CHANAKYA NATIONAL LAW UNIVERSITY
DISTRESSED COMPANIES: COMPANIES: LAST L AST HOPE CORPORATE CORPORATE LAW L AW II
FACULTY- MRS. NANDITA S. JHA
ANUBHUTI VARMA ROLL-721 8 TH SEMESTER 1
ACKNOWLEDGMENT I’m thankful to MRS. NANDITA S. JHA for her able guidane throughout the making of thi! "ro#et$ %"eial thank! to m& friend! for their a!!i!tane a!!i!tane and muh needed hel"$ Thank &ou one and all$
2
RESEARCH METHODOLOGY SUBJECT' TOPIC'
Cor"orate La( II
Di!tre!!ed Com"anie!' La!t )o"e
OBJECTIVES: To
a!ertain the re*i*al and rehabilitation mehani!m for !ik om"anie! b& (a& of
takeo*er$ RESEARCH METHODOLOGY:
Dotrinal re!earh methodolog& ha! been u!ed$ Kee"ing the
ob#eti*e! in mind+ material (a! olleted (ith the hel" of different book! and then it (a! om"iled to make the theoretial "art of the "ro#et$ %eondar& !oure! (ere al!o utili,ed in order to om"lete the ob#eti*e$ RESEARCH TOOLS:
The re!earh of thi! "ro#et (a! arried (ith the h el" of the Internet and Librar&
of Chanak&a National La( -ni*er!it&$ FOOTNOTING STYLE:
In (hole of m& "ro#et uniform footnoting !t&le ha! been ado"ted$
3
CONTENTS INTRODUCTION........................................................................................................... 5 TAKEOVERS UNDER THE SCHEME OF REVIVAL AND REHABILITATION.........................7 !" E#$%&$'($ )* +,$ ()'($+ )* +/$)0$%...............................................................7 !!" O$(+ )* +/$)0$%............................................................................................ 8 !!!" K!'4 )* +/$)0$%............................................................................................. !0" L$&6 $(+ )* +/$)0$%.............................................................................. 11 TAKEOVER AND ACUISITION OF MINORITY INTEREST............................................. 12 "T/$)0$% )* U'6!+$4 '4 C6)$6 H$64 C)#'!$............................................ 12 " T/$)0$% B!4................................................................................................... 19 ("F!%'$ )* +/$)0$% !4................................................................................... 19 4"T/$-)0$% O$% +) $ *%)'+ S!'&6$ C)#'..................................................... 15 $"A4$;<( )* I'*)%#+!)'................................................................................... 15 *"N)+!($ )* A(; BIBLIO?RAPHY.......................................................................................................... 22
9
INTRODUCTION The inidene and magnitude of ill effet! of !ikne!! and the re!ultant lo!ure of indu!trial om"anie! !uh a! lo!! of "rodution+ lo!! of em"lo&ment+ lo!! of re*enue to the entral and !tate Go*ernment and loking u" of in*e!tible fund! of bank! and finanial in!titution!+ (a! a matter of !eriou! onern to the Go*ernment$ It (a! reogni,ed that in order to full& utili,e the "roduti*e indu!trial a!!et!+ to afford ma.imum "rotetion of em"lo&ment and o"timi,e the u!e of the fund! of bank! and finanial in!titution!+ it (ould be im"erati*e to re*i*e and rehabilitate the "otentiall& *iable !ik indu!trial om"anie! a! /uikl& a! "o!!ible$ )o(e*er+ the multi"liit& and om"le.it& of la(! and agenie! "re!ent made the ado"tion of a o0ordinated a""roah in dealing (ith !ik indu!trial om"anie!+ diffiult$ It (a! reali,ed that the mea!ure!+ till then ado"ted b& the go*ernment+ *i,$ nationali,ation or takeo*er of management+ had not been able to ahie*e the de!ired re!ult!$ 1oth the!e mea!ure! needed "eriodi and on!tant finanial and other !u""ort$ In !"ite of all the "o!!ible in*e!tment and !u""ort+ man& !ik indu!trial undertaking! did not !ho( an& !&m"tom! of *iabilit&$ A large number of undertaking! did not beome health& in !"ite of their management being ontinued (ith the Go*ernment or a Go*ernment nominated agen& for !e*eral &ear! a! huge !um! of mone& (ere re/uired to meet their "a!t liabilitie! of un"aid (age!+ ta.e!+ dutie! et$+ and for (orking a"ital$ )ene+ e*en the !ik indu!trial undertaking! (ho!e management (ere taken o*er (ere fored to be (ound u"$ Therefore timel& and ad*ane mea!ure! !hould be taken either b& legi!lation or b& admini!trati*e order! and mahiner&+ to kee" a !trit *igil on the !&m"tom! of or"orate !ikne!! (ith "artiular referene to !uh om"anie! a! are "rone to an& kind of or"orate !ikne!!+ !o that "re*enti*e and remedial mea!ure! an be taken before a om"an& goe! !ik$ A need (a! therefore felt+ to enat in public interest + a legi!lation to "ro*ide for timel& detetion of !ikne!! in indu!trial om"anie! and for e."editiou! determination b& a bod& of e."ert! of the "re*enti*e+ ameliorati*e+ remedial and other mea!ure! that (ould need to be ado"ted (ith re!"et to !uh om"anie! and for enforement of the mea!ure! on!idered a""ro"riate$ 1a!ed on the reommendation of a Committee of E."ert! under the Chairman!hi" of %hri T$Ti(ari+ the
