Mergers & Acquisitions

14/07/2025

Economic aspects of corporate restructuring

It is a broad term. We are using it in an economic sense, not a legal sense.

Merger, demerger, acquisition, split, etc. can all come under restructuring.

An acquisition is never the entirety of shares, it is the majority. An

acquisition is never a problem unless it triggers a change in ownership
and the takeover code. It is a change in control. A merger is a change in
structure. Above 25% gives you veto rights. If 25% is veto right then why
is negative control not control? That is a question.

What kind of transactions fall under restructuring?

Any change of share arrangement, a change in share capital can come

under it. Or a reduction or a compromise. §232 mandates that you follow
the same procedure as §231, so there has to be a compromise
arrangement.

Change in share capital, share capital structure, shareholding (this is what

acquisitions essentially are), change in business (spin-off, spit-off). An SPV
is nothing more than a separate company. SPVs are usually looked at from
a JV perspective because they are purpose built and time built. We don’t
have a separate law for SPVs in India because we have more and more
transactions within the existing legal regime.

Changing of shareholding structure is change of shares, change in share

capital is about the shareholders, in the sense that you have different
shareholder.

It is the same difference a buy back and a reduction of a share capital. The
end result is the same but why do we need NCLT approval for the latter.
Only over capitalised companies do either.

The reason reduction of share capital is permitted, even partially, is

because the provision uses the phrase ‘in any manner possible’. One of
the most popular way of doing this is a write-off, where a person’s
shareholding becomes x-10 from the earlier x. In such cases, you also do
not need to give compensation to a shareholder.

In the event of a buy back, the value is not reserved. There is a capital
redemption reserve account and after a lock-in period, they can be re-
issued.

Why does capital restructuring happen? Restructuring is a method of

growth. You can grow either organically or inorganically. Organic growth
takes time. What can you do to grow without requiring that time?
Inorganic growth. For that you merge, acquire, alter your share capital,
etc. It can also be a strategy to cut back on operations. To ensure that
your capital accurately reflects your assets. To ensure that the amount of
money you’ve collected reflects in the profits you make.

How does a merger help with growth? You can try to eliminate competition
as long as it is not against competition (if that makes sense). One of the
reasons mergers happen is because they ensure, at least theoretically, are
meant to achieve synergy. Achieving synergy. Synergy comes from
physics “a thing is greater than the sum of its parts”. That sounds great in
theory. But how do you do this?

Economies of scale and economies of scope. The former is about

efficiency of volume. It is when as you produce more, your marginal cost
goes down. MC = FC+VC. This means that as you produce more, the FC
will be the same. We can produce more at less of a cost. Factory cost is
fixed cost and stays the same even if you scale up production.

This is what a merger does. I have more clients. As VI (Vodafone+Idea), I

have more clients. This is synergy, because as a result of the merger, I
have more users. This is not forever because after a point, I need a new
factory and suddenly costs rise. The point after which costs start rising
again is the optimum point. This is where you stop production from an
economic perspective.

If you end up after the optimum point, it is not a successful merger. This is
why even though we have a lot of mergers, but very few are successful.
So we need to capitalise the synergies of the merger.

Economies of scope is efficiencies of variety. When you produce more

kinds of things, you can take advantage of certain shared costs. Suppose
you’re manufacturing bed covers but now you also start manufacturing t-
shirts. Even though they may not be exactly similar, if they’re
complementary enough, there can be certain shared costs. Another thing
is that you can take advantage of the by-products. Polo candy’s middle
holes. It was not very successful, but donut holes became successful. This
is also what dictates the success of a conglomerate merger.

<aside> 💡

A JV is when you’re living together, a merger is when you get married.

</aside>

A merger is a coming together of companies. And just like a marriage or a

relationship, the major reason of a failure can be cultural differences. Even
of Disney Pixar More reasons for why mergers happen: There can be
certain cost synergies. You can fire people as a result of a merger. You
don’t need 2 CEOs or senior personnel. Sharing IP can also be a synergy
driver. Financing synergy- you become a better customer for the financial
sector.
A lot of mergers happen for hubris. When we look at the Tata Motors
acquisition of Land Rover and Range Rover, Tata significantly overpaid for
it. The UK government said that they had to use their force. There were a
lot of conditions that were put by the UK government. This led to Tata
motors profits falling for almost 10 years. The reason Tata did not collapse
because of this is because Tata had the IP of Range Rover and Land Rover
which it used to make Tata vehicles priced for the Indian market. One of
the reasons the merger happened is because it served as a feather in the
cap.

When Laxmi Mittal purchased Arcelor steel, Reliance, Birlas, and Tata also
purchased European steel companies.

Types of mergers

Horizontal merger: merger of companies selling similar products in the

same market. You’re essentially buying out competition. Facebook’s
Acquisition of Instagram could be an example. Instagram was a very art
oriented platform in 2012. Facebook made it a social media. Why did
Facebook acquire it though? Because it got access to those Instagram
users.

Vertical merger: Going up and down the production chain. You’re a shoe
maker, you buy the leather factory or the retailer. This is meant to cut
down on transaction cost. Nobel economist Oliver Williamson defined it as
the cost of contracting.

Conglomerate merger: this is a merger of acquisition for diversification.

Why did ITC start the hotels business? They did it when they realised that
cigarettes no longer have inelastic demand. They have done this through
a series of acquisitions.

Reverse merger: this is a private company becoming a public company to

become a public company to bypass the IPO requirement. ICICI and ICICI
bank is an example of this.

15/07/2025

Joint Ventures

There is no law of joint ventures in India. How it will be regulated will

depend on what kind of JV it is, whether contractual or equity based. They
can also happen through the IPA or LLP Act. But in India, we mainly have
equity based JVs.

The concept is an extremely flexible one. You’re trying to combine the

technological, managerial, administrative, or whatever strengths of two
organisations to make profits. India has had a lot of successful JVs. One of
the most prominent one was Maruti-Suzuki. Vistara is a JV. Tata Starbucks
is a JV. A lot of these JVs are being run through SPVs.
Definition

There is no legal definition in India by SEBI or any other regulatory body.

This is on purpose for a broad understanding. We do have HC and SC
cases, most famously the new horizons case. We do have a written
definition that comes from the Accounting Standards. There are certain
qualities that define a JV. In the absence of literature, we need to look at
cases.

Why does it matter whether we have defined a JV. One is taxation. This is
why the AS define them even if not the law. There have also been issues
with relation to a JV bidding for a franchise or a tender and then it falls
apart. What happens in such a situation?

The most important definition, therefore, comes from the New Horizons
case.

New Horizons Ltd. v. Union of India

It went to the SC. The HCs were debating as to what should constitute a
JV. The HCs said that a co cannot be called a JV when there is minimal
equity participation (so there has to be equal equity participation). The SC
said no. There are certain specific aspects that a JV needs to have. It
looked at the Black’s Law Dictionary. So it imported a very American
definition. It held:

A JV is going to be an association of companies or persons jointly

undertaking a commercial enterprise wherein they will all contribute
assets and share risks and have a commonality of interest.

Since then, this is pretty much the test we use. JVs can be partnerships,
but a JV is much broader. Partnerships have to be registered, JVs do not. JV
is for a limited period of time. No JV is forever. An SPV is a modality of
conducting a JV. SPV is a co created for a specific project for a limited
period of time. SPV is something you use to make a JV (or a PPP for that
matter) happen. SPVs can also be used to hide assets or avoid taxes. They
are different conceptually, but practically not so much.

The JV agreement will specify the lifetime. PPPs used to be 20 years, now
they are 40+40 years. It can have a long period, but the end is envisaged
since the beginning. Although it does not require equal participation, but
participation is required from both parties.

Commonality of interest is a very important part of the definition. This is

reiterated through more cases.

Faqir Chand Gulati v. Uppal Agencies (2008)

The question was whether something is to be considered a JV. A real

estate agreement was made where the construction of a housing project
was involved. The housing agreement was called the JVA by the parties.
The question was whether calling something a JVA makes it one. The SC
said it is a pity that we do not have a complete definition. But what we do
know (and they referred to New Horizons) that merely calling it a JVA does
not make it one. What matters is the intention of parties. If the parties are
undertaking something for mutual profit, where there is a jointness of
pursuit, and the intention and commonality of interest between the two or
more parties, only then will it be a JV. There also has to be shared control.
Control, not equity. Because you can have control without equity. Equity
means control, but control does not come just from equity. Singapore
Airlines owns less than 50% shares in Vistara, but that does not mean it is
not involved in the decision making. Through the JVA, you can give
yourself certain rights through which you can exercise this control. In a JV,
it is not just one party that has all the control. Both of them need to have
it.

17/07/2025

JVs can happen by contract, partnerships, and LLPs. But because most JVs
have an Indian and a foreign partner, there are restrictions on how you
can structure them. What happens in relation to a tender offer? Where a
JV bids for a tender and then the JV breaks down. We have 2 cases here,
which were distinguished on the basis of facts.

In the earlier case, there were 8 partners in the JV, which was technically a
consortium of JVs (so more contractual). One of these wanted to leave and
then withdrew. Could the other 7 carry on with the tender? Since tenders
are state-linked projects. Now at the pre-consideration stage, you can
amend the bid and carry on, but what if such withdrawal happen after. The
division bench of the Gujarat HC held that the parties could continue with
this even if one had withdrawn. Now also, the JVA was silent here. If it
weren’t, whatever it said for such an event would be what would happen.
This was Chahal Engineering and Construction Co. Ltd. v. State of Gujarat
(1987).

Hypothetically, if the bid is not accepted here, the JV would just dissolve
because the project for which the SPV was envisaged did not materialise.
You usually have an expertise partner, a technical partner, a funding
partner. The FP need not necessarily be a venturer (a JV partner basically)
as per the accounting standards. An investor is someone who invests but
not be part of the JV. They won’t have control but they would provide debt.
But they can be a funding partner. Now there is no universally accepted
definition of a JV. But since most JVs have a foreign partner and a foreign
funding angle, one of the most widely used definition, in practicality, is the
FEMA master circular.

Equity based JVs will also have a JVA, any kind of JV for that matter. How
you can conceptualise a contractual JV is one that has just the JVA. An
SPV will have joint control. That is determined from decision making per
the JVA. But unlike a partnership, where there can be a sleeping partner,
such a thing won’t exist in a JV. They will then be an investor.
What if there are only 2 partners in a JV and one withdraws?

Gvprel-Mee (JV) v. A.P. (Andhra HC)

Some kind of water resource development project related bid. One of the
partners withdrew. Could the JV Co. carry on w/o one of the partners? The
Andhra HC said that since there were only 2 partners, when one
withdraws, it cannot be accepted that one of them alone could continue
and the JV could exist. However, they said that they had to look at the JVA.
Bike analogy of two wheels, how can it function with one wheel, etc.
However, going by the one line on a JVA, you could draw up a provision in
the JVA where the other partner could buy the shares of the withdrawing
partner and continue.

At one level, this undermines the separate legal entity principle. An SPV
has been created as a separate entity. So it should be allowed to continue.
But since the traditional understanding of a JV is more than one partner,
this becomes an exercise of very rampant veil lifting even though no one
calls it as such. Now of course, since these are public projects, there is
also a public policy angle to it. In a private project, things may be
different. What this says here is that the JVA would assume primacy. What
would happen if this were a contractual JV without the creation of an SPV
is up for debate.

So there are three stages:

1. The tendering process is on

2. The tender has been granted but the work has not started

3. The work has also started and now one of the partners wants to
withdraw

In the third case, it would be illogical to now withdraw a tender, especially

if it is a long-term infrastructure project. Now initially, the costs are also
high, and the co makes money only in the long-term. Now if one of the
partners withdraws, you cannot take away the JV and not let the other
partner to recover their money.

JVs as per the Accounting Standards

AS 27 defines a JV as:

3.1. A joint venture is a contractual arrangement whereby two or

more parties undertake an economic activity, which is subject to
joint control.

So you need 2 things:

1. Contractual arrangement
 2. Joint control

These are cumulative. So it bypasses neither a contractual not an equity

JV. This is important because determining how the JV partners are taxed
will depend on whether they are considered a JV. If you are doing a JV
purely through a contract. Will that be taxed on your company or on you
personally. That will also matter. So falling within the definition is
beneficial.

The first condition would mean that every kind of JV, as discussed above,
will have to have a contract (JVA). Now joint control will depend on
whether it is a partnership of an SPV. So its understanding will vary, but
you have to have joint control. There are indicators for that. Documents,
minutes, etc. to show joint control. There cannot be a JV, per the AS,
where one person is in charge. It does not necessarily mean 50-50.
Because in some cases, FEMA requires less than 50% stake for one of the
partners if they are foreign in certain sectors. But this does not mean that
the minority partner is not exercising decision-making authority.

What if in reality, on paper you have joint control as per the articles but
one of the partners actually is a sleeping partner. But this would become
an issue only if there is a dispute. Now we do not have caselaw on this
because most JV disputes are arbitrated.

Investment is not a criteria. You can also have an external financier with
the SPV being liable for that debt, and both partners acting like
guarantors. There are different definitions for venturers, investors, etc. for
tax implications.

The AS gives three kinds of JVs. These three can also overlap.

1. Jointly-controlled operations where you’re combining resources

and expertise (could also be a distribution agreement). This is a
contractual JV. So 2 fashion brands say that they will share retailing
space, market together, etc. Katrina Kaif’s co. K beauty sells it
products only through Nyka. So there can be agreements where you
share parts of processes and this can be a JV for the purpose of the
AS is the 2 requirements are met. Most franchising agreements or
outsourcing agreements can be JVs. In fact, the former mimics a JVA
very closely.

2. Jointly-controlled assets. It can be a lot of things, but what is

most relevant is jointly controlled IP. Again, if the two conditions of
the AS are met, a licensing agreement can also be a JV, so can a
franchising agreement.

3. Jointly-controlled entities. This is what we most commonly

envision when we speak of a JV. Because here, a new co is created
which has to be compliant with the Companies Act and Rules, and
FEMA.
JVs as per the FDI Policy of 2021

2.1.3. A joint venture means an Indian entity incorporated accordance

with the laws and regulations of India in whose capital a non-resident
entity makes an investment.

So anything can be considered a JV as far as this is concerned. Now what

becomes important is what is an entity? For the purpose of this, a
contractual JV is not a JV.

An Indian entity is defined as an Indian Co. or an Indian LLP. Which is why,

most JVs we see tend to be companies and LLPs. Because that is how the
FDI policy defines it. So structurally, this is narrower than the AS but
conceptually, this is much broader. This is not really a definition but more
functional.

18/07/2025

Case study for a 30 mark project. Pick a co or cos with a transaction. Write
4-5k words (ma’am will send parameters). It can be a buy back, a
reduction of share capital, a JV, or anything. Across jurisdictions preferably.
Critical analysis. 10 marks for class participation. Submission some time in
the holidays, most likely mid-October. People who wish to do it earlier,
they can. Turnitin will be open from 20th September for people who wish
to submit before going for internship. Study- facts, legalities of the
transaction depending on jurisdiction, problems with the transaction. If it
is a merger, whether it is successful, metrics of success, whether it is
making profits. News articles. Normal if you do not find a lot of hyper-legal
stuff. Don’t write about a very old transaction. Contemporary transaction
preferably. One that just happened or is underway. For example, interplay
of competition and M&A. See what you find interesting and work around
that. Determining what people want to write on by the 25th of July. Ma’am
will send a spreadsheet where people can write down their chosen topic

The process of a JVA

Foe entity based JVAs, it will mostly be an SHA. Its enforceability, etc. This
will also come in handy in problem based questions. §58 of the Act. An
SHA restriction on transferability of shares as opposed to other
restrictions. Transferability versus other restrictions in the SHA itself. Keep
the distinction of pvt v public co in mind.

What is the process of conducting a JVA. You need to identify who is going
to be your partner. To do this, you need to do a proper DD. It is necessary
for this to be comprehensive. Parts of it happen before and after signing
the MoU depending on information you get. Because an MoU is an
intention to get into a definitive agreement. An MoU is usually a precursor
to very deep DD. Once you determine you will go ahead with it, you will
have to take the paper procedure. Necessary to have an all encompassing
JVA.
If you’re using a co, creating an SPV. First you need a JVA that will work as
an SHA. You will also need documents to incorporate the SPV.
Memorandum, articles, registration process. The MoA and AoA will have to
be tailored to the purpose of the JV. There are various ancillary
agreements that will be referred to in the JVA, say an IP, licensing, or
technology transfer agreement. Depending on the nature of the IP, there
may be registrations required. TMs and patents require re-registration,
copyrights do not. Workforce of the new entity, will it be transferred or
new hires? Contracts need to be worked out for this as well. All. these
agreements then become annexures to the JVA. For a JV through an LLP, it
is an LLP agreement acting like the JVA rather than an SHA. Now none of
these have a legal definition. So there is no need to get trapped in the
terminology. For a partnership, you need the partnership agreement. The
partnership or LLP agreement would the have to be registered. For a
contractual JV, it is just the JVA which is the main agreement.

It could be multiple kinds of JVs. Only a tech transfer, only cooperation,

only outsourcing, only licensing. The procedure to be followed will be laid
out in the JVA. This is important because there is a timeline in the JVA
itself. This becomes even more important in say an infrastructure project.
The timelines may require different kinds of obligations depending on the
project which will have to be laid out in the JVA.

