This article is written by Tejas Pardeshi studying at Indian law society Pune, 2nd year BA.LLB pursuing a Diploma in M&A, Institutional Finance and Investment Laws. This article has been edited by Ojuswi (Associate Lawsikho).
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
In India, if any companies want to enter into a transaction related to a Merger and Acquisition then the company shall fall a specific procedure laid down in The Companies Act 2013 (CA) with adherence to Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 (CAA). This analysis aims to examine the role of Board meetings and also highlight their relevance during the mergers and acquisitions process.
Merger
When two or more companies come together and combine into one single new company it is known as a Merger. There are four major types of mergers: conglomerate, congeneric, horizontal, and vertical. The companies decided to enter into the merger for reasons such as expanding their reach, expanding into new segments, or gaining market share.
Acquisition
When a company purchases all or most of the shares to gain control over the company it is known as Acquisition it often happens as major big companies acquire small minor companies such as startups. The acquirer gains control and decision-making power of the acquired company. Companies often acquire another company for reasons such as economies of scale, diversification, greater market share, increased synergy, cost reductions, or new niche offerings.
The procedure of a board meeting
Before the board meeting
The company needs a few conditions to complete before calling the board of meetings. This part is concerned with what these conditions are as per Section 230(3) of CA 2013 and Rule 6 of Companies CAA Rules, 2016. There is a specific format given for the Notice for calling a meeting which shall be in accordance with Form No. CAA.2. The Notice shall be sent individually to each of the creditors or class of creditors and all members or class of members and the debenture-holders of the company individually at the address registered with the company.
The notice of the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or arrangement and a statement disclosing the following details of the compromise or arrangement, a copy of the valuation report if any, and explaining their effect on creditors, key managerial personnel, promoters, and non-promoter members. In addition, the debenture holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustee. The notice shall be sent by the Chairperson appointed for the meeting, or, if the Tribunal so directs, by the company (or its liquidator), or any other person as the Tribunal may direct.
The first step of formatting the notice is done so the company shall send this notice. As per Section 230(3) of CA 2013 notice calling for a meeting to consider the proposal of mergers and or amalgamations should be sent to all the creditors or class of creditors and all the members or class of members and the debenture holders of the company, individually at the address registered with the company. In addition, the Central Government, the Income-Tax authorities, the Reserve Bank of India, the Securities and Exchange Board of India, the Registrar, and the respective stock exchanges, the Official Liquidator are also to be notified of the same. It is important that notice is sent to the Competition Commission of India, and other sectoral regulators or authorities, which are likely to be affected by the compromise or arrangement. This is specifically said as per Section 232(1) of CA 2013 read with section 230(5) of CA 2013.
Now the registered address of receivers might not be the same or updated in company records so for the information of receivers. The Company shall publish an advertisement for the Board meeting in the Newspaper. It shall be anyone English Newspaper, any vernacular newspaper having wide circulation in the State in which the registered office of the company is situated. Even in some cases, the Tribunal may direct any newspapers. The content of the advertisement shall be the notices in Form No. CAA. 2 of Companies CAA Rules, 2016. It shall specify the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company. In the case of a listed company, a copy of the notice and other documents shall be placed on the website or sent to SEBI and the stock exchange where the securities of the companies are listed, for placing on their website.
When the notice is ready it needs to be sent as per Rule 6(2) of the Companies CAA Rules 2016, by the chairperson appointed for the meeting. The Chairperson of the meeting shall be a person appointed by the Tribunal; it is not necessarily the Chairman of the company. The powers of the Chairperson would be very similar to the powers of a Chairman of any company meeting. He will decide on issues raised and generally take all decisions for the peaceful and orderly conduct of the meeting. Rule 5(c) of Companies CAA Rules 2016, provides that the Tribunal may decide “fixing the terms of his appointment including remuneration” of the Chairperson.
The notice can be sent through hand delivery, by registered post, speed post, by courier, by hand delivery at the office of the authority, or by electronic means. Detailed information refers to service of notice is in part of Rule 35 of Companies (Incorporation) Rules, 2014.
