Mergers & Acquisitions

[Siddharth Sengupta & Tanay Dubey] The authors are students of National Law University Odisha.   Introduction Over the past decade, the Indian Government has implemented a range of measures to attract foreign direct investment (FDI) into the country, resulting in a notable upsurge in FDI inflows from $24 billion in 2012 to $49.3 billion in 2022. A key factor behind such a dramatic increase in FDI in the last few years is the growing cross-border M&A activities. In 2013, the Securities Exchange Board of India (SEBI) permitted the use of option agreements in M&A transactions. An ‘option’ clause within a Shareholder’s Agreement (SHA) is a provision that gives the parties a right to either purchase (in case of a call option) or sell (in case of a put option) shares at a pre-determined price, after a pre-determined period. SEBI’s notification, which was applicable only to domestic transactions, was followed by an amendment to Foreign Exchange Management Regulations by the Reserve Bank of India (RBI), allowing foreign investors to include an optionality clause as an exit mechanism. The problem with the amendment was that in the case of the sale of securities via a put option, such an exit is without the component of “pre-determined rate” or ‘assured returns’, as per RBI’s amended Pricing Guidelines for FDI in India. Despite the law being largely clear, a ruling by the Madras High Court in January of this year, in the case of GPE (India) Limited v. Twarit Consultancy, has reignited the contentious discussion surrounding the implementation of put options which ensure assured returns. Deviating from an established line of precedents set by the Apex Court and other High Courts, the court, in this judgment, allowed assured returns under a put option between the parties, This article explores various aspects of cross-border M&A transactions and the use of put options as an exit mechanism. The article highlights the importance of assured returns during exits using put options and identifies the absence of them as a key hindrance in cross-border M&A transactions. Further, the article explores approaches that may be adopted as an alternative to put options in order to protect foreign investors under the current regulatory framework and the need for revision of pricing guidelines. Understanding Cross-Border M&A Transactions and the Importance of Assured Returns Cross-border M&A involves the integration of assets and operations from companies hailing from distinct jurisdictions. The term ‘acquisition’ pertains to the purchase of assets or stocks, either in whole or in part, of another company, thereby granting operational control over the whole or part of the said company; while the term ‘merger’ denotes the scenario wherein two independent companies are combined or consolidated into a single entity. Due to the international nature of cross-border M&A, investors face some unique challenges especially while investing in an Indian company. Under the FDI Policy, for example, there are sectoral caps in place for the amount of foreign investment in certain industries. These sectoral caps can be changed by the Union Government very easily, which can compel investors to sell their shares at a loss. Further, especially in FDI, the investor may not be able to get reliable information about the seller for a variety of reasons such as market data being opaque or hard to get. This is particularly prevalent in angel investments and investments into Micro, Small, and Medium Enterprises (MSMEs). Abrupt changes in tax laws combined with the acute difficulty in enforcing contracts in India are further problems that make foreign investments in India challenging. Incorporating put options in SHAs would typically offer a significant remedy to these issues by eliminating the uncertainty related to the ‘future value’ of shares in foreign investments. Regardless of whether the share prices experience significant fluctuations, the investment would remain secure. This approach proves particularly advantageous for investments in developing economies, where investors would be guaranteed a pre-determined amount upon exercising the put option at its expiration, even in the event of a sharp decline in share prices. However, the RBI’s prohibition on ‘assured returns’ clauses in foreign investments has resulted in the inability of put options to serve this purpose. Globally, having a provision for assured returns in a put option is considered standard, as it is essential for effectively hedging risks in foreign investments, which is the primary purpose of having an option clause in the first place. Regulatory Considerations and Legal Frameworks in India In 1999, the Parliament, enacted the Foreign Exchange Management Act (FEMA) with the objective to facilitate external trade and payments and regulate the foreign exchange market in India. Gradually, restrictions vis-à-vis FDI were eased, resulting in a tremendous increase in the value of FDI each year. In furtherance of the above-stated objectives, the Securities Exchange Board of India (SEBI), in 2013, allowed put & call options in M&A transactions. Subsequent to SEBI’s approval, the RBI through its circular and notification, allowed optionality in equity shares and compulsorily and mandatorily convertible preference shares/debentures to be issued to a person resident outside India with the objective to provide greater freedom and flexibility to the parties concerned under the FDI