5
Go*ernment enated a !"eial legi!lation named a! the %ik Indu!trial Com"anie! 2%"eial 3ro*i!ion!4 At+ 5678 ommonl& kno(n a! %ICA$ The 1oard of Indu!trial and 9inanial :eon!trution 21I9:4 and the A""ellate Authorit& for Indu!trial and 9inanial :eon!trution 2AAI9:4 (ere al!o e!tabli!hed in 567; to look after the matter! o*ered under the "ur*ie( of %ICA$ %ICA (a! further amended in 5665 to bring go*ernment om"anie! under it! "ur*ie( and again in 566< ertain hange! (ere brought out in the at for the determination of indu!trial !ikne!!5$ The legi!lation (a! "redominantl& remedial and ameliorati*e+ in !o far a! it em"o(ered the /ua!i #udiial bod&+ the 1I9: to take a""ro"riate mea!ure! for re*i*al and rehabilitation of "otentiall& *iable !ik om"anie! and for li/uidation of non0*iable om"anie! and (a! regulator& onl& to a ertain e.tent$ The latter a!"et (a! refleted in the "ro*i!ion! of the At "ro*iding for obligation of !ik indu!trial om"anie! and "otentiall& !ik indu!trial om"anie!+ to make referene to the 1oard and treating an& non0om"liane a! a "uni!hable offene$
1 T,$ T!@%! C)##!++$$ )' R$,!6!++!)' )* S!(/ U'!+ @ ()'+!+<+$4 RBI !' 181. T,$ ()##!++$$ , $#!'$4 +,$ 6$&6 '4 )+,$% 4!(<6+!$ *($4 '/ '4''(!6 !'+!+<+!)' !' +,$ %$,!6!++!)' )* !(/ !'4<+%!6 <'4$%+/!'& '4 <&&$+$4 %$#$4!6 #$<%$ !'(6<4!'& (,'&$ !' 6@ '4 <#!++$4 !+ %$)%+ !'183. =
TAKEOVERS UNDER THE SCHEME OF REVIVAL AND REHABILITATION (i) Emergene !" #$e !ne%# !" #&'e!er Cor"orate %etor i! an attrati*e medium for arr&ing on bu!ine!! a! it offer! lot! of benefit!$ :ai!ing mone& from "ubli ha! it! o(n "o!iti*e feature! and it hel"! !etting u" big "ro#et!$ When "romoter! of a om"an& de!ire to e."and+ the& take a /uik *ie( of the indu!trial and bu!ine!! ma"$ If the& find there are o""ortunitie!+ the& (ill al(a&! &earn for a"itali,ing !uh o""ortunitie!$ Com"ared to the effort! re/uired+ o!t and time needed in !etting u" a ne( bu!ine!!+ it (ould make !en!e to them to look at the "o!!ibilitie! of a/uiring an e.i!ting entit&$ While the "o!!ibilit& of takeo*er of a om"an& through !hare a/ui!ition i! de!irable for ahie*ing ertain !trategi ob#eti*e!+ there ha! to be (ell defined regulation! !o that the intere!t! of all onerned are not #eo"ardi,ed b& !udden takeo*er threat!$ In thi! "er!"eti*e+ if one (ere to anal&!e+ it (ould be lear that there ha! to be a !&!temati a""roah enabling and leading the takeo*er!+ (hile !imultaneou!l& "ro*iding ade/uate o""ortunit& to the original "romoter! to "rotet = ounter !uh mo*e!$ Thu!+ (hile the a/uirer !hould a di!i"line method (ith "ro"er di!lo!ure of intention! !o that not onl& the original "romoter! (ho are in ommand are "roteted but al!o the in*e!tor!$ It (ould be in the intere!t of all onerned that the takeo*er i! arried out in a tran!"arent manner$ When ade/uate hek! and balane! are introdued and en!ured+ takeo*er beome! a good tool$ That i! the rea!on (h& regulation! ha*e been "ut in "lae and the!e regulation! re/uire !uffiient di!lo!ure at e*er& !tage of a/ui!ition$ The!e regulation! take !o muh are that the& o*er not onl& the diret a/ui!ition of the a/uirer but al!o inlude a/ui!ition! through relati*e! and a!!oiate! and grou" onern!$ In India+ the "roe!! of eonomi liberali,ation and globali,ation u!hered in the earl& nineteen ninet&’! reated a highl& om"etiti*e bu!ine!! en*ironment+ (hih moti*ated man& om"anie! to re!truture their or"orate !trategie!$ The re!truturing "roe!! led to an un"reedented ri!e in
7
!trategie! like amalgamation!+ merger! in re*er!e merger!+ demerger!+ takeo*er!+ re*er!e takeo*er! and other alliane!$ The one"t of takeo*er "iked u" and in the meantime the %euritie! E.hange 1oard of India 2%E1I4 al!o notified the %E1I 2%ub!tantial A/ui!ition of %hare! and Takeo*er4 :egulation!+ 566; (hih laid do(n a "roedure to be b& an a/uirer for a/uiring ma#orit& !hare! or ontrolling intere!t in another om"an&$ The main ob#eti*e i! to en!ure e/ual o""ortunit& to all !hareholder! and offer "rotetion to them+ in the e*ent of !ub!tantial a/ui!ition of !hare! and takeo*er!$
