Friday, March 4, 2011

Checklist For Demerger

DEMERGER CHECKLIST

Demerger, in relation to companies, means the transfer, pursuant to a scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956, by a demerged company of its one or more undertakings to any resulting company in the manner specified in Section 2(19AA) of the Income Tax Act. The provisions of Section 395 of the Companies Act, 1956 are available to protect the interest of shareholders dissenting from the scheme approved by the majority. Section 2(42C) of the Income Tax Act, 1961 and introduced a concept of “slump sale’. Slump sale means the transfer of one or more undertakings as a result of sale fro a lump sum consideration without values being assigned to the individual assets and liabilities in such sale. Therefore, demerger cannot be accomplished with ‘slump sales’ since such a sale is only for sale of undertaking. The demerger should be in accordance with the act by the Central Government in this behalf which envisages the Companies Act, 1956. If the original company which is split into several companies after divisions is wound up voluntarily, the provisions of Sections484 to 498 of the Companies act to be followed.

STEPS TO DEMERGER:

Generally the following steps are adopted in a demerger process:
Step-1: Preparation of scheme of demerger
Step-2: Application to court for direction to hold meeting of the members/creditor
Step-3: Obtaining court’s order for holding meetings of members/creditors
Step-4: Notice of the meetings of members/creditors
Step-5: Holding meeting(s) of members/creditors
Step-6: Reporting the result of the meeting by the chairman to the court
Step-7: Petition to the court for sanctioning the scheme of demerger
Step-8: Obtain order of the court sanctioning the scheme
Step-9: Court’s order on petition sanctioning the scheme of demerger

ACTIVITIES FROM BOARD MEETING FOR APPROVAL OF DEMERGER SCHEME TO COURT ORDER:

Ø  Intimation in Stock Exchange of Board Meeting date for considering Demerger
Ø  Board Approval for the Scheme
Ø  Informing Stock Exchange of Board’s decision
Ø  Consent from shareholders to the Scheme for Resulting       Companies (in case of Closely held unlisted Companies)
Ø  Filing scheme with the Stock Exchanges
Ø  NOC/ Approval from Stock Exchanges (BSE/NSE)
Ø  Filing of application under section 391(1) with High Court (along with Judge’s summons, affidavit in support of summons and draft minutes of order)
Ø  Finalizing the Notice/Explanatory Statement for Meeting of the Shareholders/Secured and unsecured Creditors
Ø  Hearing of company’s application
Ø  Hearing of Resulting Companies application
Ø  Receiving authenticated copy of order for holding/ dispensing with the Meeting of Shareholders/ Secured and unsecured Creditors
Ø  Obtaining certified copy of order of High court for court
Ø  Convened Meeting
Ø  Commencement of Printing of Notice for court convened meetings
Ø  Completion of dispatch of notices for meeting under UCP
Ø  Advertisement of notice of meetings         
Ø  Filing of Notice – Advertisement of meeting with stock Exchange(s)
Ø  Filing of advertisement of meeting with court
Ø  Filing of Affidavit signed by Chairman of the meeting or other person directed by the court verifying that the directions regarding the issue of notices and the advertisements have been duly complied with
Ø  Meeting of Creditors and Members
Ø  Reporting the decision of the poll to the High Court
Ø  Filing of petition with the Court along with relevant documents
Ø  Admission of the petition
Ø  Minutes of order by judge fixing the date of hearing of petition and advertisement of notice of hearing
Ø  Advertising the notice of hearing in news paper
Ø  Obtaining certified copy of order on admission of petition
Ø  Filing of copy of petition with annexures with RD / ROC through FORM 61 (eform)
Ø  Filing of affidavit confirming service of notice of petition and publication in newspaper
Ø  28 Follow up with RD/ ROC
Ø  Receipt of letter, queries etc., from RD and ROC
Ø  Follow – up with RD/ROC/ Legal Counsel to resolve issues, if any
Ø  Initial date of hearing of petition
Ø  Adjoined hearing if any
Ø  Filing of amended petition if any
Ø  Final date of hearing of petition
Ø  Obtaining certified copy of order on petition
Ø  Payment of Stamp duty, if required
Ø  Filing of certified order with RD / ROC along with Form 21

