The Hindu Business Line : M&A with a foreign company

Mergers and Acquisitions (M&A) are order of the day. It has been observed that many Indian companies are "acquiring" foreign companies and vice versa.

It needs to be examined whether amalgamation of a foreign and an Indian company is possible under the Companies Act, 1956. Since the place of incorporation of the foreign company is not India, a careful reading of the law is needed.

The Andhra Pradesh High Court (CP No. 78 of 2003) in the Moschip Semiconductor Technology Ltd and Verasity Technologies Inc case examined if there was any legal bar for sanction of amalgamation of an Indian and a foreign company.

Moschip, the transferee company, was incorporated in 1999 and had its registered office in Hyderabad. The main objectives of the company included , inter alia, carry on the business in the area of information technology and software, render consultancy training and carry on the business of manufacturers, developers, buyers, sellers, importers, exporters, agents, job workers, assemblers and dealers of metal oxide semiconductor chips, chips of integrated circuit nature and all types of computer and communication systems.

Verasity Technologies Inc, the transferor company, was incorporated with its Principal Executive Office at Santa Clara, California, US. Verasity was incorporated with the object of providing silicon, software, and support for last-mile Internet-connected security solutions and was engaged in the said business.

The board of directors of Moschip, at its meeting, unanimously approved the scheme of arrangement for amalgamation of Verasity (transferor company) with Moschip (transferee company). The scheme of amalgamation, inter alia, envisaged transfer of the all assets, investments, rights, titles and interests with effect from the appointed date; all debts, outstandings and receivables without any notice or other intimation to the debtors; all debts, liabilities, duties and obligations of every kind nature and description of the transferor company to the transferee company without any further act or deed and they stand transferred to and vested in the transferee company.

The petition further envisaged that after receipt of the sanction and approval of the scheme, the transferee company would without any further act or deed issue and allot within 30 days from the effective date an aggregate of 6,177,778 equity shares of the face value at a premium of Rs 21 per share to the transferee company credited as fully paid-up and each such share being exchanged for every one share of common stock held by the members of the transferor company.

All the staff, workmen and other employees in the service of the transferor company would become the staff, workmen and employees of the transferee company with continuous service without any interruption and the transferee company would stand substituted for the transferor company. The scheme was subject to the approval of the appropriate authorities.

The transferee company filed C.A. No. 304/2003 under Section 391 of the Companies Act. It also complied with all other procedural requirements of the Act, including notices to the shareholders, publication of the same in newspapers, holding meeting of the shareholders.

Since the transferee company had only trade creditors and the transferor company had none at all, the amalgamation scheme did not involve any compromise with the creditors of the petitioner-transferee company or transferor company. The assets of the transferee company were sufficient enough to meet all the liabilities present and future.

After the admission of the petition, publication was ordered besides notices to the Central Government, which was duly complied with. The Registrar of Companies (RoC), pursuant to the notice issued, filed his report. In the report he, among other things, mentioned that as per Section 1108(d) of Chapter 11 of California Corporations Code if the surviving corporation was a foreign corporation, the merger shall be effective as to any domestic disappearing corporation in the foreign jurisdiction upon filing in the State of California certain documents as prescribed therein.

As per the said provision, the transferee company had to file the order of the court duly certified by the RoC in the capacity of public officer having official custody of the original. Upon filing of the said certified document, the transferor company would get dissolved and there was no need for ordering separately for dissolution of the transferor company and, therefore, the Registrar requested to pass appropriate orders.

No objections whatsoever was received from any comer pursuant to the general notice and the publication in English and vernacular languages, as aforesaid.

(To be concluded)

(The author is a Pune-based company secretary.)

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