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

Right to Water: Onus on State and Business Houses

Water is the essence of life and its importance cannot be undermined in any way. However, it is a fact interesting to note that even after being such an important part of life, no State expressly recognises right to clean water as a fundamental right for its citizens.

Presented hereunder is an analysis of responsibility of States and business enterprises in ensuring clean water to its citizens.

RIGHT TO WATER AS A FUNDAMENTAL RIGHT:

While the 1^st generation Human Rights focusses on the civil and political rights of an individual, the 2nd generation Human Rights pertains to socio-economic rights of an individual which, inter alia, comprise of right to clean environment, right to education and right to adequate standard of living. Therefore, even if no State expressly recognises the right to water as a fundamental right, it remains a basic right of individual and cannot be disregarded. It becomes the duty of every State to ensure clean water for its citizens.

India recognises its right to water in Chapter III, article 21 of the Constitution of India, which is the main pillar providing support to the basic rights of individuals.

“No person shall be deprived of his life or personal liberty except according to procedure established by law.”

The abovementioned Article has been interpreted in the wider sense and not only includes physical act of breathing, but also includes all other rights of an individual which makes his/her life worth living. Access to clean water is one of the essentials required for decent living of an individual and thus automatically falls under the ambit of ‘right to life’. This ‘right to life’ cannot be revoked under any circumstance and therefore it becomes all the more important for the State to see whether these rights are properly enforced or not.

The current Government of Delhi formed by Aam Aadmi Party (AAP) recognises the importance of this right and provides water for every individual and gives upto 20 KL per month of free water to its domestic consumers having functional water meter.

Even internationally, the International Covenant on Civil and Political Rights and International Covenant on Economic, Social and Cultural Rights have duly acknowledged in their declarations that the right to adequate standard of living necessarily includes access to clean water. The United Nations Organisation, in UN Water Conference, resolved back in 1977 that every individual, irrespective of his/her socio-economic status has the right to have access to safe drinking water for fulfilling their basic needs.

ENFORCEABILITY BY THE STATE:

Especially in the Indian perspective, it is not only a responsibility but also a duty of the State to ensure that the right to have access to clean water of every individual is not violated. The Directive Principle of State Policy as regards provision of clean water to its citizens is now brought under the realm of duties of the State. The Supreme Court of India has held in various cases that it is imperative on the State Governments to ensure proper water supply and storage for its citizens. The State List given under Schedule VII of the Constitution of India also provides for the states in India to provide water to its citizens.

Despite all the constitutional provisions, it is rather interesting to note that even though the right to have access to water is an important socio-economic right, many States, including India to an extent, have not been able to fully enforce this right simply because of lack of adequate resources.

ENFORCEABLITY BY THE BUSINESS HOUSES:

The Government of India has delegated some of its responsibilities to business houses under the Companies Act, 2013 (the Act). Although integration of business activities with Human Rights is a concept that has been around for many years, it is only recently that the issue has gained importance with onset of concept of Corporate Social Responsibility by the corporate houses. Schedule VII of the Act mandates the competent companies u/s 135 of the Act to invest certain proportion of its profits, inter alia, towards eradication of hunger, poverty and malnutrition, promotion of preventive health care and sanitation, and availability of safe drinking water.

Apart from this, another emerging trend in the business arena is the enforcement of human rights by body corporates and business enterprises. With privatisation of water becoming a common phenomenon in many countries, it is only justified that the business enterprises along with the States ensure that the right to have access to water is not only enforced, but also not violated.

In the case Perumatty Grama Panchayat v. State of Kerala [2004 (1) KLT 731], Hindustan Coca Cola Beverages Ltd. established a factory in Plachimada in Palakkad district in Kerala and derived large quantities of groundwater for its production purposes. The village Panchayat opposed drawing of ground water in the area and did not renew the license of the factory once it expired. The Kerala High Court, in this case held that the Panchayat was right to not renew the license and thereafter enforced the fundamental right of individuals in the area- the right to have access to clean water. The Court ordered the company to pay compensation for the difficulties faced by the inhabitants of the area due to alarmingly low levels of groundwater in the area.

The Supreme Court, in various other cases, has time and again reiterated the importance of fundamental rights and held that rights of people are and will be important than the financial losses the enterprise suffers.