ACTIVITIES FROM COURT ORDER TILL RECORD DATE

Ø  Acknowledgement of receipt from ROC and certified true copy of court order to be filed with the Stock Exchange.
Ø  Notice to Stock Exchange for Record Date to determine eligibility to receive shares of the Resulting Companies and voluntarily give advertisement of the Record Date in National Dailies ( 30 day notice)
Ø  Agreement with CDSL and NSDL for admitting its securities
Ø  Printing of stationery – Allotment Advice, Share Certificate, Envelopes
Ø  Application seeking exemption for relaxation of Rule 19(2)(b) from SEBI through the designated Stock Exchange
Ø  Application to Stock exchange for in – principle approval for listing of shares
Ø  Designated Stock exchange to forward the application to
Ø  SEBI for approval under Rule 19 (2)(b) of SCRA Rules
Ø  Prepare Information Memorandum (IM)
Ø  Compliance with clause 49 – prerequisite For Listing
Ø  File Information Memorandum with BSE and NSE
Ø  Stock Exchange to receive SEBI Approval and give In-Principle approval for listing of shares of the resulting companies.
Ø  Keep share certificates, covering letter, envelop of the resulting companies ready for over printing.

FORMATION OF A WHOLLY OWNED SUBSIDIARY COMPANY IN INDIA/ CHECKLIST FOR INCORPORATING WHOLLY OWNED SUBSIDIARY COMPANY


Company Registration in India

This Article is provides information about the stages and documents required for incorporation of a private limited company in India which is subsidiary of a foreign company in India. The procedure for registering a subsidiary company in India is very simple and will take around a maximum of 15 days to complete. The followings are the detailed requirements, procedure and system for subsidiary formation in India:

A private company is defined under Section 3(1)(iii) of the CA Act  as a company which -

  • Has a minimum paid up share capital of INR 100,000 or a higher paid-up capital as may be prescribed by its articles of association

  • Restricts the right to transfer shares by its articles of association.

  • Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company.

  • Prohibits any acceptance of deposits from persons other than members, directors or their relatives.

  • Can be formed with a minimum of two members and two directors.

  • Limits the number of its members (shareholders) to fifty not including (i) persons who are in the employment of the Company and (ii) persons who, having been formerly in the employment of the Company, were members of the Company while in that employment and have continued to be members after the employment ceased. 

Therefore, minimum capital required for incorporation of a private company is Indian Rupees 1(one) lakh and there should be at least one two members (shareholders) and two directors).

Incorporation of a private limited company in India broadly involves the following stages:
STAGE - I

OBTAINING DIRECTORS IDENTIFICATION NUMBER (DIN) & DIGITAL SIGNATURES

Directors Identification Number (DIN)

Prior to incorporation of a company, the proposed directors of the company are required to obtain Directors Identification Number (“DIN”) from the Ministry of Company Affairs by making an online DIN application in Form DIN 1. Form DIN 1 is approved by the DIN Cell of the Ministry of Corporate affairs.

The said Form DIN 1 is to be filed with the scan copies of the applicant’s photograph, identity proof, a valid residential proof and a verification/ declaration in the prescribed format to be given by the applicant (who is applying for the DIN). Upon online submission of the Form DIN 1 and online payment of the fee, a permanent DIN to the director will be allotted immediately.

The following documents are required to make a DIN application for each of the proposed director(s):

(i)                       Identity proof

For identity proof, a copy of passport or copy of permanent account number card (PAN card) is required to be provided. Please note that in case of a foreign national only passport is acceptable as identity proof and in case of an Indian national copy of PAN card is must.

(ii)                     Residence proof

For residence proof, a copy of voter’s identity card or valid driving licence or latest bank statement duly certified by the respective bank or utility bill (not older than two months) is required to be provided.

(iii)        One passport size color photograph in jpeg format. In addition one more photograph is required which should be separately pasted on a plane paper.

(iv)       Verification/ Declaration in the prescribed format on a 10 Rupees stamp paper, duly notrized by a notary public. 

All the aforementioned documents should be attested by a notary public in the country of residence of the applicant.

