROC/ OL
Approval of Registrar and Official Liquidator is required for a scheme of merger or amalgamation between two or more small companies or between a holding company and its wholly owned subsidiary company
Approvals from Insurance Regulatory and Development Authority (IRDA)
When any application under sub-section (3) of section 35 of Insurance Regulatory and Development Authority Act, 1999 is made to the Authority, the Authority shall cause, a notice of the application to be given to the holders of any kind of policy of insurer concerned along with statement of the nature and terms of the amalgamation or transfer, as the case may be, to be published in such manner and for such period as it may direct, and, after hearing the directors and considering the objections of the policyholders and any other persons whom it considers entitled to be heard, may approve the arrangement, and shall make such consequential orders as are necessary to give effect to the arrangement.
Section 37 of the Insurance Act, 1938 deals with the statements required after amalgamation and transfer
Section 37A of the Insurance Act, 1938 deals with the power of the authority to prepare scheme of Amalgamation
Approvals from Telecom Regulatory Authority of India (TRAI)
The Department of Telecommunications, Govt, of India vide its circular No. 20-281/2010-AS-I (Volume-VII) dated 20th February, 2014 issuec â€˜Guidelines for Transfer/ Merger of various categories of Telecommunication service licenses/ authorisation under Unifiec Licence (UL) on compromise, arrangements and amalgamation of the companies.