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India's long wait for company law is over
India's long wait for a new company law seems to be finally getting over. The Companies Bill, 2012 (“the Bill”) was been passed by the Rajya Sabha on 8 August 2013. It now only needs presidential assent and notification in the Official Gazette to replace the existing Companies Act, 1956 (“the Act”). Taxand India explores the impact of this change on the M&A landscape in India and worldwide.
The Bill contains some far-reaching changes which will impact the management and administration of companies, shareholder’s rights, director’s responsibilities, maintenance of accounts and audit of companies and other provisions relating to mergers, acquisitions, winding up of companies.
Migrating to the Bill
On enactment and notification of the Bill, the Act (except for certain specified provisions) shall stand repealed. Any action (including issuance of any rule, notification, order, notice, resolutions passed, instruments executed, etc) under the Act, including those taken by any authority, will continue to be valid and in force so long as the same is not inconsistent with the provisions of the Bill. Key take-aways from the Bill include:
- Steps and procedures undertaken for ongoing transactions appear to be grandfathered; however, depending on the approval stage of the transaction when the Bill is legally enacted, issues could arise which, while permissible under the Act, are inconsistent with the provisions of the Bill.
- Re-enactment of any law normally gives rise to transitioning and grand fathering issues. Similarly, repealing of the Act on the date the Bill becomes effective would give rise to the above and various other issues, which will need to be clarified/ resolved.
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The Bill marks the beginning of a much needed transition of Indian corporate law away from the inertia of a previous century. The Indian economy is far more connected with the global environment today, and for Indian enterprises to compete successfully, they need laws that are in tune with the current market reality. Mergers and acquisition activity including internal restructuring efforts are a key component of corporate strategy – while the Bill introduces a number of forward looking provisions for M&A (a sharper dispute resolution framework, simplified merger processes for some, more transparency etc), there are some areas that require an urgent relook (restrictions on cash extraction, greater regulatory intervention in schemes etc).The immediate challenge would be to bring in accompanying changes in tax and exchange control laws apart from a smooth transition from the Act to the Bill.