Digital Signature Certificate (“DSC”)

Any one of the proposed directors is required to obtain digital signature certificate (“DSC”) in India for online filing of e-Forms with the concerned Registrar of Companies (“ROC”). For obtaining DSC an application is made under the signatures of the director who intends to obtain DSC along with the copy of his identity proof and a copy of his residence proof.  The following documents are required to make a DSC application for each of the proposed director(s):

(i)                       Identity proof

For identity proof, a copy of passport or copy of permanent account number card (PAN card) is required to be provided. Please note that in case of a foreign national only passport is acceptable as identity proof and in case of an Indian national copy of PAN card is must.

(ii)                     Residence proof

For residence proof, a copy of voter’s identity card or valid driving license or latest bank statement duly certified by the respective bank or utility bill (not older than two months) is required to be provided.

(iii)                   One passport size color photograph. Please note that the photograph should be pasted on the application form and cross signed by the director (applicant).

(iv)                   DSC application form duly signed by the director (applicant)

The identity and residence proof of the applicant as aforesaid should be attested by a notary public in the country of residence of the applicant.

STAGE - III

APPLICATION FOR NAME APPROVAL OF THE PROPOSED COMPANY WITH THE ROC

After obtaining the DIN and DSC as aforesaid, an online application for availability of the proposed name (in the prescribed Form 1A), along with six proposed names in order of preference (may be less than six), each one indicating, as far as possible, the main objects (principal activities) of the company, shall be submitted to the ROC. The name of a private company should end with the words “Private Limited”.

If the proposed company is a subsidiary of body corporate incorporated outside India, Form 1A is required to be e-filed along with the following attachment at the website of Ministry of Company Affairs, India:

(a)   Board Resolutions by the parent company (separately from each subscriber to the proposed entity) indicating its intention to incorporate a subsidiary in India and authorizing a director to issue specific power of attorney. 

(b)   Power of Attorney(s) (separately from each subscriber to the proposed entity) authorizing someone to represent the subscribers before the concerned ROC to liaise with  all concerned authorities and officials in the matter of incorporation.

(c)    No Objection Letter from the parent company (separately from each of such   entity whose name or part thereof will be used in the name of the proposed entity) for use of the name of the parent company or part thereof in the name of the proposed company. 

(d)   Charter Documents of the parent company i.e. Certificate of Incorporation of the  parent company.

Please note that all of the aforementioned documents should be notarized by a Notary Public in the country where the registered office of the entity (which has issued the said document), is situated and further Apostilled/ endorsed at the Indian Consulate in the country where the registered office of the entity (which has issued the said document) is situated. 

(e)    A brief writ-up on the main objects proposed to be carried out by the Company.

(f) Proof of ownership of the registered office of the company. In case the property is not taken on lease by the Company himself, a no objcetion certificate would be required 


STAGE IV

DRAFTING AND STAMPING OF MEMORANDUM & ARTICLES OF ASSOCIATION (“MOA AND AOA”)

MOA and AOA are to be drafted in compliance with the provisions of the Act. Adequate stamp duty would be required to be paid thereupon based on the authorised capital of the company. The stamp duty on MOA and AOA shall be paid along with the filing fee payable at the time of filing of incorporation related documents.


STAGE V

INCORPORATION DOCUMENTS TO BE FILED WITH THE ROC

After the name approval, the following forms have to be e-filed with the ROC after having been digitally signed by any of the proposed directors. The lists of documents are as follows:

(i)  Form 1 -   Declaration of compliance of all the requirements of the Act along with the memorandum of association of the company;

(ii)   Form 18 - Situation of the registered office of the Company; and

(iii) Form 32 - Particulars of Directors of the Company along with the consent of directors.

All the aforesaid incorporation documents (scanned copies of the executed version) have to be submitted with the ROC as attachments to the E form 1 alongwith:

(i)                 The original copies of MOA and AOA with the subscriber pages duly executed by or on behalf of the subscribers and witnessed.

(ii)               Power of Attorneys from the subscribers to the MOA and AOA appointing representatives to incorporate the company and to make corrections in the MOA and AOA. The said powers of attorneys are required to be notarized and attested by Indian embassy abroad.

The ROC then scrutinizes the above-mentioned documents and if necessary, directs the authorized person to make necessary corrections therein. The ROC after being satisfied that all the documents are complete, issues the certificate of incorporation of the Company, which is the conclusive proof of registration of the company in India.

