india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
or unlisted. Section 391 is a complete code and once a
Scheme of Amalgamation is sanctioned by the High Court
, it encompasses the approval under other provisions of the
Act – for example reduction of Share Capital. Two or more
companies can amalgamate only when the amalgamation
is permitted under their Memorandum of Association. In
case either of the companies is listed, compliance of listing
agreement is obligatory. Further, the individual companies
should hold separate meetings of their shareholders and
creditors for approving the amalgamation scheme. Atleast,
75 percent of shareholders and creditors in separate meeting,
voting in person or by proxy, must accord their approval
to the scheme. Where the shareholders and creditors have
given their no objections to such merger, the meetings
of shareholders and creditors may be exempted provided
their number is around 50. Both the concerned companies
shall normally file two separate petitions, one each by
the transferor and transferee before the High Court where
the registered office of the company is situated. However,
Delhi High Court in the case of Mohan Exports (India)
Ltd v. Tarun Overseas Pvt. Ltd [1999] 95 Comp Cas 53
has held that a joint petition may also be
made by both parties. The High Court,
after it is satisfied that the scheme is fair
and reasonable, may pass an order, sanctioning
the amalgamation scheme. After
the Court order, its certified true copies
will be filed with the Registrar of Companies.
The assets and liabilities of the
acquired company will be transferred to
the acquiring company in accordance with
the scheme approved by the High Court.
Takeover or gaining control:
Takeover or gaining control over a company, as opposed
to pure investment, is the most common leitmotif for substantial
acquisition of shares. Acquisition of voting shares
in a closely held company being a domestic concern is
regulated under Section 372A of the Companies Act 1956.
Takeover or gaining control of a listed company generally
takes place through a process of friendly negotiations or
in a hostile manner in which, the existing management
resists the change in control. It is for this reason that substantial
acquisition of shares in and change in control a
listed company take place within the orderly framework
of regulations and that such a framework should be one
which comports with principles of fairness, transparency
and equity, and above all with the need to protect the rights
of the shareholders.
The first attempts at regulating takeovers were made in a
limited way by incorporating a clause, viz. Clause 40, in the
Listing Agreement which provided for making a public offer
Two or more
companies can
amalgamate
only when the
amalgamation is
permitted under
their MoA
to the shareholders of a company by any person who sought
to acquire 25% or more of the voting rights of the company.
This allowed for the passive participation of shareholders
of the company that is being taken over, in the takeover
process. One of several other deficiencies in the clause was
being a part of the listing agreement, it could be made
binding only on listed companies and could not be effectively
enforced against an acquirer unless the acquirer itself
was a listed company. At the recommendation of Bhawati
Committee, SEBI (Substantial Acquisition of Shares and
Takeover) Regulations 1997 [SEBI Takeover Regulations]
was enacted as the regulatory framework where affected
company is a listed company. The guiding principles of
the regulations may be summarized as under:-
i. The process of substantial acquisition of shares and takeovers
is complex. Equality of treatment and opportunity
to all shareholders.
ii. Protection of interests of shareholders.
iii. Fair and truthful disclosure of all material information
by the acquirer in all public announcements and offer
documents.
iv. No information to be furnished by
the acquirer and other parties to an offer
exclusively to any one group of shareholders.
v. Availability of sufficient time to shareholders
for making informed decisions.
vi. An offer is to be announced only after
most careful and responsible consideration.
vii. The acquirer and all other intermediaries
professionally involved in the offer, to exercise
highest standards of care and accuracy in preparing offer
documents.
viii. Recognition by all persons connected with the process
of substantial acquisition of shares that there are bound
to be limitations on their freedom of action and on the
manner in which the pursuit of their interests can be
carried out during the offer period.
ix. All parties to an offer to refrain from creating a false
market in securities of the target company.
x. No action to be taken by the target company to frustrate
an offer without the approval of the shareholders.
Takeover as per SEBI (Substantial and Takeover) Regulations
1997 [SEBI Takeover Regulations] means when an
Acquirer takes over the `shares` or `control` of the Target
Company- a listed company. Based on `Bright Line tests`,
other persons having commonality of objectives and a community
of interests along with the Acquirer in the proposed
acquisition of voting shares beyond the threshold limit, are
considered as Persons Acting in Concert (PAC) and their
shareholding is thus grouped together with the Acquirer.
July-October - 2007 Need the Dough
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