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Small mergers, acquisitions may not need court nod
August, 19th 2009

Soon companies entering into small mergers and acquisitions (M&As) without any competition issues such as abuse of dominant position and creation of a monopoly or shareholder dissent, may not have to go through the tedious process of approval from the High Courts.

The Government is mulling establishing an independent authority that would act as a single-window clearance mechanism and replace the High Courts for such M&As.

While a simple merger takes three-five months to get High Court approval, difficult ones take a year or more. The proposed authority is to reduce the time period and procedures involved, official sources told Business Line.

However, the Competition Commission of India (CCI) will have the final say in M&As that are anti-competitive in nature and the Government is evolving an inter-regulator dynamic interactive system to enable the CCI consult with other regulators.

But the new independent body similar to the Foreign Investment Promotion Board will give the final clearance on all other matters, sources said. The new body will have representation from Ministries, stakeholders and sectoral regulators. Minor mergers will come up before the High Court only if there is any shareholder objection.

However, there are a few riders for clearance from the new body. Noting that several mergers happen between a profit-making subsidiary and a loss-making unit of the same company for the sake of tax benefits, the Government has proposed a two-step approval process.

Following the provisional approval, the new Board will monitor the performance of the merged entity to ensure that it is generating additional economic activity and not indulging in illegal acts. The final approval will be on the condition that the new entity is not just a tax-avoidance instrument.

However, some legal experts such as Mr Hemant Sahai, Managing Partner, Hemant Sahai Associates, disagreed saying that according to the Constitution certain functions of the Judiciary cannot be taken over by the Executive.

 
 
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