framework. Foreign investors now had the choice to exit the investment after the one-year lock-in period by invoking the optionality clause, thus enabling the investee company to buy back securities. However, such an exit cannot be made at a pre-determined value i.e., without any assured returns. The investors are obliged to at the market price prevailing on the recognised stock exchanges (in the case of listed companies) or a price determined through internationally accepted pricing methodology (in the case of unlisted companies), thus, defeating the very purpose behind the revision of pricing guidelines. Interestingly, there is no such restriction placed in regulations relating to domestic investments. Thus, such restrictions as are placed under FEMA are redundant. Until the pricing guidelines are amended, it is imperative to explore alternative approaches to Assured Returns clauses in FDI transactions, to protect investor interest. Alternative Approaches for Investors and Need for a

[By Sanidhya Bajpai] The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow.   Introduction Companies with an extensive capital and dominant position in the market have mastered ways of staying at the helm of the competition, and one strategy which they frequently follow is killer acquisitions. When a company eliminates an innovative firm by acquiring it at a nascent stage to eliminate any future competition from that firm, it is seen as a killer acquisition. The acquiring company can either terminate its innovative efforts or its development of an innovative product to stay at the helm while avoiding competition. Competition law regimes worldwide are trying to solve this Gordian knot to prevent the transactions from having any “appreciable adverse effect on competition” (A.A.E.C.). This piece focuses on how the current regime cannot curb these acquisitions and will only increase the Competition Commission of India’s (from herein CCI) burden and hamper businesses and proposes a more rational approach considering all stakeholders. Deal Value Threshold (DVT), De Minimis Exemption, and how killer acquisitions escape from scrutiny The infamous killer acquisitions generally escape from scrutiny as they fall under De Minimis exemption or small target exemption, which makes way for absolute exemptions for transactions from notifying the Competition Commission of India in cases where the value in India does not exceed INR 3.5 billion or the revenue from India does not exceed INR 10 billion. In today’s digitized market, foreign companies have operational centers in India, which are the backbones of their foreign parent firms. However, their on-paper value is low, which makes them eligible for the De Minimis exemption. This allowed Facebook’s acquisition of Whatsapp, made at around US$ 19 billion in the U.S., to escape antitrust scrutiny in India as the deal was below the assets and turnover threshold. Recently the parliament passed the Competition Amendment Bill, which, among other things, amended Section 5 of the Competition Act (from herein “the Act”) and provided that, if the enterprise being acquired, taken control of, merged, or amalgamated has “substantial business operations” in India, the CCI must approve any transaction involving the acquisition of control, shares, voting rights, or assets of an enterprise, as well as mergers or amalgamations with a value exceeding INR 20 billion. The bill also states that the De Minimis exemption will not apply where DVT is surpassed. However, killer acquisitions are, by their nature, acquisitions of small innovative firms or start-ups. It is not only possible but highly probable that these acquisitions will escape the DVT. The experience of the prominent antitrust regime of Europe shows that the introduction of DVT has not just increased the burden on the antitrust regulators but has not yet made a considerable dent in curbing these acquisitions. The predicaments of DVT The DVT of INR 20 billion is already seen as a threat to the ease of doing business in India as many transactions will be notified regarding the recent amendments, which will increase the burden on the CCI and affect business. Moreover, the evidence from countries that have introduced a lower DVT, like Austria and Germany, shows that it has increased the burden on antitrust regulators without any considerable dent in killer acquisitions. The example of European countries is noteworthy in this regard. Germany and Austria introduced the DVT in their competition law regimes to include transactions not addressed by the previous threshold and prevent transactions from turning into killer acquisitions. The countries introducing new thresholds also issued a slew of guidelines, including that the threshold will be applicable on transactions where the target has significant activities in the said countries, among a few other local nexus requirements. However, both countries are still apprehensive about DVT’s assistance addressing anticompetitive transactions. The findings of Germany, which it submitted to the Organisation for economic cooperation and Development (O.E.C.D.), reveals two things (i) an insignificant number of increased notification since the introduction of DVT, and (ii) as of 2020, the complete absence of a critical case to be notified before Germany’s Federal cartel office based on DVT. The European commission, understanding the shortcomings of the DVT approach, introduced a novel interpretation of E.U. merger control