MCA may expand powers of regional directors for M&As of higher categories

The Ministry of Corporate Affairs is considering a proposal to expand the powers of regional directors to do mergers and acquisitions (M&As) of higher categories to bring down the burden on the National Company Law Tribunals (NCLTs), a senior government official told Business Standard.

“We are trying to demystify and make it easier to do business,” said a senior government official.

Regional directors are authorised to approve M&As for small companies and those between a parent and a subsidiary company under Section 233 of the Companies Act. All other such transactions require the approval of the NCLTs, which are heavily burdened by insolvency and bankruptcy cases.

Listed companies are, however, likely to be left out of the purview of regional directors along with unlisted public companies above a certain threshold. All such companies will continue to go to the NCLTs with their M&A proposals. “There is an issue of public interest when it comes to a listed company. The NCLT is a more effective forum to deal with such cases,” the senior official added.  

According to the current rules under Section 2 (85) of the Companies Act, a ‘small company’ is defined as a company other than a public company with a paid-up share capital of less that Rs 50 lakh and a turnover of not more that Rs 2 crore.

The government is considering increasing the threshold for which regional directors are allowed to do M&A transactions to bring down the burden on the NCLTs. The move, it is expected, will reduce the time taken for M&As to a few months, from almost a year currently.

However, some in the industry feel that processes will still take longer as regional directors do not stick to the timelines prescribed in the Companies Act, 2013. Several companies still prefer to take the matter to the tribunals to have a ‘judicial mind’ to the process of a merger.

“Regional directors might not be capable of doing big M&As. Instead, the government should increase the number of NCLT Benches and have dedicated Benches only for M&As,” said Manoj Kumar, partner, Corporate Professionals.

The value of announced M&As involving Indian companies reached $129.4 billion in 2018, up 104.5 per cent in value from 2017, surpassing the annual record of 2007 ($67.4 billion). The number of announced deals also grew 17.2 per cent from 2017 and witnessed the busiest annual period since records began in 1980.

APPROVALS REQUIRED FOR M&As

• Securities and Exchange Board of India approval for listed companies
• NCLT nod under Companies Act
• RBI green-light in case of banks
• Approval under Foreign Exchange Management Act for foreign investment
• Competition Commission of India nod needed to ensure company doesn’t abuse dominant position or create monopoly
• Telecom firms require Telecom Regulatory Authority of India approval