Difference between Mergers and Acquisition

The term ‘merger’ refers to the absorption by a corporation of one or more others. It means combining of two or more organizations into one. The combination of the two companies involves a transfer of ownership, either through a stock swap or a cash payment between the two companies. In practice, both companies surrender their stock and issue new stock as a new company.

The term ‘acquisition’ refers to the purchase of all or a portion of a corporate asset of the target company. An acquisition is a situation whereby one company purchases most or all of another company's shares in order to take control. Thus, the two terms appears to be similar in the sense that they combine two corporate companies to form one unit, however, these two terms cannot be used interchangeably. The two differs in their meaning.

A merger refers to the coming together of two companies that can be regarded as equals. Two companies decide to join forces in order to increase the strength of their assets, have a higher market and consumer base, and ultimately make higher profits. The two businesses or corporations become jointly owned and are registered as a new legal entity – which has an identity different from the two companies that came together for the merger. Whereas an acquisition occurs when one company or corporation takes control of another one – the very name indicates that the company that acquires the other is the dominant one. Generally, larger companies acquire smaller companies. In such cases, the company takes over a smaller one and establishes itself as the owner.

The main aim of a merger is to make use of the assets of both companies, and combine them to create a new entity whose worth is more than the sum of the two original entities put together. In a "merger of equals," the stocks of both companies are surrendered and new stocks are issued. That is, mergers occur when two companies pool their resources to function together. Acquisitions, on the other hand, require one firm to buy another – the bigger company buys all the shares of the smaller company, or buys all of its assets. No new stocks or shares are issued in case of an acquisition, nor is a new corporate entity registered.

The main differences between the two are:-

• Merger takes place between two entities of less or more size while in acquisition, a larger firm purchases the smaller one.
• There is a change in title of entities after merger while in acquisition, target or acquires company works under the title acquirer company.
• Ownership and management structure remains almost same consists upon the members of both entities. There is no involvement of target company management after acquisition. Purchaser company owns the whole management.
• Merger means the legal consolidation of two companies into one entity. One the other hand acquisition means the legal takeover by the one company to another company and completely becomes the new owner of the acquiree company
• Merger is a mutual decision while acquisition can be friendly or hostile.
• Merger has higher legal cost as compare to acquisition.
• Dilution of ownership occurs in merger while in acquisition, the acquired doesn’t experience the dilution of ownership.
• Merger is time consuming as merging companies have to deal with many legal issues. Acquisition is a faster and easier transaction.

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Types of Joint Ventures

A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities. There are two types of joint venture:-

·        Contractual joint venture 

·        Equity based joint venture

Contractual Joint Venture (CJV)-

 In a contractual joint venture, a new jointly-owned entity is not created. There is an agreement to work together but there is no agreement to give birth to an entity owned by the parties who are working together. The two parties do not share ownership of the business entity but each of the two parties exercises some elements of control in the joint venture. A typical example of a contractual joint venture is a franchisee relationship. In such a relationship the key elements are:

a. Two or more parties have a common intention – of running a business venture

b. Each party brings some inputs

c. Both parties exercise some controls on the business venture

d. The relationship is not a transaction to transaction relationship but has a character of relatively longer duration.

Generally speaking, the above four can be called as the distinguishing characteristics of a Contractual Joint Venture as opposed to a Contractual Transaction-based relationship.

Foreign companies often resort to contractual joint ventures when they do not wish to invest in the equity capital of a business in India even though they wish to exercise controls and want to decide the shape that the venture takes. For example, a foreign company may have a Technology Collaboration agreement with an Indian company whereby the foreign company controls all key aspects of running the business. In such a case the foreign company may like to retain the option of taking equity at a future date in the Indian company run by its technology. This will mean that though to begin with the venture is a contractual joint venture, the parties may convert it into an equity based joint venture at a later date.

