Legal aspects of M&A Merger/Demerger is a court approved process which requires compliance of provisions under sections 391-394 of the

Companies Act, 1956. Accordingly, a merger/demerger scheme is presented to the courts in which, the registered office of the transferor and transferee companies are situated for their approval. However in the case of listed companies such scheme before filing with the State High Court, need to the submitted to Stock Exchange where its shares are listed. The Courts then require the transferor and transferee companies to comply with the provisions of the Companies Act relating to calling for shareholders and creditors meeting for passing a resolution of merger/ demerger and the resultant issue of shares by the transferee company. The Courts accord their approval to the scheme provided the scheme is not prejudicial to public interest and the interests of the creditors and stakeholders are not jeopardized. The Companies Bill 2008, was introduced in the Parliament on 23rd October, 2008 based on J.J. Irani Committee's recommendation and on detailed consultations with various Ministries, Departments and Government Regulators. The Bill proposes certain changes to existing provisions with respect to M&A. The key features of the bill as regards M&A are as follows:

Cross border mergers (both ways) seem to be possible under the proposed Bill, with countries as may be notified by Central Government form time to time. (Clause 205 of Companies Bill, 2008) unlike prohibition in case of a foreign transferee company under existing provisions. Currently merger of a listed transferor company into an unlisted transferee company typically results in listing of shares of the unlisted company. The Bill proposes to give an option to the transferee company to continue as an unlisted company with payment of cash to shareholders of listed transferor company who decide to opt out of the unlisted company. The Bill proposes a valuation report to be given alongwith notice of meeting and also at the time of filing of application with the National Company Law Tribunal (NCLT) to the shareholders and the creditors which is not required as per the current provisions. The Bill proposes that in case of merger or hive off, in addition to the notice requirements for shareholders and creditors meetings, confirmation of filing of the scheme with Registrar and supplementary accounting statement where the last audited accounting statement is more than six months old before the first meeting of the Company will be required. In order to enable fast track and cost efficient merger of small companies, the Bill proposes a separate process for a merger and amalgamation of holding and wholly owned subsidiary companies or between two or more small companies. The Bill provides that fees paid by the transferor company on authorized share capital shall be available for setoff against the fees payable by the transferee company on its authorized share capital subsequent to the merger. This may enable clubbing of authorized share capital.