(ii) O*e#+ !" #&'e!er The ob#et! of a takeo*er ma& inter alia be a$ To effet !a*ing! in o*erhead! and other (orking e."en!e! on the !trength of ombined re!oure!> b$ To ahie*e "rodut de*elo"ment through a/uiring firm! (ith om"atible "rodut! and tehnologial=manufaturing om"etene+ (hih an be !old to the a/uirer?! e.i!ting marketing area!+ dealer! and end u!er!> $ To di*er!if& through a/uiring om"anie! (ith ne( "rodut line! a! (ell a! ne( market area!+ a! one of the entr& !trategie! to redue !ome o ri!k! inherent in !te""ing out of the a/uirer?! hi!torial ore om"etene> d$ To im"ro*e "roduti*it& and "rofitabilit& b& #oint effort! of tehnial and other "er!onnel of both om"anie! a! a on!e/uene of unified ontrol> e$ To reate !hareholder *alue and (ealth b& o"timum utili,ation of the re!oure! of both om"anie!> f$ To ahie*e$+ eonom& of number! b& ma!! "rodution at eonomial o!t!> g$ To !eure ad*antage of *ertial ombination b& ha*ing under one ommand and under one roof+ all the !tage! or "roe!!e! in the manufature of the end "rodut+ (hih had earlier been a*ailable in t(o om"anie! at different loation!+ thereb& !a*ing loading+ unloading+ tran!"ortation o!t! and other e."en!e! and al!o b& affeting !a*ing of time and energ& unnee!!aril& !"ent on e.i!e formalitie! at different "lae! and !tage!> h$ To !eure !ub!tantial failitie! a! a*ailable to a large om"an& om"ared to !maller om"anie! for rai!ing additional a"ital+ inrea!ing market "otential+ e."anding on!umer ba!e+ bu&ing ra( material! at eonomial rate! and for ha*ing o(n ombined
8
and im"ro*ed re!earh and de*elo"ment ati*itie! for ontinuou! im"ro*ement of the "rodut!+ !o a! to en!ure a "ermanent market !hare in the indu!tr&> i$ To inrea!e market !hare> #$ To ahie*e market de*elo"ment b& a/uiring one or more om"anie! in ne(+ geogra"hial territorie! or !egment!+ in (hih the ati*itie! of a/uirer are ab!ent or do not ha*e a !trong "re!ene$
(iii) Kin,+ !" #&'e!er+ a )
Friendly takeovers
A @friendl& takeo*er@ i! an a/ui!ition (hih i! a""ro*ed b& the management$ 1efore a bidder make! an offer for another om"an&+ it u!uall& fir!t inform! the om"an&?! board of diretor!$ In an ideal (orld+ if the board feel! that ae"ting the offer !er*e! the !hareholder! better than re#eting it+ it reommend! the offer be ae"ted b& the !hareholder!$ In a "ri*ate om"an&+ beau!e the !hareholder! and the board are u!uall& the !ame "eo"le or lo!el& onneted (ith one another+ "ri*ate a/ui!ition! are u!uall& friendl&$ If the !hareholder! agree to !ell the om"an&+ then the board i! u!uall& of the !ame mind or !uffiientl& under the order! of the e/uit& !hareholder! to oo"erate (ith the bidder$ Thi! "oint i! not rele*ant to the -K one"t of takeo*er!+ (hih al(a&! in*ol*e the a/ui!ition of a "ubli om"an&$ b) Hostile takeovers
A @ho!tile takeo*er@ allo(! a bidder to take o*er a target om"an& (ho!e management i! un(illing to agree to a merger or takeo*er$ A takeo*er i! on!idered @ho!tile@ if the target om"an&?! board re#et! the offer+ but the bidder ontinue! to "ur!ue it+ or the bidder make! the offer diretl& after ha*ing announed it! firm intention to make an offer$ De*elo"ment of the ho!tile tender i! attributed to Loui! Wolf!on$ A ho!tile takeo*er an be onduted in !e*eral (a&!$ A tender offer an be made (here the a/uiring om"an& make! a "ubli offer at a fi.ed "rie abo*e the urrent market "rie$ Tender offer! in the -nited %tate! are regulated b& the William! At$ An a/uiring om"an& an al!o engage in a "ro.& fight+ (hereb& it trie! to "er!uade enough !hareholder!+ u!uall& a !im"le ma#orit&+ to re"lae the management (ith a ne( one (hih (ill a""ro*e the takeo*er$ Another method in*ol*e! /uietl& "urha!ing enough !tok on the o"en market+ kno(n a! a @ree"ing 2 Eur-lex.europa.eu, LexUriServ-PDF
tender offer@+ to effet a hange in management$ In all of the!e (a&!+ management re!i!t! the a/ui!ition+ but it i! arried out an&(a&$ The main on!e/uene of a bid being on!idered ho!tile i! "ratial rather than legal$ If the board of the target oo"erate!+ the bidder an ondut e.ten!i*e due diligene into the affair! of the target om"an&+ "ro*iding the bidder (ith a om"rehen!i*e anal&!i! of the target om"an&?! finane!$ In ontra!t+ a ho!tile bidder (ill onl& ha*e more limited+ "ublil& a*ailable information about the target om"an& a*ailable+ rendering the bidder *ulnerable to hidden ri!k! regarding the target om"an&?! finane!$ An additional "roblem i! that takeo*er! often re/uire loan! "ro*ided b& bank! in order to !er*ie the offer+ but bank! are often le!! (illing to bak a ho!tile bidder beau!e of the relati*e lak of target information (hih i! a*ailable to them$ A (ell kno(n e.am"le of an e.tremel& ho!tile takeo*er (a! Orale?! ho!tile bid to a/uire 3eo"le%oft$< c) Reverse takeovers
