Checklist for Cross Border Merger: India & Hong Kong

TRANSFEREE COMPANY (Amalgamated Company): INDIAN HOLDING COMPANY;
TRANFEROR COMPANY (Amalgamating Company): SUBSIDIARY COMPANY SITUATED IN HONG KONG

PREPARATION OF SCHEME OF AMALGAMATION IN NATURE OF MERGER:

INFORMATION REQUIRED BY ADVOCATES:

a. Cross holding of Directors of Transferor and Transferee companies
b. Relationship between transferee and transferor companies
c. Names of authorised signatories
d. Names of newspapers where notice is being published
e. List of creditors and their dues
f. List of chairmen of meetings of transferee and transferor companies

INFORMATION/DOCUMENTS MAY BE REQUIRED BY THE REGIONAL DIRECTOR, MINISTRY OF CORPORATE AFFAIRS:

a. Balance sheets for last 5 years of the Transferor and Transferee companies
b. 2 copies of Valuation Report of Chartered Accountants
c. List of directors of transferor company and their other directorships
d. List of directors of transferee company and their other directorships
e. Rights/Bonus/Debentures Issues made by transferee and transferor companies in the last 5 years

s. 233 read with s. 234 of Companies Act, 2013 provides for fast track merger for small companies and merger between Holding Company and its Wholly Owned Subsidiary Company.

PROCEDURE FOR AMALGAMATION:

a. Scheme approved by BoD to be sent to RoC, Official Liquidator for their suggestions within 30 days of approval of scheme.
b. Scheme along with suggestion from RoC and Official Liquidator to be approved by:

• Shareholders holding 90% of the total number of shares at a general meeting
• Majority creditors (representing nine-tenth in value) in a meeting convened with 21 days’ notice.

c. Approval of RBI also required pursuant to section 234(1) of the Companies Act, 2013.
d. Each of the companies to file Declaration of Solvency with the RoC.
e. Copy of scheme to be filed with RoC, Official Liquidator and Central Government.
f. RoC and Official Liquidator to intimate the suggestions in the scheme to Central Government in writing within 30 days.
g. In absence of no such communication, the scheme shall be deemed to be approved by the RoC and the Official Liquidator and the Central Government shall register the same and issue a confirmation thereof.
h. Tribunal to record the merger pursuant to section 232 of the Companies Act, 2013 if the Central Government feels the merger is against the public interest and the same is intimated to the Tribunal.
i. Registration of the scheme would result in dissolution of Transferor Company without the process of wounding up.
j. Registration of scheme to result in:

• Transfer of property or liabilities of Transferor Company as property and liabilities of Transferee Company
• Charges on the property of Transferor Company to be applicable and enforceable as charges on the property of Transferee Company
• Legal proceedings pending before any court of law to be continued by or against the Transferee Company.
• Purchase of shares by dissenting shareholders and settlement of debt due to dissenting creditors, if the scheme so provides, such amount to the extent that it is unpaid becomes liability of the Transferee Company.

k. All shares held by Transferee Company in its subsidiary to be cancelled and extinguished on merger.
l. Transferee Company to file an application with RoC indicating revised authorised capital along with the requisite fees.

COMPLIANCE BY THE TRANSFEREE COMPANY (HOLDING COMPANY) PURSUANT TO COMPANIES ACT, 2013:

a. EXAMINATION OF OBJECT CLAUSE:

• With regard to power of amalgamation
• With regard to power to carry on the business of transferor company
• With regard to sufficiency of authorised share capital

b. PREPARATION OF SCHEME OF AMALGAMATION:

• Business Valuation
• Consideration paid: According to sub-section 2 of section 234 of the Companies Act, 2013, RBI may provide for the payment of consideration to the shareholders of the transferor company in cash or in Indian Depository Receipts (IDRs), or partly in cash and partly in IDRs.
• Calculation of Swap Ratios

c. BOARD MEETINGS:

• Notice of BM to be sent
• Approval of scheme of amalgamation
• Approval of Swap Ratio
• Directors/Officers to be empowered to make application to the Tribunal

d. APPLICATION TO THE TRIBUNAL:

• Application to be made in Form No. 33 of Companies (Court) Rules, 1959
• Affidavit in support of summons in Form No. 34 of Companies (Court) Rules, 1959
• Order of the Judge in summons convening meeting of the members to approve the scheme for approval in Form No. 35 of Companies (Court) Rules, 1959

e. FILING/ANNEXING:

• Certified copy of Order to be filed with ROC within 30 days
• Form 21- Notice of Court or any competent authority
• MGT 14- Special Resolutions passed
• GNL 1- File an application with RoC
• GNL 2- Submission of documents with RoC
• GNL 3- Particulars of authorised signatories for the purpose.

