Amalgamation & Mergerof

COMPANIES AND THE WTO

An Indian Perspective

BY

R.K. SinghBCom (Hons), LLM, PhD

Principal, Haldia Law College

KOLKATA ^*»^ NEW DELHI

EASTERN LAW HOUSE2013

Contents

PAGE

Preface [5]

Table of Cases . [17]

Abbreviations [27]

CHAPTER

1 Introduction 1

1.1 General overview 1

1.2 Modes of amalgamation 4

1.2.1 Horizontal 5

1.2.2 Vertical 5

1.2.3 Conglomerate 5

1.3 Concept of synergy 5

1.4 Motive for amalgamation 5

1.5 Amalgamation and WTO 6

1.6 Objective and scope of the work 8

1.7 Scheme of this book. 9

2 Amalgamation and Merger of Companies

—Historical Perspective 13

2.1 Evolution of company law—English perspective '. 14

2.1.1 Sources of English Mercantile Law 142.1.2 Growth of company law under Royal '

Charter and Bubble Act 152.1.3 Position of company law after Bubble Act..; 16

2.1.4 Joint stock company and principle oflimited liability—after 1844 ; 17

2.1.5 Position of company law after 1980 , 19

[9]

[10] CONTENTS

CHAPTER PAGE

2 Amalgamation and Merger of Companies—continued2.1.6 Amalgamation and merger under

English Companies Act 202.2 Evolution of company law—Indian perspective 23

2.2.1 Indian Companies Act and EnglishCompanies Act—during colonisation 23

2.2.2 Socio-economic and political conditions—after independence 26

2.2.3 Enactment of the Companies Act 1956 30

2.2.4 Reform in industrial policy after independence .... 31

2.3 Amalgamation and merger of companies inIndia—general outline 37

2.3.1 Amalgamation and merger—before independence 37

2.3.2 Amalgamation and merger—after independence .. 38

2.3.3 Amalgamation and merger-post 1990s 39

3 Legal Aspects of Merger and Amalgamation 43

3.1 Amalgamation and merger—international perspective ... 44

3.1.1 Legislative position in European countries

and United Kingdom 44

3.1.2 Legislative position in United States of America . 47

3.2 Amalgamation and merger—Indian perspective 48

312.1 Statutory framework—Companies Act 1956 48

3.2.1.1 Compromise or arrangementwith creditors and members 49

3.2.1.2 Enforcement and supervision

—powers of the Tribunal 52

3.2.1.3 Information to creditors and members .. 52

3.2.1.4 Amalgamation and reconstruction> of companies 54

3.2.1.5 Complete code on amalgamation—sections 391 to 394 56

3.2.1.6 Acquisition of shares involvingminority interest 58

3.2.1.7 Amalgamation of companies—national interest 63

3.2.1.8 Documents to be preserved byamalgamated company 64 '

CONTENTS [11]

CHAPTER PAGE3 Legal Aspects of Merger and Amalgamation—continued

3.2.2 Confirmation in scheme of amalgamation—mandatory requirements 66

3.2.2.1 Confirmation from Boardof Directors 66

3.2.2.2 Confirmation from membersand creditors... 66

3.2.2.3 Confirmation from the StockExchange ..........:.." 67

3.2.2.4 Confirmation required fromHigh Court 69

3.2.2.5 Confirmation from financialinstitutions 70

3.2.2.6 Confirmation from ReserveBank of India 70

3.2.2.7, Confirmation from CompetitionCommission 71

3.2.2.8 Confirmation from theproperty owners 71

3.2.3 Procedural compliances in merger andamalgamation 71

3.2.3.1 Importance of memorandum inamalgamation 72

3.2.3.2 Convening board meeting andpreparation of valuation report 74

3.2.3.3 Drafting of scheme of amalgamationand its contents 74

3.2.3*4 Application to High Court fordirections and mandatory compliances. 76

3.2.3.5 Procedure applied to Governmentcompanies 84

3.2.3.6 Requirement of eue-diligence inmerger and amalgamation 86

3.2.3.7 Payment of stamp duty onmerger and amalgamation 89

3.2.3.8 Merger and amalgamation—filing of different forms 91

3.3 Emergence of competition law as a regulator—a new dimension 95

3.3.1 General overview 95

112] CONTENTS

CHAPTER PAGE

3 Legal Aspects of Merger and Amalgamation—continued

3.3.2 Competition law and the MRTP Act 983.3.3 Control of mergers and amalgamations

under competition law 1053.3.4 Legal framework under Competition Act 2002 ... 107