Provisions of the JVA

You will have to lay out the object or the purpose of the JVA, and its scope
right at the outset if you’re creating a new entity. Highlight what is the
equity participation. You will have to mention the partners in the recital
itself. For example what is the purpose of the Tata Starbucks JV? To use
Tata’s coffee and Starbucks recipes to make coffee in India.

You have to write at the outset who has how much shares and what
percentage of voting rights are given to them. This is very important. You
also have to mention who is the local and foreign investor, and that the
latter would comply with FEMA requirements. You will also have to have
provisions on future issue of capital. Can it be made, who will it be made
to, all issues that may arise in this regard need to be specifically written
down. Along with it you need to mention the financial arrangement. Is it
one of the partners, is it an external financier, whatever.

Then the obligations. What are the partners supposed to do. Say X partner
needs to give 100 kgs of coffee beans every day or something like that.
This is somewhere you need the objects clause to be wide and the
obligations clause as tailored as possible for better enforcement of the
agreement. You also need to mention how management will function. For
an SPV, you will have to have a Board. So how will you constitute it, what
majority is, will that determine a vote, whether someone has a casting
clause. An LLP and a partnership agreement will also highlight it.
Important part is that however decisions are made, there needs to be joint
control. How are profits to be distributed. Whether as dividend or any
other manner. There needs to be a procedure, metric of how to determine
if there is a profit. Distribution formula.

*****Transferability of shares. This only works in the context of an SPV.

Even if it is created for 20-30 years, there may be certain restrictions.
They do normally have a lock-in period, but they are not very long. ROFO,
ROFR, etc. are built-in.

Transferability is one of the most important parts. You also need to have
your basic representations and warranties. The difference is that the
former is about something that has already happened, underlining past
and present facts. Warranty is about future, what will you do or not do. You
also need to have deadlock procedures in place. You need to account for
the fact that people may fall out. How will the board operate, if no board,
how deadlock will be broken.

Casting vote provisions, appointments of head manager, CEO, etc. and

procedures. Since both venturers may want their own CEO, so you have to
account for rotating CEOs. Non-competes and other restrictive covenants
are necessary too.

Confidentiality clauses, force majeure, arbitration, jurisdiction, etc.

You also need a contingency clause in case one of the venturers move out.
How to look for a new one, can one of the old ones buy their shares and
carry on, etc. You also need a termination clause, since a JV is time and
project bound. Here, you can also have a procedure to extend the tenure
of the JV if required.

The problem arises with an SHA is if it binds the company, because the co
is not a party to the contract. The JVA needs to be incorporated in the
articles of the SPV to make it binding. Or you create the SPV and then
make it a part to the JVA. This is less likely to be done because why will
you incur the cost of incorporating an SPV without a JVA. So how to you
enforce these agreements against these companies? Additionally, in a
public co, shares are freely transferable. If there are restrictions on the
transferability of shares, can you then say that in a public company,
shares are freely transferable. The issue is that Rangaraj spoke of pvt cos.
Plus the section which prohibited it was §118A of the old Act which does
not exist anymore.

We have to make a distinction between SHAs that restrict transferability of

shares and other kinds of SHAs. Because SHAs are not just about shares.
They can also be about nominating a director. They are usually used for
exit options, tag and drag along, etc. But they can also be used for
corporate governance.

VV Rangaraj v. V Gopalakrishnan and Ors. (Supreme Court)

HSF moot proposition 7-8 years ago had this case at its core.
Facts- A private co. It ends up w 2 branches of a family who are brothers.
Say 25 shares for brother A and B. They have an oral agreement in the
70s that at any given point, each branch will always have 25 shares in the
company. If one of the branches wish to sell, they will first offer to sell to
their own branch. If that does not succeed, then they will sell it to other
people. No amendment made to the articles. What happens is that instead
of first offering shares to his whole branch and then to the world, someone
from branch A comes and sells it to someone to branch B. The other SH of
branch A goes what have you done? This is what led to the litigation.
Basically the plaintiff should have the right of first refusal.

The trial court and HC said that this is an invalid sale. This goes to the SC.

Held- Shares are meant to be freely transferable. You cannot have a

restriction on the transfer of shares. Anytime you have a restriction on the
transferability on the transfer of shares needs to be laid down in the
articles. If they are not in the articles, these restrictions cannot be
enforced.

From 1991 for 10 years, there is chaos and confusion. Because every one
in the aftermath of Rangaraj is like SHAs mean nothing, why even have it,
etc. There is also a policy angle at play here is because it is very
important to recognise the enforceability of SHAs. This judgement led to
chaos in the commercial world.

The problem was that no one could say that this was bad law. Became it
came from the SC and subsequent judgements came from the HCs.
Rangaraj may have been commercially problematic, but there was no
confusion as to what the position of law was. The confusion started with
M/s. Holding and other HC judgements which tried to chip away at
Rangaraj for the sake of commercial prudence and upholding the
enforceability of the SHA. The one SC case on this, Vodafone, came much
later.

22/07/2025

M/s. Holdings Ltd. v. Shyama Madan Mohan Ruhia (2010)

There are many distinguishing factors from Rangaraj. Firstly, it is a public

listed co. This makes the entire decision even more surprising in the
context of Rangaraj. We also had the first World phone decision of the CLB
came in supporting Rangaraj. So this ended up curbing funding?

Facts- The co. Bombay Oxygen Ltd. ended up being the second defendant
(D4). It was a public listed co. The SHs were the plaintiffs here (the
ruhias). They were the majoirty SHs, completely in control of the
management. They entered into an share purchasing agreement with M/s.
holding, which is a German Co. in 1997. As a result, the Ruhia group sells
45,001 shares to M/s. Holdings (D1). They also allow M/s. holdings to
purchase 30,000 shared from the public, leaving them with 75,001 shares,
which gives M/s. holding 50% plus 1 share in Bombay Oxygen Ltd.

In 1995, M/s. Holdings had entered into another contract with the
competitor of Bombay Oxygen Ltd (D3), before the SPA with the Ruhias.
This agreement was a JVA. So at the time of the SPA, the Ruhias are
unaware of this. The plan that became apparent later was that D1 and D3
would enter a JV and create an SPV (D4) where D1 had 49 percent shares
and a subsidiary of D3 had 51 percent shares. So D1 and a competitor’s
subsidiary are in tandem.

The Ruhias find out what the plan is and they are not happy. Had they
known, they would never under into the SPA. D1 and D3 also had a
dispute about the functioning of D4 and are in arbitration. So there are 2
arguments here. First, that the 1997 SPA is void because it does not
disclose the arrangement with D3. Second, clause 6.1 of the SPA between
the Ruhias and M/s. Holding states that if D1 has to sell shares, the Ruhias
have the right of first refusal. This is important because to enforce the
arbitral award between D1 and D3, the former has to sell its shares in
Bombay Oxygen to D4. The Ruhias still had some stake in Bombay
Oxygen. They take M/s. Holding to the court emphasising that the SPA is
void, or the ROFR rights would apply.

Single judge bench

Can the Ruhias enforce the ROFR rights? The court relied partly on
Rangaraj and partly on Madhududhan (this held that restrictions unless in
the articles are invalid unless specific shares are restricted from being
transferred to specific members under the SHA. A general restriction is
invalid unless incorporated in the articles). The issue with Rangaraj was
that §111A of the 1956 Act which it relied on was about free transferability
of shares vis-a-vis the rectification of shareholder register. It was blown
out of proportion in Rangaraj.

The single judge held that Rangaraj is right, shares need to be freely
transferrable, especially since this is a public co. unlike Rangaraj. So here,
free transferability of shares is an even bigger concern. So Rangaraj’s
position is valid. But that did not matter because the court held that since
the SPA between D1 and D3 was based on a misrepresentation of facts,
the SPA was invalid. So the consent terms could not be enforced and D1
could not transfer the shares it held in Bombay Oxygen to D4 as a result.
M/s. Holdings filed an appeal which was heard by the Division Bench.

23/07/2025

Division Bench

The division bench sees the concept of freely transferable shares. They
looked at §111A of the 1956 Act and observed that it cannot mean that
contracts like SHAs would not be binding on the co. The division bench
noticed that §111A was created for a very specific purpose which was
registration post transfer. It does not mean that SHAs cannot be enforced.
Because shares are freely transferrable, you can have conditions like
ROFR. Freely transferrable does not mean SHs cannot have contractual
arrangements with third parties. The only situation where such restrictions
under SHAs would be invalid is if the articles of the company prohibit it.
This is what the position which is in §6 of the 2013 Act (§9 of the 1956
Act).

However, they still went into the fact that the SPA was agreed to in light of
inadequate disclosures so it would not be valid. D3 and D4 appealed
against this because the clause was held to be valid but the agreement
was not.

Supreme Court (2016)

SC was very annoyed. There were 4 cases in light of 4 interim orders that
were passed. It said this is a waste of time. The investor community was
waiting for the SC to settle a position of law. But the SC did not pass
orders. It just imposed costs and said that holding on this question is not
necessary to resolve these disputes.

Worldphone India Pvt. Ltd. v. WPI Group Inc. USA (2013 Delhi HC)

This matters because the Delhi HC is not bound by the Bombay HC

decision, but just the SC.

Facts- A pvt. co. called WPIPL which is a JV. There are three participants to
it. One is the WPIGI group (the foreign group) this is controlled by a
Chairman called AA. WPIGI owns 43.75% in this JV. The second party to
the JV is Vivek Dhir, also with 43.75% in this JV. The third party is Mr.
Pankaj Patel who owns 12.5%. The JVA dated 1999 in clause 6.2 says that
this initial SH pattern needs to be maintained. If this is going to be
changed in any way., an affirmative vote needs to be exercised by Mr. AA.
This is not a restriction wrt transferability. It is a corporate governance
restriction. Mr. Pankaj Patel decides to sell his shares to Mr. Vivek Dhir’s
wife, Mrs. Malini Dhir. The Dhirs now own 56.25% of the JV. This tilts the
whole thing in favour of the Dhirs. They do not inform Mr. AA. What
happens is that there is a draft of the annual accounts for 2010 which is
sent to Mr. AA for confirmation through which he sees that the SH pattern
has changed. Mr. Dhir calls an AGM wanting to include Mrs. Dhir as a
director on the Board.

Mr. AA files a petition in the CLB dated October 2010. This is basically an
O&M suit. He also made an accusation of siphoning of funds, and of
meetings happening without him being notified. He says that the transfer
that was done was not done validly since it was done without his
affirmation. While the petition is still pending, in 2012, Mr. AA receives a
notification that a Board meeting is going to happen where they are going
to approve a rights issue to all the existing SHs. Mr. AA was planning to
attend the meeting but could not due to Hurricane Katrina. The Board
meeting happened w/o him. He finds our that the Board has approved this
rights issue and that shares will again be issued w/o his affirmation. Now
the issue is that clause 6.2 has not been incorporated in the articles of the
co. Is clause 6.2 binding?

CLB

Very strange thing. First says that §9 (§6 of the 2013 Act) does not apply
to pvt cos. It says that nothing done through articles or resolutions shall
be binding if it contradicts this Act. Any agreement is not binding if it is
repugnant to the Act or articles. It said that Rangaraj will not apply since it
is a JVA here, which is special. No contradiction with the articles, so it is
fine. The meeting was void. So clause 6.2 is binding.

Delhi HC

There is nothing to say that §9 is not applicable to private cos. Now we

have an agreement that is not inconsistent with the Act but is not
incorporated in the articles. Now remember m/s. Holding is not binding on
the Delhi HC. It relied on Rangaraj and held that unless incorporated in the
articles, so clause 6.2 is invalid. But, since there was no notice to the
meeting, and since the O&M suit was pending, the meeting was invalid.

Now the Delhi HC was right in relying on an SC order. But the weird part
was that by now, the Vodafone judgement had come, something the Delhi
HC did not rely on, strangely enough.

<aside> 💡

The issue was that here, clause 6.2 was a corporate governance issue, not
an SHA issue technically. So should it not then apply to the co as well?

</aside>

Vodafone International Holding v. UoI

By this point, the Vodafone International Holding v. UoI had come. It

was about something completely different but Justice Radhakrishnan
speaks of all contemporary issues in Company Law. In paras 62-66, in his
exposition on corporate law, he makes a statement that the SC does not
subscribe to the judgement in Rangaraj anymore. So in his obiter,
Radhakrishnan J says that Rangaraj is bad and that M/s. Holdings is
correct. SHs can enter into any agreement they deem appropriate in the
interest of the co. If you have an SHA which is not incorporated in the
articles, it is binding on the SHs, but not the Co. It is binding as a
contractual obligation between the parties to the SH. The remedy would
therefore stem from contract, and not corporate law. That would be the
logical extension of M/s. Holding.

<aside> 💡
Vodafone is a good position of law, but the issue is that it is technically not
a binding precedent, because Radhakrishnan J’s observations were in the
nature of obiter.

</aside>

Bajaj Auto Ltd. v. Western Maharashtra Development Corp. Ltd.

(2015 Bombay HC Division Bench)

Facts- Started from a single judge decision before M/s. Holding, and the
division bench decision after. There was a JV called Maharashtra Scooters.
It had 3 parties. Bajaj Auto (24%), MH Devpt. Corp. Ltd. (27%), and the
general public (49%). There was a JVA with a share transfer restrcition in
clause 7. There was a ROFR. If the government had to sell his shares, they
would have to first offer it to Bajaj. This happened, there was a dispute as
to pricing. There was arbitration which rendered an award. Bajaj was
unhappy with the award’s pricing. It said that the award would not be
binding since clause 7 violated §111A (§58 of the 2013 Act).

Held- The division bench in 2015 said M/s. Holding was valid law. The
issue here is that by now, the 2013 Act has come into play. §58 in sub-
section (2) says that arrangements between shareholders wrt
transferability of shares shall be enforceable as a contract. So §58
crystallises M/s. Holding and Vodafone.

The issue is 58 does not apply in relation to corporate governance type

restrictions in an SHA that is not about transferability of shares (the world
phone situation). All we have in such cases is §6.

Analysis

Pvt and public co distinction not relevant anymore. If an SHA is about

transferability of shares, we apply §§6 and 58. So unless the articles
prohibit it, an SHA can restrict share transfer. And since shares are freely
transferable, it allows you to restrict the transfer of shares. However, if the
SHA is about corporate governance restrictions, §6 applies and it is valid
as long as the articles do not prohibit it. But how do we enforce it? Does it
bind the co since it is a corporate governance measure? But the co here is
not a party to the SHA. So how to enforce the latter kind of SHAs is still
unsettled. As a safety net, what almost all cos do today is to incorporate
SHAs in the articles. Which is why this subject is not litigated as much
anymore. Now, of course, we want SHAs to be valid, only then will you
have free flow of money. We just need to figure out how to make them
valid without disrupting the Companies Act.

24/07/2025

Types of JVs, foreign investment, compliances, tax

JVs can be used for various purposes. The most traditional we have is for
transfer of tecnology, shared usage of technology/trademark. A very
common kind is also between the private sector or the public sector
(PPPs). This is seen a lot in the public infrastructure sector. Another is
product outsourcing, where you get your manufacturing done somewhere
else. This is very common in India for manufacturing processes to happen
in other jurisdictions to take advantage of cheaper labour. A lot of these
happen through JVs. Like Apple is also now manufacturing in India.

Why is this done as a JV rather than say through a contract that is

renegotiated every year. You as a foreign partner will also have to give
reasonable powers to your Indian partner. Additionally, there will be very
few Indian companies that will have the necessary skill to do this. You do
not want to find someone new every year. So it makes sense to have a JV,
which although for a limited duration, is not an annual thing.

There can also be licensing agreements in such cases. What is the

advantage of using licensing agreements? This depends on what you
license. You can license a process as well as an outcome. Licensing
manufacturing processes is something that can be very useful for a JV.

The choice of whether you want a contractual JV or an equity JV depends

on a lot of factors. One of them is duration. If you have something slightly
long-term in mind is to have an SPV. Another thing that needs to be
considered, especially for a manufacturing JV, are labour issues. So the JVA
needs to account for this. Potential labour law and HR violations is
something that many companies are conscious about now. Apart from
goods, outsourcing services is very normal in India. A part of the service is
outsourced. For example, call centres of British Gas operate out of
Bangalore. These things are usually done by means of JVs. Customer
support, IT support, telemarketing. A lot of customer facing services being
outsourced to another jurisdiction.

We’re talking about employee rights more than worker rights. There may
be service issues. The fourth kind of JV we do is franchising. A franchise is
basically a very special kind of license. It lets you use TMs, recipes, etc. It
is great because it allows you to capitalise on someone’s goodwill. There
is a Franchising Assn. of India which maintains standards in franchising.
One of the issues of franchising, especially in India, is quality control.

This was regard to subject of JV. We also look at structure of JV, especially
from a tax angle. When a JV is taxed, form and residential status will
determine how it is taxed. In India, you are taxed on worldwide income. If
you are an NRI, you are taxed to the extent that your income arises out of
India. So you need to decide whether your JV will be an Indian or foreign
entity, or a partnership or LLP or branch office.