regulation which allows the E.U. member countries to refer to the commission to control acquisitions below the controllability of DVT. It is discernible from the E.U. experience that a DVT has not solved the Gordian knot of killer acquisitions but has only increased the regulatory burden as the member states still heavily recommend transactions below the threshold for antitrust scrutiny after gaining discretionary powers. The European Court has also allowed the national authorities to review below-threshold mergers under the abuse of dominance rules. We need to learn from these approaches of European antitrust regulators and have a more balanced approach that will aid not only pro-competitive business but also curb anti-competitive transactions. A more rational approach India, a developing economy, needs an approach that will put less regulatory burden on the business while curbing killer acquisitions. A more rational approach would be “to increase the DVT and make it mandatory for the firms with a dominant position in the relevant market to notify their acquisitions.” This approach would reduce the burden on the CCI and help businesses as it will exempt most benign transactions from antitrust scrutiny, destined to come under CCI purview in the present context. This approach of notifying the commission in cases of acquisition by a dominant firm is more rational as the dominant firms are the ones that mainly acquire these nascent firms preempting a future threat of competition to perpetuate their dominance. This is visible from the fact that Facebook, Google, Apple, and Amazon made more than 300 combined global acquisitions from 2009 to 2019. The pharma industry, which has a massive propensity of dominant firms acquiring small nascent firms, will also be strengthened by this development. The mandatory notification of acquisition by dominant firms in the relevant market will ensure the implications of the antitrust scrutiny at

[By Pranjal Kinjawadekar & Gunjan Hariramani ] The authors are students of Maharashtra National Law University Mumbai.   Introduction The significant component in any commercial contract is the pricing clause which states the pricing mechanisms which the parties would follow to complete the deal. A pricing mechanism is an important factor as it determines the amount of consideration to be paid by one party to another. In order to determine the purchase price of the target company, the parties involved in the transaction need to arrive at the value of the company. The value of the company is called the ‘base purchase price’ or ‘initial purchase price’ defined in the stock purchase agreement. In the past few decades, the widely used pricing models in mergers and acquisitions (“M&A”) transactions are the locked-box mechanism and the closing accounts adjustment management. In this article, the authors have attempted to analyse the concept of the locked-box pricing mechanism used in private M&A deals in India. Further, an analysis of the order against Bharti Airtel Limited wherein the Competition Commission of India had imposed penalties on the acquirer for gun jumping due to the use of locked-box mechanism, has been provided. Locked-Box Mechanism and Closing Accounts Adjustments Mechanism The locked-box mechanism is defined as a pricing mechanism used by the parties in commercial contracts where they freeze the purchase price of a target company based on a historical balance sheet date. In this pricing mechanism, there are three important dates, first, the locked-box date, second, the signing date of the sale and purchase agreement (“SPA”) and third, the closing date. At the date of SPA signing, the parties agree to a fixed equity value of the target company. The historic balance sheet is used to calculate the equity value of the target company that is fixed at the locked-box date. Further, in the locked-box mechanism, the parties identify and agree to various factors like working capital, cash, and debt of the target company that could change the value of the company in the future. However, once the price has been fixed at the SPA signing date, the parties cannot adjust anything between the SPA signing date and the closing date. Additionally, the target company cannot take dividends, management fees, assets at an under-valued price, and bonuses out of its business. During this interim period, the target company is only allowed to make payments in its ordinary course of business. This approach is gaining popularity in M&A transactions as it enables both the buyer and seller to determine the price of the target company early at the signing stage, thereby reducing the risk of post-completion price adjustments. On the other hand, the closing accounts mechanism is considered a traditional approach for determining the purchase price of a target company in a commercial contract. In this mechanism, the parties at the signing stage agree on a tentative purchase price by calculating the actual value of the target company’s assets and liabilities as of the date of closing the transaction. This means that the purchase price is adjusted and determined after the closing date of the transaction based on the actual financial performance of the target company. This approach is known as a buyer-friendly approach because the target company is responsible for all the economic risks till the closing date. The buyer undertakes all the risks and liabilities after the closing date. The closing accounts mechanism