India Inc To Have Easier M&A Ride

NEW DELHI: The government has decided to simplify the norms for mergers and acquisitions by removing the bottlenecks that slow down India Inc’s inorganic growth. The idea is to offer a fast-track system which will spare companies from the lengthy process of securing high court sanctions for M&As, if they meet certain criteria.

The ministry of corporate affairs is working on two types of fast-track clearances for M&As. The first one is a new concept called ‘contractual mergers’. Under this, companies needn’t wait for the high court approval, which will take at least six months to materialise.

This proposal, originally mooted by a panel headed by eminent lawyer Shardul Shroff and later endorsed by the JJ Irani panel on company law, will get legal recognition soon, officials said. The second proposal is a simplified procedure for M&As between group companies and unrelated private companies.

Under the contractual merger plan, companies can decide to merge through a contract which should be approved by the shareholders later. Such a window is available in many other countries. Currently, all private sector companies need to get the approval of high courts for M&A activities, while state-run companies have to obtain the government approval.

These clearances will not come before certain agencies — official liquidators attached to high courts as well as regional directors and registrars of companies — certify that the companies were not run in a way prejudicial to public interest. The whole process takes a long time. This form of mergers will have some built-in restrictions, which will be spelt out in the new company law.

The new norms for M&As between group companies will cover mergers between a parent and a subsidiary as well as mergers between two unrelated private companies where public interest is minimal. The logic is that if outsiders are not involved, it is unfair to subject the internal matter of a group or of two private companies to the rigours of an elaborate process designed for public limited companies where the public and other stakeholders are involved.

The new merger norms for these entities will also be listed in the new company law. “Now, with the strong regulatory emphasis on compliance, a lot of groups are merging their arms to lower the cost of compliance. These days, many companies are looking at a compact and simple structure, which is easy to manage,” said an official.

The fast-track merger code is in addition to the government’s plan to introduce the concept of deemed approvals, which ET had recently reported. Under this, approval will be presumed to have been granted by various regulators beyond a particular time.