With regard to companies law purview, a major concern arises with regard to absence of any specific time between filing of an application for the scheme and its admission before NCLT.

The procedure with regard to filing finds place in NCLT Rules, 2016.Herein, Rule 23 only talks about that the application shall be filed in a prescribed form with a stipulated fee. Furthermore, Rule 29 deals with 'registration of proceedings admitted'. However, neither rules deal with the time period between the filing and admission process.

Upon research it is found that the general time taken in this process is 3-4 months. Further, admission does not mean approval for the scheme, it merely means that NCLT acknowledges that the scheme broadly satisfies regulatory conditions and should be admitted. Thus, it can be observed that unnecessary delay is being caused at this stage on account of which the entire mergers and acquisitions process is delayed.

Additionally, if the applicant is a listed company, the approval of Stock Exchange is also required, who further consults SEBI before granting approval. This yields in further delay of the entire process.

Pertaining Company law, modification/reform can be brought for fast-tracking process for cross border mergers.

Section 233 of the Act provides a mechanism for a fast track process for mergers wherein a simple approach is mentioned and there is no need to approach the NCLT. However, it is imperative to note that the said section applies only to domestic transactions.

Interestingly, Section 234 of the Act provides that provisions of the entire Chapter of 'Compromises, Arrangements and Amalgamations' of the Act shall apply, mutatis mutandis to the merger of an Indian company with a foreign company. However, when we read this section with Rule 25A brought with Companies (Compromises, Arrangement and Amalgamation) Amendment Rules, 2017, we see that Rule 25A restricts the scope of the said section and does not refer for compliance to Section 233. Moreover, it makes it mandatory for the transferee company to file an application before the NCLT.

It is submitted that this makes the process long and causes delay. While the idea of greater scrutiny being required for cross border mergers is understandable, it is submitted that Section 233 is capable enough to ensure that no undue violation or advantage takes place. Thus, inclusion of cross border mergers within the scheme of Section 231 of the Companies Act will shorten the process and pave way for the mergers and acquisitions.

� Under the current Competition Law Regime, the time limit for approval of combinations and other filings is 210 days from the date on which notice is given to the Competition Commission of India ["CCI"]. Interestingly, the latest Competition (Amendment) Bill of 2022 proposes to reduce the time limit from 210 days to 150 days.

Furthermore, the Bill endows a period of only 20 days to CCI to form a prima facie observation on combination, as opposed to the current law which do not mandate any time period. Thus, the present Competition law has scope for lot of unnecessary delays pertaining mergers and acquisitions, which seem to be taken care by the proposed Bill.



� Another concern which exists within the sphere of FEMA and Company Law is pertaining cross border demergers and other arrangements.

While on one hand FEMA regulations (Foreign Exchange Management (Cross Border Merger) Regulations, 2018) intend to cover cross border 'merger, amalgamation or arrangement' (including demergers), on the other hand, Section 234 of the Companies Act read with Rule 25A of Company Merger Rules mention only 'mergers and amalgamation', and do not entail the term 'arrangements.

Consequently, we see that there exists a discrepancy between FEMA and Company Act. In this regard, since the Companies Act is the primary legislation dealing with compromises, arrangements and amalgamations, consequently, cross border demergers or other forms of arrangement are not permitted.

Clarification regarding same must be issued to properly identify the ambit under Company Law regime, and for better facilitation of mergers and acquisitions.

With regard to the taxation front, there exists a discrepancy between outbound mergers and inbound mergers regarding capital gains exemptions.

Section 45 of the Income Tax Act, 1961 deals with the subject of capital gains, and upon whom it shall be applicable. Furthermore, Section 47 of the same act talks about tax exemption from capital gains.

Now, interestingly, Section 47(vi) exempts capital gains only in relation to transfer of a capital asset where the resultant entity is an Indian company. Thus, as per the clause, inbound mergers (where resultant entity is an Indian entity) shall enjoy tax exemptions, but not outbound mergers.

Furthermore, in case of an outbound merger, the foreign company could also be confronted with permanent establishment issues in India.

Thus, such differential treatment becomes very unattractive for the foreign entities who are planning on outbound mergers. Such unsupportive tax regime may also lead to the base shifting by amalgamated entities in different jurisdictions.

Another area where improvement is suggested is with regard to acquisition financing.
In India, RBI regulates the banking sector. As per the guidelines issued by the RBI in 1998, a promoter's contribution towards equity cannot be funded by a bank and banks cannot finance the acquisition of equity shares, other than in exceptional cases.

Furthermore, as per the Master Circular, the banks financing acquisition of equity shares by promotes should be within the regulatory ceiling of 5 per cent on capital market exposure in relation to its total outstanding advances.

Consequently, financing for a domestic acquisition is generally procured from non-banking financial companies (NBFCs) or by issuance of non-convertible debentures (NCDs) by the acquirer which can be subscribed to by foreign portfolio investors (FPIs), mutual funds and alternate investment funds (AIFs).

In this regard, it is proposed that the banks should be allowed to provide for acquisition funding in order to facilitate mergers and acquisitions.

References

• https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=1820
• https://www.jsalaw.com/wp-content/uploads/2021/06/Acquisition_Finance_2021.pdf
• https://www.thehindubusinessline.com/news/education/borrowing-to-buy-still-a-tough-act-for-india-inc/article20615811.ece1
• https://taxguru.in/income-tax/tax-neutrality-outbound-mergers-hour-india.html
• https://www.livemint.com/opinion/online-views/mergers-and-acquisition-schemes-delays-will-kill-11660561294535.html
• https://www.india-briefing.com/news/india-antitrust-regime-proposed-changes-competition-amendment-bill-2022-25659.html/
• https://www.khaitanco.com/thought-leadership/FEMA-cross-border-merger-regulations-issued-by-RBI

Written By: Nishant Kumar, 4th Year Student At National Law University, Jodhpur