is considered a time-consuming, expensive, and complex process because it involves negotiations between the parties. Why Locked-Box Mechanism should be preferred? The locked-box mechanism serves the buyers and sellers with huge benefits in commercial contracts. One of the primary benefits of this mechanism is that it provides price certainty. By establishing a purchase price based on a historical balance sheet date of the target company, the buyer and seller can avoid the uncertainty and risk associated with post-completion price adjustments. This approach could be used to tackle times like COVID-19, where the sellers’ faced a downturn in business. For buyers, this mechanism is generally used as a stopgap measure in M&A transactions, in order to avoid value leakage and to prevent the seller from extracting value from the target company after the locked-box date. This mechanism makes the pricing process simpler by reducing the need for complex calculations and negotiations that often occur in the traditional M&A deals. Further, it allows the seller to continue to keep the benefit of the company’s control and management until the purchaser acquires the target company. In a traditional M&A transaction, the seller is supposed to prepare an up-to-date completion balance sheet, which would include the company’s cash flows up to the completion date. However, in the locked-box mechanism, the seller is not supposed to provide an up-to-date completion balance sheet, and the buyer is assumed to take the risk and benefit of the company’s cash flows from the historical balance sheet date. Additionally, the locked-box mechanism can help to speed up the negotiation process and reduce the cost of transaction. By agreeing on a price early in the negotiation process, the parties can focus on other key deal terms, such as representations, warranties and closing conditions. Therefore, it can be inferred that this process helps to reduce the time and costs associated with negotiating these other terms. When should it be preferred? There are several key considerations when opting for a locked-box mechanism in M&A transactions. It is commonly preferred when the parties involved in the transaction can agree on a fixed acquisition price based on past financial records, given the target company has steady and consistent cash flows. Additionally, as the locked-box mechanism gives them assurance and lowers the possibility of post-closing adjustments, it is frequently preferred by sellers. This type of mechanism works best when the buyer has completed thorough due diligence before signing the agreement and is satisfied with the accuracy of all the financial statements that have been furnished by the seller. However, alternate mechanisms should be preferred if,

[By Aisha Singh] The author is a student of Chanakya National Law University (CNLU), Patna.   Introduction The Indian President’s approval of the Competition (Amendment) Act, 2023, is set to bring significant changes to the merger review procedure employed by the Competition Commission of India (CCI). With amendments aimed at simplifying the notification process, establishing deal value thresholds, and shortening the review window, this new legislation promises to reshape the landscape of mergers and acquisitions (M&As) in the country. One of the ground-breaking features introduced by the Amendment Act is the concept of “deemed approval”. According to this provision, the acquisition would be deemed authorised if the CCI fails to reach a prima facie conclusion within 30 calendar days (as opposed to the prior 30 working days) about whether an M&A transaction is likely to raise competition issues in India. This means that parties involved in the transaction can proceed with closing it without waiting for a formal CCI approval order. Furthermore, the overall review period has been reduced from 210 calendar days to 150 calendar days, further streamlining the process. This move has been widely hailed as a positive step forward for M&As in India, addressing a long-standing gap in the Competition Act, 2002, which did not provide any implications or consequences if the CCI failed to provide its view within the prescribed timeline. With the introduction of the “deemed approval” provision, the Amendment Act seeks to fill this legal vacuum, bringing clarity and certainty to the merger review process. Benefit to Global Deals The adoption of a 30-calendar day review timeline aligns India’s merger review process with more mature jurisdictions, such as that of the European Union (EU), USA & Canada. This harmonization fosters a more efficient and consistent approach to M&A transactions. The streamlined timeline reduces uncertainty, enhances deal certainty, and expedites transaction closures. It creates a favourable investment environment, attracting foreign investors and stimulating economic growth. Additionally, the accelerated pace of transactions benefits global deals involving multiple jurisdictions, ensuring timely completion. Overall, this strategic alignment positions India as an attractive destination for domestic and international mergers and acquisitions. Thus, this strategic move is expected to yield substantial benefits for global deals, fostering a harmonized and efficient approach to M&A transactions. This progressive step demonstrates the Indian competition watchdog’s commitment to aligning its practices with those of mature jurisdictions such as the EU. In the European Union, the