During the board meeting
The meeting starts with a quorum. Although the rules do not specify what constitutes a quorum for the meeting. It is the power given to the Tribunal to decide on sending notice for the meeting to the minimum number of persons present, as required by Section 103 of CA 2013, which incidentally applies only to a meeting of members and not creditors. This is decided depending upon the number of members or creditors under each of the classes which are required to be given notice. Tribunal is also at the liberty to decide as to when this might not be followed in the interest of justice and fair play.
Further, the quorum could be different for the different meetings directed to be called, and depending on the persons who are required to attend like members or class of members or creditors or class of creditors. Rule 5(d) of the Companies CAA Rules, 2016, the Tribunal shall give such directions as it may think necessary inter alia in respect of the fixing the quorum. Thus the Tribunal has the power to fix the quorum for a meeting.
The members of the meeting can vote As per Rule 9 of the Companies CAA Rules, 2016 physically, via postal ballot, electronic means or through proxies. The other concern is the procedure for allowing a proxy to a member. Rule 10 of the Companies CAA Rules, 2016, deals with proxy in the context of compromise or arrangement. It provides a few conditions for permission to a proxy. A proxy shall be in the prescribed form duly signed by the person entitled to attend and vote at the meeting. It shall be filed with the company at its registered office not later than 48 hours before the meeting.
No person shall be appointed as a proxy who is a minor. The proxy of a member or creditor blind or incapable of writing may be accepted if such member or creditor has attached his signature or mark the in the presence of a witness. The proxy of a member or creditor who does not know English may be accepted if it is executed in the manner prescribed in the preceding sub-rule and the witness certifies that it was explained to the member or creditor in the language known to him, and gives the member’s or creditor’s name in English below the signature. The proxy obtained should be proper in law. If these specific conditions are not fulfilled then the proxy can be considered void and uncountable.
The most crucial part of the ongoing meeting who can raise Objections to the merger or amalgamation. Only a person holding not less than 10% (Ten Percent) of shares of the company is eligible to make an objection. CA 2013 has ensured that flimsy objections by persons holding a few shares cannot object and delay the process of merger or amalgamation. Also, a person who has outstanding debt amounting to not less than five percent of the total outstanding debt as per the latest audited financial statement can object. For objecting the notice is to be sent as per section 230(5) of CA 2013 are required to submit their representations(Objection) to the Tribunal within thirty days from the date of receipt of such notice. In case such authorities fail to make representation within the thirty days, it shall be presumed that they have no representations to make on the proposals.
At the meeting of the creditors or class of creditors or members or class members, if a majority in number representing three-fourths in value of such persons, present and voting agree to the compromise or arrangement contained in the Scheme, then such approved scheme goes to the Tribunal for its approval.
The above said is the standard procedure for the conduct of board meetings during mergers and amalgamation. However, Rule 5(d) of the Companies CAA Rules, 2016, provides the Tribunal has the powers to determine the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot, or by voting through electronic means. Thus the meeting will be conducted as per the directions of the Tribunal.
After the board meeting
After the conduct of the board meeting As per Rule 14 of the Companies CAA Rules, 2016. The Chairperson of the meeting (or where there are separate meetings, the Chairperson of each meeting) shall, within the time fixed by the Tribunal, submit a report to the Tribunal on the result of the meeting in Form No. CAA.4. If no time has been fixed, within three days after the conclusion of the meeting, submit a report to the Tribunal on the result of the meeting in Form No. CAA.4.
Conclusion
As the Board of the meeting seems a very small part of the procedure during the merger and acquisition, it plays a crucial part in the procedure. The compliance regarding the Board meeting needs to be done appropriately as laid down in the law so the transaction can be successful. One wrong step can harm the whole transaction, as it is the initial step of the transaction.
References
- https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
- https://www.mca.gov.in/Ministry/pdf/compromisesrules2016_15122016.pdf
- https://taxguru.in/company-law/companies-act-2013companies-incorporation-rules-2014-related-formation-companies.html
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