Equity Based Joint Venture (EJV)

 An equity joint venture agreement is one in which a separate business entity, jointly owned by two or more parties, is formed in accordance with the agreement of the parties. The key operative factor in such case is joint ownership by two or more parties. The form of business entity may vary – company, partnership firm, trusts, limited liability partnership firms, venture capital funds etc. From the point of a foreign company, the most preferable form of business entity is either a company or a limited liability partnership firm. We shall discuss this aspect in detail in the next section.

In an equity based joint venture, the profits and losses of the jointly owned entity are distributed among the parties according to the ratio of the capital contributions made by them. However, the division of profits and losses is not the only characteristic of an equity-based joint venture. The key characteristics of equity-based joint ventures are as following:

a. There is an agreement to either create a new entity or for one of the parties to join into ownership of an existing entity

b. Shared Ownership by the parties involved

c. Shared management of the jointly owned entity

d. Shared responsibilities regarding capital investment and other financing arrangements.

e. Shared profits and losses according to the Agreement.

It is not necessary that all the above five characteristics are fulfilled in every equitybased joint venture. For example, there are often agreements where one of the parties is investing but has no say in the management of the joint venture (JV) company.

There are also situations where a foreign company may want to exercise management control even though it is not investing in the JV company. Typically, if a foreign company is providing technology and other knowledge-based inputs, it may want to ensure that the JV company is managed as per its directions. In such cases the foreign company may retain an option to invest in the JV company at a future date. Such a structure may also be used by a foreign company to create a foothold for itself in a sector where Foreign Direct Investment (FDI) is not allowed.

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Joint Venture

Joint Venture can be described as a business arrangement, wherein two or more independent firms come together to form a legally independent undertaking, for a stipulated period, to fulfil a specific purpose such as accomplishing a task, activity or project. In other words, it is a temporary partnership, established for a definite purpose, which may or may not uses a specific firm name. The firms joining hands in a joint venture are called Co-venturers, which can be a private company, Government Company or foreign company. The co-venturers come to a contractual agreement for carrying out an economic activity, which has shared ownership and control. They contribute capital, pooling the financial, physical, intellectual and managerial resources, participating in the operations and sharing the risks and returns in the predetermined ratio.

Purpose of a Joint Venture

Parties enter into joint venture contracts in order to combine strengths and increase competitive advantage while minimizing risk. For example, a tech firm may collaborate with a manufacturing company to bring a new high-tech idea to the marketplace. One party provides the product expertise; the other provides the means for production. Additionally, joint ventures provide a way for companies to enter foreign markets. For example, a foreign company enters into a joint venture with a U.S. company for sale of its product. The foreign company then benefits from the domestic company’s governmental approval and business relationships in the industry. This is referred as an “international joint venture.”

Benefits of a Joint Venture

Creating a Joint Venture provides an opportunity for the parties to benefit from one another’s expertise. Other benefits include:

• Enables the parties to offer their customers new products and services
• Helps the parties to save money in operating, marketing, and advertising costs
• Helps the parties save time
• Helps the parties acquire new business associates and referrals
• Enables the parties to gain new technological know-how or new geographical market territories
• Does not require a long-term commitment

Objectives of Joint Venture

• To enter foreign market and even new or emerging market.
• To reduce the risk factor for heavy investment.
• To make optimum utilisation of resources.
• To gain economies of scale.
• To achieve synergy.

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Mergers and Acquisition under Companies Act, 2013

Mergers and acquisitions involve the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities). Mergers occur when two companies join forces. Acquisitions occur when one company buys another company and folds it into its operations.

Chapter XV of the 2013 Act, Sections 230 to 240 deal with “Compromises, Arrangements and Amalgamations.” In this chapter, the Act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations; however, other provisions are also attracted at different stages of the process. The dissolution of company/companies involved in a merger takes place without winding up.

Procedure for amalgamation

The memorandum of association of the companies seeking to merge, should give power to companies to amalgamate. Also, the creditors of the companies must approve the merger scheme. Notice of merger along with merger proposal and valuation report etc. needs to be served upon creditors, shareholders, and various regulators (MCA, RBI, CCI, Stock exchanges of listed companies, IT authorities and other sector authority likely to be affected by merger.) Shareholders and creditors are given option to cast their vote through postal ballot. Tribunal can order meeting of creditors if application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement for merger or amalgamation. Objections can be raised by shareholders who hold 10% or more equity or creditors whose outstanding debt is 5 % or more of the total debt as per last audited balance sheet. Prior certification from auditors saying accounting treatment is in consonance with accounting standards needs to be filed with stock exchanges (for both listed and unlisted companies).