From a tax purpose, it is most favourable to create an Indian entity. If

you’re a foreign company, you are taxed higher. You need to show control
is in India, but that will also depend on where the investment is coming
from. If you are deemed to be a foreign company, as per §9 of the Income
Tax Act, you will be taxed wherever there is income arising
directly/indirectly in India; when there is a business connection to India
basically. Business connection, as per cases, is not a one off thing. There
has to be a series of transactions. This is in a situation where there is no
tax treaty. There will also be cases where there are tax treaties with
countries. If you are not structuring yourself as a co, you will be taxed as a
partnership or an LLP, you will be taxed at 30%, which is the highest. You
will, however, not be taxed on your profit as a partner, but as a
partnership. But bonus and income will be taxed, per §6(3) of the Income
Tax Act. For a partnership, you will be looked at from the perspective of
control. If it is not in India, then it is a foreign entity taxed at 40%. A
branch office of a foreign entity is also taxed at 40%. If you are an
unincorporated JV, you are not taxed as an association of persons. While it
is not defined in the Act and depends on case law, an association of
persons can be taxed as high as 40%. For cos, the corporate tax depends
on revenue and the relevant slab. You will take a decision that makes the
most sense, in light of everything above and the sectoral caps. So usually,
you will be taxed the least as an Indian entity, depending on what other
jurisdiction you will be taxed in. In India, there are also a lot of other taxes.
LTCG is taxed, in case of exiting a JV. Dividend is also taxed.

You wanting the control to skew towards India also depends on the sector.
In some sectors, 100% FDI is allowed. So control skewing towards India in
such cases will be difficult.

A smarter way could be structuring a JV on debt, since debt is not taxed.

The FDI policy also allows for convertible debentures. You also receive a
set-off for interest paid. If the JV itself gives a loan, it depends on whether
the loan is given to an Indian or a foreign co. 10% versus 40%. It is slightly
cheaper for lending to foreign cos if it is given in a foreign currency.

When we are looking at the foreign investment regulations, we are looking

at the Master Regulation as of Jan 2025. The first thing that matters is
whether you go down the automatic route or the government approved
route. Now the former also requires documentation. It is online, but still a
process. Certain countries will have to by default go to the govt mandated
route. Usually, an investment in a JV is always FDI.

If you are a listed co, if someone is investing up to 10% of paid up share

capital, it is FPI, more is FDI. In an unlisted co, all investment is FDI. The
idea is that in FPI, you are a retail investor looking to invest through a
portfolio in various cos and are not looking for control. FDI is when you are
making an investment directly into an entity hoping for some control. The
latter is also more long term. 2.8 and 2.9 of the Master Direction defines
FDI and FPI. FPI will usually be through the automatic route. All of this is
subject to the sectoral caps. Sectoral cap is basically the maximum
foreign investment that is allowed in the equity instruments of a co in a
particular co. While we say co, sectoral caps can also exist for the capital
of an LLP. This is defined in 2.2(7).
Certain things are also prohibited. Gambling, Railways, Cigarettes, etc. For
real estate, technically it is a prohibited sector, but a lot of things do not
fall within the definition of real estate. REIT (real estate investment trust)
are not prohibited. This is like a MF where money is invested for a real
estate project. Roads, bridges, and other critical infrastructure is another
exemption. Because in an infra PPP project, there is usually a foreign
partner. For bordering countries, it is govt route. Harder for Pak, cannot
invest in defence and atomic energy sectors. All this material is available
on DIPP’s website. This is responsible for permission and approvals in
foreign investments, while the policy itself has been written by the RBI.

End of a JV

Either is breaks down, or it comes to a natural conclusion. In case of the

latter, the JVA will normally have terms for it. Another common thing is
when the JV project is done, the SPV undergoes an IPO and the promoters
can exit. Another thing is liquidation. Or third party sale, this is where tag
along, drag along, and exit options comeinto play.

25/07/2025

Public-Private Partnerships (PPPs)

The idea that something that traditionally the government is supposed to

provide, it now seeks assistance from the private sector. They may not
necessarily be infrastructure (although they were used like that
traditionally) but also for healthcare, defence, education. Why is this like a
JV? Because this is also project specific. It is also time specific. PPP is a
medium to long-term JV. They have 30-60 year durations, and they have
renewal clauses. There is a construction phase and a maintenance phase.
There can also be projects for just construction or just maintenance. The
reason maintenance comes together in most cases is because that is
where expenses incurred during construction are recovered.

Risks of a PPP

In a JV, risks are shared equally. In a PPP, it depends on the type of

contract and project. In a procurement project, risks were taken up by the
government. We know the kind of costs there are, but what are the risks?

Financial risk- either not being able to make up the profit or the project
going over budget. Anil Ambani wanted to increase Delhi metro fares,
someone wanted to increase Delhi airport costs. Could not do it. Public
outcry, politics, etc. with regards to land acquisition, litigation, individuals
owed compensation haggling things out are also risks. This is why PPPs as
a kind of JV give us a view at a much larger picture. There are operational
risks like Trade Union strikes. There are external risks like earthquakes.
Risks in terms of the investment falling through. Private partner is not one
co, it is a consortium.
Now public financing becomes an issue, hence PPP. Why not have an
entirely private investment based project? Because foreign investors may
get involved and the government may not retain control over the project
which it might in case of a PPP. There are also certain efficiency gains in
the private sector. If the pvt sector is doing the same thing with or without
the government, it will also have economies of scale and scope which the
government can tap into. Since the pvt sector wants to regain its money
by operations, it will also construct faster (NUJS construction by PWD is
the exact opposite).

The PPP model, while it has advantages, also has a lot of demerits. It is
not suitable for all kinds of projects. For example projects that involve a lot
of rapid change. Since the government is involved, it is a lot slower. It
does not work or very dynamic sectors like IT. Or even unpredictable
things, it works better for long term predictable projects. You can’t have a
PPP for something like Starbucks.

There is also an issue of structuring a PPP properly. Because they are very
complicated transactions. Another question is whether the private sector
has the capacity to undertake a certain kind of project. It is not like the
private entity is putting in it’s own money. There are also investors
involved.

Brownfield project v. Greenfield project

In some projects, you start something from scratch, whereas in some, you
pick up from something that exists. Say starting constructing an airport
from scratch like Bangalore’s new airport which is a greenfield project.
Whereas say maintenance of an airport which will be a brownfield project,
or maintenance of an existing airport plus building a new terminal. So the
latter will be a greenfield project on its own as well as a brownfield project
of maintenance.

<aside> 💡

The Ambani-Adani clash over the Delhi airport. There is a lot of literature
on this matter. Sudhir Krishnawamy has written a good paper on the
political ramifications of PPPs.

</aside>

We’ll be looking at the various PPP models, the kinds of structure and
payments etc. The regulatory framework but also the institutional
arrangements. Documentation, life cycle of the project.

28/07/2025

29/07/2025

31/07/2025
What to do to create an enabling environment for PPP projects.

1. Proper PPP policy

2. To have a proper legal and regulatory framework (this is somewhere

we have also failed)

3. Institutional arrangements that are enforced

4. Government financial support

1. Proper PPP Policy

What types of PPP projects is the government interested in? Important to

mention the different models of PPPs. India has a lot of concession or
brownfield models which are majorly about managing. You need to decide
what kind of projects would you like to be involved in.

One major aspect of a PPP project should be stability. Because this is a

long term project which should not be affected by a change in
government. Any fluctuation in policy will lead to lack of enthusiasm with
private sector. We have evolved some sort of a PPP policy in the last 10
years. It is also necessary to establish a list of successful PPPs in addition
to a policy. Not just a wish list but also a track record. The World Bank
maintains one such database. As per it, a lot of projects in India do not
reach completion.

2. Legal and Regulatory Framework

In an idea scenario, you would have a separate legal structure, and

specific legislation, to deal with PPPs. China has one (most likely, verify
once). The law will also create a body which will decide who will give
approvals to a PPP project because right now, we have multiple sector
wise approvals. Sectoral caps under FEMA will also become relevant here.
To what extent is pvt participation allowed, to what extent is international
investment allowed in a particular sector will all be relevant consideration.

If we do not have a clear and systematic and time bound process of

approvals, it will not incentivise PPP projects. It is also important to have
proper rules for procurement. Tendering and bidding processes, how will
they work, etc. This also needs to stay dynamic rather than static. One of
the things that happen is private parties starting to push for a project to
happen. This is also where it becomes easy to bring corruption into the
system. So we need a very clear legally established framework on how to
handle these unsolicited proposals.

The law needs to figure out dispute resolution mechanisms,

compensation, arbitration, etc., something which India lacks right now. A
lot of this in India will depend on the PPP contract. There was also a
finance ministry guideline which mandated mediation but said no
arbitration for contracts above 10 crores. This may not be very
encouraging for foreign investors since they may want arbitration.

Another thing that can happen is a law on tariff regulation. How much toll
fee will be charged, how much airport fee charged by AAI, etc. There was
also a recent Noida toll case. There should also be sector specific PPP
guides. There may be some for infra, but education and sudhircare are up
and coming for PPP, and these sectors should also have a guide.

While it is fair for JVs to have a flexible definition and regime, more
regulation and clarity is necessary for a PPP. The Noida judgement said
that the toll cannot be so high that it is against public good. This goes
against a private party wanting to recoup profits.

3. Institutional Arrangements

We have too many institutions. Need to streamline it. Where to get

approval, who is approving, etc. The World Bank has recommended
establishing a PPP unit, which would be part of the government. It would
be a gatekeeper for projects. It will monitor projects and coordinate
various sectors to streamline things. It could also give you a model
paperwork because PPPs have a lot of paperwork. Certain standardised
best practices approach rather than too much flexibility and creativity
would be better.

There is a DEA in the MoF. Under the DEA we have a infra finance
secretariat, whose job is to boost infra. It has a unit, earlier PPP unit now
pvt investment unit. There is also a website [Link]. This is also
the secretary of the PPP Appraisal Committee (PPPAC). This is the body
that approves bids for all PPP projects where the Centre is a contracting
party. This website also has a PPP manual. There is, however, a lot of lack
of transparency wrt what states are doing.

They are also supposed to have documents on how financial support

works for PPPs. Additionally, where various government bodies and
sectors are involved, you need to ensure there is no conflict of interest.
Hence, projects are vetted by an independent body. An entity wanting to
promote PPPs cannot decide whether a PPP project needs to allow.

4. Financial Support

You may require a certain chunk of money from the government as well.
So you need to give certain tax incentives. Also certain guarantees. You
may also need to flat out give money. This is known as Viability Gap
Funding. This created government liability. But the reason governments to
it is because sometimes economic benefits of a project outweigh
economic costs.

These 4 is what you require from the government. Additionally, you also
need a conducive environment. You also need a labour force. Reduce red-
tape ism. You need to create a system where funding is encouraged. So
for example, you cannot get loans for acquisitions. We are very pro equity,
but we should also be a little pro debt.

PPP Project Cycle

Here again we have 4 stages:

1. Identification

2. Preparation

3. Transaction

4. Management

Identification

First thing that happens here is to decide whether to do a public

procurement or do a PPP. There has to be a screening criteria to decide
when to go for a PPP and when not. They may be attractive, but they are
not always viable. In screening, you would consider scale and size, what
needs is it addressing, etc. You should only do PPPs for long-term projects.
1. What will be the performance of the pvt sector here? Do we have a
metric to decide that the pvt sector would give more output and be more
suitable? 2. Does the pvt sector, whether domestic or foreign, have the
capacity to undertake this kind of a project? All these factors become
relevant. So you need do a value for money assessment here. There is this
thing called a Feasibility Study which studies whether a PPP in a particular
area is a feasible. Internationally, this is done a lot. Only if a study shows
viability is a decision to go ahead with a project is taken.

Preparation

Once you’ve decided to do a PPP, it becomes very important to make it

clear to all stakeholders that this project is going to be beneficial. This is
again where you need to look into Feasibility studies and do a proper
economic and financial analysis. How will you get revenue from this? What
model, equity or debt? Sustainability aspect of the project, what
environmental impacts will it have? Carbon emission, rehabilitation,
compliance, etc. Another important thing is risk allocation, who will take
up how much of it? There can be certain sectors for which the pvt sector
will have more appetite, less for some others. So market interest analysis.
What kind of risk is the pvt sector willing to take in what sector? All this is
important to look into before going into the transaction stage.

Transaction

This has Pre-tender and tender & post-tender.

Pre-tender
You need to advertise. Make a procurement notice. Along with it, you need
to have a qualification criteria for who can be a bidder. Usually at this
stage, it is good to have a draft PPP contract. There are certain pre-
qualification requirements. This is before it is even decided if someone is
qualified to participate in a tender. It includes: experience, capacity, and
resources- wrt design, construction, operation, maintenance. You then go
to the qualification criteria. Usually, you should have 3-6 bidders. Else you
lose competitiveness.

06/08/2025

Tender and post-tender

In the bidding stage, what you usually have to do is send a proposal. Also
ask for clarifications. Bidding can happen wither from a one stage or a two
stage proposal. In a PPP project, usually the latter is preferred. In the first
stage, you make a technical proposal. Then the technical plus financial
proposal. This also serves as an elimination criteria. You evaluate the
criteria and decide if someone will go ahead.

It is important to highlight at the beginning the criteria for evaluation.

Before bids can be evaluated, the bidding process has to be shut. You first
need to see who has technically got the best bid. If you fail here, you’re
out of the game. If you pass it, your financial proposal will be evaluated.
At the second stage, it is looked at who can provide the technical
expertise at the lowest cost. This is so that there is a minimum threshold
of technical quality so that quality is not compromised for a lower cost.

However, more processes could also mean more chances of compromise.

There is more chance of corruption. That also adds more subjectivity,
more subjective analysis. That is also an allegation that has been levelled
in the context of a lot of PPP projects, especially by people who may not
have won the bid.

Another factor you could have is environmental impact. How badly a

project would be impacting the environment could be a concern. But this
is more of a best practices thing, not something that is followed here. eYou
can have a lot of back and forth in these negotiations. Re-working a bid
right now significantly will also hamper the other bidders. So there is also
a need to not do that. In the negotiation stage, certain preconditions like
land acquisition, etc. should already be taken care of. Same with
government approvals.

The first intent of entering into a defined contract is a PPP contract.

What are certain things a PPP contract must have within it?

1. Timelines: depending on the nature of the project - since a lot of

these are long-term contracts - also need to include a separate
construction deadline, which can also be subject to renegotiation).
 They normally tend to be flexible but certain consequences for not
meeting them.

2. Applicable laws.

3. Ownership details/equity holders: since most PPPs are done through

the creation of an SPV. This is also done because there is a massive
financial requirement. Unless an SPV is created, you cannot shield
the holding co. from liability. The govt is usually a 25% holder, the
consortium has 75%.

4. Exit route: you also need an exit route if a party to the consortium
wants an exit. The equity sponsors need to have an out if they want.

5. Standards: Undertakings/warranties vis-a-vis labour, environment,

quality control. There will usually be a system of checks and
balances. A quality supervisor is usually appointed by the
government.

6. Decision-making: Does anyone have a veto right, what rights do we

give to financiers.

7. Sub-contracts: structuring of a project, etc. Is there a preferred list

of sub-contractors. What can and cannot be sub-contracted.
Providing labour standards could be the latter.

8. Confidentiality: a lot of PPP projects have recently been signed in the

defence, space sectors. Sensitive information of the govt, IP of the
pvt party, etc. will all have to be protected.

9. Trust having ownership of the property of the project right after

construction? See if that is possible.

10. Approvals, licensing, etc. Ministers of the concerned

departments usually have to sign off.

11. RBI guidelines, filings, sectoral caps, etc.

12. Winding-up: when things go bad. Arbitration/mediation, etc.

13. There may be unsolicited proposals. There can be times where

the government has not put out a tender but receives unsolicited
proposals from consortiums. Likelihood of corruption is very high in
such cases. Because since a tender was never put out, metrics for
evaluation were never set out. Plus you do not have a competing
bid. This is known as a Swiss challenge, where since you have an
unsolicited bid, you can ask for others to put a bid.

Management
Here, we can have a building+management phase or just a management
phase. For building, the one thing that matters most is that you stick to
timelines as much as possible. In terms of management, the one thing
that is not written about a lot, is the governance in a PPP project. What
happens if one of the partners drops out, how to resolve disputes, basic
corporate governance issues. We’ve created a board on top of an SPV.
There are govt nominees. What are their rights, govt nominees get pushy
so how do you deal with that, how does the govt manage these things. We
often forget that this is a separate entity that now needs to run itself.
Another important thing is disclosure. A contract should ideally have
mandatory reporting and disclosure requirements. This is an important
part of PPP contracts.

07/08/2025

RBI has recently created a new set of rules for project finance, which came
out in June 2025.

Financial structures in PPP projects

Project Finance

This happens at the construction stage. There is a distinction between

project finance and corporate finance. What is it that sets apart the
former? Corporate finance is when you’re taking a loan. You give some
kind of security to the bank. That will impact a lot of things. But apart from
this, you can also undertake project finance. Here, an SPV is created. This
is where security is based on future cash flows. Why this works well for
PPP projects is because they have a construction phase where you are not
making any money. But later there will be taxes and usage fees that will
flow in later. Plus it is backed by the government. So you use this
projected amount as security and pay interest on it. In case the projected
cash flows do not materialise, you will usually be insured against it.

