16 December 2016 Rules relating to compromises, arrangements, amalgamations and capital reduction notified Background The Ministry of Corporate Affairs (MCA) has issued two notifications viz. Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 ( CA rules ) on 14 December 2016 and National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 ( CR rules ) on 15 December 2016. CA rules are notified 1 to come into effect from 15 December 2016 whereas CR Rules shall come into force on the date of their publication in the Official Gazette. CA rules relate to the procedure for compromises, arrangements and amalgamations provided in section 230 to 233 and 235 to 240 of the Companies Act 2013 ( CA 2013 ) and CR Rules relate to procedure for reduction of share capital of company provided in section 66 of the CA 2013. These sections relating to CA rules and CR rules were notified recently by MCA on 7 December 2016. In this Flash News, we have discussed the key procedure/provisions of the above-mentioned CA rules and CR rules. Part I - Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 Procedure to be followed for a Scheme of amalgamation or arrangement under section 230-232 of the CA 2013 S. No. Procedure/provision Timeline Forms 1 Filing of application with the Tribunal Companies to file with the National Company Law Tribunal ( the Tribunal ) an application (Joint application in case of merger / arrangement involving multiple entities may be filed at the discretion of the companies party to merger / arrangement); a notice of admission; an affidavit; and a copy of the Scheme of compromise, merger, amalgamation or arrangement ( the Scheme ), along with disclosures such as material facts relating to company, latest financial position of the company, the latest auditor s report on the accounts of the company, the pendency of any investigation or proceedings NCLT-1 NCLT-2 NCLT-6 1 Notification No. G.S.R. 1134(E) dated 14 December 2016 issued by the Ministry of Corporate Affairs, Government of India
against the companies. 2 Hearing of the application at the Tribunal Tribunal may at its discretion, give directions to convene meeting of shareholders/creditors or dispense with the meeting of creditors of the transferor and transferee Company 2. 3 Procedure for convening meeting of shareholders/creditors Sending of notices to members/creditors Sending of individual notice and explanatory statement (along with a copy of the Scheme and the prescribed details) of meeting or meetings to each of the members/creditors of the companies involved. Some of the prescribed details are summary of valuation report including basis of valuation and fairness opinion (if any), appointed date, effective date, benefits of the compromise or arrangement as perceived by the Directors to various stakeholders etc. Further various documents such as financials, Tribunal order, Scheme, Auditors certificate on accounting treatment, etc. should be made available for inspection to the members and creditors of the company. Publishing of advertisement Publishing the advertisement for the meetings in two newspapers - one in an English newspaper and one in a vernacular language newspaper and shall also be placed on the website of the company (if any), and on website of the Securities and Exchange Board of India (SEBI) and the recognised stock exchange where the securities of the company are listed. Provided where separate meetings of creditors or members are to be held, joint advertisement for such meetings may be given. Sending of notices to sectoral regulators/statutory authorities Post sending notices to members/creditors, company to send notice of meeting to regulators like the Central Government (CG), Registrar of Companies (ROC), Income-tax authorities (in ALL cases), Reserve Bank of India, SEBI, Competition Commission of India, stock exchanges, as applicable and other sectoral regulators as directed by the Tribunal. Affidavit of Service: Filing of the Affidavit of the Chairperson stating that all the directions regarding issue of notices and the advertisements for convening meeting are complied with. 4 Convening of meeting of members/creditors Voting at the meeting(s) shall take place by poll or by voting through electronic means Voting by proxy shall be permitted. At least one month before the date fixed for the meeting Not less than 30 days before the date fixed for the meeting Not less than seven days before the date fixed for the meeting Within one month from the date of CAA-2 CAA-2 CAA-3 2 If 90% or more of value of creditors have consented to the scheme by way of an affidavit, then creditors meeting shall be dispensed with by the Tribunal.
