Financial investors in India are scared of regulatory uncertainties. Not that uncertainties are exclusive to our country but it’s a critical risk factor that is assessed by those making substantial investments. Historically, one of the most important regulatory concerns for such investors is related to being categorised as ‘promoter’ of a listed company, both when the company is going public and also in cases where a private equity (PE) player intends to take a control position in an already listed company, by replacing its present promoters or by becoming co-promoters. Promoter liability theories have kept such investors away from taking control positions in listed companies. On the contrary, in the unlisted space where the promoter position is perceived differently, control deals are a way of life for certain PE funds in India.
On December 7, 2016, the Ministry of Corporate Affairs (MCA) notified and brought into operation a significant chunk of sections under the Companies Act, 2013, including provisions relating to compromises, arrangements, reconstructions, mergers and amalgamations, with effect from December 15, 2016 (the Notification). This marks a paradigm shift in the corporate restructuring process, which is all set to undergo a transition from the earlier restructuring processes under the aegis of the High Courts, to National Company Law Tribunals (NCLTs), constituted with effect from June 1, 2016.
The MCA notified the Companies (Removal of Difficulties) Fourth Order, 2016, and the Companies (Transfer of Proceedings), Rules, 2016, on the same date as the Notification, clarifying that proceedings relating to schemes will stand transferred, forthwith, except where orders have been reserved. While applicants with final hearings on or before December 14, 2016, who were expecting orders to be reserved, heaved a sigh of relief, other applicants were caught in a limbo, while prospective applicants were left to surmise, and gear up for implementation of the new provisions, yet to be tested by NCLTs. The Notification was soon followed, on December 14, 2016, by the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, on sanction of schemes by NCLTs. Continue Reading National Company Law Tribunal: In the Scheme of Things