On a regular loan, you need to give security. In case of a PPP project, you
may not have an asset to provide as security. Plus a loan will also show on
your balance sheet. Project finance allows you to take an off-balance
sheet loan. This is because payment for this loan will only accrue from
future cash flows. You won’t have to make room for it in your current
accounting. This is a riskier transaction of course. but the people who do it
specialise in it. You keep the entire construction phase out of your balance
sheet. This is done through an SPV. So the holding co will not have a
liability here. The terminology we use for equity holders in an SPV is
equity sponsor. Purchasing of shares in the SPV. The government may be
an equity sponsor even if it does not give money directly because it is
government land that is being used the project. Project finance is also
considered a safer option for projects where you know that there is a
certainty of usage, like roads, highways, hospitals, etc.
An equity sponsor is not for life. They will have an exit option. Usually,
there is a lock-in period, but once that is done, they can leave. Usually,
the lock-in period is for the construction phase. If it goes bust and the SPV
goes bankrupt, the equity sponsors have the highest risk, since they’re at
the bottom of the waterfall.

Debt

Commercial banks, IMF, World Bank, etc. The Centre or State Government.
You will have to maintain an adequate debt to equity ratio. We used to
have a 2:1 ratio but lately we have an understanding that it will be very co
specific and that having a set ratio won’t make sense. In a debt, we also
need to differentiate between the construction and the operation phase. In
the former, you will heavily rely on equity, bank loans, government
subsidies. There is also something called a subordinate debt. It is a loan
which will rank lower than the other debts. The bank agrees to do it at a
higher interest rate. Mezzanine debt, which is above equity but below
other kinds of debt. Cost of financing is more but you’re being ranked
lower than other debts.

What is in this for the lender? A higher rate of interest. There is insurance
throughout. Since this is a government project, the likelihood of it failing is
very low.

Things are different at the operational stage, you have started making
money. So it is easier to finance through more direct routes. You have a
cash flow and an asset now. Therefore, financing is more expensive in the
construction phase. So if the equity sponsors stick around, they have a
more lucrative exit at the operational stage. This is also because an equity
sponsors equity will have more value at this stage.

At the operational stage, you have money coming from toll fees, utilisation
fees. For certain projects, the government also gives certain revenue
guarantee. They have certain concessioner fees that can be paid by the
government.

Nexus of contracts in a PPP Project

Insurance

All the risk that is being generated in these projects is being passed on. It
is all insured.

Construction

PPP projects majorly happen through sub-contracting. These sub-

contractors undertake the construction. And who can be sub-contracted to
is always something that is negotiated on before. So as transparent as the
tender process might be, sub-contractors are usually people close to the
government.
Maintenance

This is also contracted out to sub-contractors. The SPV is not directly

doing much here. It is entering into a series of contracts. The end-user is
paying for service. The Government may continue paying the private
sector certain fee at this stage. In a greenfield project, the government
will continue paying a fee to the private sector for allowing the general
public to use that asset. In a brown field project, the asset belongs to the
government. So the private sector will pay the government for
lwasing/using that asset.

08/08/2025

Arrangements, Compromises, and Amalgamations

There is constant reference to the old companies act. Section 230 has a
new thing that you need regulatory approval from all the regulators. Such
as income tax, CCI, Sectoral etc. NCLT rules 2016 together with this.

If AN AMALGAMATION IS proposed in multiple jurisdictions, then filing has

to be done in each jurisdiction. Section 230- Permits a compromise or
arrangement to happen. There is no separate procedure for a merger. The
procedure is same as compromise/arrangement. Usually, an application is
made in 230 as well as 232 and not only 232. IN an arrangement there
need not be necessarily more than a company. Merger requires minimum
of two companies. Internal restructuring within a company. Any kind of
debt restructuring can be an arrangement. Arrangement is b/w co. and
members/sh. Arrangements are entirely dependent on the NCLT.
Application has to be made to the NCLT.

Arrangements v. Compromise

A compromise requires the existence of a dispute which is to be resolved.

Any kind of agreement by consent. Re: Kohinoor mills case- in compromise
there is a preexistence of a dispute however, in arrangement
Arrangement; An arrangement includes the reorganization of the share
capital of the co. ___ section 232 definition. This is not really a definition-
this just uses the word “includes.” Reorganization of share capital can be
done under section 61 as well i.e. reduction of share capital. So basically,
buybacks, reduction etc. can be done by usual means as well as under
“arrangements”. Attempted definition of arrangement; Re: savoy hotel
Any scheme that affects the contractual relationship bw. The co. and its
members in reorganization of shares. (However, this does not work for
India because in India contract between creditors and co. is also covered
in arrangements)

Vodafone case- A method of restructuring to avoid taxes. They did an

arrangement where they were transferring assets of various transferors to
transferee company. There was no consideration involved. In most of the
HC apart from Gujarat was approved. It was an arrangement being made
without consideration flowing that is why it was argued that it si not an
arrangement. Re Vodafone SR Gujarat single bench decision 2010. This
case helps us to define what arrangement would be.

12/08/2025

Arrangement aspects of the Vodafone case

§230 does not have a comprehensive enough definition of an

arrangement. The case helps here.

What is happening is that across various states, there was going to be a

transfer of what was known as passive infrastructure assets. Vodafone
Essar Gujarat Ltd. transferred these to Vodafone Essar India Ltd. A new co
had been created by the SHs of Vodafone Essar India Ltd. These 2 were
being merged with Indus towers. The latter was absorbed. So SHs of both
became SHs of Indus towers. This was a second stage of the transaction
which had not happened at the time. It is relevant because the transfer
was essentially happening to Indus Towers. This was relevant because it
was being done to minimise taxation.

The original transfer was happening across India. All HCs permitted the
transaction (NCLT did not exist at the time). The biggest was in Delhi and
the Delhi HC allowed it. When it went to the GJ HC, a single judge bench
refused. Their reasons were:

1. Taxation: their contention was that this was being done to avoid
taxation. Stamp duty of 600 crs was being avoided. Vodafone called
it a demerger by means of an arrangement. This term did not exist
back then. The second stage transaction had not happened yet but
its plan was already public. So the HC went into the purpose of the
first stage transaction.

The lawyers of the IT authorities argued that when you are transferring
only the assets, you are potentially also creating a problem for the
existing taxation dues that Vodafone Essar GJ Ltd. has. So they objected
as a creditor of the co. The amount of assets available taxes was going
down as a result of this transaction. The permission of the IT authorities
should have been sought. §230 calls for a meeting with classes of
creditors. So IT consent had to be sought.

So 1. tax avoidance, 2. reducing assets to pay pending taxes, IT worse off

as a creditor 3. meeting under §230 not called, 4. there cannot be an
arrangement or transfer of assets without consideration as per the ICA.
This is a transfer only of assets, no liabilities.

Backstory- what had happened is that across India, a lot of telecom cos
had undertaken such transactions. The idea was to generate income
without making it state specific. Reliance, Idea and others had done it too.
The idea was to prevent concentration of assets. PIAs are basically assets
that a telecom company had but did not need to give telecom services.
Vodafone existed in every state and every state had certain assets which
were not generating a lot of revenue. The idea was to consolidate assets
and use them across states as and when necessary. Consolidated assets
would also generate more revenue. This was the purpose, not to avoid
taxes. They structured it in a way to pay minimum taxes but why is that a
problem?

The problem with the GJ HC’s order was that it gave a very narrow
understanding to the definition of an arrangement. There were tiered
arguments. 1. not an arrangement, 2. if it is, consent required which we
do not give, 3. cannot have an arrangement without consideration, 4.
cannot have arrangement for something illegal like avoiding taxes.

The issue is, a lot of internal reduction of share capital, internal

restructuring and other such internal transactions, you don’t have to give
consideration. Cancelling shares without paying anything to SHs is the
most preferred way of doing a reduction. Does not mean these
transactions are not an arrangement. Reconstruction and restructuring are
internal, arrangements are within a group, can have third parties.
Amalgamations and mergers necessarily need another co. One of the
arguments vodafone made here also was that they had other assets to
pay the taxes. So the IT dept was not an affected creditor mandating a
meeting.

Division Bench order

1. Is a transaction that avoids taxes not possible under law?

2. Can you never have a transaction w/o consideration?

3. Does the IT authority even get a say?

§230(5) now specifically requires explicit consent from all authorities

including the IT authority.

On the tax avoidance aspect, vodafone argued that at no point were any
of these cos created sham cos. They relied on a vodafone sc order
happening simultaneously and held that tax planning is legitimate. The
intention behind the creation of the contract is what is necessary. There
were other aspects here apart from tax for this route.

Delhi HC had held that arrangements do not require consideration. There

was a lil more nuance here. They held that consideration can be anything,
even 1 rupee. Plus this was a reconstruction. These have many gives and
takes, all of which can be consideration. So consideration need not be
monetary.

13/08/2025
We have now seen the broad understanding which courts have given to an
arrangement. Now we will look at the section for the procedure, follow the
process of the transaction and look at cases through the process.

The Board would have a meeting. In the meeting, they would determine
whether an arrangement or a compromise is going to be necessary. A
proposed arrangement at this stage. To effectuate it, an application before
the NCLT. 2 kinds of applications, to have a meeting and to approve the
transaction.

Application for the meeting:

The application can be made by any creditor or member or liquidator, or

as often happens, the co (via the board on the co’s behalf). These are the
people who can make the application. A compromise/arrangement
happens between a company with its members/class of members and a co
with its creditors/class of creditors. What is not included here is any kind
of share transfer or any agreement happening between 2 sets of
shareholders.

An arrangement is a relationship of the co with its SHolders or

creditors. Not a rearrangement or a contract between SHs or
members. That can be done by an SHA. This is why this is an NCLT
driven process. So a lot of transactions can happen without the
NCLT if the co is not an involved party.

The issue is to define a class. But the Act does not define it anywhere. It
has to be determined on a case to case basis by the company. It needs to
be determined on the basis of the nature of the transaction. Preferential,
equity, DVR is not how we do it here. They can all belong to the same
class based on the transaction. Different kinds of equity SHs can form
different class. So how do you determine it? A test determined by the GJ
HC in a case.

Maneckchowk & Ahmedabad Manufacturing Co. Ltd., Re (1970) GJ

HC

What you need basically to determine a class is to see if their rights are
going to be affected in a similar manner by the transaction. Commonality
of interest within a class. So the co needs to look at the transaction and
how will this proposed transaction affect the SHs or the creditors. If all SHs
affected, they will all be one class. If affected in 2 different ways, 2
different classes.

The class must be confined to those persons whose rights are not
so dissimilar as to make it impossible for them to consult
together with a view to their common interest.

Basically the rights and the effect on them will have to be determined
based on the transaction. We’re equating interest with effect here. It is the
effect on the rights that counts. The jurisdiction of the NCLT (CLB earlier)
is very procedural. The merits of the transaction and identification of a
class is usually left to the co.

Suppose a co proposes an arrangement in 2005 and then another in 2007,

determination of a class changes. Every transaction will have a fresh
classification depending on how that transaction affects members or
creditors. Classes of creditors is usually preferential, secured, and
unsecured largely. But that can also change depending on the transaction.

Sovereign Life Assurance Co. v. Dod (1892) UK case

For an arrangement, for creditors, there were people who were insured
and had matured policies, and insured but not matured policies. So it was
held that they will be 2 different classes.

Debenture holders can also constitute a class. Even within that,

convertible and non-convertible debenture holders can make 2 different
classes. Another case is:

Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1996) SC

It discusses many different aspects of an arrangement all in one case.

Discussion on jurisdiction of courts wrt arrangements and amalgamations
is something for which this case is often referred to.

2 cos. A merger by absorption was happening between 2 cos. MFL

(Mafatlal Fine Spinning Ltd.) was the transferor —> MIL was the
transferee. What was being proposed was that the former would be
absorbed in the latter co. Part of the same group but in different
jurisdictions. Bombay and GJ respectively. Miheer Mafatlal was linked to
the promoter group family. In the 70s earlier, there was a family
arrangement between different branches of the family. As a result, Miheer
was the director of the transferor and a SH of the transferee. As director,
he did not raise objections to the merger. MFL filed an app before the Bom
HC. MIL filed one in GJ HC and here, Miheer as SH of MIL, he objected to
this transaction. He objected after the meeting had happened. Permission
to hold meeting happened, overwhelming majority of the SH of the
transferee co were happy with the transaction (more than 5000 agreed,
less than 200 disagreed).

He objected on 4 grounds:

1. The explanatory statement to the transaction (application to NCLT

for a transaction has to have this attached, what the transaction is,
who the interested parties are, etc.) had an error because there was
a failure to consider that his cousin Arvind Mafatlal was secretly at
the helm of the transferee co to undergo the transaction in a
manner that would adversely affect Miheer. Arvind was a member
and a Board member, but by no means in a controlling position
factually.
 2. This was oppressive of minority SHs. They should themselves form a
class. Only one meeting happened without a demarcation of classes
and no class meetings happened.

3. Even if other minority SHs were not a different class, because I have
my shares through a separate family arrangement, I am different
from other minority SHs. So I should form a separate sub-class of his
own, and that his rights are different due to the arrangement.

4. In relation to the share price ratio. What happened to one of these

cos was that the SHs of the transferor ended up with shared of the
transferee co. This is share exchange. The valuation of share
exchange ratio is one of the most debated part of mergers even
today. He said that the share exchange ratio was unfair.

The GJ HC refused to intervene and allowed the transaction. He went to

the SC. SC also rejected all of it.

1. As part of the explanatory statement (§393 of the old act), one of

the things you have to disclose is special interest. And that has to
be different from everyone else. You need to show that someone is
making special gain compared to other directors. There is no special
interest if the gain is same as everyone else. There is nothing to say
that as a director or a SH, he is gaining anything extra. He was not a
big SH. If anything, MIL also had much larger institutional SHs. The
court also spoke of his behaviour for not objecting as director of
MFL. Court reused to get into a family dispute. Nothing on the face
of it to show any special gain by Arvind.

2. Went back to the Maneckchow idea. How do we determine

commonality of interest? This transaction has the same impact on
all SHs. All their rights and shares are being affected in the same
manner, no different from any other SH. No special effect means no
separate class. So all SHs are one class, with no need for a separate
meeting of minority SHs. Not relevant when a transaction treats
minority and majority SHs in the same way. The ultimate impact
may be a little different in terms of how control might pan out,
control rights may be slightly different. But the transaction itself
does not affect them separately. Different control as a result of a
transaction is not enough. You need to show that the transaction
itself treats you differently, say like a selective reduction of share
capital.

3. Rejected the argument of a sub-class. Nothing within the statute to

suggest that there is a concept of a sub-class that even exists.
Nothing to suggest that sub-classes and their meetings exist. Here,
he will not make a class of his own because he is not being treated
any differently compared to other SHs. How he got the shares does
not automatically make him another class. Origin of shares is not
relevant, treatment is.
 4. On the share exchange ratio, the court said we do not get into it. In
this case, twice, there were two independent valuers who looked at
it and said that there was nothing wrong with it. One was by EY, one
by Deloitte. One had some concerns, second was ordered by the HC.
A lot had gone into it and a conclusion reached. Unless there is a
substantial problem, the courts will not get into it.

There was also something on jurisdiction of courts in an arrangement.

We’ll come to this later in greater detail but we mention it here regardless.
The court speaks of a sanctioning authority. So even though there was no
NCLT back then, this would still apply to the NCLT. The sanctioning
authority has to make sure that all statutory proceedings wrt meetings
have been complied with. Meeting was just and fair, notice, quorum, etc.
When the meet happened, voting happened properly, majority actually
voted in favour, etc. Apart from this, the only thing court would look at
whether an arrangement or an amalgamation violated public policy. Are
the members/class/co acting in bona fide interest? Is this a confiscatory
scheme? Basically are you taking away something from minority SHs,
because this is one of the biggest grounds for an Oppression suit. It is
permitted only if a remedy is granted. The last thing is whether the
scheme is just, fair, and reasonable. Whether it is being done in a manner
that is unfair on the face of it. Unfair to SHs, creditors, to not fulfil
obligations under the IBC or something like that.

Once the aforesaid broad parameters about the requirements of a

scheme for getting sanction of the Court are found to have been
met, the Court will have no further jurisdiction to sit in appeal
over the commercial wisdom of the majority of the class of
persons who with their open eyes have given their approval to
the scheme even if in the view of the Court there would be a
better scheme for the company and its members or creditors for
whom the scheme is framed. The Court cannot refuse to sanction
such a scheme on that ground as it would otherwise amount to
the Court exercising appellate jurisdiction over the scheme rather
than its supervisory jurisdiction.

You cannot use the NCLT as a means to change the terms of the
arrangement. Its role will only be supervisory to ensure the procedure is
followed, not to discuss anyones’ commercial wisdom.

