The Companies Act , 1956 The Competition Act ,2002 Foreign Exchange Management Act,1999 SEBI Take over Code 1994 The Indian Income Tax Act (ITA), 1961
Sec 390 to 395 - deals with arrangements, amalgamations, mergers and the procedure to be followed for getting the arrangement, compromise or the scheme of amalgamation approved. An arrangement is to be made between . Company and its creditors. Company and its members or any class of them.
Sec 5 deals with “Combinations” which defines combination by reference to assets and turnover (a) exclusively in India and (b) in India and outside India. Sec 6 states that, no person or enterprise shall enter into a combination which causes appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. All types of intra-group combinations, mergers, demergers, reorganizations and other similar transactions should be specifically exempted from the notification procedure and appropriate clauses should be incorporated in sub-regulation 5(2) of the Regulations.
issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management Regulation 2000. These regulations provide general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India or recording in its books any transfer of security from or to such person. RBI has issued detailed guidelines on foreign investment in India with “Foreign Direct Investment Scheme” contained in Schedule 1 of said regulation
Section 2(1B). (1) All the properties and liabilities of the transferor company/companies become the properties and liabilities of Transferee Company. (2) Shareholders holding not less than 75% of the value of shares in the transferor company become shareholders of the transferee company.
The following provisions would be applicable to merger only if the conditions laid down in section 2(1B) relating to merger are fulfilled: (1) Taxability in the hands of Transferee Company- U/s47(vi) & 47 (a) The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee company on merger is not regarded as transfer and hence gains arising from the same are not chargeable to tax in the hands of the shareholders of the transferee company. [Section 47(vii)] (b) In case of merger, cost of acquisition of shares of the transferee company, which were acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. [Section 49(2)]
Disclosure of Holdings According to the regulation, any person holding more than 5% of voting capital or having control over a company, within 2 months of notification of these regulations, must disclose his holding in that company, to the company. Every company whose shares are held by the persons said above, within 3 months of notification of these regulations, must disclose to all the stock exchanges where the shares of the company are listed, the holding of the persons or promoters having control over the company.
Disclosure of Acquisition of Shares not less than 5% Any person who acquires shares or voting rights which (which when taken together with his existing holding) would entitle him to more than 5% or 10% or 14% shares or voting rights of target company, is required to disclose at every stage the aggregate of his shareholding or voting rights to the target company and the Stock Exchanges where the shares of the target company are traded within 2 days of receipt of intimation of allotment of shares or acquisition of shares.
Yearly Disclosure of Holdings above 15% An acquirer who holds more than 15% shares or voting rights of the target company, shall within 21 days from the financial year ending March 31 make yearly disclosures to the company in respect of his holdings as on the mentioned date. The target company is, in turn, required to pass on such information to all stock exchanges where the shares of target company are listed, within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration.
Acquisition of more than 15% of voting capital for consolidation of holding An acquirer who intends to acquire shares which along with his existing shareholding would entitle him to more than 15% voting rights, can acquire the additional shares only through open offer by making a public announcement. And further, the additional shares to be acquired must be atleast 20% of the voting capital of the target company.
Acquisition of control over a company An acquirer who is holding not less than 15% but less than 75% of shares or voting rights of a target company, can consolidate his holding up to 5% of the voting rights in any financial year ending 31st March. However, any additional acquisition over and above 5% can be made only after making a public announcement.
Acquisition of control over a company An acquirer who is holding 75% shares or voting rights of target company, can acquire further shares or voting rights only after making a public announcement specifying the number of shares to be acquired through open offer from the shareholders of a target company. Thus, it can be observed that, SEBI has been modifying its regulations concerning the substantial acquisition of shares and takeover of companies from time to time. SEBI as a watchdog in protecting the interests of the shareholders, in particular, and interests of the economy in general, initiates the modifications in its own regulations. But, it has been very difficult to understand the motive behind certain regulations framed by the SEBI.