      Thank you    
      Devesh Pandey 
       +91 9811237186
      csdeveshpandey@gmail.com

Tuesday, February 22, 2011

CONSTITUTION OF INDIA- WHETHER FEDERAL OR UNITARY/ CHARACTERISTICS OF INDIAN CONSTUTION

It has been the matter of debate among the scholars that whether the constitution of India is completely federal or unitary in nature. But actually Indian constitution contains both features of a federal constitution and unitary constitution. But for the very clear picture of this conclusion first of all we have to know that what is the federal constitution and what is unitary constitution. What feature of Indian constitution makes it federal or what features makes it unitary. The question whether the Indian Constitution could be called a federal constitution troubled the minds of the members of the Constituent Assembly. This question cannot be answered without going into the meaning of federalism and the essential features that are evident in federal state.

Federal Constitution:

In a federal set up there is a two tier of Government with well assigned powers and functions. In this system the central government and the governments of the units act within a well defined sphere, co-ordinate and at the same time act independently. 

Unitary Constitution

A unitary system is governed constitutionally as one single unit, with one constitutionally created legislature. All power is top down. A unitary state is a sovereign state governed as one single unit in which the central government is supreme and any administrative divisions (sub national units) exercise only powers that the central government chooses to delegate.

Federal Features of Indian Constitution

Supremacy of the Constitution: This is one of the federal features of the Indian constitution. The supremacy of the constitution means that both, the Union and the State Governments, shall operate within the limits set by the Constitution. And both the union government and the central government derive their powers from the constitution. Written Constitution The most important feature of a federation is that its constitution should be a written one. The Constitution of India is a written constitution is the most elaborate Constitution of the world.

Rigid Constitution: The constitution of India is a rigid constitution and this is one of the basic features of federal constitution. The procedure of amending the Constitution in a federal system is normally rigid. Indian Constitution provides that some amendments require a special majority. Such an amendment has to be passed by majority of total members of each house of the Parliament as well as by two-thirds majority of the members present and voting there in. However, in addition to this process, some amendments must be approved by at least 50% of the states. After this procedure the amendment is signed by the head of the state i.e; the President. Since in India important amendments can be amended through this procedure Hence, Indian Constitution has been rightly called a rigid constitution.

Division of Powers: In Indian constitution the powers of state and centre are clearly defined and there are very clear limits of both the centre and the state for law making powers. Our constitution enumerates three lists, viz. the Union, the State and the Concurrent List. The Union List consists of 97 subjects of national importance such as Defence, Railways, Post and Telegraph, etc. The State List consists of 66 subjects of local interest such as Public Health, Police etc. The Concurrent List has 47 subjects important to both the Union and the State such as Electricity, Trade Union, Economic and Social Planning, etc.

Supremacy and Independence of the Judiciary: Supremacy of judiciary is another very important feature of a federal state where there is an independent judiciary to interpret the Constitution and to maintain its sanctity. The Supreme Court of India has the original jurisdiction to settle disputes between the Union and the States. It can declare a law as unconstitutional, if it contravenes any provision of the Constitution.

Unitary Features of Indian Constitution:

In spite of the fact that the Indian Constitution establishes a federal structure, it is indeed very difficult to put the Indian Constitution in the category of a true federation. The following provision of Indian constitution makes it unitary

Union of States; Article I of the Constitution describes India as a ‘Union of States’, which implies two things: firstly, it is not the result of an agreement among the States and secondly, the States have no freedom to secede or separate from the Union. Besides, the Constitution of the Union and the States is a single framework from which neither can get out and within which they must function. The federation is a union because it is indestructible and helps to maintain the unity of the country.
Appointment of Governor: Art 155 and 156 provide that the Governor, who is the constitutional head of a State, is to be appointed by the President and stays only until the pleasure of the President The Centre may take over the administration of the State on the recommendations of the Governor or otherwise. In other words, Governor is the agent of the Centre in the States. The working of Indian federal system clearly reveals that the Governor has acted more as centre’s representative than as the head of the State. This enables the Union government to exercise control over the State administration.