25/08/2025

There is another restriction in relation to objections that are made. It is

during a situation where notice has already been given. There is this
provision that says that objection can be made, it does not talk about
when how etc. It does not even say objection but who can make an
objection. You have to have at least 10% SH or an outstanding debt which
is not less than 5% of the co’s total outstanding debt. This has been done
to prevent objections which are trivial or mala fide just to restrict the
process.
We say that this has to happen after notice because of the placement of
this section as a proviso of the requirement for notice under §230(4). It is
the NCLT that determines the modalities of the meting. The co calls for the
meeting and sends the notice but the NCLT tells cos how this is to be
done. This is essentially an objection to the calling of the meeting, but the
proviso says objection to the compromise or arrangement.

Can I object to even the calling of the meeting in case you’re less than
10%. The language of the Act does not prohibit this. But it is unlikely to
succeed with such a small shareholding. In case law, there is a difference
between objection to the scheme and calling of the meeting. The statute
has a threshold for objections to schemes. We do not know whether this
threshold also applies to the other 2 kinds of objections as well.

4th type of objection is only in relation to a specific kind of arrangement.

Any takeover of an unlisted co will fall within §230. The takeover code
does not apply to the status of the acquirer, but only the target co.
because the purpose is to give an exit option to the SHs of a listed co. If
the target is not a listed co, any takeover will be an arrangement or a
compromise. This is §230(11).

Cos. will usually prefer this route compared to the takeover code because
this is a much cheaper process. You can do a takeover my means of a
simple SPA. But if the SPA significantly affects the rights of creditors or
SHs, you will have to go through arrangement/compromise route under
§230.

There is no set definition of a takeover or an acquisition under the Act.

The economic, common sensical definition would be a change in control.

Under §230(12), you can have an objection to the takeover of an unlisted

co which is done by means of an arrangement/compromise. The aggrieved
party can make an objection to the NCLT and the NCLT has the power to
do any order as it deem fit. The NCLT may pass any order as it deems fit.
So here, the NCLT could very well give an exit option. So do the same
thing as the mandatory bid rule (MBR), but in a flexible manner.

The next step that we have is the meeting. For notice, you rely on the
amalgamations rules. You not only have to give notice but also make
advertisement of the notice. You can, in certain cases, not have a creditor
meeting. If they’re not affected, or if they agree via affidavit under
§230(9).

Now what if a valid notice has not been given? The court is not going to
consider this as a valid meeting.

Now we have case law which say that say if 93% creditors were given
notice, but by mistake, 7% were not. It was held to be a valid meeting. It
is an invalid meeting if a chunk has not been given notice on purpose, or if
a very large chunk is not given notice. 2 sets of NCLT approvals, for calling
a meeting and for approval of the meeting, 4 if the cos are in a different
jurisdiction.

26/08/2025

29/08/2025

A couple more things for wrapping up §230. We’ve spoken about the
jurisdiction of the court. Under §230(7) the NCLT is allowed to give various
orders. These are basically orders that are in relation to confirming the
compromise or arrangement. So you need to have the meeting and
positive results there, as well as its confirmation by the NCLT. (7) has the
different kinds of orders. Converting preference shares to equity shares,
protection of any class of creditors, any variation in shareholding, any exit
offer to dissenting SHs (there is no mention of what exactly happens here,
but it is there in the sense that if the NCLT feels an exit option is required,
it can order one). There is a proviso to all of this (we don’t know why this
is here and not in sub-section 6, because it deals with those) which says
that there will be no sanction to an arrangement unless there is an auditor
report that all information presented is compliant with the 133 accounting
standards, which are universally adopted since 2013. This should ideally
have been with conrimation under (6). Once you have this order from
NCLT, file it with the RoC, and the arrangement/compromise is done.

One issue is when is the date of taking effect from which the
arrangement/compromise comes into effect. If you have an appointed
date mentioned, then that is the date of taking effect. But if you do not
have one, the date is not the day wen the NCLT passes the order, but the
date of the meeting. So it is back-dated. So it is binding in the period
between the meeting and the NCLT sanction retrospectively. The idea
behind this is that it is not NCLT confirmation that leads to the acceptance
of the arrangement but the approval of SHs. NCLT approval is necessary
only to confirm it. The meeting is what sanctions it. Having said that, if the
NCLT does not approve, the date of the meeting is irrelevant.

§231 speaks about what if you want to change things in a sanctioned

arrangement. In such a case, the NCLT has the power to make sure that
the compromise/arrangement is happening properly. So §231 gives 2 kinds
of powers. 1. Power to supervise the implementation and 2. power to
make orders for any modification as is necessary for the proper
implementation. You can’t just make orders to modify, but only when they
are necessary to implement the arrangement/compromise properly.
Additionally, the NCLT cannot pass an order that materially alters the
arrangement/compromise. For that, you’ll have to undergo the entire
process again.

Under §231(2), if the NCLT feels that it cannot be implemented

satisfactorily and the company is thereby unable to pay its debts, the
NCLT can make orders for winding-up of the co. So the section can also be
used to debt restructuring. What it does not mention who can make an
application for this winding-up, the assumption is that the NCLT can do it
suo moto. This is because in the 1956 Act, it was said that the court in its
own capacity, or any person interested in the affairs of the co can
make the application. So the assumption is that the language was
amended on purpose because the phrase above does not feature in the
2013 Act and therefore, no one can go and file an application. We have
not had a decision that challenges this power.

There have been case laws which state that 231 is only to modify, but the
basic foundation of the scheme cannot be modified.

There are certain limits to the powers of the court. It can only sanction a
scheme that members/creditors have approved. It cannot sanction a
scheme that the law does not permit. In relation to buy backs and
reduction of share capital, there has been a bit of a change made in
relation to when this will apply. Explanation to §231 says that for the
removal of doubt, it is hereby declared that the provisions of §66 shall not
apply to the reduction of share capital….. So if you do a reduction of share
capital under §230, you do not have to undertake the whole process under
the §66. This is done to prevent the double-filing of applications if
someone wants to reduce share capital as an arrangement/compromise.

§230(10) says that a scheme in relation to a buy back shall not be

sanctioned unless it is in accordance with §68. So unless you already
comply with 68, a scheme for a buyback under §230 will not be
sanctioned. Why are the 2 (reduction of share capital v. buyback) treated
separately? What is the difference between the 2 that makes this
necessary? A buyback requires other things. It requires statements in
relation to valuation, proper pricing, etc. It also has a lot of requirements
for listed cos under the SEBI Regulations on buybacks. So you cannot
bypass all of that by simply doing it under §230. §230 and 68 are both
NCLT processes, so reduction can happen in one way under §230. But
buybacks are something that the NCLT is not supposed to do. So you have
to treat them differently, because §230 is similar to reduction of share
capital but the process for buy backs is not.

01/09/2025

§232- Mergers

Unlike §230, where not too many changes were made between 1956 and
2013, this section has had a lot of changes. The changes are more
structural than substantive. Because under the 2013 Act, we have more
new types of mergers. We have a new separate category for mergers in
public interest (govt mergers, state owned enterprises, etc.). Same for
cross-border mergers. It is not like they did not happen earlier, but before
2013, we did not permit out bound mergers, so we did not permit money
to leave India. Why this matters is because the terminology of §232 is
transferor and transferee co. Because unlike an arrangement or a
compromise, a merger necessitates that there is more than one co.
Transferor is the co who assets and liabilities are being transferred into the
transferee co.

The reason we have omitted the definition of the transferor and transferee
is because under §394 of the old act, the transferee co was defined as a
company (so registered under the act and other preceding legislations),
but the transferor co was defined as any body corporate. So this also
allowed foreign cos. This is where out bound mergers were prohibited, not
in as many words, but with that exact impact, since a transferee could
only be an Indian co. Instead of reworking these definitions, the 2013 Act
did away with the definition in its entirety.

We start with the end of §232, which tries to come up with a definition of a
merger v. an amalgamation. What is the difference between a merger and
an amalgamation? Traditionally, the definition is that a merger is a
situation where one co is merging into another co. (so absorption). An
amalgamation is when more than one co. is created and the assets and
liabilities of several cos. are amalgamating into this new entity. The issue
is that the 2013 Act, for what reason we don’t know, does not define what
an amalgamation is. It just says that there are 2 types of mergers, by
absorption and by creation of a new co. The explanation in §232 reads-

Explanation.—For the purposes of this section,— (i) in a scheme

involving a merger, where under the scheme the undertaking,
property and liabilities of one or more companies, including the
company in respect of which the compromise or arrangement is
proposed, are to be transferred to another existing company, it is
a merger by absorption, or where the undertaking, property and
liabilities of two or more companies, including the company in
respect of which the compromise or arrangement is proposed, are
to be transferred to a new company, whether or not a public
company, it is a merger by formation of a new company;

There is a very high chance that this is bad drafting. So other things can
also fall into this. De-mergers for example. The idea is that amalgamation
has now been left vague, either due to bad drafting or intentionally.

Merger by absorption

You have the transferor co which is absorbed into the transferee co. When
we speak of a merger, we speak of a transfer of assets, liabilities,
undertakings, business, etc. It does not have to necessarily mean a
transfer of the entirety of the business. This exception could mean
something like a slump sale. But that would be an
arrangement/compromise rather than a merger.

“….are to be transferred to another existing company…” This is the

difference between a merger and an arrangement/compromise because in
a merger, a co usually comes to an end. So what you are doing here is
making the SHs of the transferor co SHs of the transferee co. Transferor co
is now a shell and is wound up. The reason merger law is important is for
what to do with the SHs. They will become SHs of the transferee co by
means of a share exchange agreement. These agreements are therefore
of vital importance. Merger is the end of a business, the absorption of one
business by another.

Acquisition is change in ownership, control, ownership rights,

management. The acquired co does not come to an end in an acquisition.
The control is tangibly going to be the same, but the co. does not come to
an end. This is why NCLT approval is not necessary in an acquisition. In a
merger, SH consent is a requisite. Members, SHs, creditors, etc. are
agreeing to the merger based on a pre-existing share exchange ratio. The
reason that SHs are directly affected here is why merger is an NCLT driven
process.

If a listed co is acquired by an unlisted co, the latter does not

automatically become a listed co. There needs to be a listing. But the SHs
need to be given an exit option. So depending on whether the cos are
listed or unlisted, there are SEBI regulations.

We do not know what an amalgamation is now. It is not an acquisition

though because §230 is very clear that acquisitions of unlisted cos need to
happen under §230. So on that we have clarity.

A creeping acquisition where you are already holding some shares, and
you suddenly hit a threshold, triggering the MBR. Reverse mergers is
where an unlisted co merges with a listed co to become listed without
having to undergo an IPO.

Merger by creation of a new co.

All assets, liabilities, undertakings, business, etc. of cos A, B, C, D are all

subsumed into E. This is easier practically because you are just creating a
new co. Legally, it is the same section. “….to be transferred to a new
company, whether or not a public company, it is a merger by formation of
a new company;”. Again, there is no automatic listing here.

02/09/2025

Application process for a merger under §232

We looked at the definitions we had. One of the big question is how to do

an application? Is it the same as §230? Who can make this application?
etc. You normally have to make 2 separate applications because you have
a transferor and transferee. But there may be cases where you do not
have to make 2 cos. What are those cases? Like the creation of a new co.
You will need several applications from several transferor cos.

When §232 was discussed, the idea was that you could have a single-
window clearance. Not just for the merger process, but also for other
sections that would become relevant in a merger process. If you are in 2
different jurisdictions, you need to make 2 separate applications. If you
are in the same jurisdiction, can you make a joint application? There is
nothing prohibiting it in §232 of 2013 or §394 of 1956. What if the
transferee co is not going to be affected at all? In such a case, would it
have to make an application here? For this, we have a case.

Reliance Jamnagar Infrastructure Ltd., In re (2012)

Here were had a situation where the subsidiary was the transferor and
was being transferred into the holding co. Now, you can put this through a
fast-track merger. But this is before that mechanism came up. The
transferor makes an application. The question is, should the transferee co
have to? There was no impact on the debt or creditors or SHs of the
transferee co. There is a debt of the transferor co, but more assets. So no
negative impact. In such a case, did the transferee co have to do a
separate application?

Held- The court said no. So we basically need to see how the rights of the
creditors and the SHs are being affected. NCLT does not have the power to
dispense with meetings. It has the power to say you don’t have to file
separate applications and can file a joint one. Both cos still have to hold
meetings. You may be able to dispense with a creditor meeting here, but
you won’t be able to dispense with the SH meeting. You need a SH
meeting, you cannot do a merger without their approval. What the
process allows is to save up on the cost of 2 separate applications. Now if
one party to the merger is going to be significantly affected, in such a
case, it would be advisable for both parties to have their own separate
applications. All this determination will be done on a case to case basis.
Technically, you are supposed to have to file 2 applications. You can apply
to the NCLT to waive this so that you can file a joint application. This is
more practice than statute.

Economic burden is one thing, but in separate applications, you are giving
two hearings to the NCLT. In a joint one, there is only one hearing. Now
NCLTs across the country can rule differently on the same transaction, like
we saw in the Vodafone deal. So in a joint application, you are minimising
hearings and opportunities for the NCLT to say no. Now it may sound
absurd that NCLTs in 2 jurisdictions may say different things in the same
deal. If it is the same deal, why seek approvals from 2 different NCLTs?
Because if you have stakeholders in different jurisdictions, you are giving
notice to these immediate stakeholders so that all concerns are taken on
board. Say Delhi approves it, but in GJ, the deal will result in the office
shifting places leading to many people being laid off. So NCLT in GJ might
look at it from a public policy angle and not permit the transaction.

Single window clearance.

The first thing is that there are many provisions in the Act where when
changes are made, it requires certain applications.
BSBK Engineers Pvt. Ltd. (2011)

Here, you had 2 transferor cos which were being merged into a third co.
which was the transferee co. So SHs of co 1 and 2 would become SHs in co
3. Same with employees. Now what happened is that co 1 was a public co.
The transferee was a pvt co. A public co is merging into a pvt co. Usually
for this, there is a procedure under §13 wrt exit option, amendment to the
objects clause, change of name, etc. Some of the SHs of co. 1 objected
saying that if this public co is being converted into a pvt co post a merger,
then the procedure under the Act for the same needs to be followed. No
separate applications were being made for this conversion snd it was
being done through the §232 route.

Held- This would not be required. Any approval by the CLB (applies to
NCLTs of today) was a single window clearance. If a deal was cleared, you
do not need separate approvals for anything else that needs to be done as
a result. This is the same as reduction of share capital, where there is a
single window clearance. This is because such a merger is one of the most
onerous applications process. So asking the co to file applications for all
allied processes being undertaken pursuant to the transaction would be
unfair.

The other thing is that does an application under §232 preclude an

application under §230? Because when the idea of as single window
clearance was being discussed, the idea was that you just had to file
under §232. But the Act and Rules make it clear that to conform to §232,
you need to be compliant with §230. This can be a joint application under
§230 as well as §232. Since 2016, everyone has been doing a joint
application.

[Link] and amalgamation of companies.—(1) Where an

application is made to the Tribunal under section 230 for the sanctioning
of a compromise or an arrangement proposed between a company and
any such persons as are mentioned in that section, and it is shown to the
Tribunal— (a) that the compromise or arrangement has been proposed for
the purposes of, or in connection with, a scheme for the reconstruction of
the company or companies involving merger or the amalgamation of any
two or more companies; and (b) that under the scheme, the whole or any
part of the undertaking, property or liabilities of any company (hereinafter
referred to as the transferor company) is required to be transferred to
another company (hereinafter referred to as the transferee company), or
is proposed to be divided among and transferred to two or more
companies, the Tribunal may on such application, order a meeting of the
creditors or class of creditors or the members or class of members, as the
case may be, to be called, held and conducted in such manner as the
Tribunal may direct and the provisions of sub-sections (3) to (6) of section
230 shall apply mutatis mutandis.
So as per the language of the Act, you need to be compliant with §230 to
be able to successfully make an application under §232. A §230
application is presumed for a successful §232 application.

Rule 18 of the amalgamation rules says-

18. Application for directions under section 232 of the Act.— (1)
Where the compromise or arrangement has been proposed for the
purposes of or in connection with a scheme for the reconstruction of any
company or companies or the amalgamation of any two or more
companies, and the matters involved cannot be dealt with or dealt with
adequately on the petition for sanction of the compromise or
arrangement, an application shall be made to the Tribunal under section
232 of the Act, by a notice of admission supported by an affidavit for
directions of the Tribunal as to the proceedings to be taken. (2) Notice of
admission in such cases shall be given in such manner and to such
persons as the Tribunal may direct.

So the rules seem to suggest that you make an application under §230
and then file a §232 application. But as a matter of practice, most cos do a
joint practice. When the idea is discussed, the language of the Act makes
it look like a prior §230 application has already been made, and if required
or if the NCLT asks, file a §232 application. But as a matter of practice,
joint applications are made all the time. Under §232, this will happen in
the context of an arrangement or a compromise under §230 has been
envisaged for the purpose of a merger under §232. §232(1)(b) is the only
mention of a de-merger in the act. So a de-merger will also happen under
the aegis of §232. Now the issue is, it only defines a merger, and not an
amalgamation or a reconstruction. So a lot of transactions can come
under §232, since a reconstruction can mean anything. So if there are
more than 2 companies involved, it is smarter to file a §230/232 joint
application to not take a chance. All these terms have been kept vague on
purpose, so that more and more transactions fall under it.