A @re*er!e takeo*er @ i! a t&"e of takeo*er (here a "ri*ate om"an& a/uire! a "ubli om"an&$ Thi! i! u!uall& done at the in!tigation of the larger+ "ri*ate om"an&+ the "ur"o!e being for the "ri*ate om"an& to effeti*el& float it!elf (hile a*oiding !ome of the e."en!e and time in*ol*ed in a on*entional I3O$ )o(e*er+ in the -K under AIM rule!+ a re*er!e take0o*er i! an a/ui!ition or a/ui!ition! in a t(el*e0month "eriod (hih for an AIM om"an& (ould' •
e.eed 5BB in an& of the la!! te!t!> or
•
re!ult in a fundamental hange in it! bu!ine!!+ board or *oting ontrol> or
•
in the a!e of an in*e!ting om"an&+ de"art !ub!tantiall& from the in*e!ting !trateg& !tated in it! admi!!ion doument or+ (here no admi!!ion doument (a! "rodued on admi!!ion+ de"art !ub!tantiall& from the in*e!ting !trateg& !tated in it! "re0admi!!ion announement or+ de"art !ub!tantiall& from the in*e!ting !trateg&$
An indi*idual or organi,ation+ !ometime! kno(n a! or"orate raider + an "urha!e a large fration of the om"an&?! !tok and+ in doing !o+ get enough *ote! to re"lae the board of 3 Oracle's Hostile Takeover of PeopleSoft (! - Harvar" #usi$ess %evie& 1>
diretor! and the CEO$ With a ne( agreeable management team+ the !tok i! a muh more attrati*e in*e!tment+ (hih (ould likel& re!ult in a "rie ri!e and a "rofit for the or"orate raider and the other !hareholder!$
(i) Leg& &+%e#+ !" #&'e!er+ The legi!lation!=regulation! that mainl& go*ern takeo*er i! a! under 5$ %E1I 2%A%T4 :egulation! B55 $ Com"anie! At+ 568 <$ Li!ting Agreement %E1I :egulation! B55 la&! do(n the "roedure to be follo(ed b& an a/uirer for a/uiring ma#orit& !hare! or ontrolling intere!t in another om"an&$ A! far a! Com"anie! At i! onerned+ the "ro*i!ion! of !etion <68 of the om"anie! at la&! do(n legal re/uirement! for the "ur"o!e of takeo*er of an unli!ted om"an& through tran!fer of undertaking to another om"an&$ The takeo*er of a li!ted om"an& i! regulated b& lau!e BA and B1 of the Li!ting agreement$ The!e lau!e! in the Li!ting Agreement !eek to regulate !eek to regulate takeo*er ati*itie! inde"endentl& and im"o!e ertain re/uirement! of di!lo!ure and tran!"aren&$
11
TAKEOVER AND ACUISITION OF MINORITY INTEREST (&)T&'e!er !" Uni+#e, &n, C!+e/ He, C!m%&nie+ %etion <68 of the Com"anie! At deal! (ith the+ F Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority .”4 It ontain! a
om"ul!or& a/ui!ition mode of the tran!feree om"an& to a/uire the !hare! of minorit& !hareholder! of Tran!feror Com"an&$ Where the !heme i! a""ro*ed b& the holder! of not le!! than nine tenth in *alue of the !hare! of the tran!feror om"an& (ho!e tran!feror i! in*ol*ed+ it !hall be binding on all the !hareholder! of the om"an&+ unle!! the ourt order! other(i!e$ 3o(er! of A/ui!ition of %hare! of di!!entient minorit& !hareholder! i! not ultra *ire! the on!titution of India$ 8 Where the !heme or ontrat ha! been a""ro*ed b& 6B of the !hareholder!+ the offer of the tran!feree om"an& (ill be treated a! "rima0faie a fair one and the onu! (ill be on the di!!entient! to !ho( the ontrar&$ The follo(ing are the im"ortant ingredient! of the %etion <68 route'
The Com"an&+ (hih intend! to a/uire ontrol o*er another Com"an& a/uiring !hare+ held b& !hareholder! of that another Com"an& i! kno(n under %etion <68 of the At a!
the ?Tran!feree Com"an&@$ The Com"an& (ho!e !hare! are "ro"o!ed to be a/uired i! alled ?Tran!feror Com"an&@$ The ?Tran!feree Com"an&@ and @Tran!feror Com"an&@ #oin together at 1oard le*el and
ome out (ith a !heme or ontrat$ E*er& offer or e*er& irular ontaining the term! of the !heme !hall be dul& a""ro*ed
b& the 1oard of Diretor! of the om"anie! and e*er& reommendation to the member! of
9 ,++:!'4!'/'))'.)%&4)(27999 5 S.V!,@'+,' 0. E+ I'4! D!+!66$%!$ S<&% F(+)%!$ L!#!+$4157" 27 C)# C$ 175:AIR 157 M4 391 =B$'%! D S%* 0. D6#! D4%! C$#$'+ L+4158"28 C)# ($ 935 P<'" 12
the tran!feror Com"an& b& it! diretor! to ae"t !uh offer$ It !hall be aom"anied b&
!uh information a! "ro*ided under the !aid At$ E*er& offer !hall ontain a !tatement b& or on behalf of the Tran!feree Com"an&+ di!lo!ing the !te"! it ha! taken to en!ure that nee!!ar& a!e (ill be a*ailable$ Thi! ondition !hall a""l& if the term! of a/ui!ition a! "er? the !heme or the ontrat "ro*ide for "a&ment of a!h in lieu of the !hare! of the Tran!feror Com"an& (hih are "ro"o!ed
