The Hindu Business Line : Needed, seamless cross-border M&A

In Moschip Semiconductor Technology Ltd and Verasity Technologies, Inc, the Central Government, in terms of the report filed by the Registrar of Companies (RoC), had no objection to the scheme of arrangement for amalgamation of Verasity (the transferor company) with Moschip (the transferee company). There was no need to dissolve the transferor company by means of any specific order except filing of the certified copy of the order of the court with the authorities of State of California, which had the effect of the transferor company getting dissolved automatically. The reasons for the amalgamation were also strong.

The transferor and transferee companies were in the same semiconductor business and would be using the common sales and distribution channels for selling their products. By amalgamation, the transferee company was expected to become stronger in terms of technology and would be able to project a stronger brand and wider product offering to its potential customer base globally.

Having regard to these reasons as set forth in the petition, compliance of procedural requirements and having regard to the fact there have been no objections whatsoever from any comer, including the Central Government, the Andhra Pradesh High Court was of the view that it could give the necessary sanction.

The court, however, dealt with the one glaring aspect of the same. The transferee company was incorporated within the territorial limits of this court. However, the transferor company was situated in a foreign country.

The transferor company had not joined the transferee company in this petition seeking the necessary sanction from the court. The court, therefore, examined Section 394 of the Companies Act.

The said Section provides for sanctioning of the scheme when such a scheme was proposed for the reconstruction of the company or companies or amalgamation of any two or more companies. The court while sanctioning the scheme may make necessary provisions as enjoined under Clauses (1) to (6) of Sub-section (1) thereof. In terms of Section 394(4):

(a) `property' includes property, rights and powers of every description and `liabilities' include duties of every description; and

(b) `transferee company' does not include any company other than a company within meaning of this Act; but `transferor company' includes any body corporate, be it a company within the meaning of this Act or not.

Body corporate includes foreign company

From a perusal of the said provision, it is obvious that the transferee company should invariably be a company within the meaning of the Act. However, the transferor company includes any body corporate, whether such body corporate is a company within the meaning of the Act or not. The expression `body corporate' in terms of Section 2(7) includes a company incorporated outside India but does not include (a) a corporation sole; (b) a co-operative society registered under any law relating to cooperative societies; and (c) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Thus, a body corporate includes a foreign company also. A combined reading of Sections 394(4) and 2(7) of the Act shows that the transferor company can be a foreign company but the transferee company should invariably be a company within the meaning of the Act. Having regard to this clear legal position, there can be no legal bar for entering into a scheme between an Indian and a foreign company. But such a scheme shall be subject to the laws of both the countries. Equally, there is no legal bar for sanction of the said scheme by the court when the transferee company is Indian and the transferor company is either an Indian company or a body corporate, including a foreign company.

Reasoning and interpretation

In the instant case, as the transferee company was a company incorporated in accordance with the Companies Act, 1956 and the transferor, a foreign company and `body corporate' within the meaning of Section 2(7) of Companies Act, it fulfilled the requisite conditions in terms of Sub-section (4) of Section 394. The court, therefore, gave the necessary sanction of amalgamation between the transferee company and the transferor company.

In view of this, it can be concluded that under the Companies Act the amalgamation can be sanctioned provided that the transferee company is one incorporated under the Companies Act. The transferor company could be a company or body/bodies corporate in terms of the Act. Further, if the transferor company is a foreign company, the applicable law of the foreign country should also authorise to effect the merger.

If India is to compete globally, the law needs to keep pace with the global challenges. Indian companies will benefit if suitable amendments are effected to allow seamless cross-border M&A.

(The author is Company Secretary and Head-Legal, Persistent Systems Pvt. Ltd, Pune.)

More Stories on : Accountancy | Mergers & Acquisitions

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Lure of retail

Time to say goodbye to World Bank?

Needed, seamless cross-border M&A

Financial terrors in dark databases

Winners' curse and accountants' nightmare

Add strength to tenders

Enlightened affirmative action is the key

Energy independence

Investment in retail