Representation in the Legislature: The equality of units in a federation is best guaranteed by their equal representation in the Uppers House of the federal legislature (Parliament). However, this is not applicable in case of Indian States. They have unequal representation in the Rajya Sabha. In a true federation such as that of United State of America every State irrespective of their size in terms of area or population it sends two representatives in the upper House i.e. Senate.

Monday, February 21, 2011

Mergers and Acquisitions- A basic understanding and governing laws

Mergers and Acquisitions- A basic understanding and governing laws

Mergers and Acquisitions (M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Merger means the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Basically Merger is a process by which one or more corporation is totally absorbed by another. Thus Merger is the fusion of two or more companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of equity shares, debentures in the transferee company or in the cash or combination of all the above modes.

The acquisition is the buying of one company (Target Company) by another. A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisition can be friendly or hostile. In friendly acquisition the companies comes on the terms through negotiations while in the hostile acquisition no negotiation made between companies and the acquiring company need to actively purchase the substantial stake to have majority stake in the target company. Sometimes a smaller company will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

Motive behind the Mergers and Acquisitions

        i.      A combined company can reduce its fixed cost and so can reduce the cost of the production and can befitted with the economies of large scale
     ii.      If the buyer is purchasing a competitor from the market it will definitely reduce the competition and enhance the market power of the buyer and results in the revenue and market share of the buyer.
   iii.      It will explore the opportunity of managerial specialization.
   iv.      A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability.
      v.      Geographical diversification.
   vi.      To make vertical integration. By merging the vertically integrated firm can collect one deadweight loss by setting the upstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable.
 vii.      For the purpose of increasing the market share of the company


Funding of Mergers and Takeovers

There following are some methods of funding mergers and acquisition:
        i.      Equity Shares in the transferee company
     ii.      Preference shares in the transferee company
   iii.      Debentures in the transferee company
   iv.      Cash payment
      v.      External commercial borrowings
   vi.      ADR/GDR
 vii.      A combination of all above methods.

Indian laws regulating mergers and acquisitions

The following laws regulating the mergers and acquisitions in India:

Companies Act 1956

Section 391 to 394 contains major provisions for mergers and acquisitions. The provisions also deal with the compromise or arrangement with or without merger. Presently High court enjoys the power of sanctioning amalgamation matters under sec. 394. Any company, creditor or class of creditors or member or class of the members can file application seeking sanction of scheme of compromise or arrangement, but due to its very nature the scheme for amalgamation is normally presented by the company.  The following procedure shall be followed

        i.      Examine the MOA of the company. The object clause should permit to regulate, if not so provided in the clause amend accordingly.
     ii.      Convey board meeting to approve and draft the scheme of amalgamation and for authorization of filing application to the High court.
   iii.      File application to High court to issue directions to convey the general meeting.
   iv.      The High court pass the necessary directions which shall include time and place of the meeting, chairman of the meeting, procedure to be followed in the meeting and time to submit the report of the meeting to the court.
      v.      Send notices to shareholders and creditors, Stock Exchanges and also advertise the notice of the meeting in the two daily news paper one in English and other in the regional language.
   vi.      Hold the general meeting as per court’s direction. The scheme shall be approved by 3/4th majority.
 vii.      File the report of the meeting to the court and stock exchanges within 7 days.
viii.      File resolution with the ROC.
   ix.       File petition to the court for sanctioning of the scheme.
      x.      Within 30 days of sanctioning the scheme file courts order with ROC.

   SEBI Takeover Code 1997

The objective of the Takeover code is to regulate in an organized manner the substantial acquisition of shares and take over of a company whose shares are quoted on a stock exchange i.e. listed company. In a limited sense these regulations also apply to certain unlisted companies including a body corporate incorporated outside India to an extent where the acquisition results in the control of a listed company by the acquirer.

