Abstract

The Companies Act, 2013, has been capable of being a historical milestone for
implementing Merger & Amalgamation. The new act envisages the creation of a new
tribunal, National Company Law Tribunal, which will assume the jurisdiction of the
high court for sanctioning the scheme of merger and amalgamation. Under the old act,
the high court having jurisdiction over the registered office of the companies has to
approve a scheme seeking its approval as doing so ensures fairness and effective
overseeing of the scheme. However, in the process , there have been serious concerns
resulting in huge delays. The new act seeks to address the concerns of undue delay.
NCLT will be a specialized body dealing only with cases under company and related
laws thereby introducing elements of speed and efficiency. The establishment of this
single forum will be dedicated only to corporate matters and will remove the problem
of multiple regulators.
This paper focuses on how NCLT will ensure fairness in a scheme of merger.
Key words : merger, NCLT
 Introduction

The main aim of this research study is to emphasize upon what is a National
Company Law Tribunal , Establishment of the Tribunal and how does the National
Company Law Tribunal works towards assessing fairness in a Scheme of Merger.
Therefore, it is essential to have a brief idea of a merger and a Scheme Of merger
before one can have an understanding as to how a National Company Law Tribunal
can work towards assessing fairness with respect to a scheme of merger. The process
of mergers and acquisitions has gained substantial importance in today's corporate
world. This process is extensively used for restructuring the business organizations. In
India, the concept of mergers and acquisitions was initiated by the government bodies.
The increased competition in the global market has prompted the Indian companies to
go for mergers and acquisitions as an important strategic choice. In business or
economics a merger is a combination of two companies into one larger company.
Such actions are commonly voluntary and involve stock swap or cash payment to the
target. The directors of the companies must first approve a plan or a Scheme Of
Merger for implementing a merger following which they then convene an
extraordinary general meeting of the shareholders at which the scheme of merger is
put to the shareholders for approval. A scheme of merger is required to set out the
key terms of the merger as follows:

1. The names of the constituent companies to the merger and the name of the
surviving company.

2. The date on which the merger is to take effect (either the date of filing of the plan
of merger or another date within 90 days of the filing date).

3. The terms and conditions of the merger, including the manner of converting the
shares of the constituent companies into shares of the surviving company or into other
property e.g. cash.

4. The rights of and any restrictions attaching to shares in the surviving company.

5. Details of any changes to the memorandum and articles of association of the

surviving company or confirmation that its current memorandum and articles of
association will continue in effect once the merger is completed.

6. The names and addresses of all secured creditors of the company and details of the
security interests which they hold.

Once approved by shareholders, the plan of merger is then filed with the Registrar.
The merger becomes effective once the plan or the scheme of merger has been filed
with the Registrar or on such later date (within 90 days of this filing) as may have
been provided for in the scheme of merger.

The Companies Act, 2013 envisages the creation of a new tribunal, National Company Law
Tribunal, which will assume jurisdiction of the High Courts for the sanctioning of Schemes
of mergers and amalgamations . The National Company Law Tribunal is a quasi-judicial
body to regulate and resolve civil corporate disputes Whereas, NCLAT, National Company
Law Appellate Tribunal is the higher forum where appeals from the NCLT are dealt with.
The power to establish NCLT and NCLAT has been derived from Article 245 of the
Constitution of India. NCLT was constituted on 1 June 2016.

The National Company Law Tribunal is also the Adjudicating Authority for Insolvency
resolution process of Companies and Limited Liability Partnerships under the Insolvency
and Bankruptcy Code, 2016.Both the Tribunal and Appellate Tribunal follow the Code of
Civil Procedure and are subject to any rules formed by the Central Government. Company
Law Board (CLB), The Board for Industrial and Financial Reconstruction (BIFR), The
Appellate authority for Industrial and Financial Reconstruction and Company related
matters of High court are now governed by NCLT.