European Commission operates under a 25-working day timeline to conduct the Phase I review of a transaction and make a decision. Similarly, in both the United States and Canada, merger transactions typically undergo an initial waiting period of 30 calendar days. This waiting period serves as a crucial window for regulatory authorities to review proposed mergers and evaluate potential competition concerns. The streamlined review timeline holds particular significance for global deals, where coordination of approval timelines across borders and jurisdictions plays a crucial role. Failure to meet this timeline results in the transaction being deemed unconditionally approved. India’s adoption of similar timelines signifies its dedication to enhancing efficiency and aligning with global best practices. By aligning with international standards, India enhances its competitiveness and attractiveness as a destination for M&A activities, providing greater certainty and expediting the approval process for transacting parties. Comprehensive Notifications   With the introduction of the “deemed approval” provision, there is an increased expectation that transacting parties will file more comprehensive notifications, providing greater emphasis on the details and potential competition concerns. This change encourages parties to conduct a thorough assessment of potential anti-competitive effects before submitting their notifications, ensuring a more robust review process. Invalidation of Notices   The Amendment Act may also lead to an increase in the invalidation of notices filed by parties due to the absence of substantive pre-filing consultation (PFC) with the CCI. Parties are now required to engage in meaningful consultations with the CCI prior to filing, ensuring that the necessary information and details are provided. Failure to do so may result in notices being invalidated, leading to delays and potential disruptions in the transaction process. The reduction in timelines and the introduction of deemed approval in the Competition (Amendment) Act, 2023, bring welcomed changes. However, these adjustments also bring additional pressures on the CCI and M&A parties to expedite processes and provide necessary information promptly. As a consequence, there may be an increase in invalidated notices due to the absence of substantive pre-filing consultation (PFC) with the CCI. Furthermore, an increase in information requests from the CCI may disrupt the review timeline. Increase in Information Requests   To address the challenges posed by accelerated approval, stakeholders are likely to proactively engage in PFC meetings and collaborate with CCI case officers before formal filings. Another effect of these new deadlines might be an increase in the amount of information requests made by the CCI, which would halt the review timeline. These requests aim to gather additional data and insights to aid in the competition assessment. Parties’ response times to information requests made by the CCI are not included in (and may remain thus) the review deadlines that have been established. It is important to note that the implications discussed here are based on the anticipated effects of the Competition (Amendment) Act, 2023. The true impact will only become clear as the new legislation is put into practice and the CCI adapts to the changes. As with any new legal framework, challenges and adjustments may arise, and stakeholders will need to closely monitor the implementation and enforcement of the Amendment Act. Potential Clock Stops The CCI’s merger control division will now need to keep a watchful eye on the review clock as M&A deals will be automatically cleared post 30 calendar days. The introduction of new regulations resulting from the amendments raises questions about potential “clock stops” during the review process. It remains to be seen if these regulations will permit additional grounds for halting the review timelines. Additionally, it is worth exploring whether the new regulations will allow for

[ByHarsh Mittal] The author is a student of Hidayatullah National Law University.   Introduction We see that recessionary fears have started impacting M&A deals and there has been a considerable slowdown in merger deals as a result of the same. There exists a huge gap between what private investors are willing to offer for different Merger deals now as compared to Pre- Recession period. The latest victim of this meltdown was the online payments gateway firm Bill Desk. On 31 August,2021 Prosus announced that an agreement has been reached between Bill Desk and Pay U, a subsidiary of Prosus to acquire Bill Desk for a staggering $4.7. However, Prosus terminated the contract one year later stating that certain conditions were not met. This sudden termination of the agreement was largely due to the huge ongoing correction in the global markets which has resulted into transactions being termed overpriced. There has been hesitation in the mind of investors before executing M&A deals after this recession. In this article, the author shall be analysing how recession has resulted in a slowdown in M&A deals. We would also try to understand whether this Recession would be having any long-term impact on the transactions or is a short-term hiccup with special reference to the Prosus and Bill desk deal. Impact of Recession on Mergers and Acquisitions While we do not have any Universal definition for Recession, we define it as “Negative Gross Domestic Product in two consecutive quarters”. Given that a significant portion of Indian IT revenue is derived from the US, worldwide recessions in general and recession in the US in particular, are a threat to India’s Merger deals in the current fiscal year. The majority of Fintech Startups operating in the US and other countries have seen their valuations decline by more than 50% in recent years.