Introduction
Court annexed Mergers & Acquisitions (M&A) in India are governed by sections 230- 234 of the Companies Act, 2013. While sections 230-232 deal with a domestic merger, section 233 provides a mechanism for a fast track merger and section 234 deals with cross-border mergers which requires RBI approval in accordance with RBI Cross-Border Merger Regulations 2018. These provisions are to be read with Companies (Compromise, Arrangements & Amalgamations) Rules of 2016 (Rules) which provide for the procedure to be followed during the merger. According to the Rules, first an application under sections 230-232 is to be filed before the National Company Law Tribunal (hereinafter “NCLT”) having jurisdiction following which the NCLT will issue notice to concerned regulators (Registrar of Companies (hereinafter “ROC”), Regional Director, Income Tax Department & other regulators depending on the sector in which the companies operate or if it listed or unlisted) and the NCLT will also direct the advertisement of the scheme in newspapers. If the regulators have any objections, they will place the same before the NCLT and the scheme will accordingly be needed to be revised. In this regard, it is important to note that no response from the Income Tax department is taken to be no objection from their end. Once the revised scheme is filed before the NCLT under Rule 25 of Rules and there are no further objections, the NCLT will grant sanction to the scheme following which transferor company is dissolved and its property, rights and powers are transferred to the transferee company.
Before a M&A, one usually performs a due diligence on the target company, the process for the same is described below and is not limited to performing a public inspection (as part of due diligence) in case of court annexed mergers alone.
The Process
The first step, is to visit the View Public Documents section under MCA Services tab of the website of the Ministry of Corporate Affairs (“MCA”) available at http://www.mca.gov.in/mcafoportal/viewPublicDocumentsFilter.do. This would open up a search portal. However, to use this portal, one would have to register on the MCA website first. Once registration is done, the next step is to enter the Company Name or CIN etc. and click submit to locate the company in the database of MCA.
After this, the company would show on the search results, one then has to click on the CIN of the company which would take us to the page for selecting the category of document which one wants to view and the year of filing of the said document. One should select the annual returns and balance sheet eforms of the required year and click submit. If the same have been filed, they would show in the result and then one needs to click add this company to cart. On payment of Rs. 100, the documents would be available for a few hours to access. Thus, it is advisable to download all the documents immediately.
The Checklist of Compliances
The next step in the public inspection process, would be to check whether the required compliances have been done by the target company. There is no fixed checklist for compliances and the same may vary with time as the government comes with new regulatory requirements. The check list below is one updated till February 2021. The table shows the compliance the company should have done and the appropriate document from the MCA website, where one can find information on whether the compliance has been done or not:
1. First off, one should examine the charter documents i.e. Articles of Association and Memorandum of Association of the Company.
2. According to independent auditor’s report, the one should check whether the company has been making profits or losses.
3. They have filed the latest balance sheets till the preceding financial year should be checked from form MGT-7.
4. When was the last AGM was held as per the form MGT-7.
5. When was the last board meeting held as per form AOC-4.
6. Whether a registered auditor has been appointed by the company or not as per form AOC-4, Board Report and even form ADT-1.
7. If the company has a Company Secretary (“CS”) which can be figured out from the has signature on the form MGT-7.
8. Whether there is any information on the Whole Time Director (“WTD”)/ Key Managerial Personnel (“KMP”) through form MGT-7.
9. Whether any charge has been created or any litigation is pending.
LIST OF COMPLIANCES REQUIRED FOR PVT LTD COMPANY[1]
| S. No. | Compliance Required | PUBLIC DOCUMENT TO BE REFERRED |
| 1. | Whether any Board Meetings have been held | FORM AOC-4 OR MGT 7.
|
| 4. | Whether any Annual General Meetings have been held | FORM MGT-7
|
| 5. | Whether there are disclosures of Interest by Directors | SEE IF THE SAME ARE AVAILABLE IN PUBLIC DOCUMENTS SECTION |
| 7. | Whether any auditor has been appointed | 10. FORM AOC-4, Board Report & FORM ADT-1
|
| 8. | Whether form ADT-1 has been filed | FORM ADT-1 |
| 9. | Whether Financial Statements i.e. form AOC-4 has been filed | FORM AOC-4 |
| 10. | Whether Annual Return i.e. form MGT-7 has been filed | FORM MGT-7 |
| 11. | Whether a statutory Audit of Accounts has been done | AUDITED ACCOUNTS |
| 12. | Whether the Income Tax Return of Company has been filed | IT-RETURNS |
| 13. | Whether the Statutory Registers, Minutes books and records are being maintained | SEE IF THE SAME ARE AVAILABLE IN PUBLIC DOCUMENTS SECTION |
| 14. | Whether there is any proof of circulation of Notice, Draft and Signed Minutes | SEE IF THE SAME ARE AVAILABLE IN PUBLIC DOCUMENTS SECTION |
| 15. | KYC of Directors | SEE IF THE SAME ARE AVAILABLE IN PUBLIC DOCUMENTS SECTION |
| 16. | Whether E-Form MSME-I has been filed | SEE IF THE SAME IS AVAILABLE IN PUBLIC DOCUMENTS SECTION |
| 17. | Whether E-Form DPT-3 has been filed | SEE IF THE SAME IS AVAILABLE IN PUBLIC DOCUMENTS SECTION |
Conclusion
The above description is an indicative process and a due diligence may be much more intense depending on the size of transaction, type of company, value involved etc.
[1] https://taxguru.in/company-law/annual-compliances-private-limited-company-checklist.html
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