Any person aggrieved by the order of NCLT then appeal any order on Question of Law and
Fact within 45 Days to NCLAT and any person aggrieved by the order of NCLAT then
appeal on Question of Law within 60 Days to Supreme court.
History

The setting up of the NCLT as a specific organization for corporate equity depends on the
proposals of the Justice Eradi Committee, a board set up to analyze the current law
identifying with wrapping up procedures (Bimal N. Patel, 2014). The solicitations so
molded can help in restoring a condition, correcting a wrong by corporate or driving
disciplines/costs and may alter or better the rights, commitments, duties or advantages of
the social events concerned (Bernard H. Singh). Basic task of NCLT is to find the
substances and yield the affirmation concerning the suit recorded while the NCLAT picks
matters on the grounds of witnesses and affirmations accumulated (Vinod kothari, 2001).
From the start the powers of Company Law Board have been traded to NCLT. Help the
Center has planned to implant second course of action of admonitions through which the
NCLT would be on a comparable offset with High Courts and BIFR. NCLT now has the
powers of the CLB and the as of late injected powers by methods for the Act of 2013
(Suveera Gill). Class Action:Fortification of the interest and benefits of different
accomplices, particularly non-advertiser financial specialists has constantly been the fear
of organization law from starting point. There have been various mix-ups that were
perceived, where the key waste were the speculators (Robert Ian Tricker, 2015),
Registration of Companies: The Companies Act, 2013 currently allows to examine the
validness of any organization in perspective on certain procedural botches at the period of
enrollment and union (Rajiv Mehrishi, 2017).

Development of NCLT

On June 01, 2016, the Ministry of Corporate Affairs (MCA) circulated a notice
concerning the constitution of the National Company Law Tribunal (NCLT) and National
Company Law Appellate Tribunal (NCLAT) with sway from the June 01, 2016. The
constitution of the recently referenced Tribunals is in exercise of the powers displayed by
Sections 408 and 410 exclusively of the new Companies Act, 2013. The setting up of the
NCLT as a particular organization for corporate equity depends on the proposals of the
Justice Eradi Committee, a board of trustees set up to look at the current law identifying
with wrapping up procedures of organizations so as to re-model it in accordance with the
most recent advancements and developments in the corporate law and administration and
to recommend changes in the technique at different stages followed in the bankruptcy
procedures of organizations to dodge pointless postponements on top of the global
practice in this field.

Significance of NCLT

The NCLT is a semi lawful master joined by the decency of the Companies Act, 2013 to
oversee corporate inquiry of regular nature rising under the Act NCLT has powers and
system like an official court. NCLT deals with the lines of any normal Court of law in
India and is obliged to reasonably choose facts of the case and pick matters in
concordance with the guidelines of basic value and in advancement of such decisions,
settle on judgments from the decisions so came to by it as solicitations. The solicitations
so molded can help in relieving a situation, correcting a wrong by corporate or driving
 disciplines/costs and may alter or better the rights, commitments, responsibilities or
advantages of the social events concerned. The Tribunal require not pursue with the
exacting standards as to procedural law and valuation for any affirmation.

Foundation of NCLT

NCLT is the off spring of Eradi Committee. NCLT was wanted to be presented in Indian
legal structure in 2002 under the Companies Act, 1956. However since the prosecution
with respect to the established legitimacy of NCLT continued for over 10 years
subsequently it was later advised under the 2013 Act. Nonetheless, a difference can be
seen in the capacities and forces of NCLT under Companies Act, 1956 Act and 2013 Act
separately. The sacred legality of NCLT and certain significant plans were re-tested and
this issue was chosen in May 2015. The hon’ble Supreme Court had kept up the sacred
legality of NCLT yet certain plans were rendered offensive of protected standards.

Benches Of National Company Law Tribunal :

The NCLT has thirteen benches, two at New Delhi (one being the principal bench) and
one each at Ahamdabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati,
Hyderabad, Jaipur, Kochi, Kolkata and Mumbai.

Powers vested in NCLT

1. Class Action : class action suits are undertaken against frauds and hence come under
section 245 of the Indian Companies Act which cheats or steals money from the investors
are liable to be fined and penalized by the NCLT. Companies who make money fraudulently
by duping investors and shareholders are expected to provide expectation to the victims for
losses. Class Action suits work against both private and public companies but cannot be
filed against banking institutions.

2. Share Transfer Disputes : if any company refuses to transfer shares or mishandles

registration of transfers, then the victim or the individual who incurred losses due to this
malpractice can appeal to the NCLT within a time frame of two months to seek justice.
Contracts and arrangements for security transfer come under the jurisdiction of the NCLT
under section 58 and 59.

3. Oppression : under section 397 an individual was given the liberty to file complaints
only about ongoing cases of abuse and mismanagement. But the tribunal, allows the people
to seek justice for all forms of abuse, whether past or present. If someone finds that the
working of the company is prejudiced and aims to benefit certain parties by being
oppressive towards others, then he or she has the right to approach the tribunal and demand
it to look into the matters of the company so as to ensure that all parties involved seek
justice.
 4. Revision of Financial statements : falsification of record books was a significant form
of injustice that was prevalent and sections 447 and 448 have been added to ensure that such
instances would be handled effectively by the tribunal. These new amendments forbid
companies from acting on their will and opening accounts to revise their financial
statements. Section 130 allows the tribunal authority to command a company to reopen
accounts under certain circumstances. While companies are permitted to review their
financial statement under section 131, they do not have the power to reopen any accounts.