[1] Investors’ perspectives on value have even shifted as a result of the global market crash for freshly listed companies’ equities. Numerous M&A deals that were announced before the most recent market crisis are being rethought due to the disparity between what the public markets are ready to pay for the company and what private investors are paying. We see that the fear of recession is preventing people from executing M&A deals. Following the pattern of past Recessions, what one can predict is that there will be a huge downturn in mergers and acquisitions deals in this period.  But it’s clear that this recession differs from other ones. The 2008 Financial Crisis was primarily driven by debt-related excesses in the housing and internet infrastructure markets, whereas the current one is primarily driven by excess liquidity as a result of COVID-led fiscal and monetary stimulus that is fuelling inflation and encouraging speculation in financial assets . We do not need to worry about a complete collapse as it happened in previous cycles. Merger deals and the Economy does not have a tight connection due to multiple of factors existing in the market. As a consequence to which we won’t see a major impact on M&A activity even if economy has to go through long periods of Recession. Pay U and  Bill Desk Deal There have been numerous instances where the impact of the Recession is seen in Merger and Acquisition deals. We will try to analyse one such example where the acquisition was called off due to a steep fall in the valuation of the company. On 30th September when Prosus NV terminated the $4.7 billion agreement to purchase Bill Desk, every shareholder was in disbelief as no one could have dreamt this coming. M&A Agreement contains a set of conditions that   were required to be fulfilled before completion of the transaction such as regulatory approvals, business not suffering Material Adverse Effect and various Due Diligence Formalities. Prosus contended that Bill Desk was not able to satisfy some of these conditions which were precedent for execution of the contract. The deal which was announced more than a year ago had received the approval of the Competition Commission of India just days before the cancellation. Certain plausible reasons for the cancellation of the deal are- Steep fall in Valuation India markets are highly sensitive to the United States economy and they generally follow the trend of their system. Expecting a deal of this magnitude to be executed after such a huge contraction was very challenging. Though Bill Desk is one of rare profitable companies, the valuation of 4.7 Billion which is 19xof Bill desk revenue would have been a major hurdle in execution of this deal due to existing sentiments of investors for M&A deals. Approval time taken by CCI On 5th September, 2022, the wait was finally over for both the parties as the acquisition was approved by Competition Commission of India One of the reasons for the cancellation of the deal was the long period taken by CCI. Prosus was left frustrated due to the duration of time taken for the approval. Due to the time gap between the announcement and execution, we saw a dip in the valuation of Bill Desk which eventually led to the cooling-off of Pay U’s interest in executing this deal. Failure of New Age Companies To know the real reason behind the failure of such a deal, it is important to look at what is going on in the Indian Economy. Paytm’s big fall after its public listing is one event that has shaken the faith of global investors all around the world. Fintech Sector runs on very thin margins and is all about customer conversion but the Paytm debacle has led to a very conservative approach by investors. Implications of this deal – An analysis This deal was supposed to elevate the fintech sector to new heights. Prosus had already strengthened its position in the Indian payments industry through Pay-U  and the acquisition of Bill desk would have given Prosus access to a large customer base of small merchants in India. If we look at the implications of

[By Ajith N Kale & Rupa Veena S] The authors are students of School of law, CHRIST (Deemed to be University), Bangalore.   Introduction The common law rule of the majority, as laid down in the case of Foss v. Harbottle, has been widely followed in India. It empowers the majority shareholders to make decisions related to the management of affairs of the company which is not interfered with by courts generally. However, minority shareholders always have the right to approach the National Company Law Tribunal (“NCLT”),and courts in case of fraud, mismanagement, oppression or breach of charter documents by the majority shareholders. As per the freeze-out or squeeze-out provisions under the Companies Act, 2013 (“Act”) the majority shareholders can acquire the shares held by minority shareholders and, thereby, squeeze them out of the company, and resultantly can hold the entire shareholding in a company. In light of the same, this article focuses on the legal status of freeze-out mergers in India and further makes a