Regulations regarding limits according to which shares shall be acquired:

The regulation for the minimum amount of shares to be acquired and a public announcement to be made in accordance with it are given under regulations 10, 11 and 12.

a)Regulation 10- According to this regulation, no person either alone or with someone acting with the same intention shall acquire shares in a company that would enable the person or persons to practice more than 15% voting rights. The regulations further say that, this could only be done by a person who has made public announcement to acquire such shares in accordance with the regulations. In other words a person by himself or with a person acting with the same intention shall make a public offer to acquire a minimum of 20% of shares in accordance with the regulation.
b)Regulation 11- This regulation talks about an Acquisition by a person or two or more persons acting together with common intention, who have already acquired 15% or more but less than 55% of share or voting rights, which would enable them to exercise further 5% but not more voting rights in the same financial year ending on 31st March. Though this can be done if the acquirer makes a public offer to acquire such shares in accordance with the regulations. The regulation further talks about acquirers who already have 55% or more shares but less than 75% shares of the target company but intend to acquire more shares, this can only be done if the acquirer makes a public announcement in this regard 
c)Regulation 12- The regulations further say that, any control over the company shall not  go into the hands of the acquirer irrespective of whether acquisition of shares or voting rights has taken place or not, until a public announcement to acquire such shares has been made in accordance with the regulations.

   Competition Act 2002

Competition Act 2002 was enacted to ensure free and fair competition in the market by prohibiting anti-competitive agreements, abuse of dominant position and combinations likely to have appreciable adverse effects on competition within the relevant market in India. Competition act also keep watch on the mergers and acquisitions by the Indian companies. Sec 5 and 6 deals with the mergers of the company. Section 5 of the act deals with ‘Combinations” which defines combinations with reference to assets and turnover

 (a) Exclusively in India and
(b) In India and outside India.

For example, an Indian company with turnover of Rs. 3000 crores cannot acquire another Indian company without prior notification and approval of the Competition Commission. On the other hand, a foreign company with turnover outside India of more than USD 1.5 billion (or in excess of Rs. 4500 crores) may acquire a company in India with sales just short of Rs. 1500 crores without any notification to (or approval of) the Competition Commission being required. The act requires the competition authority to approve or reject mergers on the basis of competition only.
Section 6 says that no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.

Income Tax Act 1961

The term amalgamation is defined in sec 2 (1B) of the act. It covers mergers also.
Some important provisions of income tax act regarding mergers and acquisitions are as follows:
Section 2 (IB): Amalgamation means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that:

        i.      All the properties and liabilities of the transferor company/companies become the properties and liabilities of Transferee Company.
     ii.      Shareholders holding not less than 75% of the value of shares in the transferor company (other than shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become shareholders of the transferee company.

Section 47 (vi): Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company is not regarded as transfer and not chargeable to tax.
Section 47 (vii): 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 49 (2): 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 72A: Government can allow carry forward of losses and unabsorbed depreciation provided the amalgamated company carry on the business of the amalgamating company for at least 5 years.

  No Sales tax on mergers and amalgamation.

  Foreign Exchange Management Act 1999

FEMA is regulating the cross border mergers and acquisitions. The foreign exchange laws relating to issuance and allotment of shares to foreign entities are contained in The Foreign Exchange Management (Transfer or Issue of Security by a person residing outside India) Regulation, 2000 issued by RBI vides Notification No. FEMA 20 /2000-RB dated 3rd May, 2000. These regulations contained general provisions for inbound and outbound cross border mergers and acquisitions in India.. Under these provisions once the scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company or new company is allowed to issue share to the shareholders of the transferor company resident outside India subject to the condition that:
i. The percentage of shareholding of person’s resident outside India in the transferee or new company does not exceed the sectoral cap.
ii. The transferor company or the transferee or the new company is not engaged in activities, which are prohibited in terms of FDI policy.
Conclusion:
The legal and financial reforms by the government of India since the early 1990's have resulted in substantial growth of the Indian economy. With the liberalized policies the practice of mergers and acquisitions has attained considerable significance in the contemporary corporate scenario in India which is broadly used for reorganizing the business entities. According to a recent study, mergers and acquisition activity in the country more than doubled in the first month of 2010 as deals worth nearly USD three billion (about Rs. 13,950 crore) were announced amid improved signs of liquidity. Indian companies have shown their globle presence by acquiring some big companies outside India The most important benefit that the developing and transition economies derive from outward investments is increased competitiveness. This strengthens the arms of local companies and of the MNCs to survive in a competitive milieu. Therefore, the more the domestic industries invest abroad, the more the benefits to the home economy.