5. Registration of Companies : The Companies Act, 2013 now permits to scrutinise the
authenticity of any company in view of certain procedural blunders at the season of
registration and consolidation. NCLT is empowered to make various strides, going from
wiping out the registration to dissolving the company. The Tribunal can significantly render
the charge or risk of individuals boundless. This new approach for de-registration of a
company in certain uncommon circumstances when the is registration endorsement is gotten
by unlawful means or wrongful way has been given u/s 7(7) of the Act of 2013.

6. Deposits : Chapter V of the Companies Act, 2013 manages deposits and the same was
advised in shifting eras in the time of 2014 and CLB was the specialist to take up cases
under this section. Presently, these powers under part V have been transferred from CLB to
NCLT with its introduction to the world. An unmistakable variety could be seen on its
substance with respect to law on deposits under the demonstration of 1956 and the
demonstration of 2013. The arrangements with respect to deposits under Companies Act,
2013 were at that point told preceding the development of the NCLT. Troubled investors
now, additionally have a cure of class actions suits keeping in mind the end goal to look for
solution for the demonstrations and exclusions with respect to the company which
influences their rights in the shoes of the contributors.

7. Tribunal Ordered Investigations : Chapter XIV of the Companies Act, 2013 hands
over different powers to NCLT concerning examinations. The absolute most vital powers
that

rest with the Tribunal are: a. Power to arrange examination According to the arrangement of
Companies Act, 2013 examination concerning the issues of the company 730can be
requested on an utilization of 100 individuals though preceding the 2013 demonstration, 200
individuals were required for same. Moreover, if any individual who isn't identified with the
company can persuade NCLT about the presence of conditions to arrange an examination
then the tribunal has the power to arrange an examination. Any examination requested by
the NCLT can be led either in India or in some other piece of the world. Arrangements have
been drafted for giving and looking for assistance from examination organisations and the
courts of outside nations.

b. Power to solidify resources of the company The NCLT has not exclusively been given
the power to harden the advantages of the company in order to utilise them later when the
company goes under examination or examination, the said examination can likewise be
started on the demand of other individuals in specific conditions.

8. Conversion of open company into privately owned business : Sections 13 to 18 of

the Companies Act, 2013 r/w rules control the change of a Public ltd. Co. into Private ltd.
Co. the said transformation requires an earlier affirmation of the NCLT. The Tribunal has
the power u/s 459 of the Companies Act, 2013 to force certain confinements or conditions
and may give endorsement to such conditions.

9. Auditors Certificate : According to the draft rules exhibited by MCA, not a company
recorded or unlisted need to present a reviewer's endorsement to NCLT. This present
evaluator's authentication is important for guaranteeing similarity with the recommended
bookkeeping standard by MCA. Beforehand, this confirmation was required for just
recorded organizations under the rules of SEBI. This progression will help in decreasing
the bookkeeping adaptability for unlisted organizations and further will manage the capital
lessening process.

10. Tribunal Convened AGM : Shareholders supposition is evaluated by the company

time to time in its General gatherings. The Companies Act, 2013 makes it a command for
extremely company to call a "yearly broad meeting" or 'AGM' every year. The various
general meeting(s) are classified as "additional normal general meeting". On the off chance
that the company neglects to sort out or gather an AGM or an EOGM as indicated by the
method gave under the Companies Act, 2013, at that point the NCLT is empowered u/s 97
and 98 of the Act of 2013 to coordinate the organizations or in its own particular limit
arrange general gatherings of the defaulter company. There is no distinction in
arrangements under both the Companies Act's with respect to the AGM and EOGM.

.
Establishment of NCLT :

The New Act envisages the creation of a new tribunal, National Company Law
Tribunal, which will assume jurisdiction of the High Courts for the sanctioning of
M&A’s/Schemes. Under the Old Act, a Scheme is required to be approved by the
High Court having jurisdiction over the registered office of the companies seeking the
approval of the Scheme. This is done to ensure fairness and an effective overseeing of
the Scheme. However, in the process, there have been serious concerns regarding
huge delays. The New Act seeks to address the concerns of undue delay.  NCLT will
be a specialized body dealing only with cases under Company and related laws
thereby introducing elements of speed and efficiency.