the notice Eligible persons who can object are (i) members holding more than 10 per cent of shareholding (ii) creditors holding more than 5 per cent as per last audited financial statements or if such statement is more than six months old, then as per provisional financial statement not preceding the date of application by more than six months. 5 Filing of representation by the regulators/statutory authorities to Tribunal Filing of representation by the regulators/statutory authorities to the Tribunal, if any and serve the copy to concerned companies within 30 days from the date of notice, failing which, it shall be presumed that they have no representations to make on the proposals. Within 30 receiving notice 6 Procedure post the meeting of members/creditors Chairperson of the meeting(s) to submit to the Tribunal, a report of the result of the meeting. 7 Filing of the petition with the Tribunal Filing of the petition for confirming compromise or arrangement with the Tribunal. Within three days after the conclusion of the meeting Within seven days of the filing of the report by the Chairperson CAA-4 CAA-5 8 Hearing of the petition at the Tribunal and procedure to be followed before the date of final hearing The Tribunal shall fix a date for the hearing of the Petition and notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised. Not less than 10 days before the date fixed for the hearing Tribunal to send notices of hearing of Petition to the members/creditors who have objected to the Scheme and to CG and other regulators/statutory authorities who have made representation. Submission of report by regulatory authorities. 9 Final hearing at the Tribunal 10 Procedure post completion of final hearing at the Tribunal Companies to obtain a certified copy of the order made under section 232 read with section 230 (7) of the Companies Act, 2013 and file certified copy of this order to be delivered to the ROC for registration. However, in Form CAA7, the transferor company shall cause a certified copy of this order to be delivered to the ROC for registration. Within 30 the date of the the order CAA-7
Statement of compliance in mergers and amalgamations Every company in relation to which the order is under Section 232(3) shall until the Scheme is fully implemented, file a statement with the ROC every year, duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the Scheme is being complied with in accordance with the orders of the Tribunal or not. Within 210 days from the end of each financial year CAA-8 Report of working of compromise or arrangement At any time after issuing an order sanctioning the compromise or arrangement, the Tribunal may direct the company to submit a report on the working of the said compromise or arrangement. Liberties of parties after passing of order Companies, their creditors or members or liquidator may at any time after the passing of the order, apply to the Tribunal for determination of any question relating to the working of the compromise or arrangement. Procedure to be followed for merger or amalgamation of two or more small companies or between a holding company and its wholly owned subsidiary company or such other class or classes of companies as may be prescribed under section 233 of CA, 2013 3 (Fast track merger) S. No. Procedure/provision Timeline Forms 1 Notice of proposed scheme to be sent to ROC and Official Liquidator (OL) Notice of the proposed scheme inviting objections or suggestions, if any, within 30 days, to be sent by Transferor Company and Transferee company to ROC, OL and persons affected by the scheme along with copy of scheme. CAA 9 2 Filing of declaration of solvency with ROC Transferee and Transferor Company shall be required to file declaration of solvency with ROC. Before convening meeting of members and creditors for approval of the Scheme CAA 10 3 Convene meeting of member and creditors (if any) Notice and explanatory statement of convening meeting of members and/or creditors to approve the Scheme shall be accompanied with: Statement disclosing details/facts of the companies, capital structure, details of promoters, directors etc.; Copy of Scheme and Declaration of solvency in Form CAA 10. Notice period of clear 21 days 3 It is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233 of the Act, the concerned companies may, at their discretion, opt to undertake such schemes under section 230 to 232 of the CA, 2013, including where the condition prescribed in section 233(1)(d) of the CA, 2013 (i.e. approval of scheme by majority representing 9/10 th in value of the creditors or class of creditors of respective companies) has not been met
4 Filing of documents with CG, ROC and OL Transferee Company shall require to file following documents with CG: Copy of Scheme as approved by members and creditors and Report of the result of each of the meetings. Copy of the Scheme alongwith relevant forms shall also be filed with ROC and OL. 5 Approval of Scheme by CG Where no objection/suggestion to the Scheme is received from ROC and OL, or objection is deemed to be non-sustainable and the CG is of the opinion that the Scheme is in the public interest or in the interest of creditors, CG shall issue a confirmation order of such Scheme of merger or amalgamation. Within seven days of conclusion of meeting of members and/or creditors CAA 11 GNL - 1 CAA 12 Where objection/suggestions are received from ROC and OL and CG on the basis of objection received or otherwise is of the opinion that Scheme is not in the public interest or in the interest of creditors, CG may file an application before Tribunal for consideration of Scheme u/s 232 of the CA, 2013. 