ROLE OF MERGER LAWS AND ANTI-TRUST LAW IN INDIA MARKET
Author Name: SAKSHI R.PATIL, Savitribai Phule Pune University.
The merger is a general term that refers to the consolidation of companies. It is a merger of the two companies to form a new company. Merger in other terms can be termed as a business phenomenon to create a higher pie in the market or acquire a company to obtain an advantage in the competitive market. The senior executives of companies foresee the market strategies of higher revenue, economic growth by merging. The basic agenda for such a merger is to create higher shareholder values which will be over above the two companies. On other hand, Anti-trust laws are laws of competition. These laws monitor any economic activity that monopolizes competition in the market, it also protects consumers and small enterprises and ensures trade freedom. It also regulates Mergers, Acquisitions, and Combinations in India.
LAWS RELATED TO MERGER AND ACQUISITION IN INDIA
A merger is the combination of two companies in which one corporation is absorbed into another corporation. It involves consolidation or absorption. The less important company regains its importance by merging into other companies. It can also be defined as amalgamation. Economics of scale increased revenue or increased market share, cross shelling, Taxes, and geographical or other diversification are some of the motives behind the mergers of the company.
As a Merger is the fusion of two companies, all assets, liabilities, and stock of one company stand transferred to Transferee Company in consideration of payment in the form of Cash, Debenture, Equity shares of the transferee company, or a mixture of the above.
In India many laws are related to merger and acquisition, some of them will be discussed in this article in brief.
a) The Companies Act, 1956 –
In the companies’ act 1956, section 390-395 deals with arrangements, amalgamation, mergers, and procedures to be followed for the arrangement or scheme of amalgamation approved. The companies act as the primary legislation governing companies in India. All cooperate transaction like merger; acquisition must be implemented in accordance with Company law provisions
b) The Competition Act, 2002 –
Section 5 deals with the Combinations by reference to turnover and assets, exclusively in India and outside India. The aim of the act is to protect unnecessary unguarded competitions. This act protects the interest of consumers and ensures a fair amount of chance for providing a fair amount of competition to other companies. In later years, the Government observed that the MRTP Act does not hold a true rising competition in the market as it only focuses on controlling monopolies. Therefore, Competition Act 2002 was enacted by replacing the MRTP act. However, MRTP was repealed in section 66 of the Competition act. This Act also includes a detailed list of provision and regulations to promote competition in the market
c) Foreign exchange management Act, 1999 -.
The foreign exchange management act (FEMA) protects and deals with cross borders mergers. This law provides general guidelines on the issuing of shares and securities by an Indian entity to a person residing outside India.RBI has issued detailed guidelines on foreign investments in India. According to foreign exchange management regulations, if a merger is sanctioned in Indian court then Transferee Company is free to transfer shares to shareholders of Transferor Company outside India.
d) The Indian Income Tax Act (ITA), 1961 –
The merger is covered under the term Amalgamation as defined in section 2(1B) of the act. Special treatment is given in the income tax act to encourage mergers, demerger, and restructuring since the beginning. This has been done to accelerate liberalization.
e) Stamp Duty –
Indian Stamp Duty Act, 1899 is state-wise legislation. It lays down the law applicable to the form of instruments recording transactions. As per this act, the rate of stamp duty is 10 percent.
All these laws make matters related to mergers and acquisitions in India.
SIGNIFICANCE AND LEGAL PROCESS FOR MERGER IN INDIA
The legal procedure for a merger in India can be also called a process of business combination. Following is the procedure described in the act for the merger.
1. Examination of Object clauses:
The MOA of both companies should be examined to check the power to amalgamate is available. Further, the object clause of the merging company should permit it to carry on the business of the merged company. If such a clause does not exist, the necessary approval of shareholders, the board of directors, and the company law board are required.
2. Intimation to the stock exchange:
The stock exchanges were merging and merged companies should be informed about the proposal of the merger. From time to time copies of all resolutions, notices and orders should be mailed to the concerned stock exchange.
3. Approval of the draft merger proposal by the respective board:
The draft of the merger proposal should be approved by the respective board of directors. The board of each company should pass a resolution authorizing executives to take the procedure further.