The Companies Act 2013 envisages a paradigm shift in the process of

compromise/arrangement. It envisages that all the powers and functions of the
Company Law Board, Company Court, BIFR under the Sick Industrial Companies
Act will henceforth be exercised by NCLT. Establishment of a single forum which
will be dedicated to corporate matters is a welcome move and removes the problem of
multiple regulators. However, setting up of such quasi-judicial tribunals has been a
constant point of litigation, either on its legal competence or non-compliance with the
provisions of NCLT with the principles laid down in the past by Apex Court rulings.
In this regard a petition was filed by Madras Bar Association as well as by the Union
of India in Apex Court challenging decision of Madras High Court order dated 30th
March,2014 with regard to the validity of the constitution of NCT and NCLT and
challenging to the prescription of qualifications including term of their office and
salary allowances etc. of President and members of NCLT  as well as Chairman and
Members of the NCLAT and challenging the structure of the Selection Committee for
appointment of President/Members of the NCLT and Chairperson.  This has delayed
the process of recruiting judicial and technical members of NCLT, which could mean
further deferral in setting up of NCLT, which found its way into the New Act after
almost a decade of a legal battle. However on 15th May, 2015 the apex court has
passed an order holding that Constitution of NCT and NCLAT as perfectly valid and
ordered that certain corrections be made in section 409(3) and 411 of Companies
Act,2013 with regard to qualifications of Technical member and also ordered that
defects in provision of section 412(2) be removed with regard to Selection of Member
of Tribunal and Appellate Tribunal by Selection Committee.

The Companies Act 2013 provides that until Government notifies a date for the
transfer of all matters, proceedings or cases to be sent to NCLT, the provisions of the
Act with regard to the jurisdiction, powers, authority, and function of the current
Company Law Board and the Company Court will continue to apply. The 2013 Act
does not provide for any transitional provisions to govern the restructuring in progress
at the time of notification of such a date. Furthermore, if the restructuring currently
ongoing under the 1956 Act is to be continued under the 2013 Act, any non-
conformity of the portion of the process completed under the 1956 Act with the
provisions of the 2013 Act is a question that remains unaddressed. The
implementation of the 2013 Act will also require updates in other laws to link these
with the new provisions.

Mergers and Amalgamation Processes

One of the glaring differences between the Old Act and the New Act is that the current
regulatory framework under the Old Act does not distinguish between M&A’s on the
basis of companies involved and the same set of relatively complex and time-
consuming processes have to be followed for all M&A’s. On the contrary, in order to
take away the problems faced in recent times by companies during the M &A process,
the New Act has established a simplified procedure for M&A’s between wholly-owned
subsidiary companies and small companies. It also recognises the need for mergers
between Indian and foreign companies and provides a relatively transparent procedure,
which takes care of approvals from relevant regulatory and government authorities.

 Fast track Mergers & Amalgamation’s- Open to small companies and

M&A’S between holding Company and wholly owned subsidiaries :

As per the provisions of Section 233 of the New Act, a notice with regard to the
proposed Scheme is to be placed before the Registrar of Companies, the Central
Government, and the Official Liquidator to invite objections to the Scheme. The
objections and suggestions received by the companies should be considered in the
respective general meetings and the  Scheme must be approved by shareholders at
the general meetings holding at least 90 percent in value and creditors representing
nine-tenths of debt in value.

In the event of there being no objection, the Scheme will be approved and each of
the Companies involved will be required to file a declaration of solvency with
Registrar of Companies of the place where the Registered Office of the Company
are situated.

The Transferee Company shall file a copy of Scheme so approved with Registrar
of Companies, the Central Government and the Official Liquidator where the
registered office of the Company is situated.

However, in the event of any objection being raised against the proposed Scheme,
or in case of the Central Government being of the view that the Scheme is not in
public interest, the Central Government may file an application before NCLT
stating its objections and  request NCLT to consider the proposed Scheme under
the normal M&A process. The exclusivity of fast-track mergers is expected to
 reduce the time elapsed during court proceedings and will result in faster disposal
of matters. This is definitely a welcome step, as its intention is to reduce the
administrative burden, timelines, and cost for smaller companies when carrying
out M&A’s.

The relaxation to fast track M&A’s also includes dispensation from sending out
notices to regulatory authorities to seek clearance or submission of compliance
reports from the auditors.

