NCLT could lose power to approve mergers and acquisitions in reform move

MCA likely to be given responsibility; aim is to let tribunal focus on company law, insolvency cases

The government is considering taking away the power of the National Company Law Tribunal (NCLT) to approve or reject mergers and acquisitions (M&A) and give the responsibility to the regional directors of the Ministry of Corporate Affairs (MCA). The proposal is aimed at easing the burden on NCLT benches and ensuring that they only hear cases related to the Companies Act and the Insolvency and Bankruptcy Code.

An approval from the NCLT under the Companies Act is one of the several regulatory clearances required for any merger or acquisition. Some of the other approvals required are from the Competition Commission for India, the home ministry (when foreign companies are involved), and the respective regulators for sectoral mergers.

“Companies need approval under the Companies Act for any merger or acquisition. Currently, the NCLT does it, but it is already overburdened with other cases. Since regional directors follow the Companies Act for other company matters, they even have the wherewithal to deal with these cases,” said a senior MCA official. The person added that the Act would be amended to this effect.

“The proposed move to delegate some powers of the NCLT insofar as schemes of mergers and arrangements is a welcome move and will aid in reduction of the tribunal’s burden. Regional directors are already involved in certain types of mergers under Section 233 of the Companies Act, 2013, and are also involved in scrutiny of all scheme applications in terms of Section 230 of the Act. Therefore, the necessary infrastructure is already there,” said Atul Pandey, partner at Khaitan & Co.

Pandey, however, said that if this has to happen in a time-bound manner, the government should specify a timeline, as the fast-track merger approval process under Section 233, for smaller companies, is not effective owing to the lack of a fixed time-frame.

Officials said the government plans to include provisions for a time-bound process in the Bill, which will be tabled in Parliament in the upcoming Winter Session to amend the Act.

The government has already made certain amendments to the Companies Act to help de-clog the NCLT. Cases related to a shift from public to private company, change in financial year, and the power to penalise companies for late filings have been given to the regional directors. The MCA has not dropped the plan to cap independent directors’ remuneration to ensure their independence. However, this did not figure in the latest amendments to the Companies Act through an Ordinance. The ministry has proposed a slightly higher cap of 25 per cent of independent directors’ gross income for the remuneration given by a group of companies, than the 20 per cent suggested by a high-level panel.

APPROVALS REQUIRED FOR M&A

• Sebi approval for listed companies
• NCLT nod under Companies Act
• RBI green light in the case of banks
• Approval under Foreign Exchange Management Act for foreign investment
• CCI nod needed to ensure company doesn’t abuse dominant position or create monopoly
• Telecom firms require Trai approval