Board of Directors need to approve the draft proposal after which application will be made to respective High Court (State where registered office is located) in Form no. 36. After the approval mentioned above, the scheme will have to be filed with the Official Liquidator, RoC and the Central Government. In the event of there being “no objection,” this will be deemed as approve. The 2013 Act has established National Company Law Tribunal which will handle all the matters related to company law and replace the HCs.

After the Court order, its certified true copies will be filed with the Registrar of Companies.

The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date. As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

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Mergers and Acquisitions

Mergers and acquisitions are two key processes that lead two different corporate entities to combine their resources and form one entity to have better standing in market. The two terms though results in combining the assets and liabilities of two corporate houses to form one company, however, the two terms differ in their meaning as well as the process to be followed for them.

The term ‘merger’ has not defined anywhere under the Companies Act, 1956 or under Income Tax Act, 1961. However, the Companies Act, 2013 without strictly defining the term explains the concept. A ‘merger’ is a combination of two or more entities into one entity. This results into not just the accumulation of assets and liabilities of the two distinct entities, but also organization of such entity into one business. In mergers the less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation. Similarly the term ‘amalgamation’ has not been defined under the Companies act, 2013 but the Income Tax Act, 1962, under section 2(1B) defines amalgamation as the merger of one or more companies with another company or the merger of two or more companies to form one company. The company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company. The result of the amalgamation is that-

·        all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;

·        all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

·        shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company.

Further, the Companies Act, 1956 under sections 390 to 394 and Companies Act, 2013 under sections 230 to 234, deal with the schemes of arrangement or compromise between a company, its shareholders and/or its creditors.

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What is a Lok Adalat?

Lok Adalat is a forum where the disputes/cases pending in the court of law or at pre-litigation stage are settled/ compromised amicably. The Lok Adalat has been given statutory status5 under the Legal Services Authorities Act, 1987. Under the said Act, the award made by the Lok Adalat is deemed to be the decree of a civil court and is final and binding on all parties and no appeal lies before any court against its award.

The problem of unmanaged backlog of cases, mounting arrears and inordinate delay in disposal of cases in Courts at all levels lowest to the highest coupled with exorbitant expenses have undoubtedly attracted the attention of not only the lawyers, litigants, social activists, legal academics, legislature, judiciary but also everyone concerned with judicial reforms. The sole governing consideration, therefore, how to reduce the delay in disposal of cases, make the system resilient by removing its stratification, making the system less formal and truly inexpensive so as to bring justice within the reach of the poor.

Nature of cases to be referred to Lok Adalat

1. Any case pending before any court

2. Any dispute which has not been brought before any court and is likely to be filed before the court

Provided that any matter relating to an offence not compoundable under the law shall not be settled in Lok Adalat.

How to get the case referred to the Lok Adalat for settlement?

A) Case pending before the court:

1. If the parties agree to settle the dispute in Lok Adalat or

2. One of the parties makes an application to the court or

3. The court is satisfied that that the matter is an appropriate one for settlement in Lok Adalat

B) Any dispute at pre-litigative stage

The State Legal Services Authority or District Legal Services Authority as the case may be on receipt of an application from any one of the parties to any pre-litigation stage matter refer such matter to the Lok Adalat for amicable settlement.

Why should you opt for Lok Adalat?

1. There is no court fee and if the court fee is already paid at the time of institution of the case such amount will be refunded to the concerned party if the dispute is resolved by the Lok Adalat. The dispute are settled without bearing any expenses by the parties.

2. Lok Adalats are empowered to settles the both kind of matters which are already pending before courts and which are at pre-litigation stage. The parties have an opportunity to bring the dispute before this institution at any time irrespective of whether the case is instituted in the court of law or not.