3.4 Merger and amalgamation under Companies Bill 2011... 1154 Impact of WTO on Merger and Amalgamation 119

4.1 Emergence of globalization and liberalization—Indian economy 1204.1.1 Globalization—concept and nature 1204.1.2 Effect of globalization on Indian economy 1214.1.3 Importance of liberalization and its

effect on Indian economy 1234.2 GATT and WTO—an overview 127

4.2.1 Origin and evolution of the GATT 1274.2.2 GATT—fundamental principles, objectives

and structure 1314.2.3 GATT—a boon or bane 1344.2.4 WTO—importance and functions 1364.2.5 WTO and GATT—relationship 1394.2.6 Free trade regime and WTO 1414.2.7 Role of WTO in mergers and amalgamations 142

4.3 Merger and amalgamation under WTO regimeand its effects 144

5 Role of Governance in Merger and Amalgamation 149

5.1 Emergence of governance in Internationaland Indian context 1505.1.1 Governance in International Context '. 1505.1.2 Governance in Indian context 156

5.2 Governance in corporate sector—general overview 1595.3 Corporate governance and globalization 1615.4 Changing design of corporate governance in India 1665.5 Impact of corporate governance on mergers

and amalgamations ! ; 1705.5.1 General overview 1705.5.2 Managerial challenges before the

Board of Directors 171

CONTENTS [13]

CHAPTER • PAGE

5 Role of Governance in Merger and Amalgamatio n—continued

5.5.3 Role of auditors in maintaining transparency .... 1745.5.4 Mechanism of whistle-blowing 179

6 Judicial Approach to Merger and Amalgamation 182

6.1 Amalgamation and merger jurisprudence—Supreme Court ; 1836.1.1 Jurisdiction of court—general outline 1836.1.2 Valuation of shares in merger and-

amalgamation 1856.2 Amalgamation and merger jurisprudence—

High Courts 1916.2.1 Eligibility, memorandum of association

and other conditions 1916.2.1.1 Issue of eligibility criteria in

amalgamation 1916.2.1.2 Issue of filing an application in

amalgamation 1936.2.1.3 Issue of powers of

memorandum in amalgamation lt'46.2.1.4 Issue whether name of a

company can be changed 1996.2.1.5 Issue of joint application

\ or separate application 2006.2.1.6 Issue whether modification

can be done 2036.2.2 Role of share capital in amalgamation—

important issues 2076.2.2.1 Importance of authorized capital 2076.2.2.2 Whether amalgamation involves

Reduction of capital 2106.2.2.3 Whether amalgamation involves

buy-back of securities 2126.2.3 Convening of meeting for sanctioning

a scheme 2136.2.3.1 Powers of the Court to Convene

Meetings 2136.2.3.2 Participation of creditors in

the meeting 217

[14] CONTENTS

CHAPTER • PAGE

6 Judicial Approach to Merger and Amalgamation—continued

6.2.3.3 Approval of scheme byShareholders and creditors 219

6.2.3.4 Challenging the explanatorystatement of the notice 222

6.2.4 Report of the official liquidator and Registrar.... 2246.2.4.1 Report of the official liquidator 2246.2.4.2 Report of the Registrar 225

6.2.5 Piercing the corporate veil duringamalgamation 226

6.2.6 Duties of the court in amalgamation 2316.2.6.1 To examine that scheme is

reasonable and fair 2316.2.6.2 To enquire the wishes of the

members 2326.2.6.3 To enquire into the fact that the

scheme is designed to combatdifficulties and restore the business 232

6.2.6.4 To find out that scheme is notcontrary to public interest 233

6.2.7 Amalgamation of a foreign companywith an Indian company '. 233

6.2.8 Significance of dates in amalgamation 2346.2.9 Challenging the scheme of amalgamation 2376.2.10 Amalgamation of unlisted company into

listed company 2406.2.11 Effect of amalgamation 241

6.3 High Court versus Tribunal—an analysis 242

7 Social & Humanitarian Aspects of Mergerand Amalgamation 244

7.1 Protection of employees in amalgamation 2457.1.1 General overview 2457.1.2 Effect of amalgamation on employees 2497.1.3 Role of human resource development

during amalgamation : 2517.1.4 Judicial perception on employees protection 256

7.2 Protection of shareholders in amalgamation 2637.2.1 General overview 263

CONTENTS [15]

CHAPTER PAGE7 Social & Humanitarian Aspects of Merger and

Amalgamation—continued

7.2.2 Shareholders activism in amalgamation 2647.2.3 Minority shareholders rights in amalgamation... 2667.2.4 Judicial response in shareholders protection 267

8 Conclusion and Suggestions 273

APPENDICES

APPENDIX

1 The Competition Commission of India (Procedure inregard to the Transaction of Business Relating toCombinations) Regulations, 2011 295

2 Excerpts from the Companies Bill, 2012 - ProvisionsRelating to Merger and Amalgamation of Companies 336

Index 359