In rule 18, why even go to §230 if you have §232. Because technically, you
need to do an internal restructuring in the co to be able to do a merger.
This restructuring is ordinarily an arrangement, which will have to happen
under §230. Say alteration of share capital, or altering the face value of
shares. You need to bring it on par so that the SHs of the transferor co
gets an adequate share exchange ratio.

03/09/2025

Different kinds of orders that the NCLT can make under §232(3)

These powers are much wider than §230, because that is not dealing with
things like transfer of employees, the transfer of the entirety of a co, etc.
So the nature of the orders that the NCLT has to give here are much
broader.
The first thing this says that before the NCLT passes any orders, it needs
to be satisfied that all requirements of §230 as well as §232(1) and (2) are
satisfied. The format of these orders is different, as is the form under the
rules.

§232(3)-

(a) Transfer to the transferee co of whole or any part of the property: This
provision is broad in its scope. Definition of property has been given in
explanation (4) to §232. The definition given here is very broad. “assets,
rights, and interests of every description”. So the NCLT can pass an order
for any of this to be transferred.

(b) Now in a merger, there is always an allotment of shares. So allotment

of any shares, debentures, debt equity or hybrid instruments, the tribunal
has the power to allot them and lay down how that will happen. However,
you cannot have a situation where you will end up holding your own
shares. This is known as Treasury stock. This is different from a buy-back,
where the shares are cancelled and only the proceeds remain in the
capital redemption reserve account. But in a treasury stock, it is when the
co. is holding its own shares. This is extremely problematic and is not
done anymore, per the proviso of (b). This used to allow cos to do a lot of
market manipulation. Buy backs are regulated, this is not. There is a lot of
talk of increasing the minimum pubic shareholding from 25% but India is
yet to do it.

Unless you wish to do a merger structurally, a lot of this can also be done
without many regulations through a series of SPAs or asset purchase
agreements. Like in India, acquisition financing is not easy, compared to
asset purchases. So there is a lot of subtlety involved here.

(c) When you are merging a co, all legal proceedings and liabilities of the
transferor co will be transferred as well. So you cannot be absorbed by
another co. to evade your legal liability.

(d) Another power given to the NCLT is to order a dissolution of the co.
This is not winding-up. NCLT has the power to order dissolution of
transferor co or cos. It is important to note that this is not a liquidation or
winding-up. Because in those, assets are available under the waterfall,
that does not happen here. Assets of the transferor become assets of the
transferee.

(e) Provision for dissenting SHs. The power here is to make provision for it.
The NCLT also has a power to decide how the dissent is to happen. Why is
this missing in §230? It will end up applying only to applications that are
under §230/232. Under §230, an exit option is available to dissenting SHs
only in an acquisition. The provision in §230 speaking of this option has to
be read in tandem with the provision right above it. This is (11) and (12).
(f) For shares held by non-resident SHs, need to be compliant with rules
for foreign SHs.

(g) Transfer employees from transferor to transferee

(h) This speaks of a reverse merger. The term is not used anywhere, but
the concept is. (A) says that if the transferor is listed and the transferee is
unlisted, the latter shall remain an unlisted co until it becomes a listed co.
(B) says that in case of such a merger, an exit option has to be given to
sell their shares at a pre-determined rate, or as may be determined by the
NCLT. Let’s say now that an unlisted co is merging with a listed co, it will
continue to be a listed co. The SHs of the unlisted co have now avoided an
IPO. There is nothing mentioned for such a merger, but it happens.

(i) Any fee payable by the transferor shall be paid by the transferee co.

(j) any other orders as may be deemed necessary by the NCLT.

Proviso- you need a statement by the auditor.

(4) By the passing of the order, there is a deemed transfer of property and
liabilities, without having to undertake separate transfer proceedings.

One of the most important things that separate an

arrangement/compromise from a merger or amalgamation is the valuation
and exchange rate of shares. We have pre-2013 caselaw on this. As we
saw in the Mafatlal case, courts are likely to stick to commercial wisdom
here unless something is wrong on the face of it.

In re: Bihari Mills Ltd. (1985)

Here, the GJ HC refers to the basic text on mergers (although from the US)
Weinberg and Blein treatise on mergers and comes up with things that the
co needs to keep in mind while determining the share exchange ratio.

1. What are the share prices prior to commencement of negotiation or

announcement of any bid that has been made. So the value before
it has been affected by the announcement, prior to the MBR being
triggered.

2. What is the dividend? Some cos pay higher than others. If you are a
high dividend paying co merging with a low dividend paying co, the
value needs to be higher.

3. Relative growth prospects. Things like gearing, financial leverage,

debt to equity ratio.

4. Valuation of assets of the co

5. Past trajectory of share prices

 6. Ultimate voting strength of the SHs of the transferor co in the
transferee co.

It is not the job of the NCLT to go into it and calculate the ratio. It just
needs to supervise.

What is a reconstruction?

There is no definition. The only thing that we have was an attempted

definition in a case of the Cal HC.

Inland Steam Navigation Workers’ Union v. River Steam

Navigation Co. Ltd. (1968 Cal HC)

In case of an amalgamation, all the rights and liabilities and property are
amalgamated from the transferor co to the transferee co and the latter is
completely vested with all the property, rights and liability of the former.
This is very akin to a merger. You cannot read this in tandem with the
2013 definition.

For reconstruction, the court said that there is no set definition. You must
read from the scheme itself. An amalgamation is more specific, while a
reconstruction may be of a general nature.

When we were looking at the beginning of §232, we looked at all assets v.

part of them being vested. What this seems to suggest is that where there
is a part vesting, that could be considered a reconstruction. What also
helps here is that Halsbury’s treatise on law defines reconstruction as not
a complete transfer, but a partial one. However, we are taking this from
very little information and not from the statute. This is because neither
merger not amalgamation speak of a partial transfer, but the provision
does. So the assumption is that it could be referring to a reconstruction.

09/09/2025

Fast track mergers §233

This was introduced in the 2013 Act. There was no such process under the
1956 Act. Arrangement/compromise has always been a long drawn
process. The Irani Committee recommended that for certain kinds of
mergers, we should not require NCLT approvals. These are very specific
kinds of mergers. This will happen through the Centre and the RoC. There
have been problems with this. Its initial ambit was very restricted. That
has been expanded in 2021 as well as 2025. The rules were also amended
to increase the scope. The second area of contention is about just how
fast this is?

Even if you fall in this category, you can choose not to go down this route
and go under §230 and 232. §233 is voluntary. So within this, if the Centre
raises an objection, then the entire process is shunted to the NCLT. So
there is a fallback mechanism within 233 to go back to 232. So if there is
something that could be problematic in the transaction, you’re better off
going under 232.

Fast-track merger is a term we use, it is not in the statute. The committee

also spoke of this. The section reads merger or amalgamation of
certain companies. We are looking at Rule 25 of the Amalgamation rules
as amended last week.

What cos are eligible?

The initial ambit was as follows:

1. Two or more small cos- you can have a fast track merger between
small cos. A small co is defined under §2(85) and it excludes a public
co. It is a co which has a paid up share capital of <50 lakhs, and
other requirements (check the definition). Why this relaxation for
small cos? They do not have that big of a financial impact. Plus we
have excluded pvt cos. So these are cos where the public SHs will
not be affected. Only those who have directly invested in the co.
What if even in such a co, there is something problematic? We have
the fallback mechanism to §232 in-built.

2. A holding and its wholly owned subsidiary- a WOS is one where the
hold co has 100% shareholding. So this is an easier route in such a
case. Why do hold cos and subsies have this relaxation? Because for
many purposes (accounting etc.), you’re already treated as one co.
So merging them should not be a very difficult process.

3. Any other co as may be prescribed from time to time- this list has
been expanded every so often. This provision exists to add more cos
without having to amend the section. In 2021, Rule 25 was amended
to add Rule 25(1)(a) saying that you could have a fast track merger
between 2 or more start-ups and a start-up & a small co. Now this
has been done for a very specific reason, which is to encourage
start-ups. The definition of start-ups is given in the DPIIT
notification. This was again added to recently. (1)(a) has had more
things added to it. There was a consultation paper introduced by the
MCA. As a result of this, there has been a change in procedure as
well (we will come to that later). So it has not been just expanding
the scope, but adding regulatory measures as well. So 2 changes
happened to rule 25. One in 2021 and 3 in 2025. They are as
follows:

1. One or more unlisted co (we are no longer speaking of just pvt

cos, but public unlisted cos), with another unlisted co where
every co involved in the merger. This is not a co in default,
which does not have a lot of debt exposure. No failure to pay
debt. In such a case, you can have a fas track merger. When
we look at the procedure, both the members and creditors
 have to overwhelmingly approve this (9/10th approval), else
this will also go down the 232 route.

2. A holding co listed or unlisted and a subsie (regular, not WOS)

listed or unlisted. Provided that this shall not apply if the
transferor co is not a listed co. So if the subsidiary is being
merged into the hold co, the subsie cannot be listed. Unlisted
subsie merging into a listed or unlisted hold co. is fine.
Unlisted hold co merging with listed hold co. also fine. Even for
a listed transferee, SEBI has still mandated approvals these
days. The reason for doing this was that the timelines were
very long. When you have a listed co being a transferor co,
transferor usually ceases to exist. So the public SHs see their
shares not being transferable through a stock exchange
anymore.

3. one or more subsidiary company of a holding company with

one or more other subsidiary company of the same holding
company where the transferor company or companies are not
listed. So if one subsidiary is absorbed by another subsidiary
of the same hold co., or if 2 subsidiaries merge and create a
new co, as long as the transferor co (one co in the former
case, both subsies in the latter) is unlisted, it would be eligible
for a fast-track merger. This can also work across layers of
subsidiaries. The language of §233 now also includes de-
mergers and the RoC has been allowing fast-track de-mergers.

4. The first mention of a cross-border fast-track merger, in a very

limited sense, being allowed here. Merger of the transferor
foreign company incorporated outside India being a holding
company with the transferee Indian company being its wholly
owned subsidiary company incorporated in India. So a foreign
hold co, an Indian WOS. The hold co merging into the subsie.
This is a feeler perhaps to allow cross-border fast-track
mergers to happen in India. Now what happens if the subsie is
foreign and the hold co is Indian? Since a foreign subsie and
Indian hold co. is not something the rules speak of, not a fast-
track merger. Will fall under §234 for cross-border mergers.

<aside> 💡

Cheat for understanding this: money coming into India, aways welcome.
Money leaving India, we are not too happy about it.

</aside>

If there is any lack of clarity, you go under §232. In case you have any
doubts, you are better off going under §232. So even if you have 2
transferor cos, one of which is listed, you cannot have a fast-track merger.
So now we have 6 scenarios where a fast-track merger can happen.
10/09/2025

We saw the types of cos that can do a fast track merger. Now we look at
the pocedure.

§233(1)

(a) Notice to the RoC and to the official liquidators. To those RoC’s where
the respective cos are registered (both transferor and transferee cos). You
may receive certain suggestions from the RoC.

(b) When that happens, the co has to gave a GM, you need to have 90%
consent. In §233, class meetings are not required. One SH meeting. But
this needs to have 9/10th consent. So technically, if the transaction is only
going to affect a class, you can have a class meeting. But usually, you’d
be able to get away with it. Generally, something like this is not going to
affect classes differently, unlike an arrangement/compromise. However, if
you do wish to call a class meeting, you can have one. Hypothetically say
if equity v preference SHs have a different share exchange ratio in the
transaction. Need approval of those holding at least 90% shares.

(c) Another thing you need is a declaration of solvency from all cos
involved in the transaction. This needs to be filed with the relevant RoC
depending on where the head office of the co is.

(d) Apart from this, you also need to have a separate creditor meeting.
90% value of creditors have to agree to the transaction.

If the RoC does not have any objections, the CG will recognise the
transaction. If the RoC or the official liquidator have any objection or
suggestion, and notify it to the CG, or if the CG takes suo moto
cognisance, the CG can send it to the NCLT. This can happen even if there
is 90% consent. So now you will be following the NCLT process under §232.
So a fast-track merger has a built-in mechanism for referral to the NCLT. It
is then up to the NCLT to determine whether to take it under §232 or allow
the fast-track merger.

The latest changes made in 2025 state that the initial notice that you give
in relation to the RoC and the official liquidator, the same notice also
needs to be given to RBI, IRDAI, SEBI, and other relevant regulatory
authorities. This is a govt notification. Relevant amendments have yet to
happen. So we are closer to the disclosures and regulations of 232 now
than we were before. These changes have enhanced the number of
situations where a fast-track mergers can be done. But they have added
more regulations. By extending the fast-track mergers to so many kinds of
companies, we are back to fast-track mergers not really being fast. Go to
the MCA website and see the notification.

Another change was that there was no specific mention of de-mergers.

The rules now specifically read: Rule 25(9) has been added which extends
the provisions to de-mergers. This is just codifying something that was
already happening in practice. Keep in mind that you always have a
choice. You can choose between 232 and 233. If you think there is
anything potentially problematic, you can always, to be safe, go down the
§232 route.

Generally, §230 and 232 allow the official liquidator to file before the NCLT.
So a merger can also be done for a co under insolvency. This happens
under §230 and 232 though, not §233. This is not something you will be
able to do a fast-track merger here. There, the official liquidator will have
to permit or apply for under §232 and 230. that is also because §230 and
232 allow it. §233 only says that a co can apply an application. §233 does
not prevent the merger of an insolvent co, but it has not been done yet
and is not advisable.

11/09/2025

Cross-border mergers - §234 r/w relevant RBI Circulars

There has been new literature on reverse-flips. So we will also be spending

some time on it.

25A of the amalgamation rules and the FEMA cross-border merger

regulations, 2018. Although cross-border mergers were introduced in
2013, there was no concept of them under §234 until the 2018
regulations. This does not mean that no cross-border mergers happened.
We need to differentiate between in-bound and out-bound cross-border
mergers. The former has also happened. Prior to the regulations, you
needed RBI clearance. Now, if you have FEMA clearance, you do not need
separate approvals unless it is with a bordering nation. From 2013-2018,
till the time RBI came with notifications, we only had in-bound mergers.
Post 2018, both are equated and we do not need RBI approval as long as
there is regulatory approval already. Annex B of the rules has a list of
countries. If the transaction is with these countries, you need separate
approval still. Before 2018, you just had to comply with general RBI FEMA
regulations on currency. There were no specific cross-border mergers as
such.

So you need RBI permission. The RBI has said that as long as you’re
compliant with the regulations, we give permission. To make an
application for a merger, you need to make the same application under
§230 and 232 and mention that 234 will apply because this is a cross-
border merger. The Indian co will make the applicant. The other co will be
a party, but will not be an applicant. This is because the latter is not a co
under the cos act. The orders make a difference between transferor,
transferee, petitioner. So you do not need RBI approval for the merger.
Just need to tell the NCLT that you are compliant with RBI regulations. The
RBI form filling happens after the merger. Because the NCLT is still the
main authority responsible here.
The foreign co will have to make an application to their country. That is
why, they are just party to the Indian application, and do not have to
make it yourself.

The initial application that the domestic co will make, is the same as an
ordinary merger. Meetings, class meetings, approvals for meetings, etc.
will still apply.

§234(2): what do we normally have in a merger? The SHs of the transferor

co are given shares in the transferee co. If the latter is an Indian co and
the former is foreign, how do we pay the SHs of the foreign transferor co?
You can pay them in cash or in Indian Depository Receipts. Now the idea is
that when you hold shares in a foreign jurisdiction, you do that through an
intermediary. So the DR is basically an instrument against which matching
shares are held on someone’s behalf. So this is how consideration is to be
paid. Now the IDRs have not caught up. Probably only Standard Chartered
banks used to issue them but it is not recognised as such. ADRs is how
Americans would invest in other jurisdiction. The Act says DRs but of
course, it will depend on the jurisdiction in question.

It may matter looking at a scheme here. Because it will lay out how this
will be done, what the consideration will be. So instead of a share
exchange ratio where you give shares for shares, you will be giving DRs
for shares. Now this problem may not arise if the foreign co is listed in
India or if the Indian co is listed in a foreign stock exchange. In case they
are not, you invest in the shares of a foreign co, or hold shares in a foreign
co by means of the DR.

In conjunction with this, we look at Rule 25A. Sub-rule (3) is what says that
you need to file applications under 230 and 232. So notice to and CCI
approvals also come under §230, because the CCI is the only regulator
with extraterritorial jurisdiction. We have recently seen the addition of
sub-rule 5, where a foreign hold co and an Indian subsidiary can do a fast-
track merger. This is what the idea of a reverse-flip is. So a lot of cos were
registered outside to raise capital there. India became more pro-business
later so these cos wanted to come back. So they merged with their Indian
subsidiaries to bring their entire business back home.

Normal procedure for a regular merger is 230 and 232, cross-border

merger not a reverse-flip is 230, 232, 234. Fast-track would be with 233 in
reference to 234. Because 234 is not an application procedure. For a
regular fast-track merger, 233, unless the CG sends you to the NCLT,
making 230 and 232 applicable.

Now whether this is really easy and single-window clearance or not? These
days, you have to notify all regulators. So the RBI is notified. RBI approval
is there as long as RBI regulations complied with. So technically, while
complex, you still do not have to make a separate application to the RBI.