to be a/uired$ E*er& irular ontaining or reommending ae"tane of the offer made the tran!feree Com"an& !hall be dul& aom"anied b& e09orm No$ <8A of the Com"anie! 2Central Go*ernment4 General :ule! and 9orm!+ 568$ The& !hall be filed (ith the :egi!trar for
regi!tration$ The :egi!trar ma& refu!e to regi!ter an& !uh irular+ (hih doe! not ontain the "re!ribed information+ if !uh information i! gi*en in a manner likel& to gi*e a fal!e
im"re!!ion$ An a""eal !hall lie to the ourt again!t an order of the :egi!trar refu!ing to an& !uh
irular$ An& "er!on i!!uing a irular ontaining fal!e !tatement or gi*ing an& fal!e im"re!!ion or ontaining an& omi!!ion !hall be "uni!hable (ith fine (hih ma& e.tend to fi*e hundred
ru"ee!$ After the !heme or ontrat and the reommendation of the 1oard of Diretor! of the tran!feror Com"an&+ if an&+ !hall be irulated and a""ro*al of not le!! than 6=5Bth in *alue of @Tran!feror Com"an&? !hould be obtained (ithin month! from the date of
irulation$ One a""ro*al i! a*ailable+ the ?Tran!feree Com"an&? beome! eligible for the right of
om"ul!or& a/ui!ition of minorit& intere!t$ One the a/ui!ition of !hare! in *alue+ not le!! than 6Bha! been regi!tered in the book! of the tran!feror Com"an&+ the tran!feror Com"an& !hall (ithin one month of the date of !uh regi!tration+ of the fat of !uh regi!tration and of the reei"t of the amount or other
on!ideration re"re!enting the "rie "a&able to the m b& the tran!feree Com"an&$ The tran!feree Com"an& ha*ing a/uired !hare! in *alue not le!! than 6B i! under an obligation to a/uire the minorit& !take a! !tated afore!aid and hene it i! re/uired to tran!fer the amount or other on!ideration e/ual to the amount or other on!ideration re/uired for a/uiring the minorit& !take to the tran!feree Com"an&$ The amount or on!ideration re/uired to !hall not be !o tran!ferred b& the tran!feree Com"an& to the 13
tran!feror om"an&+ in an& (a&+ le!! than the term! of a/ui!ition offered under the
!heme or ontrat$ An& amount or other on!ideration reei*ed b& the Tran!feror Com"an& to the manner afore!aid !hall be "aid into a !e"arate bank aount$ An& !uh !um! and an& other on!ideration !o reei*ed !hall be held b& the tran!feror Com"an& in tru!t for the !e*eral "er!on! entitled to the !hare! in re!"et of (hih the& !aid !um! or other on!ideration (ere re!"eti*el& reei*ed$
The takeo*er ahie*ed in the abo*e "roe!! through thi! %etion <68 of the At (ill not fall (ithin the meaning of amalgamation under the Inome Ta. At and a! !uh benefit! of amalgamation "ro*ided under the !aid At (ill not be a*ailable to the a/ui!ition under on!ideration$ The takeo*er in the abo*e "roe!! (ill not enable arr&ing for(ard of unab!orbed de"reiation and aumulated lo!!e! of the tran!feror Com"an& in the tran!feree Com"an& for the rea!on that the takeo*er doe! not re!ult in the tran!feror Com"an& lo!ing it! identit&$
() T&'e!er Bi,+ FTakeo*er bid F+ i! an offer to the !hareholder! of a om"an& (ho!e !hare! are not lo!el& held+ to bu& their !hare! in the om"an& at the offered "rie (ithin the !ti"ulated "eriod of time$ It i! addre!!ed to the !hareholder! (ith a *ie( to a/uiring !uffiient number of !hare! to the offered om"an&+ *oting ontrol of the target om"an&$ A takeo*er bid i! a tehni/ue+ (hih i! ado"ted b& a om"an& for taking o*er the ontrol of the management and affair! of another om"an& b& a/uiring it! ontrolling !hare!$
()F&irne++ !" #&'e!er i,+ %etion <68 onfer! a *er& (ide di!retion on the ourt to !antion or di!allo( the attem"t to a/uire$; The t(o guiding "rini"le! are that the !heme !hould be fair and that onu! lie! to !ho( it! unfairne!! u"on the di!!enter 7$ The ourt (ill infer fairne!! from the *er& fat that the !heme
7 S$$ H.R/ M!')%!+ R!&,+ '4 +,$ T/$-)0$% !4 17>" 87 SALG 12. 8 H)%$ C) L+4 R$ 133" 15> LT 379:133 A66 ER R$1>5 19
ha! been a""ro*ed b& ninet& "erent of the member!$6 1ut the burden to "ro*e unfairne!! ma& be re*er!ed (here the ourt find! that take o*er bidder and the ae"ting ma#oritie! are the !ame "artie!$