comparative analysis with the laws of South Korea, the United Kingdom (UK), and Australia. Legal status of freeze-out mergers in India In early 2020, section 230 of the Act was amended to include sub-sections (11) and (12)(“2020 Amendment”). Moreover, Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2020 (“CAARules”) and the National Company Law Tribunal (Amendment) Rules, 2020(“NCLT Rules”) were also notified, which were collectively known as the “Takeover Notification” as the amendments primarily were in relation to the takeover of minority shareholding by the majority. Firstly, as per section 230(11) of the Act, any compromise or arrangement includes a takeover offer. Secondly, Rule 3(5) of the CAA Rules enables majority shareholders holding at least 75% of the equity shares carrying voting rights (including depository receipts with voting rights) to file an application with the NCLT to acquire the remaining minority shares subject to a fair price. Thirdly, NCLT Rules deal with procedures related to acquiring minority shares. If the NCLT approves the application, the majority shareholders can forcibly acquire the minority shares by creating an obligation on minority shareholders to sell their shares. Section 235 of the Act allows the compulsory acquisition of shares held by dissenting shareholders if such an acquisition by a scheme or contract is approved by 90% of the shareholders within two months of notice to such dissenting shareholders unless NCLT has ordered otherwise on an application made by the dissenting shareholders. Another option available for the acquirer to acquire the minority shares is stated under section 236. The said section allows majority shareholders holding at least 90% of the equity shares to acquire minority shares by virtue of an amalgamation, share exchange, conversion of securities or for any other reason by notifying the company about the same. However, the bare reading of the section does not expressly obligate the minority shareholders to sell their shares. Moreover, section 236(9) states that in the event of failure of acquisition of all of minority shares by the majority shareholders, the residual minority shareholders will still be regulated under the relevant provisions of the Act. While also ensuring the right of acquisition to the majority shareholders, the amendments provide effective safeguards for the minority shareholders. As per section 230(12) of the Act, aggrieved minority shareholders of unlisted companies can approach the NCLT in case of grievances related to takeover offer. Additionally, the majority shareholders must compulsorily deposit at least 50% of the consideration of the takeover offer in a separate bank account. In the case of S. Gopakumar Nair v. OBO Bettermann India Private Limited, the National Company Law Appellate Tribunal (“NCLAT”)held that the 90% majority shareholders can acquire the minority shares only if any of the events stated in section 236(1) that is “amalgamation, share exchange, conversion of securities or for any other reason” has taken place. As per the rule of ejusdem generis, NCLAT held that “for any other reason” includes only events that are like amalgamation, share exchange, or conversion of securities. It also differentiated between section 235 and section 236 by stating that on one hand section 235 provides for the acquisition of shares from dissenting shareholders, on the other, section 236 allows the acquisition of shares from assenting shareholders only if any of the events mentioned in section 236(1) are triggered. Arguably, Indian laws have tried to strike a balance between rights of the majority and the interests of the minority shareholders, however, to determine whether they are as per the global standards, laws of other nations may be compared. Comparative jurisdictions South Korea Article 360-24 of the Korean Commercial Act, 2018 guarantees a majority shareholder holding at least 95% of the shares to buy out the shares held by minority shareholders. The minority shareholders must sell their shares within two months from the date of request. However, even after negotiation, if the minority shareholders are unsatisfied with the sale price, they can approach the court to determine a fair and reasonable sale price. This section can be compared to section 235 of the Act, wherein majority shareholders holding 90% of shares can acquire the shares held by dissenting shareholders within four months. Further, under Article 360-25, the minority shareholders have the right to sell their shares to the majority shareholder, and the court shall determine the sale price if the parties do not come to a consensus through negotiation. This is similar to section 236, wherein minority shareholders can sell their shares to the majority shareholder. However, while Korean law allows the minority shareholders to approach the court only to determine the reasonable sale price, Indian law empowers the minority shareholders to approach the NCLT in case of any grievances they face in relation to such an acquisition, in addition to making the submission of valuation report of the shares to NCLT mandatory. This indicates that the Indian laws emphasize more on minority shareholders’ protection than the Korean law. Furthermore, section 230 allows shareholders holding 75% of shares to acquire minority shares as opposed to the