3. The procedure followed by Lok Adalat is simple, flexible, non-technical and informal. There is no strict application of procedural laws like Civil Procedure Code and Evidence Act while determining the claims of the parties by Lok Adalat.

4. The lawyers are not essential to be appeared during the conciliation process of Lok Adalat. However, they can assist the Lok Adalat in its proceeding by helping the parties to understand contentious issues and available alternatives and can persuade them to arrive at a settlement of the dispute.

5. It dispenses justice to the disputants through collaborative and participatory efforts of lawyers, law teachers, judges, administrative authorities and social workers who actively participate in the resolution of the dispute by discussion, counselling, persuasion, conciliation and humane approach.

6. Lok Adalat provides justice speedily to the parties, generally, when it resolve the cases in a single day. In this sense it helps to reduce the huge arrears in courts of law.

7. The award of Lok Adalat is final and binding. There are no further appeals, revisions or review applications. Therefore, the dispute ordinarily comes to an end.

8. The Lok Adalat system helps to create awareness among the people about their rights and duties mentioned in numerous social and welfare legislations. Lok Adalats are organized at various places such as villages, slum areas, industrial areas, labour colonies, towns and in jails, etc. In this way, it takes justice at the door-steps of the people.

9. The Lok Adalat settle the dispute on the basis of compromise and in the spirit of 'give and take'. Thus, there is neither a victor nor a vanquished and both the contestants are gainers and winners. They leave the premises smiling with no rancor or ill feeling for the other which ultimately leads to happiness and well-being of the society. So, the drive behind the Lok Adalat is the roused consciousness of the community to prevent disruption of local unity and to secure substantial equity and social justice, in a mood of human solidarity.

Permanent Lok Adalat

Permanent Lok Adalat has to be established by the National legal Services Authority or the State Legal Services Authorities. It shall have three members; the Chairman, who is or has been a District Judge or an Additional District Judge or has held a judicial office higher in rank than that of a District Judge and two other members having adequate experience in public utility service. Such persons shall be appointed by the State or the Central Authority, as the case may be, upon nomination by the respective Governments. But at the same time, such nomination shall be on the recommendation of the Central or the State authority. Section 22-C (3) provides that when an application is filed written statements with appropriate proof, including documents and other evidence. Copies of documents produced and statements made by the parties shall be given to each other. Therefore, PLA shall conduct conciliation proceedings between the parties to bring about an amicable settlement to the dispute. It is the primary duty of PLA as per Section 22-C (4). While conducting such conciliation proceedings, it is incumbent on the members of PLA to assist the parties to reach an amicable settlement.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service requirements.

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Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

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APPLICATION FOR RERA REGISTRATION

Ø Application of registration u/s4 to be made as per the Form ‘A’ prescribed under Rule 3(3) and along with the same declaration has to be filled in Form ‘B’ as per Rule 3(6).

Ø The concept of 70:30 is mentioned in section 4(2)(i)(d).

Ø Registration is guaranteed under section 5.

Ø Registration can be revoked u/s 7.

Registration and obligation of real estate

Ø As per RERA it now mandatory that real estate agents selling the premises in Real estate project have to register u/s9 by complying as per the form ‘G’ prescribed under Rule 11(2)

Ø As per Rule 12(4) the registration shall be valid for period of 5years.

Ø The provision for renewal in respect of Real estate agent should not be done as per Rule 13.

Ø There are various obligation caused on Real estate agent under Rule 14

Ø Revocation of registration of breach of provision mentioned in Rule15.

Ø As per the Rule 16 Real estate agents has to maintain and preserves separate books, accounts, documents. 70% of realization from allottees in a separate bank account

1.    The Act mandates that a promoter shall deposit 70% of the amount realized from the allottees, from time to time, in a separate account to be maintained in a scheduled bank. This is intended to cover the cost of construction and the land cost and the amount deposited shall be used only for the concerned project.

