9 February 2017

RULES ON COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS | NOTIFIED

The Ministry of Corporate Affairs (MCA) has recently notified the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (Rules) setting out the revised procedure for compromises, arrangement and amalgamations under the Companies Act, 2013 (Companies Act), in pursuance of the notification of Chapter XV of the Companies Act, 2013 on 15 December, 2015.

• Filing of application: Companies have to inter alia file (i) an application, (ii) an affidavit, (iii) a copy of the Scheme of compromise, merger, amalgamation or arrangement (Scheme) etc accompanied by disclosures pertaining to relevant material facts such as the pendency of any proceedings against the company with the National Company Law Tribunal (NCLT) or with any other forum.
• Hearing of the Application at NCLT the Tribunal: The Tribunal may give directions to convene or dispense with the meeting of shareholders/ creditors along with fixing the time and place of the meeting, appoint a chairperson for the meeting etc. However, in the recent case of JAV Trading Vs C&S Electric, the Principal Bench of NCLT has held that - the rules do not confer upon the NCLT the power to dispense with meetings of specific classes of shareholders/members.
• Notices to members/creditors: The notice of the meeting and the Scheme should be sent to each member / creditor of the company at least 1 month before the date of the meeting. The Company must also, 30 days prior to the meeting, publish the notice of the meeting in 2 newspapers and also upload the same notice on their website. In case the company is a listed company, the same notice shall also put up on SEBI’s website and also on the website of the stock exchange where the Company’s securities are listed.
• Notices to statutory authorities: The notice and the Scheme should be sent to the regulatory authorities like the Central Government (CG), Registrar of Companies (ROC), Income-tax authorities (in all cases); and Reserve Bank of India (RBI), SEBI, Competition Commission of India, stock exchanges, as applicable and other regulators if directed by NCLT. The aforesaid regulatory authorities shall make a representation within 30 days of receipt of notice and other documents.
• Affidavit of Service: The chairperson appointed for the meeting shall file an Affidavit before NCLT that all requisite notices and advertisements have been complied with. The said affidavit is to be submitted 7 days before the date of the meeting.
• Filing of Report and Petition: The chairperson of the meeting shall submit a report to NCLT about the result of the said meeting within the time fixed by NCLT. The proposed arrangement reached by the members / creditors must be filed by the Chairperson within 7 days of filing of the report with the Tribunal.
• Hearing of the Petition: NCLT shall (i) fix a date for the hearing of the Petition. The notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised, at least 10 days before the date fixed for the hearing; (ii) also serve notices of hearing of Petition to members/ creditors who have objected to the Scheme and to Central Government and other regulators/ statutory authorities who have made representation, as stated above.
• Procedure after Final hearing: Every company shall file a statement with ROC stating whether the Scheme is being complied with in accordance of directions issued by NCLT or not. Such statement is to be filed before NCLT within the end of 210 days of the financial year.
• Merger or Amalgamation of certain companies: In case of a merger between 2 or more small companies or between a holding company and its wholly owned subsidiary company or such classes of companies as may be prescribed under Section 233 of the Act (Fast track merger), the following procedure have to be followed:
  • A notice of the proposed scheme inviting objections or suggestions, if any, is , to be sent by ROC, Official Liquidator (OL) and any other affected persons of the Transferor Company and Transferee Company within 30 days from the date of issue of notice, which is to be considered by the Company in its General Meetings. The scheme has to be approved by members holding 90% of the total number of shares.
  • A declaration of solvency is required to be filed by the Transferee and Transferor Company with the ROC before convening meeting of its members and creditors for the approval of the said scheme.
  • The notice and explanatory statement accompanied with a (i) statement disclosing facts of the companies, (ii) capital structure, details of promoters, directors etc, (iii) copy of Scheme and (iv) declaration of solvency shall be sent to the members/ creditors, 21 days prior to the meeting of the members and/or creditors to approve the Scheme.
  • The Transferee Company shall within 7 days of conclusion of meeting of members/creditors file the following documents with CG: (i) copy of Scheme as approved by members and creditors and (ii) report of the result of each of the meetings.
  • Where no objection/suggestion is received from ROC and OL for the Scheme and the CG is of the opinion that the Scheme is in the general interest of the public , the CG shall issue a confirmation order of such Scheme of merger or amalgamation.
  • The Confirmation order is to be filed with ROC within 30 days of receipt of confirmation order.

MHCO COMMENT

The rules are aimed at simplifying the procedure relating to Scheme matters. However, with the disclosures and the procedure prescribed in the Rules and recent approach taken by Principal Bench in JAV Trading Case, it seem to be cumbersome process. Further, the process has been entirely shifted from the High Court to NCLT including the ongoing matters. This is a major shift and indeed a great relief and is certainly aimed at reducing the burden of the High Courts with respect to Company Law related matters. Overall, it is expected that this important change in law would indeed bring in substantial degree of efficiency in Scheme related matters.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.