4. Application to high courts:
Once the draft is approved, each company should make an application to the High court of the state where its registered office is situated.
5. Dispatch of Notice to Shareholders and Creditors:
In order to convene the meetings, notice and an explanatory statement of meeting as approved by the high court should be dispatched by each company to its shareholders and creditors in order to get intimation 21 days in advance. The notice of meetings should be published in two newspapers.
6. Holding of meetings of Shareholders and Creditors:
For passing the scheme of merger atleast75% of the shareholders who vote either in person or by proxy must approve the scheme of the merger a meeting of shareholders must be held by each company. The same process applies to the creditor’s approval.
7. Petition to High Court for confirmation and Passing of High Court Orders:
Once the merger scheme is passed, companies involved in the merger should present the petition to the High Court for confirming the scheme of merger. A notice should be published in two newspapers.
8. Filing the order with the registrar:
Registrar is the centralized body for all the companies registered. Certified true copies of the high court order must be filed within the time limit specified by the court.
9. Transfer of Assets and Liabilities:
Once the final orders are passed by both the high courts, all the assets and liabilities of the merged company should be transferred to the merging company. The target company’s assets and liabilities will be transferred to the acquiring company.
10. Issue of Shares and Debentures:
After fulfilling provisions of law, the merging company should issue shares and debentures of the merging company. The new shares and debentures issued will then be listed on the stock exchange.
As discussed above is the legal process of the merger in India. Talking about the significance of a merger, the most common reason why companies merge is to share technology, information which thereby increased the strength of the company. Mergers also help to overcome challenges and gain a competitive edge in the market. Liberalization, favorable government policies, economic reforms, the need for investment, and the dynamic attitude of Indian corporations are some of the growth factors of mergers and acquisitions in India.
REGULATORY CONSIDERATIONS FOR MERGER AND ACQUISITION IN COVID ERA IN INDIA
The economic fallout in the COVID crisis is massive and unpredictable. The lockdown has affected different sectors and regions. As in past downturns, recovery from current crises will present companies with unusual challenges. The Merger and Acquisition environment will be severely affected by the Government’s Make in India initiative. This initiative of the Government is designed to help the country’s manufacturer expand global market share and encourage foreign companies to consider India as a potential offshore destination. This policy protects Indian companies from takeover by certain foreign investment
ANTI-TRUST LAWS IN INDIA
Anti-trust laws are competition laws. These laws were originally established in the 19th century to check the abuses threatened or imposed by the immense trust that immerged in the late 19th century. The Anti-trust law is supposed to protect and promote competition in the line of relevant markets or lines of commerce. They serve to check and redress the improper acquisition and abuse of market dominance. This law forbids two categories of conduct a) unlawful restraint of trade and b) monopolization. The Anti-trust laws are never been anti-market or Anti-business in underlying conception or their implementation. The Indian parliament approved comprehensive legislation-The Competition Act, 2002 to regulate business practices in India. This Act regulates three types of conduct; anti-competitive agreements, abuse of dominant position, and combination (merger, acquisition, amalgamation). It took almost three years for merger control provisions to bring into force. In June 2011, these provisions were brought into force.
MARKET DOMINANCE AND ANTITRUST LAWS
In 1969, the Government passed its own Monopolies and Restrictive trade practices (MRTP) act. The act was there to ensure no concentration of economic power in private hands. The MRTP act was not effective despite being amended several times. A new act was necessary for the new economic environment, and it led to forming of the Competition Act 2002, which led to the formation of the Competition Commission of India (CCI). CCI has investigated many cases of anti-competitive behavior and imposed several penalties. It is important for India to examine the provisions and efficiency of CCI because government policies and some decisions of the Supreme Court have been changing the structure of the Indian Market.
With policies becoming more liberalized, mergers and acquisitions talks are heating up in India. They are no more limited to a single type of business. For the expansion of business and operation and an increase in profits, a merger is considered as one of the important tools by companies. Due to large consolidation by industrial houses, increasing competition against imports, and acquisition activities Indian markets witnessed the burgeoning trend in the merger. It is considered to be a ripe time for business enthusiasts and corporate to watch the Indian market and grab the opportunity.