(,)T&'e-!er O0er #! e "r!n# Singe C!m%&n/ It ha! been held b& the 3ri*& Counil in Blue Metal Industries Ltd Dilley10 that the "o(er of a/ui!ition an be e.eri!ed onl& (hen the offer of take0o*er i! made b& a !ingle om"an&$ Lord MO::I% !aid' The !ignifiane of the 6B figure i!+ on thi! *ie(+ that one a om"an& ha! beome !o nearl& a total "o(er or "arent of another om"an& a! a !hareholding of 6B (ould re"re!ent+ it !hould not be "re*ented from on*erting the other om"an& into a (holl& o(ned !ub!idiar& b& !o !mall a di!!enting minorit& a! 5B or le!!+ but !hould be entitled to a/uire the holding of that minorit&$ Their Lord!hi"! on!ider it im"ortant to bear in mind that the !tatutor& "roedure i! one that in*ol*e! the a/ui!ition b& a "ri*ate intere!t of the "ro"ert& of another an e.e"tional interferene (ith the right! of indi*idual o(ner!hi"$ It lead! almo!t ine*itabl& to the on!e/uene that the "o(er! of the !etion an onl& be in*oked b& a !ingle om"an&+ for the+ ob#eti*e i! to allo( a 6B o(ned !ub!idiar& to be on*erted into a 5BB !ub!idiar&+ that "re0 !u""o!e! a !ingle "arent$$
(e)A,e12&/ !" In"!rm&#i!n Inade/ua& of information ma& be another ground for the Tribunal to (ithhold it! !antion$ In one of the a!e!+ ho(e*er+ the ourt refu!ed to hel" a minorit& !hareholder although it belie*ed (ith him that the information gi*en to him (a! too meager$55 No( the Central Go*ernment ha! the "o(er to "re!ribe the information that ought to be gi*en in an offer of takeo*er $5
?%!$%)' O64,# A4# L+4 R$ 1=7 1 A66 ER 12 1> H66 < All E: <;' 56;B AC 7;$ 11 E0$%+!+$ L)(/'<+ R$ 195 C,.22>. 12 S.359-A" 15
(")N!#ie !" A12i+i#i!n When+ in "ur!uane of an& !heme or ontrat of thi! kind+ !hare! or !hare! of a la!! in a om"an&+ ha*e been tran!ferred to another member or it! nominee+ and tho!e !hare! together (ith other !hare! or an& other !hare! of the !ame la!! are alread& held of the tran!feree om"an& or it! nominee om"an& or it! !ub!idiar& to the e.tent of nine0tenth! in *alue of the !hare! or the !hare! of that la!!+ the tran!feree om"an& i! re/uired to gi*e a notie of the fat to the holder! of the remaining !hare! (ho ha*e not a!!ented to the !heme$ The notie mu!t be gi*en (ithin one month from the date of the tran!fer+ e.e"t (hen a notie ha! been gi*en in "ur!uane of the !heme$ An& !uh holder (ithin three month! from the gi*ing of the notie to him+ re/uire them tran!feree Com"an& to a/uire the !hare! in /ue!tion$ The tran!feree om"an& then beome! entitled a! (ell a! bound to a/uire tho!e !hare! on the !ame term! on (hih the !hare! of a""ro*ing !hare holder! (ere tran!ferred or on !uh term! a! the ourt ma&+ on the a""liation of the !hareholder or tran!feree om"an&+ think fit to orde r$
1=
17
IM3ACT OF TAKEOVER OF SICK COM3ANIES ON ECONOMY In a takeo*er+ the management of the a/uirer ma& maintain the legal identit& of both the om"anie! and o"erate them under the diretion of !e"arate 1oard of Diretor! 2ha*ing ommon diretor!4 or the management ma& deide that both the om"anie! !hould merge or amalgamate in a ne( om"an& or one ma& amalgamate or merge (ith the other !o that there i! onl& one om"an&+ either the ne( om"an& or the merged or the amalgamated om"an& funtioning under a unified ommand of one 1OD’!$ In either a!e+ the ob#et of !ue!!ful takeo*er of a !ik om"an& !hould be the o*erall eonomi betterment of the !hareholder!+ the management + the !taff and all other em"lo&ee!+ !u""lier! of ra( material! and other on!umable + "er!onnel engaged in the marketing net(ork+ the ultimate on!umer+ the "ubli at large and the go*ernment$ 1& *irtue if better management of the bu!ine!! and affair! of the om"an&+ (ith ati*e and dediated a!!oiation of /ualified and e."eriened tehnial+ managerial+ finanial and marketing "er!onnel+ the *alue of !hare! !hould inrea!e+ em"lo&ee! feel a!!ured of timel& "a&ment of their !alarie! and other due!+ !u""lier! get timel& "a&ment for their !u""lie!+ end "rodut! of the om"an& are freel& a*ailable$ Go*ernment due! are "aid on time and the om"an& ontribute! o the !oiet& in (hih it o"erate! and the area! (hereof it !er*e!$ %oiall& on!iou! management of !uh a unified om"an& i! !u""o!ed to look after the !urrounding and the en*ironment of the "lae (here it (ork!$ 1e!ide! being benefiial to the onerned om"anie!+ takeo*er! are al!o benefiial to the eonom& in the follo(ing manner'0 a4 Di!i"lining the a"ital market' Takeo*er! hel" in di!i"lining the market a! ineffiient and errant om"an&’! get taken o*er due to their book *alue and !hare "rie$ Thi! "roe!! al!o hel"! in di!o*ering the "otential of the !ik om"anie!+ if an&$ b4 Con!olidation of effort! and a"aitie!' In the &e!ter &ear!+ go*ernment authoritie! had i!!ued lien!e! to unit! (ith a"aitie! muh belo( the minimum eonomi !i,e$ Due to inrea!ed om"etition in market!+ man& of the!e are either inurring lo!!e! or earning marginal "rofit!$ 18