CONCLUSION:

Even though the question whether business enterprises are liable to ensure socio-economic rights of the people still remains unanswered with too many loose ends, from the above study, it can be conveniently said that the business houses do not only have a moral, but to an extent, also a legal obligation to safeguard the such rights of the individual which essentially includes the right to have access to water. Even though there is a long way to go before business houses are held as liable as the Sate for enforcement of these rights, the integration of human rights with business has already begun and the day is not far away when it will become a reality. Businesses take so much from the society and it is justified that they give it back in some form or another.

SOURCES:

The Companies Act, 2013;

The Practical Lawyer [June 2016 Edition];

Teachings of Prof. Jernej Letnar Cernice, Summer Course on Business and Human Rights, Indian Law Institute, New Delhi;

The Curious Game of Right to Water [(2016) PL HR June 82];

www.delhi.gov.in;

www.business-humanrights.org;

www.mca.gov.in;

www.indiankanoon.com

Corporate Affairs - An International Perspective

Rapid growth of multinationals and the era of cross border mergers has given rise to complex problems of implementation of international law. Purely national solutions to the problems of corporate control are of no avail. Therefore, the mechanisms and processes by which such international companies are governed becomes an area of vital importance for the nations they function in.

Given hereunder is an international perspective with regards to how the corporate affairs are governed, administered and regulated in the world’s significant economies.

NATION	GOVERNING ACT	ADMINISTRATIVE BODY	ADJUDICATING BODY
India	The Companies Act, 2013	Ministry of Corporate Affairs Registrar of Companies	NCLT
United Kingdom	The UK Companies Act, 2006	Secretary of State	Company Names Tribunal UK Courts of competent jurisdiction
United States of America	State Laws The Federal Constitution The Revised Model Business Corporation Act US Securities Act, 1934	Securities and Exchange Commission Federal Trade Commission	Federal Courts of USA
Australia	The Corporations Act, 2001	Australian Securities and Investments Commission	Federal Circuit Court of Australia Federal Courts of Australia

INDIA:

The Ministry of Corporate Affairs, Government of India is responsible for formulating strategies and policies related to the corporate affairs in the country. Governed by the Companies Act, 2013, the Registrar of Companies acts as the administrative body for the companies in India. Securities and Exchange Board of India (SEBI) acts as the regulatory body for the publically listed companies. The adjudicating authority for matters of corporate affairs lies with the newly constituted NCLT and NCLAT. The jurisdiction of all other civil courts will be dispensed with, once the NCLT becomes fully functional. The Supreme Court of India, subject to certain restrictions, still however remains the court of highest appeal in matters of corporate affairs.

It must also be noted that with the onset of The Insolvency and Bankruptcy Code, 2016, the power of adjudication in matters of bankruptcy and insolvency in companies, which earlier vested with the Debt Recovery Tribunal, will also be shifted over to the National Company Law Tribunal.

UNITED KINGDOM:

The Company Law in UK had undergone a major reform in UK under the Company Law Reforms. The Department of Trade and Industry was responsible for bringing out the new company law, which is now known as the UK Companies Act, 2006. While the Indian Legal System updated itself by constituting a Tribunal which specifically relates to corporate affairs, there is no separate adjudicating body specifically formed for such matters in UK. Usually, the powers of sanctioning the scheme of restructuring or of resolving an application for grievances of the stakeholders are vested with the courts of competent jurisdiction.

However, the Company Names Tribunal is a separate adjudicating body specifically constituted to provide a remedy for parties who are aggrieved by the registration of a company name in which they have a goodwill/reputation; specifically, that they suspect the name has been registered in order to extract money or to prevent the aggrieved party from registering the name.

UNITED STATES OF AMERICA:

There is no federal corporation statute as such in the US. Each state has its own corporate law regime and it provides for wide diversity of legislation and experimentation in the corporate form. However, the Federal Constitution ensures uniformity and harmony across the United States. Another harmonising factor is existence of model statutes which serve as uniform acts or drafting guides which may be customised by individual states. Revised Model Business Corporation Act largely serves as a guide for corporate laws for most of the states in US. Since the US has a long tradition of individual ownership of securities, the most significant of these federal laws applicable to corporations is the federal securities regime. Therefore many matters characterised as company law elsewhere have been characterised in the US as securities law and taken out of the ambit of state legislatures.

There is no special court formed for matters relating to corporate affairs. The Securities and Exchange Commission is the administrative body for corporate affairs in the US. The Federal Trade Commission can be approached when issues related to consumer protection and competition aspects come into question. The rest of the jurisdiction lies in Federal Courts of the US.