PROVISIONS FOR TRANSFEROR COMPANY:
a. Companies Ordinance, 2012 provides for an amalgamation of two or more wholly-owned companies within an existing group of companies without the need of court approval.
b. An amalgamation under the Companies Ordinance will not require the amalgamated company to pay any consideration for the acquisition of the business assets and liabilities of the amalgamating companies.

SOURCES:
Companies Act, 2013 (India);
The New Companies Ordinance, 2012 (Hong Kong);
Secretarial Audit and Due Diligence: ICSI

Dishonour of cheques: Section 138, Negotiable Instruments Act, 1881

Finding its place in Chapter XVII of Negotiable Instruments Act, 1881 (the Act), Section 138 pertains to dishonour of cheques for insufficiency, etc. of funds in the account. Dishonour of cheques is said to be an offence of private nature (offence between two parties not involving the State) and according to the said section, a person is deemed to have committed an offence if he has drawn a cheque which has been dishonoured due to lack of funds in the bank account.

ESSENTIALS:

Like every offence, the act of dishonour of cheque also has some essential elements. Provided hereinafter are the essential elements of offence as described u/s 138 of the Act:

1. The cheque is drawn by a person on an account maintained him in person;
2. The cheque is drawn in discharge of a legally enforceable debt or liability;
3. The cheque is presented for payment within the limitation period (3 months from the date of cheque); and
4. The cheque is returned by the Bank for want of funds in the bank account.

OBJECTIVE:
The Supreme Court of India in Electronics Trade & Technology Development Corporation Ltd., Secunderabad v. Indian Technologists & Engineers (Electronics) (P) Ltd. [(1996) 2 SCC 739], held that the object of bringing Section 138 on statute appears to be to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. Despite civil remedy, Section 138 intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a book and induce the payee or holder in due course to act upon it. It draws presumption that one commits the offence if he issues the cheque dishonestly.

PROCEDURAL ASPECTS:
1. Once the abovementioned conditions with regards to section 138 of the Act are fulfilled, the payee or holder-in due-course, as the case may be, would demand the payment of the said amount within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.

2. When the drawer of the cheque fails to make payment of the said amount within 15 days of the said notice, such person shall be deemed to have committed an offence and shall, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

3. As laid down under section 142 (cognizance of offences) of the Act, no Court shall take cognizance of such offence except on a complaint, in writing, made by the payee or the holder in due course of the cheque, and the limitation period for making the complaint is one month of the date on which the cause of action arises. It is also provided in the said section that the offence is to be originally tried by no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate or a Judicial Magistrate of the First Class. 

With the growing number of cases in the said offence, it was realised by the Courts and Legislature alike that of the Act were found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act proved to be inadequate, the procedure prescribed for the Courts to deal with such matters was found to be cumbersome. The Courts were unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act. The Supreme Court of India, therefore in Indian Bank Association v. Union of India [2014 (5) SCC 590] laid down the guidelines to adopt necessary policy and legislative changes to deal with cases relating to dishonour of cheques so that the same are expeditiously disposed of in accordance with the intent of the Act.
The Act in view of the above was first amended in 1988 and then again in 2002 whereby sections 143-147 were added in the Act. The new provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The said sections also intended to ease the procedural aspects and to ensure that genuine and honest bank customers are not harassed or put to inconvenience.

4. The offence, by virtue of section 143 (Power of Court to try cases summarily) of the Act, is now tried summarily and in accordance with sections 262-265 (summary trials) of the Criminal Procedure Code, 1973.
The interesting thing to be noted here is that although the Act provides for punishment of imprisonment up to 2 years or fine of amount double than that mentioned on the cheque, the Magistrate can only pass a sentence of imprisonment for a term not exceeding one year and an amount of fine exceeding five thousand rupees in the case of any conviction in a summary trial under this section. But if the Magistrate or the parties feel that the offence should not be tried summarily, the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined and proceed to hear or rehear the case in the manner provided by the said Code.

5. By virtue of section 145 (Evidence on Affidavit) and 146 (Banks’ slip prima facie evidence of certain facts) of the Act, the evidence for dishonour of cheque can be given on affidavit which can directly be cross-examined by the Counsel of the accused. The Court shall, on production of bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.

6. Section 147 of the Act is an overriding section and states that the offence of dishonour of cheque is compoundable offence, irrespective of anything mentioned in the Criminal Procedure Code, 1908.



SOURCES:
The Negotiable Instruments Act, 1881;
www.indiankanoon.org