Al!o+ in the light of !tringent ontrol !tandard! and emergene of multinational+ !mall unit! ha*e reali,ed the im"ortane of on!er*ation of re!oure! and redution of oa!t!$ )o(e*er+ due to lak of "ro"er infra!truture and !uffiient a"ait& the& are unable to im"lement their !heme! effiientl&$ In !uh irum!tane!+ takeo*er! an be an effeti*e mode of on!olidating !"lintered a"aitie! to reah the minimum eonomi !i,e$ Thi! (ill be re!ulted into not onl& re*i*al of !ik unit! but al!o "re*ention of !ikne!!$ Con!olidation of a"aitie! enable! the indu!trie! to gain om"etiti*e !trength in dome!ti a! (ell a! international market!$ 4 Conentrating on ore om"etenie!' Due to re!triti*e lien!ing "oliie! follo(ed b& the go*ernment+ in the "a!t+ large om"anie! (ere not allo(ed to gro( and di*er!if& ea!il&$ :igorou! "ro*i!ion! of M:T3 "o!ed !eriou! ob!tale!$ The om"anie! (ere re/uired to di*er!if& into totall& unrelated area!$ )o(e*er+ due to reent de*elo"ment! like liberali,ation and inrea!ing "re!!ure of om"etition+ the& are reali,ing the need to fou! on ore om"etition+ for (hih merger! and takeo*er! offer green "a!ture!$ Thi! i! beau!e the!e !trategie! enable the om"anie! to rationali,e their "ortfolio!+ enhane entit& *alue and inrea!e le*eraging a"abilit&$ The unified ommand of the om"an& in a takeo*er tran!ation !hould en!ure reation of more (ealth through o"timum om"etene+ im"ro*ed "roduti*it& and higher "rofitabilit&$ All initiati*e! to enhane "roduti*it&+ "erformane and market a"itali,ation !hould be !u""orted$ Thu! the takeo*er !trateg& ha! been onei*ed to im"ro*e general eonomi (ellbeing of all tho!e (ho are+ diretl& or indiretl&+ onneted (ith the or"orate !etor $It i! ado"ted to inrea!e the or"orate *alue+ ahie*e better "roduti*it& and "rofitabilit& b& making o"timum u!e of the a*ailable re!oure! in the form of men+ material! and mahine!$5< Effiient e/uit& market! are fundamental to the o"eration and indeed e.i!tene of large om"anie! in modern eonomie!$ Thi! a"ait& to rai!e e/uit& a"ital al!o underlie! om"an&’! abilit& to borro( loan fund!> it thu! under"in! the a"ital ba!e for *irtuall& the (hole of the or"orate !etor$ The e.i!tene of effiientl& funtioning e/uit& market! inherentl& "ro*ide! o""ortunitie! for takeo*er!$ Takeo*er! "ro*ide a mean! b& (hih entre"reneur! (ho belie*e that the& an u!e the a!!et! of a om"an& more effiientl& than it! e.i!ting management an bid for 13 ,++:@@@.!(!.!'+<4J2>#+$%!6J2>%)*$!)'6(%!.4* 1
the om"an& and "ut their belief! to the te!t$ The e."etation that the& an generate higher return! (ill mean that the a!!et! (ill be (orth more to them and the& (ill be "re"ared to offer a higher "rie$ Takeo*er! an thu! ontribute to "romoting the mo!t effiient u!e of e.i!ting or"orate a!!et!$ A"art from that "otential of inrea!ing the effiien& of a!!et! in e.i!ting u!e!+ takeo*er! an al!o a!!i!t alloati*e effiien& b& failitating the realloation of a"ital bet(een indu!trie!$ Man& firm! are often relutant to in*e!t out!ide their o(n or lo!el&0related indu!trie!+ e*en though return! ma& be !ub!tantiall& higher el!e(here+ a! their manager!? !kill! and e."eriene are often highl& indu!tr&0!"eifi$ The e.i!ting management! of om"anie! ma& at time! de*ote on!iderable effort to re!i!ting takeo*er attem"t!+ inluding organi,ing ?(hite knight!? to "urha!e !trategi !hareholding! and arranging defen!i*e !hare !(a"! (ith friendl& om"anie!$ In !ome a!e!+ the!e ati*itie! ma& !er*e no eonomi "ur"o!e but merel& entrenh e.i!ting management$ If management beome! "reou"ied (ith !uh defen!i*e ati*itie!+ other managerial ta!k! ma& be negleted (ith on!e/uent ad*er!e effet! on the effiien& of the firm$ On the other hand+ the be!t form of defen!e i! a high !hare "rie and muh defen!i*e ati*it& ma& take form!+ !uh a! re*aluing a!!et! and rationali,ing and di*er!if&ing ati*itie!+ (hih at to rai!e return! and inrea!e effiien&$ The effet! of takeo*er! on the effiien& of the or"orate !etor are thu! on!iderabl& more "er*a!i*e than ma& a""ear from the on!ideration of indi*idual in!tane!$ In that re!"et+ the& ma& be om"ared to the effet! on effiien& of om"etition in "rodut market!$ In either a!e+ mea!ure! taken to re!trit the free o"eration of market! ma& redue the inenti*e! and "re!!ure! on management! to "erform$ An& a!!e!!ment of the o*erall o!t! and benefit! of takeo*er! need! $The dual onern (ith the lo!! of ta. re*enue from t(o o""o!ing !ituation! 0 ?e.e!!i*e? re!ort to either debt or e/uit& 0 indiate! a need to look to the "rini"le! in*ol*ed and aution! again!t ha!t& ado"tion of ?!olution!?$ %imilar aution i! re/uired in re!"onding to the laim that takeo*er ati*itie! in*ol*e the e."loitation of ta. loo"hole! (hih mu!t be lo!ed$ Where loo"hole! e.i!t the& !hould+ of 2>