6 Filing of confirmation order with ROC Application shall be filed within 60 scheme CAA 13 Confirmation order of CG shall be filed with ROC. Within 30 confirmation order Form 28 INC- Rules with respect to acquisition of shareholding of dissenting shareholders and purchase of minority shareholding read with section 235, 236 and 238 of the CA, 2013: 1 Notice to dissenting shareholders Transferee company shall send notice to dissenting shareholders of transferor company for acquiring their shares in transferor company. Further, every circular containing offer of Scheme or contract involving transfer of shares and recommendation to the members of the transferor company by its directors to accept such offer, shall be accompanied by specified information. CAA 14 CAA 15 2 Determination of price for purchase of minority shareholding under section 236 of CA, 2013 Offer price to be paid to minority shareholders for acquiring their shares by the acquirer, person or group of persons, shall be determined by registered valuer. In case of listed company Offer price shall be computed as per relevant SEBI regulation. In case of unlisted company and private company
Price to be determined after considering following parameters The highest price paid by the acquirer, person or group of persons for acquisition during last 12 months; Fair price of shares after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-à-vis the industry average, and such other parameters as are customary for valuation of shares of such company. Part II National Company Law Tribunal (Procedure for reduction of share capital of company) Rules, 2016 S. No. Procedure/provision Timeline Forms 1 Filing of Application or Petition for Reduction of share capital Company to file an application for confirmation of reduction of capital with the Tribunal List of creditors duly certified by Managing Director (MD) or any two directors (if MD is not present) showing details such as names, address and amounts owed to them list to be maximum 15 days old from the date of application filing Declaration by a director of the company that company is not in arrears in repayment of the deposit or interest thereon Auditor certificate for the following certifying that list of creditors, certified by MD or two directors is correct as per the records of the company; certifying that company is not in arrears in repayment of the deposit or interest thereon and certifying that the accounting treatment proposed for the reduction of capital is in conformity with the accounting standards specified in section 133 or any other provisions of CA 2013. 2 Issue of Notice and directions by the Tribunal Tribunal shall within 15 the submission of the application give or direct to give notice to CG, ROC - in all cases; Securities and Exchange Board of India in case of listed companies; Creditors in all cases. seeking their representations and objections, if any Notice to creditors to be sent with all the details of capital reduction as prescribed. 3 Publishing of notice Notice is required to be published in English language in a leading English newspaper and in a leading vernacular language newspaper and also to be published on website of the company (if any) seeking objections from the creditors and intimating about the date of hearing. Within seven direction given by the Tribunal Within seven direction from Tribunal RSC 1 RSC 2 RSC 2 RSC 3 RSC 4 Objections to the notice needs to be filed with the Tribunal and a copy of the same is also required to be served on the company. Within three months from publication
of notice 4 Filing of Affidavit of Service Company shall file an affidavit confirming the dispatch and publication of notice. Within seven days from the date of issue of notice RSC 5 Tribunal may dispense with the requirement of serving notice to creditors and/or publication of notice in newspapers if it is satisfied that debt or claim of every creditor has been discharged or determined or has been secured or his consent is obtained. 5 Representation by CG, ROC, SEBI and creditors CG, ROC, SEBI or the creditors of the company can make objections to the capital reduction proposed by the company within the prescribed time limit. Such representation shall also be sent also to the company. In case no representation is received by the Tribunal, it will be presumed that they have no objections. Within three months from date of notice 6 Procedure with regard to representation and objections received Company shall submit to the Tribunal, the representations/objections so received along with responses raised by CG, ROC, SEBI or creditors. Within seven expiry of three month period allowed for representati on 7 Reduction order and issue of certificate by ROC Where the Tribunal makes an order confirming a reduction, the order confirming the reduction and approving the minute may include such directions or terms and conditions as the Tribunal deems fit, and ROC will issue a certificate for reduction of share capital. RSC 6 RSC 7 Our comments The much awaited final CA rules and CR rules have now been notified and made effective. The rules have provided much required clarity on many issues. However, further clarifications are still required such as whether notice for convening meeting to be sent to Official Liquidator, the mode of calculating the votes received under postal ballot, role of CG in case of fast track merger, transitional provisions etc. Further how the rules are being implemented and the evolution of practical application of the provisions of the Act, where there is no specific rule, will play a crucial role in determining how effectively the law is being administered.
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