19/09/2025
The reverse flip notification came at the end of 2024, the rest of the
notification came out in 2025.

We had discussed that we’d have to look at the FEMA Regulations. The
main thing they do is that they highlight the process for both in-bound and
out-bound mergers. Now historically out-bound mergers were problematic.
The Regulations also define both kinds of mergers. FEMA Cross Border
Regulations of 2020 as amended up to 2024. Noteworthy things are:

1. What happens to the office? Say a US co merges into an Indian one,

what happens to its operations? Exact terms will depend on the
scheme. However, if the US office is to be maintained, it would be a
branch office of an Indian co. This is important because the tax
treatment for branch offices is very clearly laid down in the Income
Tax Act. These are also certain RBI rules on currency for such offices,
which also need to be complied with. The FEMA Regulations are very
concise and lay down what all other Regulations also need to be
complied with. You also need to comply with the entry rules, pricing
guidelines, sectoral caps, all of these depending on what country
you are dealing with. Here you also have foreign SHs of an Indian co.
So the regulations for that will also be complied with Similarly, if an
Indian co merges with a foreign one, and maintains an Indian office,
the Indian office would be treated as a branch office of a foreign co.
Everything mentioned above will apply mutatis mutandis. At the
same time, you will also have to be compliant with the Regulations
of the other jurisdiction. The NCLT when it is giving permission to
such a merger, is going to check if you’re in compliance with all
these requirements. Any guarantees, bonds, loans taken by the
transferor co will become loans of the transferee co. There are
restrictions on what kinds of loans Indian cos can take from abroad.
There are rules, and you have a 2-year window for transitioning and
being in compliance with FEMA Regulations. This is for both in and
out-bound mergers. There are certain assets you cannot hold. If you
are in an out-bound merger and the transferor has an agricultural
property, you will have to sell it because foreign cos cannot hold
agricultural land in India. Similar restrictions also apply to OCI card
holders. There are certain things which only resident citizen can do.
For the 2-year compliance period wrt loans, let’s say you have a
loan which crosses a certain legal threshold or is not permitted. In
such a case too, you will have 2 years to if not repay, then
restructure the loan.

2. The concept of deemed approval under regulation 9. Now we did

have cross-border mergers before these regulations. So what we
used to do earlier was that you needed to specifically apply to the
RBI for permission. What the regulations now say that if you are
compliant with teh regulations and can show that at the time of the
application, you do not have to make a separate application to the
RBI because when you’re petitioning for the merger, under §230(5),
you are also notifying the RBI and are also stating that you are in
 compliance with all regulatory requirements. Now if the RBI has a
problem, it has 30 days to file an objection. Here, if it is felt that
there are substantial objections to the scheme, they can send it to
the NCLT to comply with the whole process. This whole arrangement
is what is known as deemed approval.

The Zepto Reverse-flip

We have a transferor and a transferee co. The transferee co is Indian, the

transferor is from Singapore. In-bound merger. In recent times, we have
seen a lot more in-bound mergers than out-bound because India has been
viewed as a very favourable place. The co is known Kirana Cart Tech Pvt.
Ltd.. The Singapore one is Tech Pte. Ltd. All assets and liabilities move
from Singapore to India. The reason stated before the NCLT was to reduce
the multiplicity of entities across jurisdictions and streamline operations.

Now how are we compensating the transferor co’s SHs? In the transferor,
the face value of a share was 100, and this was 10 for the transferee. So
the first thing that happened in the Indian co was a share split. Every 10
rupee share was now split into two 5 rupee shares. And then the share
exchange ratio was worked out to 100:248,998.42 shares. This is because
all the business was in the transferor co. A much bigger co is being put
into a much smaller co. The assets and valuation of the transferor was
massive. A hold co was merging into a subsie. This is why you had to get a
very skewed share exchange ratio. But we don’t know why this exactly
happened, because a share consolidation would have made more sense.
But all this was done because the resultant co was being geared for a
future IPO.

Now some of the creditors objected. The transferee was the petitioning co,
with the transferor being just a party. These creditors are all paid off. The
NCLT order says that no dues certificates were received from the creditors
and only then was it permitted. The NCLT also makes note of Regulation 9
and deemed approval since the RBI was notified under §230(5).

So you basically had 2 parallel proceedings here. Repaying the

Singaporean creditors, getting approvals from the Singaporean regulators,
and all this in India as well. So the NCLT noted that it did not give approval
until the Singaporean creditors of the transferee co, who raised objections
in Singapore, were also taken care of and no dues certificates taken from
them.

The Meesho Reverse-Flip

We had a cross-border merger, followed by a de-merger. Now Meesho is

also planning an IPO very soon.

Meesho Inc. was an American co registered in Delaware. There was a

time-period around Covid where a lot of Indian start-ups were being
registered in other jurisdictions rather than India because there is a
particular co which was like a VC (Y Combinator) which insisted that to get
the kind of capital they would invest would be if they were registered in
the US. But what started happening was that a lot of cos that were not
registered abroad were having bumper IPOs. So the former set of cos felt
that they were losing out, since they could raise a lot more money in an
IPO. Also, the Silicon Valley Bank collapsed. So if you’re registered in the
US, you will be very affected by an American regulatory failure. This is
exactly why even if there is a lot of tax liability, it made a lot of sense to
do a reverse flip.

Meesho Inc. was the party, not petitioner. We had Fashnear Tech Pvt. Ltd.
which was the transferee. The latter was petitioner no. 1. The proposed
transaction was that once the merger happens, there is a de-merger of
the 2 different branches of Meesho, the grocery and the e-commerce one.
So there are 2 resultant cos after the de-merger, petitioner 2 and 3.
Meesho Grocery Pvt. Ltd. and Meesho Tech Pvt. Ltd. So first a merger, then
a de-merger. Since it is one transaction, in reality, the assets and liabilities
will go to the two resultant cos. There were a lot of objections by the
creditors, which were paid off. Income Tax authorities filed an application
for statutory dues. NCLT said beyond its jurisdiction, but the liability will
vest in the resultant cos, so no extinguishing it. The plan was to undergo
an IPO and raise the money lost to taxes.

There is also talk of what happens to the US employees. If they’re being

moved to India, what is the compensation, what is the ESOP etc. All of this
is dealt with in the order. What is not seen is the share exchange ratio
because the order refers to the annexed filings, which could not be found
by ma’am. Deemed approval also there, no objections by RBI.

In terms of transactions, what we have not found yet is a fast-track cross-

border merger being approved by the RoC. But Meesho is a good example
of one filing for multiple transactions. There was a doubt, not anymore, of
whether you could do a cross-border de-merger. A cross border de-merger
would be say when a transferor co in Delaware de-merges into three cos,
one each in US, India, and Singapore. This is an in-bound cross-border de-
merger as far as India is concerned, because money is still coming into
India.

§235 and 326- squeeze outs is what we look at next. There is a

compilation on it by Prof. Umakanth, look at that. We do not even rely on
the provisions in India, we do this majorly by means of a reduction of
share capital.

22/09/2025

Squeeze-out §235-36

The idea is that in certain circumstances you are going to have controlling
and minority SHs and the former may want to get rid of the latter.
Squeeze out is when the mechanism that is used by the controlling SHs
(or certain %age of shares) to remove the minority SHs, whether forcibly
or not. There are various tools in the cos act. While §235 ans 235 have
means, they are rarely used, a lot of other mechanisms are used. There is
a lack of clarity on how these are to be used (§395 of the 56 Act). What
you can do will depend on how many shares u have. If you have above
50%, it is going to be more difficult than if you have above 75%
shareholding. The more majority you have, the easier it is. While we may
feel terrible about the minority SHs, it is the majority that runs the affairs
in a co. It is the minority that presents roadblocks. Squeeze out as a
negative connotation, but in co law, that is not always the case. This is
why we have explicit provisions for it. There are various ways to do it.

§61- Alteration of share capital

Consolidating or dividing share capital. This is done under §61(1)(b). So

say I can consolidate two 5-rupee shares and make it one ten-rupee share.
This has to be done across classes of shareholders. When I am doing this,
the only restriction is that we cannot do it if it alters voting rights, unless
there is NCLT approval. Now an alteration will usually affect voting rights.
However, if you are doing it across the board, it won’t affect voting rights.
But the proviso says ‘unless’, this means that you can also do it class by
class, provided the NCLT has approved. So through NCLT approval, you can
selectively alter share capital. This would mean that you can apply to the
NCLT and if permitted, you can affect voting rights. Say I come up with
higher value shared for class D. But higher value will not necessarily lead
to higher voting rights. That depends on number of shares and number of
such SHs present during a vote.

So be default, you cannot devalue the shares, you can only increase the
value. If you get NCLT approval, you can use increasing the value
(consolidation) to reduce voting powers.

<aside> 💡

Can this not lead to O&M? Not necessarily. One, because an O&M is a very
high threshold. Plus, it has to be a series of acts, and not a single act. If
there isn’t a series of acts, an O&M is unlikely to succeed.

</aside>

<aside> 💡

Why not do a buy-back here? It is quick. Because buy-backs cost money. It

is a very regulated process. Infosys is doing one right now to reduce the
supply of shares and to increase the value of the shares. This happened
because of the whole US tariff situation. Now a buy-back is a costly
process. A buy-back does not happen at market value, it happens at a
premium. How else will you incentivise it? A selective reduction of share
capital means class A shares are reduced but the rest stays the same. The
reason this happens is because §66 uses the phrase ‘in any manner it
deems fit’ for a co undergoing a reduction.

</aside>

<aside> 💡

Why share split and not bonus issue? Procedurally they are the same.
When you issue bonus shares, you need to issue them out of something,
based on money already represented in the capital of the co. So this
amount is reduced once you issue the share. Bonus issue has a cost,
share split has none. In a share split, there can be a much higher dilution.
These are all decisions that a co makes on the basis of a lot of factors. In a
reduction, you cannot change the proportion of paid-up to non paid-up.
This is because voting is counted on the basis of paid-up share capital. So
what you cannot do is alter the ratio between the paid-up and non paid-up
parts. There are 2 ways you can do it: 1. you reduce share capital to the
extent of the unpaid part of the shares, and 2. forfeiture of shares for not
responding to a call for paying up.

</aside>

<aside> 💡

Reduction is when you reduce the share value to a certain extent. This is
usually not done for a squeeze-out, that is just an added benefit. This is
usually done if the co is over-capitalised (more capital than assets to
justify it). You can also do it as an arrangement. If it is part of a larger
transaction, you file under 230 r/w 66. But if it is just a reduction, you go
under §66. The penalty on over capitalisation is a market penalty, not a
regulatory one. My earning per share (EPS) (profit/no. of shares) is not
good enough for me to properly pay dividends. So once you reduce, the
number of shares is less, in a market setting, that will automatically
increase prices. Earning is still the same.

</aside>

04/11/2025

§235 and 236

These are the actual provisions but are rarely used. There are very subtle
differences between the two, so read them and read the carefully multiple
times. Read them and figure out what the difference is. 235 existed in the
old act, and has been largely retained. 236 is the new provision.

A squeeze out is a majority acquiring shares of the minority. You are

removing the minority. First thing is that is it compulsory for the majority
to acquire the shares or make an offer for them? 235 is may, 236 is shall.
Why have overlapping provisions and have one as mandatory and one as
optional provision? What is so vastly different about the 2 provisions and
situations?

235 is when the scheme or contract of transfer has been approved by

9/10ths of the SHs, but the transfer is not a transfer of 90% of the
company’s shares. Say 40% shares have to be transferred. 90% of those
40% have approved the transfer, the transferee may choose to make an
offer to the remaining 10% of this 40% to transfer their shares as well.
This is not 10% SHs of the co, but 10% of those whose shares were up for
transfer and they dissented to such a transfer.

If the total shares being transferred are 90% of the co’s total shareholding
or more, you do not need to go down the 235 route. In such cases (> 90%
of the co’s total shares being transferred), you automatically go with 236.
236 is actually a squeeze out, 235 is not. In 236, these are a very
minuscule number of SHs who normally do not have any say in the affairs
of the co have to mandatorily be offered an exit route.

This mess is exactly why cos do not use 235 or 236. They either use tag
along drag along rights contractually, or they do a reduction of share
capital. This is why we do not have a lot of jurisprudence on these
sections since not a lot of cases have happened under them. Most
squeeze outs happen under reduction of share capital because that allows
you to be selective as well.

What type of transactions is 235 covering? A transfer. It can be an

arrangement between 2 cos in a group, or a restructuring of a hold co and
subsie. This is not necessarily an amalgamation. It is just share transfer
from one co to another. 236 applies to a broader types of transactions.
236 protect SHs. It compels the majority to sell their shares if the minority
needs an exit option.

§236(3) says that the minority may offer to the majority the shares. Unlike
236(1), which is mandatory, 236(3) is optional. And it also says without
prejudice to (1)( and (2). So do we read them together or differently. Is it
mandatory for the minority SHs to offer their shares or is it optional? (3)
also does not have any threshold, you do not have to be a 10% minority.
So do you read it with or without (1) and (2). There is no clarity. Logic
would dictate you go as per the numerical threshold in (3) as well, but
we’ve never had a case actually apply it.

Regulating squeeze outs in India

06/11/2025

Third manner of a squeeze out is an arrangement under §230. Each of

these, 235, 236, 230, 66, they all have their own specific criteria which
must be fulfilled before something can happen. Like we saw 235 needs a
dissenting minority, 236 requires someone already having 90%
shareholding. Like that, circumstances under which you can use §230 are
also specific.

How do you do it under §230? Come up with an arrangement as a result of

which, the minority shares will either be purchased by a promoter group
or a holding company or the company itself. An arrangement can be
anything as long as it is an agreement between groups of SHs and the co,
or the creditors and the co. So as an arrangement, you could have a
squeeze out transaction. Say co B has 75% shareholding in co A, co C has
25%. So you can either directly purchase shares from C, or B purchases,
or you reduce the share capital, or create a subsidiary for B. So to get rid
of C, there are a lot of ways in which you can structure a transaction.

Let’s look at the transaction. What are the requirements of §230. It would
require consent of the 25% SHs. 75% of those 25% have to consent. So
this is not a great way for a squeeze out because how do you get them to
consent? Because 230 requires consent of every class. Looks easy on
paper, but is difficult practically.

B can acquire the 25%. A could do it, which is like a buy-back.

Arrangement can be anything, so you can structure it anyway. The most
popular way is reduction of share capital.

§66- Reduction of share capital

A reduction of share capital is when a co reduces its issued share capital.

Because change of authorised capital would require amending the MoA.
Reduction requires a special resolution. But it does not require separate
special resolutions. Only SR by members in a GM. Under §66, you will
require 75% consent of everyone, not 75% of specific classes of SHs, as
far as the section reads.

Can be done in various manners. One manner is similar to a buy-back is if

a co does a reduction and pays SHs a certain amount. Another way is
suppose SHs have partly paid up share capital. So you remove the unpaid
part of the share capital. This is fair because it is not a loss of value for
SHs. Neither of these is a way this actually happens. The third manner,
the most popular one, is just say we are reducing. You have paid but we
are cancelling those shares. This is confiscatory in nature because SHs are
not getting anything in return. This is done when the company is
overcapitalised. It is not reflected in profits. You cannot do a buy-back
because it requires money. Since this is confiscatory in nature, you need
SH approval and NCLT approval.

The various manners in which you can do this because this scheme
requires NCLT approval. It is an NCLT driven process. SE→application to
NCLT→approval. Buybacks have none of this. Only compliance with SEBI
Regulations if it is a listed co. No NCLT approval is required. This is why
buybacks are tightly regulated. Plus SHs do not lose out in a buyback.
<aside> 💡

There is an Infosys buyback happening right now. Buyback is at a

premium. SH can choose not to sell. Since the co wants the shares back, it
offers a premium. 1500 share price, 1900 buyback price. You do that
because share price has fallen, so you do this to inflate share price.
Technically not permitted but yeah.

</aside>

Even in reduction, the issued share capital of the co reduces. You need to
make an application to the RoC. In the documents, you need to write
issued share capital (as reduced). In a buyback, these shares are not
forgotten. They can be reissued at a later date. Often, bonus shares come
from capital redemption reserve account, which is basically value of the
shares you have bought back. The value is not taken off the books in a
buyback. In a reduction, those shares are gone forever.

You can compare the two in sections 66 and 68.

A buyback is always done pro rata. There is an offer to purchase the

shares, you are eligible to sell x number of shares. x is determined based
on how many shares the SH has. If I am buying back 10k shares as a co, I
will purchase shares from all SHs proportionately. This is because the idea
is that you are not to affect anyone’s voting rights as a result of a
buyback. Same as a rights issue. So SHs have the choice to get more
control by not participating in a buyback or lose it to a certain extent by
participating in it.

The big question is, can you do a selective reduction? It is a settled

position that you can. This is because §66(1) has the phrase ‘in any
manner’. So you can selectively reduce. What do we mean selective. Say
you’re doing a confiscatory reduction. I choose I will reduce with X but not
Y, both of which are SHs. You can do that if thereis 75% SH

In re: Reckitt Beckinser India Ltd. (2005) Delhi HC

Question of whether selective reduction can be done. Delhi HC said that

this is a matter of domestic concern. Meaning whatever the majority
decides. If they decide to reduce share capital, it has the right to
determine how this will happen and whether it is proportionate or some
may have it unreduced and some may be totally extinguished. All these
are matters of domestic concern.