our!e+ be lo!ed 0 but it i! al(a&! e!!ential to en!ure that a loo"hole doe!+ in fat+ e.i!t$ There (ill be oa!ion!+ for e.am"le+ (here the ta. ad*antage deri*e! from a #u!tifiable reation to unintended or unde!irable feature! of the ta. la( or it! inter"retation$ In other a!e!+ om"eting "rini"le! ma& be in*ol*ed or the ta. !&!tem ma& be being e."eted to !er*e om"eting ob#eti*e!$ In !ome a!e!+ ?!olution!? (hih &ield the highe!t re*enue ma& be /uite ontrar& to ba!i eonomi or !oial$
21
CONCLUSION 9or the fir!t time+ initiati*e ha! been taken for reditor !a& in the re*i*al and rehabilitation "roe!!$ The initiati*e i! (elome a! the er!t(hile "roedure for rehabilitating !ik om"anie! (a! "lagued b& "roedural dela&! and ram"ant mi!u!e of "roedure!$ Creditor!+ a"art from !heduled bank! and "ubli finanial in!titution!+ *irtuall& had no !a&$ The automati !ta& of legal "roeeding! again!t the !ik om"an& under the er!t(hile legi!lation (a! often u!ed b& "romoter! to blok reo*erie! endle!!l&+ muh to the !uffering of the reditor! a! a la!!$ With the ne( legi!lation+ reditor! ha*e not onl& been em"o(ered but ha*e been gi*en a *oie in the re*i*al and rehabilitation "roe!!$ Mea!ure! ha*e al!o been taken to en!ure that "roeeding! reah a ulmination (ithin a time0bound frame$ The go*ernment ha! tried to moderni,e the legi!lati*e frame(ork for the re*i*al of !ik unit! to "rotet reditor intere!t!$ The ne( legi!lation introdue! man& "ro*i!ion! aimed at !euring the "o!ition of reditor! in a!e of im"ending !ikne!! of a om"an&$ 9ir!t+ a ne( tribunal alled the National Com"an& La( Tribunal i! "ro"o!ed to be !et u" to unlog the legal !&!tem and fa!t0trak or"orate rehabilitation$ The "ro*i!ion! allo( !eured reditor! re"re!enting 8B or more of the out!tanding debt! of a om"an& to file an a""liation (ith the National Com"an& La( Tribunal for delaring a om"an& !ik$ The a""liation an be filed if a om"an& fail! to "a& !uh reditor! (ithin
With di!retionar& and time0bound !ta&!+ onl& genuine a!e! of rehabilitation (ould get the benefit$ Dilator& tati! b& "romoter! to a*oid reo*erie! an be effeti*el& ountered b& reditor! under the ne( legal frame(ork$ The ne( At al!o "re!ribe! !"eifi timeline! in the re*i*al and rehabilitation "roe!! that (ill a*oid endle!! litigation$ At the !ame time takeo*er ha! "la&ed a ma#or role b& im"ating the eonom& a! Takeo*er! "ro*ide a mean! b& (hih entre"reneur! (ho belie*e that the& an u!e the a!!et! of a om"an& more effiientl& than it! e.i!ting management an bid for the om"an& and "ut their belief! to the te!t$ The e."etation that the& an generate higher return! (ill mean that the a!!et! (ill be (orth more to them and the& (ill be "re"ared to offer a higher "rie$ Takeo*er! an thu! ontribute to "romoting the mo!t effiient u!e of e.i!ting or"orate a!!et!$ Al!o+ the takeo*er !trateg& ha! been onei*ed to im"ro*e general eonomi (ellbeing of all tho!e (ho are+ diretl& or indiretl&+ onneted (ith the or"orate !etor $It i! ado"ted to inrea!e the or"orate *alue+ ahie*e better "roduti*it& and "rofitabilit& b& making o"timum u!e of the a*ailable re!oure! in the form of men+ material! and mahine!$ O*erall (hat (e an !ee i! that b& a/uiring the a!!et! of the !ik om"an& or b& taking o*er the !ik om"an& + benefit! the !hareholder! of the both om"anie! a! (ell a! the em"lo&ee! of both the om"anie!$ It enhane! the "rodution of the om"an& and a! re!ult! further ad! to the eonom& of the ountr&$ In thi! (a& the h&"othe!i! made in thi! "ro#et ha! been an!(ered that+ F&e!+ takeo*er! of the !ik om"anie! ha*e "o!iti*e im"at on the eonom&J$
23
BIBLIO4RA3HY 1. ?)6 A,!# 2>>5" R$&<6+!)' '4 D$%$&<6+!)' )* +,$ S+)(/ M%/$+ !' I'4! A0!66$ +
SSRN: ,++:%'.()#+%(+=>322
5$ A,#4 K,' M))4 A,%* S,,!4 '4 A,#$4 S,,!4 2>>5" F)%$!&' I'+!+<+!)'6 I'0$+#$'+ F6)@ '4 E;. $ ?)/%' S<!% 1=" I'4!' C!+6
M%/$+
R$*)%#
12-=:
A'
A$#$'+ E()')#!( '4 P)6!+!(6 W$$/6 A%!6 13 1= <$ N/ G$'4% P 1": !' I'4! F!''(!6 S+$#: ?$++!'& R$4 *)% +,$ T@$'+ F!%+ C$'+<% $4!+$4 G#$ AH')' '4 S' K+,<%! $ N)%+, D)<&6 C. 13" T,$ N$@ I'+!+<+!)'6 E()')#!( D$0$6)#$'+ E 5. S!'&, G!+$'4% U$$#
M!/$
'4
S!'&,
H%!%
2>>7".
'4
C)%)%+$
?)0$%''($ !' I'4!: H C6<$ 9 M4$ D!$%$'($ P<6!,$4 !' I'4!K')@6$4&$QW,%+)': G'<% =. K))%?.K.2>19" A ()#%$,$'!0$
+$+
))/
)'
()#'!$
(+
2>13T#'17+, $4!+!)' 7. S!'&, A0+%.
29