 New enabling provisions

Cross - Border Merger & Amalgamation- Merger and amalgamation of
Indian companies and foreign companies

The Old Act does not contain provisions for Mergers of Indian Companies with
Foreign Companies. It does permit cross-border mergers, but only when the
transferor is a Foreign Company.

On the contrary, the New Act permits a merger between Indian and Foreign
Companies located in a jurisdiction which may be notified by the Central
Government from time to time in consultation with R.B.I. Such a merger will be
subject to RBI approval in respect of a foreign exchange transaction/s that may be
involved in the process.

 Merger of a Listed Company with Unlisted Company:

The New Act provides for  NCLT’s order to state that the merger of a listed
company with an unlisted one will not ipso facto make the Unlisted Company
Listed. Instead, it will continue to be unlisted until the applicable listing
regulations and SEBI guidelines are complied with and it becomes listed
Company. Further, in the event that the shareholders of a listed company decide to
exit, the unlisted company should facilitate the exit with a predetermined price
formula, which should be the price specified by SEBI regulations.

 Cleaner Procedure – Regulatory Approvals:

Under the Old Act, the requirement of notice and approval is limited to the
shareholders and creditors. The New Act requires service of notice of the Scheme
along with other documents to be sent not only to the shareholders and creditors,
but to various regulatory authorities such as the Reserve Bank of India (where
non-resident investors are involved), SEBI (only for listed companies), income tax
authorities, the stock exchanges (only for listed companies), the Competition
 Commission of India (in cases of the prescribed fiscal thresholds being crossed
and if the proposed merger could have an adverse effect on competition) and other
regulators and authorities which are likely to be concerned with the proposed
Scheme. This would ensure compliance of the Scheme with other regulatory
requirements imposed on the merging entities.

However, the drafters of the New Act have been careful not to provide the
regulators with any reason to delay the process and have prescribed a 30-day
time-frame for the regulators to make representations.

 Other Ease Outs

Approval of the scheme through postal Ballot :

The Old Act requires the Scheme to be approved by a majority representing

three-quarters in value of the creditors and shareholders’ present, and voting in
physical meetings, either in person or by proxy, to cast votes for or against the
Scheme.

Under the New Act, the shareholders and creditors will have the option of
casting votes through postal ballot while considering a Scheme. The Old Act did
not allow this as the shareholders and creditors could only cast votes physically.

Valuation Report

The New Act makes it mandatory for the valuation report to be annexed to
the Scheme, as well as to the notice for the meetings in order to make it
readily available to the shareholders and creditors. The said mandatory
requirement of annexing the valuation report with the Scheme will enable the
shareholders to understand the business rationale of the transaction and make
an informed decision.

Objections:

The New Act provides that objections can be raised by shareholders holding
10 percent or more equity, and creditors whose debt represents five percent or
more of the total debt as per the last audited financial statements.

In view of the above, the said threshold limit for raising objections and
concerns with respect to the Scheme will protect the Scheme from small
shareholders and creditors raising frivolous litigation and objections.
Accounting standards:

The New Act provides that no Scheme, whether for a listed company or an unlisted
one, shall be sanctioned unless a certificate by the company’s auditor has been filed
with the tribunal to the extent that the accounting treatment of the proposed Scheme is
in conformity with the prescribed accounting standards. Thus, the significance given
to accounting standards and audit compliance is reflected in the New Act as opposed
to the Old Act, which did not contain said requirement.
 Conclusion

These are pragmatic reforms for M&A under the New Act, which could make the
process easier, faster and cleaner for companies involved in M&A. Some of the
highlights include fast track mergers, mergers between Indian Companies and
foreign companies and, setting up of National Company Law Tribunal (NCLT) to
hear and decide on M&A proposals, cutting down on the probability and scope of
objections to M&A’s and easier as well as wider participation of shareholders through
postal ballot approval. The Companies Act 2013 envisages that all the powers and
functions of the Company Law Board, Company Court, BIFR under the Sick
Industrial Companies Act will henceforth be exercised by NCLT. Establishment of a
single forum which will be dedicated to corporate matters is a welcome move and
removes the problem of multiple regulators.

Establishment of NCLT is expected to help in reducing the time that is usually taken
in obtaining sanctions from High Court in M&A cases.

In view of the aforesaid discussions on the provisions of the New Act, the idea or
proposal behind introducing certain simple and forward-looking concepts is to
simplify and enable the process of M&A’s. Therefore, NCLT holds an important
position in the Indian Legal Framework.
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