[By Aastha Bhandari] The author is a student at the OP Jindal Global University. Introduction The conundrum between the two significant concepts of Appointed Date (“AD”) vis-a-vis the Effective Date (“ED”) within a scheme of amalgamation/merger or demerger filed before the National Company Law Tribunal (“NCLT”) has been a contested subject-matter. It was left obscure, with contrasting judgments from the NCLT, up until the Ministry of Corporate Affairs (“MCA”) released its clarificatory circular on the matter in 2019. (“the Circular”) The two concepts form a substantial part of any scheme on account of the fact that section 232(6) of the Indian Companies Act of 2013 (“CA”) makes it mandatory for every scheme to “clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.” Put simply, the ED refers to the date when the scheme receives the sanction of approval from the NCLT and AD refers to the date when the parties record the financial values of all the assets, liabilities and other parameters that are to be transferred from the transferor company to the transferee company, as a part of the scheme. As such, the scheme is deemed to be effective on the AD.  In line with this, it is the aim of this article to map the impact and influence of the Circular on the decisions of the NCLT on the validity of an AD vis-à-vis the ED. In particular, this article will focus on the MCA’s clarification regarding the validity of an AD, being a calendar date, which is set at a date that precedes the date of filing of the Scheme before the NCLT beyond one year. Understanding the Background and Content of Clarifications Contained in MCA’s Circular The following clarification that is relevant to the scope of this article is reproduced below: When AD Precedes Date of Application of Filing the Scheme before NCLT: In its Circular, the MCA issued a significant clarification stating that where the AD is chosen as a specific calendar date, it may precede the date of filing of the application for the scheme of merger/amalgamation in NCLT. However, if the AD is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against the public interest. Decoding the Impact of the Circular on Decisions of the NCLT vis-à-vis sanctioning Schemes In Avanthi Warehousing Services Private Limited v. Awaze Logistics Private Limited (2022), the Regional Director of the MCA (“RD”) made an observation to the effect that the Petitioner Companies had defined the AD in such a manner that it was approximately two years old from the date of filing of the Company Application (“CA”) for the scheme and thereby, the RD recommended a revision of the AD from 1.04.2020 to 1.04.2021. In line with the Circular, the Petitioner Companies justified the AD of this particular scheme by arguing that it had been approved by all the relevant stakeholders including the shareholders, secured creditors, and unsecured creditors. Further, the employees had also taken 1.04.2020 as the AD on record. Therefore, the Petitioners prayed for an acceptance of their AD by further relying on the Suo-moto order of the Supreme Court of India (“SC order”) dated 2021 on cognizance of the extension of limitation on account of the Covid-19 pandemic. In this case, the NCLT sanctioned the scheme on the grounds that it was not opposed to: i) public interest and ii) interests of the relevant stakeholders. In Re: Murli Industries Limited (2022), the RD objected to the AD set by the parties to the scheme on the ground that it was non-compliant with the Circular as it outdated the year of the filing of the CA by more than a year. However, this represents a case wherein the Petitioner’s justification relied on the fact that the AD was not outdated and well within the one-year time period permitted by the Circular. This was because the scheme was approved by the Board of Directors on 23.03.2021 shortly after which the CA was filed on 28.03.2021. This response was accepted by both the RD as well as the NCLT, the final implication being that the time taken to undertake the scheme was elongated sizably. This represents one of the numerous cases in which the RD has objected to the scheme on the grounds of the scheme being outdated for over a year when the same is not factually correct. This trend has especially seen an increase during the Covid-19 pandemic. In Vaiduriya Hotels Private Limited v. Ratnaa Lakshmi Hotels Private Limited (2022), the RD objected to the scheme on the ground that the AD was “non-acceptable” as it was ante-dated beyond a year from the date of filing of CA, thereby not being compliant with section 232(6) of the CA. In reply, the Petitioners argued that the date of filing was well within one year from the AD, with the AD being 1.03.2019 and the date of filing being 20.02.2020. It was only due to the peculiar and inevitable circumstances of the pandemic lockdown that all applications were numbered and listed for the first hearing on 14.20.2020. Therefore, the period from 15.3.2020 to 28.02.2022 shall stand excluded on account of the SC order. Further, in the matter of Subhas Impex Private Limited and Others (2022), the RD objected to a particular AD in this case by stating that it lacked any relevance to the scheme because the AD had been set as 1.04.2019 however simultaneously the Petitioner Companies had submitted their financial statements to the NCLT up to the financial year ended 31.03.2021. In line with this, the RD found that the Petitioners had not adequately justified the setting of their AD through the production of relevant documents. The Petitioners justified the AD on two large grounds: i) that they had filed