Only thing the court (NCLT now) has to determine that there is no unfair or
inequitable transaction. You also need creditor consent. Why? The loans
have been given on the basis of capital. If I get rid of that, the loan
becomes riskier. The co’s debt to equity ratio changes. Thus, creditor
consent, or paying them off.
So if you do this, you can very easily do a squeeze out, say be just
reducing C’s 25% shareholding in the above example without the hassles
of 235 and 236.

Sandvik Asia Ltd v. Bharat (2009) Bom HC

The concept of 66 comes from a corresponding UK provision. The court did

not refer to the Delhi HC. They referred to English law. They said that any
kind of reduction where it is selective is a purely domestic matter. The
only thing they speak of extinguishing of shares receiving a just
equivalent (so a consideration). So it may be very difficult to do a
selective reduction without some form of consideration (not market price
but something at least). Technically it can be done the other way but not
in light of the facts and what the courts have said.

Another thing is the obiter. Here, they said that in this case, it is very
difficult to say that this transaction is problematic because even the
majority of the minority SHs (non-promoter SHs) has overwhelmingly
voted in favour of the resolution. In such a case, court cannot be justified
to invalidate or question the transaction.

Cadbury India Ltd. (2009) Bom HC

Looked at what the majority of non-consenting SHs felt. They said, the
court will taken into account what the majority of the non-consenting SHs
have said. They will not take into question their wisdom born out of
commercial strategy. Now these are double negatives. If majority of the
minority consents, won’t call it into question. But it is not saying that if the
majority of the minority does not consent, we will not allow it. But leaving
some door open is also problematic. The court did not explicitly do it for
the latter because that would go against the 75% majority and against the
act.

What the courts have attempted to do is have an illustrative list. First is

compensation. If compensation (‘fair value’ as per what the court said)
has been given, a selective reduction is much easier. Second is if majority
of the minority has consented to it. Third is if it is fair, just, and equitable.
The point is, selective reduction can be done. Now as a lawyer, you would
be better to advise a client to have all 3. Because if they are not there, it
is not an automatic invalidation of the transaction, but the door is always
open for the Tribunal. So if you highlight all 3 in the application, it goes
through. These implicit elements is what we could perhaps say is how you
make a transaction fair, just, and equitable. It is an argument only,
because this is not a test set in stone. The compliance of the Act and
Rules is the only test. Meeting, approval by SHs, etc. Beckenser also
probably mentioned Mihir Mafatlal. So this is all in line with that.

07/11/2025

The Takeover Code

10/11/2025

Nature of the market for corporate control in India (Umakanth, control, 3

articles, read the latest one), the concept of control, comparative takeover
regulation.

Definition of control

There is one within the takeover code. Even when we are talking about
voting rights being more than 25%, that is also a change in control. That is
a quantitative threshold. Definition is qualitative. 25% is the threshold
because it gives you a certain degree of control. The definition is under
2(1)(e), which gives an inclusive definition. The Act also echoes this. We
had discussed that acquisition by an unlisted co can also happen, as long
as the target is a listed co.

“control” includes the right to appoint majority of the directors or to

control the management or policy decisions exercisable by a person or
persons acting individually or in concert, directly or indirectly, including by
virtue of their shareholding or management rights or shareholders
agreements or voting agreements or in any other manner: Provided that
a director or officer of a target company shall not be considered to be in
control over such target company, merely by virtue of holding such
position

Right to appoint directors is going to come from above 50% because you
need an ordinary resolution for that. You can also appoint directors in
other ways. SHAs, Debenture Trustee Agreements, AoA, etc. are also ways
of appointing directors. So non ordinary resolution ways of appointing
directors can also indicate control.

Despite not having the requisite shareholding is what controlling the

management is. This is what the concept of shadow director is. The Mistry
v. Tata tussle was about this. Ratan Tata’s role was sufficient to exercise
control in that case. It was a public unlisted co back then.

Anything that comes from apart from 50% rights can also be used to
determine degree of control. What we understand from this is that this is
very tailored to a promoter/promoter group. What it does not delve into,
and what the problem is what is meant by negative control? Positive
control we all understand. But what kind of things being stopped by you
means control is what is also important. Negative control matters because
when people invest money, they give themselves protective rights like
appointing nominee directors, etc. It can also be a veto right. X is
investing in Y, can appoint a director. For certain transactions, if this
director does not consent, the transaction cannot happen. Here, one
person has the right to affect things not by deciding, but by not letting
others decide. Even in the MBR triggers, there is nothing about negative
triggers.
So Etihad invested a lot of money in Jet Airways, which revived it. Etihad
had the right to appoint a director with veto rights on Jet’s Board. This can
be used to stop the co from doing things. You may not guide the co in a
direction, but you can stop it. The question was whether the MBR would
be triggered here. Control being a positive right was the argument. There
has been a lot of fight. One argument is that this is not investor-friendly.
Investors want protective rights but not trigger the MBR. So they want
protective rights to not be considered control. SEBI wants negative control
to be control. CCI’s definition also needs to be the same. There are
significant consequences of negative control.

<aside> 💡

MBR is that if you hit a certain triggers, control or quantitative, you need
to make an offer for 26% of the remaining co, to buy out the dissenting
SHs. Why 26 and not more is a debate which we will get into later.

</aside>

Control is what is covering everything if you do not hit the quantitative

threshold. SEBI tried to make an illustrative list of qualitative control and
made a consultation paper but shelved the list. There is also a concept of
ex-promoter. Narayana Murthy left the board but got the CEO removed. So
the concept of control tries to accommodate this reality, not just for
documented control, but also actual control.

11/11/2025

Shubhkaam Ventures v. SEBI (Securities Appellate Tribunal) 2010

This happened before the current takeover code, which came out in 2011.
Why that matters is that the fact scenario would not currently have
triggered the MBR. The threshold back then was 15%. This is now 25%,
which is one of the ways the new code was favourable to acquisitions.

Facts- Shubhkaam ****acquired more than 15%, 19.91% of a co called

MSK Projects Ltd. This triggered the MBR. Shubhkaam made a public
announcement that it will make a public offer. They said they will do it as
per regulation 10 of the takeover code. SEBI intervened and said you
cannot make an offer under Regulation 10 (which is the 15% quantitative
threshold) but also Regulation 12 (the control threshold). Not 2 open offers
but under 2 Regulations. The reason for the SEBI was that in this
transaction of 19.91% shares, there was an SHA which led to this. This
SHA had certain protective provisions in favour of Shubhkaam.

This case was at the cusp of new regulations being introduced. The
acquirer appealed saying that this was not a change in control. This is a
tense situation because a lot is riding on this. A lot of investors are
thinking that if they give protective rights, they will have to undergo the
MBR. The Tribunal said that this is not control. They made a distinction
between positive and negative control. Regulation 2 is about things you
can do, is proactive, not things you cannot do, or reactive.

The Tribunal went into the kinds of rights that the acquirer had under the
SHA. They had the right to dominate 1 among 10 directors of the board.
This was not held to be control. This was done for information rather than
influence, per the Tribunal. The acquirer also had certain quorum rights.
Certain chunk of the quorum had to come from the acquirer. This again
was held to not be control, since this is presence and not control. Third
right was a veto right over a list of 22 things.

Change in MoA, capital, AoA. These were things which had not to do with
day to day functioning per se. What the Tribunal found after going through
the list, it found that this was more to do with the bigger picture of the co.
These protective rights cannot constitute change in control. What we
should be asking when discussing control is who is the driving force, who
is in the driving seat of the co. Shubhkaam is not running or responsible
for the day to day running of the co. So in so far as the qualitative
threshold was concerned, there was no change in control.

SEBI v. Shubhkaam Ventures (Supreme Court) 2011

So everyone is happy after this decision. Even politically, the decision

made a lot of sense. SEBI appealed to the SC. Everyone now lies in wait.
The SC unfortunately did not give a proper decision. Before it could give a
decision, Shubhkaam settled. It did so because the takeover code has
changed. SC said parties have settled so we cannot give a decision. But
the order of the Securities Appellate Tribunal is not to be treated as
precedent and shall not be considered to have settled the position of law.
So the SC gave a statement which was really unhelpful.

Re: Tailwinds Ltd., Naresh Goel, Mrs. Goel, and Etihad (SEBI) 2014

Tailwinds is the hold co. of Jet. This is part of the various settlements jet
entered. There was a lot of investment made by Etihad into Jet. It bought
24% of the shares, not enough to trigger the quantitative threshold. Does
it trigger the MBR qualitatively? So control. As part of the deal, there was
a cooperation agreement and certain specific aspects where Etihad would
potentially have some say in certain matters of running of Jet.

SEBI initially said no problem. Interestingly, the definition of control under

the takeover code is the same as the FDI policy circular. It went to the CCI
for approval to see if there is any appreciable adverse effect on
competition. The combination regulation had a different regulation of
control. CCI said it will allow it but made an observation that it is worth
considering whether Jet and Etihad have joint control over Jet. Nowhere
did the regulations speak of joint control. So now SEBI said we will do an
investigation if there is a change in control. If Etihad has joint control, it is
in control, so there is a change in control per SEBI.
There are 2 broad issues flagged by SEBI here. Whether Etihad and the
existing promoters of Jet (the Goels) are persons who are acting in concert
to exercise joint control over Jet? Whether the rights given to Etihad under
the transaction means that Etihad and Jet itself (not promoters, but Jet
itself) have joint control over Jet? They wanted to see if Etihad is
exercising control, so they tried both routes, whether Etihad was in bed
with the Goels as well as whether the transaction itself is structured so
that Jet and Etihad have joint control. Because joint control still means
control, and that would trigger the qualitative threshold.

<aside> 💡

Difference of purpose for the definition of control under the 2 regulations.

CCI is for appreciable adverse effect on competition, takeover code is for
situations where minority shareholders need to be given an exit option.
Not fair for SEBI to dance because CCI is.

</aside>

SEBI rejected both. At the promoter level, you cannot show any evidence
that Etihad is working with the Goels. What do you show for persons
acting in concert? There is no commonality of interest.

On the second leg, SEBI investigated what kind of control could Etihad
would have that could be control. First right was that out of 12 directors
on the Board of Jet, 2 would be appointed by Etihad. This would not be
control. There were no veto right, no affirmative, no quorum, no casting
vote. So SEBI is still standing with its position that negative control is
control but that is absent here. For certain recommendations, there needs
to be joint consent; like amendments to MoA etc. But to avoid triggering
the regulations, Etihad was anyway willing to dispense it. Only 2 directors.
Post Shubhkaam world of uncertainty, so everyone is trying to protect
themselves. The agreement was structured in such a way that control
could not be proven. Since Etihad had no control, there was no joint
control.

One thing that became clear is that there were so many definitions of
control under various regulations (SEBI, FEMA, CCI, RBI, sectoral aviation
regulations). All cannot have the same definition, unless commonality of
purpose. Point is, just because CCI said there could be joint control does
not mean SEBI should unnecessarily revisit a transaction it approved,
because the regulations are also not pari materia.

Under the Competition Act, control is defined as an explanation to §5 as-

Explanation.— For the purposes of this section,— (a) “control” includes

controlling the affairs or management by— (i) one or more enterprises,
either jointly or singly, over another enterprise or group; (ii) one or more
groups, either jointly or singly, over another group or enterprise;
So this is geared towards joint control but that is what the CCI is after as a
regulator, from a POV of merger. For the SEBI to go back on an approved
transaction because of the competition based definition of control or
because of the CCI’s acts does not make sense is the bottom line.

12/11/2025

In the middle of all of this, very unsettled position of law, SEBI tried to do
something. SEBI issued a consultation paper.

Discussion Paper for Brightline Tests for Acquisition of Control

under SEBI Takeover Regulations (2016)

SEBI proposed 2 things for when the threshold could be triggered. First
was only a numerical threshold, which was the case of many jurisdictions,
but majorly western developed countries. So one was to have this and
nothing else. So control will just mean 25% voting rights of the co. The
reason that this is not a great option for India or economies where there
are groups other than SHs, where we have controlling blocks like banks in
Japan, government in China, promoter groups in India, where you do not
have dispersed shareholding, just a quantitative threshold becomes
problematic. Because it may not indicate the true scenario because there
may be groups where control is a lot more pervasive beyond voting
percentage. Say you once had enough shareholding but don’t anymore,
but you retain influence.

The second option is that let’s have a list. Of course the definition remains
the same but we have a list of protective rights which won’t amount to
control. Like appointing chairman, vice chairman, observer, veto rights not
about everyday issues. So the same analogy as Shubhkaam. So SEBI
wanted to lay down these rights as not being control. This was because
this still gave SEBI the power to determine what is control. The paper was
floated in April. By June, it was withdrawn because implementing it is too
difficult. So we go by the definition of the takeover code, which does not
speak of takeover code. And the SC has also said that Shubhkaam is not
precedent.

In 2017, we see SEBI moving to recognise the benefit of the Shubhkaam

case.

In the matter of Kamat Hotels (2017)

Investment co called Clearwater had 24.5% stake in Kamat Hotels. As part

of the investment, there were certain convertible bonds. Once the bonds
converted, they could trigger the MBR. Upon conversion, Clearwater’s SH
increased to 32.23%. Clearwater recognised that this would trigger the
MBR so they said they will make an open offer. They did it on the
quantitative threshold. SEBI got involved and said that the MBR was
triggered not just because of the quantitative threshold but also due to
change in control, just like Shubhkaam. Clearwater being an investor did
not want to muddy the waters. They said they were triggering the MBR
but not due to acquisition of control. SEBI issued a show cause. So the
matter had to be investigated by SEBI.

One of the reasons SEBI did this could be because it wanted to build
jurisprudence on qualitative control related threshold. Because the
uncertainty was naturally spooking investors.

So SEBI starts an observation wrt whether there was a change in control

on the basis of the first SHA. There were certain protective rights very
similar to Shubhkaam. Veto rights over very governance related issues,
rather then day to day issues. SEBI said since the protective rights mirror
Shubhkaam, and since that position is not settled, let’s look into this. In
Shubhkaam, SEBI said protective rights are control but the Securities
Appellate Tribunal held that it would not. But here, SEBI changed its
stance. This could also be pressure because by now, the NDA was in
power and had a very pro investment stance.

SEBI said that the Shubhkaam type of protective rights did not amount to
control. This was for checks and balances in the running of the co, and
ensuring that the managers of the co. This is about investors protecting
their interests rather than running the co they invest in. For Veto rights
which are related to day to day functioning eg. every 5000 rupees
disbursement is a change in control. There is one problem though. The
SHA that gave the rights had expired in 2014. The SHA was not valid by
now. So on technicality, there was no change in control anyway. So
factually, the argument is distinguished. Because of a factual irregularity,
this is not good precedent. Curious culmination of facts and we cannot
catch a break. So SEBI has changed its stance but it is not good
precedent. So investors were happy because SEBI has changed its stance,
but they were not satisfied because they wanted something more
concrete.

Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors. (2018)
Supreme Court

A discussion on what would constitute control under the IBC. Under the
IBC, control matters under §29A. There is nothing pari materia per se
between this and the takeover code, also because the IBC does not define
it. SC takes it upon itself to define it. Since the IBC does not have it, we
will interpret it to mean only positive control. Specifically, veto rights will
not be control. It went back to the Securities Appellate Tribunal and said
that can be used to interpret control even under the IBC, even though the
context is completely different. Again, everyone is happy but not super
happy because again, very different context of IBC, not takeover code.

Vishvapradhan Commercial Pvt. Ltd. v. SEBI (2022) Securities

Appellate Tribunal
You have NDTV and its promoters. The promoters had made several
agreements with VCPL and its subsidiaries. First was a loan agreement
where a loan is given by VCPL to NDTV which is completely interest free.
So convertible warrants were given as collateral and certain protective
veto rights for some things, not vastly dissimalr from Shubhkaam and
Kamath. At a later date, there was also a call option where VCPL was
entitled to acquire more than 25% in NDTV if it wants to. This does not
bother us, but a protective agreement.

SEBI got involved and said this is a fake loan. Who gives an interest free
loan. This is a way to acquire control without the MBR, convert shares, use
the call option and take control. So this is just a sham to acquire
qualitative control, triggering the MBR. Securities Appellate Tribunal heard
the matter on appeal. Overturned SEBI, relied on Shubhkaam, and said
veto rights are not control. Relied on SC in Arcelor Mittal saying
Shubhkaam is good law. So now, Shubhkaam is finally good law, about it
being control when the investor is in the driving seat of the co. It is a
concrete decision because same context as the takeover code and clear
judgement. Investor friendly, so also a good decision in that regard.

However, this does not mean that a definition of control has been created.
We just know that veto rights, protective rights which are governance
related or protecting interests, appointing some directors on the board;
are not control. What is control is still out there and SEBI can still
determine it. Similar protective rights as Shubhkaam and Kamath
(governance based protections) rather than protective rights in general
not being control is a better approach because there is no saying that
there cannot be veto rights or protective rights that become about
controlling the day to day functionings of the co.