2.    The promoter shall be entitled to withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. However, such withdrawal can only be made after it is certified by an engineer, an architect and chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project

3.    The promoter is also required to get his accounts audited within six months after the end of every financial year by a practicing chartered accountant. , Further, he is required to produce a statement of accounts duly certified and signed by such chartered accountant, and it shall be verified during the audit that (i) the amounts collected for a particular project have been utilised for the project; and (ii) the withdrawal has been in compliance with the proportion to the percentage of completion of the project.

The application for registration must disclose the following information:

Ø Details of the promoter (such as its registered address, type of enterprise such proprietorship, societies, partnership, companies, competent authority)’.

Ø A brief detail of the projects launched by the promoter, in the past five years, whether already completed or being developed, as the case may be, including the current status of the projects, any delay in its completion, details of cases pending, details of type of land and payments pending.

Ø An authenticated copy of the approval and commencement certificate received from the competent authority and where the project is proposed to be developed in phases, an authenticated copy of the approval and commencement certificate of each of such phases.

Ø The sanctioned plan, layout plan and specifications of the project, plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof and the locational details of the project.

Ø Performa of the allotment letter, agreement for sale and conveyance deed proposed to be signed with the allottees.

Ø Number, type and carpet area of the apartments and the number and areas of garages for sale in the project.

Ø The names and addresses of the promoter's real estate agents, if any, and contractors, architects, structural engineers affiliated with the project.

A declaration by the promoter supported by an affidavit stating that:

Ø He has a legal title to the land, free from all encumbrances, and in case there is an encumbrance, then details of such encumbrances on the land including any right, title, interest or name of any party in or over such land along with the details;

Ø The time period within which he undertakes to complete the project or the phase; and

Ø 70% of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.

DUTIES OF PROMOTER

Ø Upon receiving the login id and password Promoter has to create his web page on the website of the authority

Ø To enter all the details of the proceed project on his web page

Ø Once in three months the promoter has to update the data on web page in respect of booking status, approvals, status of the project etc..

Ø Advertising material should reflect should the registration details of the promoter.

Ø Promoter has to abide by all the obligation under section 11(3) at time of time of booking

Ø As per the section 12 promoters will solely responsible for on regards as the advertisement of prospectus.

Ø As per section 13 promoter cannot accept more than 10% of the cost of apartment without executing the contract.(in MOFA it is used to be 20 %)

Ø As per section 15 promoters cannot transfer the Real estate project to the third party without obtaining the consent 2/3rd of the allotters.

Ø  As per section 16 promoters has to insure Real estate projects in respect of land and building and construction of Real Estate project.

Ø As per s.17 promoter has to transfer the title when the norms are fulfilled for its transfer.(this done with help of amendment of land titling bill 2010 which gives the entire mechanism of land titling

 BENEFITS OF THE CUSTOMER

The Authority shall in order to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector make recommendations to the appropriate Government of the competent authority, as the case may be, on,—

(a) protection of interest of the allottees, promoter and real estate agent;

(b) creation of a single window system for ensuring time bound project approvals and clearances for timely completion of the project;

(c) creation of a transparent and robust grievance redressal mechanism against acts of ommission and commission of competent authorities and their officials;

(d) measures to encourage investment in the real estate sector including measures to increase financial assistance to affordable housing segment;

(e) measures to encourage construction of environmentally sustainable and affordable housing, promoting standardisation and use of appropriate construction materials, fixtures, fittings and construction techniques;

(f) measures to encourage grading of projects on various parameters of development including grading of promoters;

 (g) measures to facilitate amicable conciliation of disputes between the promoters and the allottees through dispute settlement forums set up by the consumer or promoter

associations;

(h) measures to facilitate digitization of land records and system towards conclusive property titles with title guarantee;

(i) to render advice to the appropriate Government in matters relating to the development of real estate sector;

(j) any other issue that the Authority may think necessary for the promotion of the real estate sector.

CIVIL COMPLAINT

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Authority or the adjudicating officer or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

 (1) No court shall take cognizance of any offence punishable under this Act or the rules or regulations made there under save on a complaint in writing made by the Authority or by any officer of the Authority duly authorised by it for this purpose.

(2) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service Mentality.

Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

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