AUSTRALIA:

Heavily borrowed from the common law of UK, the Australian companies are governed by Corporations Act, 2001 and administered by a single national regulatory authority, the Australian Securities and Investments Commission.

The adjudicating bodies for corporate affairs include Federal Circuit Court of Australia which hears less complex disputes in matters under family law, administrative, bankruptcy, industrial relations, migration and trade practices law. The Federal Court of Australia hears matters on a range of different subjects including bankruptcy, corporations, industrial relations, native title, taxation and trade practices laws, and hears appeals from decisions (except family law decisions) of the Federal Magistrates Court.

SOURCES:

Advanced Company Law – ICSI;

The UK Companies Act, 2006;

www.nclt.in;

www.mca.gov.in;

www.gov.uk;

www.australia.gov.au;

www.ftc.gov;

www.uscourts.gov

National Company Law Tribunal: What is it all about?

Chapter XXVII of the Companies Act, 2013 (the Act) deals with National Company Law Tribunal and Appellate Tribunal.

In exercise of the powers given under section 408 (Constitution of National Company Law Tribunal) and 410 (Constitution of National Company Law Appellate Tribunal) of the Act, Ministry of Corporate Affairs, Central Government constituted National Company Law Tribunal and National Company Law Appellate Tribunal to discharge powers and functions conferred on it by or under the Act with effect from 1^st day of June, 2016.

By virtue of powers given under section 419 (Benches of the Tribunal) of the Act, NCLT is slated to have eleven Benches- two at New Delhi (one of them being the Principal Bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.

M.M. Kumar, Judge (Retd.) has joined as the President of the NCLT and S.J. Mukhopadhaya, Judge (Retd.), Supreme Court of India has joined as the Chairperson of the NCLAT.

Given hereunder is the brief summary of the provisions relating to Tribunals, as provided under the Act.

CONSTITUTION OF THE BENCHES:

Pursuant to section 409 (Qualification of President and Members of the Tribunal) and section 411 (Qualifications of Chairpersons and Members of Appellate Tribunal), the Bench of NCLT is to comprise of The President, and such number of Judicial and Technical Members whereas the Bench of NCLAT is to comprise of The Chairperson, and such number of Judicial and Technical Members to discharge and exercise powers and functions or to hear appeals against the orders (as the case may be), as the Central Government deems fit.

JURISDICTION OF THE TRIBUNAL:

As provided under section 434 (Transfer of certain pending proceedings), the NCLT will exercise functions of:

·         Company Law Board,

·         Board of Industrial and Financial Reconstruction;

·         Appellate Authority for Industrial and Financial Reconstruction and;

·         Any District Court or High Court where proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies are pending. Due consideration however, must be given to the fact that provisions relating to mergers, restructuring and winding up under the Act have not yet come into effect.

ORDERS OF TRIBUNALS (Section 420):

The Tribunal is to pass an order as it may deem fit, after giving the parties to proceedings a reasonable opportunity of being heard and the said order can be amended with a view to rectify any mistake apparent from the record by the Tribunal, within 2 years of date of the order, if the mistake is brought to its notice by the parties. However, no amendment can be made in respect of an order against which an appeal is preferred under the Act.

APPEALS:

Section 421 (Appeal from orders of Tribunal) of the Act states that appeal against an order passed by the Tribunal, except in case of order passed with the consent of parties to the proceedings, can be preferred to the Appellate Tribunal within a period of 45 days from the date a copy of such order is made available to the aggrieved party, in such form and accompanied by such fees as prescribed. The said appeal can be entertained even after 45 days, but within a further period not exceeding 45 days, on the satisfaction of NCLAT that appellant was prevented by sufficient cause from filing the appeal within the said period.

Section 423 (Appeal to Supreme Court) of the Act states that an appeal to the Supreme Court may be filed by any person aggrieved by any order of NCLAT within 60 days from the date of receipt of order by the party. The appeal should however, be preferred on any question of law arising from the said order.

PROCEDURE:
As provided under section 424 (Procedure before Tribunal and Appellate Tribunal) of the Act, the Tribunal and Appellate Tribunal are not to be guided by the Code of Civil Procedure, 1908 and shall instead be guided by the principles of natural justice, equity and good conscience and it shall have the power to regulate its own procedure.

Sources:

The Companies Act, 2013;

www.mca.gov.in