Legal Framework

SEBI (Substantial Acquisition of Shares and Takeover) Regulations Act, 1997

On the basis of recommendations of the Committee, the SEBI announced on Febuary20, 1997, the revised take over code as Securities and Exchange Board of India (Substantial Acquisitions of shares and Takeovers) Regulations, 1997. The objective of these regulations has been to provide an orderly framework within which substantial acquisitions and takeovers can take place. The salient features of this new takeover code (Regulations, 1997) may be enumerated as follows:

i.Any person, who holds more than 5% shares or voting rights in any company, shall within two months of notification of these Regulation disclose his aggregate shareholding in that company, to the company which in turn, shall disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each such person.… Read the rest

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Laws statutes applicable to Takeover

Laws applicable to Takeover

  1. Clauses 40A and 40B of the listing Agreement the company has entered into with stock exchange.
  2. SEBI’s (Substantial Acquisition of shares and Takeover’s) Regulations, 1997.

1.     Takeover and Listing agreement exemption Clauses 40A and 40B of Listing Agreement

Clause 40A deals with substantial acquisition of shares and requires the offeror and the offeree to inform the stock exchange when such acquisition results in an increase in the shareholding of the acquirer to more than 10%.

Clause 40B deals with takeover efforts. A takeover offer refers to change in management where there is no change in management, Clause 40B of listing agreement will not apply.… Read the rest

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Legal and Procedural Aspects of Mergers

Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent. The income tax Act, 1961 of India uses the term ‘amalgamation’ for merger.

The procedure of amalgamation or merger is long drawn and involves some important legal dimensions.

Following Steps are Taken in this Procedure
  1. Analysis of proposal by the companies: whenever a proposal for merger or amalgamation comes up then managements of concerned companies look into the pros and cons of the scheme. The likely benefits such as economies of scale, operational economies, improvement in efficiency, reduction in cost, benefits of diversification, etc.
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Regulatory Provisions in FEMA with Respect to Current Account & Capital Account

Current Account Transactions

Current Account Transactions as defined in Section 2 (j) of FEMA, means a transaction other than a capital account transaction and without prejudice to the generality of the other provisions shall include:

  • payments due in connection with foreign trade, other account current business, services and short term banking and credit facilities in tire ordinary course of business;
  • payments due as interest on loans and as net income from the investments;
  • remittances for living expenses of parents, spouse and children resid ­ing abroad;
  • expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Provisions to Section 5 of FEMA empowers the Central Government in public interest and in consultation with the Reserve Bank to impose such reasonable restrictions for current account transactions in exercise of the powers conferred and in consultation with the Reserve Bank the Central Government issued Foreign Exchange Management (Current Account Transactions) Rules 2000 on 3rd May, 2000 in this regard.… Read the rest

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Prevention of Money laundering Act

Introduction:-
Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that let to its production. Through the process of “money laundering” a person converts illegal money into a legal entity. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be held guilty of the offence of money laundering.

The Schedule to the Prevention of Money Laundering Act (henceforth, PMLA), 2002, lists some of the offences under the following Legislations: Offences under the India Penal Code (part A) – eg.… Read the rest

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Foreign Exchange Management Act (FEMA)

The Foreign Exchange Regulation Act of 1973 (FERA) in India was repealed on 1st June, 2000. It was replaced by the Foreign Exchange Management Act (FEMA), which was passed in the winter session of Parliament in 1999. Enacted in 1973, in the backdrop of acute shortage of Foreign Exchange in the country, FERA had a controversial 27 year stint during which many bosses of the Indian Corporate world found themselves at the mercy of the Enforcement Directorate (E.D.). Any offense under FERA was a criminal offense liable to imprisonment, whereas FEMA seeks to make offenses relating to foreign exchange civil offenses.… Read the rest

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