MERGERS AND ACQUISITIONS REGULATIONS UNDER THE COMPANIES ACT, 2013

Introduction: The Companies Act, 2013, which replaced the Companies Act of 1956, brought significant changes to the regulations governing mergers and acquisitions (M&A) in India. The new provisions aimed to streamline the process, protect the interests of shareholders, and ensure transparency in business transactions. In this article, we will explore the key regulations related to M&A under the Companies Act, 2013.

1. Definition of Mergers and Acquisitions: The Act defines mergers as the combination of two or more companies into one, where one of the entities survives and the others lose their corporate existence. Acquisitions, on the other hand, involve one company taking over the assets and liabilities of another company. The Companies Act, 2013, recognizes three types of M&A: mergers, amalgamations, and takeovers.
2. Approval of Shareholders: One of the fundamental requirements for any M&A transaction is obtaining the approval of shareholders. The Act specifies that a special resolution must be passed by the shareholders of each company involved in the merger or acquisition. The resolution should receive a minimum of 75% of the votes to be considered valid.
3. Role of the National Company Law Tribunal (NCLT): Under the Companies Act, 2013, the NCLT plays a crucial role in overseeing M&A processes. The Act requires companies to file a joint application with the NCLT to seek approval for the merger or acquisition. The NCLT examines the application thoroughly, ensuring that the process adheres to legal requirements and that the interests of stakeholders are safeguarded.
4. Valuation of Shares: The Act mandates that a registered valuer must evaluate the shares and assets of the companies involved in the M&A transaction. The valuation report serves as the basis for determining the share exchange ratio or the purchase price for the acquisition. This ensures transparency and fairness in the deal.
5. Scheme of Arrangement: The Companies Act, 2013, allows companies to propose a scheme of arrangement for the M&A transaction. The scheme should contain all the essential details of the merger or acquisition, including the share exchange ratio, payment terms, and any other relevant conditions. The scheme must be approved by the board of directors and subsequently by the shareholders and creditors.
6. Employee Protection: The Act also takes into consideration the interests of employees affected by the M&A. It requires companies to disclose their plans regarding the employees, including any layoffs or changes in work conditions. The Act aims to protect the rights of employees during such significant corporate events.
7. Insider Trading Regulations: During the M&A process, companies and their insiders are prohibited from trading their securities based on unpublished price-sensitive information. The Act lays down strict regulations to prevent insider trading and maintain market integrity.

Conclusion: The Companies Act, 2013, brought about a comprehensive regulatory framework for mergers and acquisitions in India. The emphasis on transparency, shareholder approval, and employee protection ensures that M&A transactions are conducted fairly and without prejudice. The involvement of the NCLT adds an extra layer of oversight, enhancing the credibility of the M&A process and inspiring investor confidence in the Indian corporate landscape.