Criminal Law--- Implication on Businessmen And Professionals

CRIMINAL LAW

I.          Introduction

Most businessmen, chartered accountants and other professionals rarely bother about criminal law and its proceedings. This is one law which no law-abiding citizen wants to know about. However, sometimes even they may, willingly or unwillingly,  become a party to a criminal proceeding. Hence, it becomes necessary to at least have a fair understanding about the basics of criminal law. Further, even in cases of economic offences, criminal cases may be initiated against businessmen. In such an event it would be of great assistance if they have some knowledge of criminal law. Criminal Law in India is mainly governed by two major Acts : the Indian Penal Code, 1860 and the Criminal Procedure Code, 1973. While the Indian Penal Code deals with what can be considered as an offence and the punishment for various offences, the Criminal Procedure Code, 1973 (“the Code”) prescribes procedures and the formalities which must be followed in trying an offence. The Code is a very important piece of legislation, since actions such as arrest, imprisonment, death sentence, etc., affect the fundamental rights of an individual and hence, the detailed machinery provisions prescribed under the Code must be strictly followed. The whole Code is extremely exhaustive and elaborate and to cover it in its entirety would require a dedicated book by itself. This Chapter looks at only some of the crucial basic provisions of the Code which may be important in daily life.        

II.        Criminal Courts

2.1       Under the Code there is a hierarchy of criminal courts. The Highest Criminal Court in the country is the Supreme Court. The Highest Criminal Court in each State is the High Court. In addition the Code constitutes the following classes of criminal courts (in descending order):

(a)        Sessions Court

(b)        Judicial Magistrates of the first class and in case of metropolitan areas : Metropolitan Magistrates

(c)        Judicial Magistrates of the second class

(d)       Executive Magistrates

2.2       The State Government has been empowered to notify any area with a population of more than one million to be a metropolitan area. The Code expressly notifies Mumbai, Chennai, Kolkatta and Ahmedabad as metros. Thus, in all these metros there exists a Court of the Metropolitan Magistrate.

2.3       Thus, the Sessions Court is the highest court under the High Court which is empowered to try criminal matters. There are certain restrictions on the nature of sentences / orders which can be passed by various Courts :

           

2.4       Sentences which High Courts and Sessions Judges may pass. -

(a)        A High Court may pass any sentence authorised by law.

(b)        A Sessions Judge or Additional Sessions Judge may pass any sentence authorised by law; but any sentence of death passed by any such Judge shall be subject to con­firmation by the High court.

(c)        An Assistant Sessions Judge may pass any sentence authorised by law except a sentence of death or of imprisonment for life or of imprisonment for a term exceeding ten years.

2.5       Sentences, which Magistrates may pass: -

(a)        The court of a Chief Judicial Magistrate may pass any sentence authorised by law except a sentence of death or of imprisonment for life or of imprisonment for a term exceeding seven years.

(b)        The court of a Magistrate of the first class may pass a sentence of imprisonment for a term not exceeding three years, or of fine not exceeding five thousand rupees, or both.

(c)        The court of a Magistrate of the second class may pass a sentence of imprisonment for a term not exceeding one year, or of fine not exceeding one thousand rupees, or of both.

(d)       The court of a Chief Metropolitan Magistrate shall have the powers of the Court of a Chief Judicial Magistrate and that of a Metropolitan Magistrate, the powers of the Court of a Magistrate of the first class.

III.       Process of complaint

3.1       The person filing the complaint is normally known as the complainant and the person against whom the complaint has been filed is known as the accused. The term complaint means an allegation made with a view to obtaining action against the accused under the provisions of the Code. A complaint is made to the Magistrate. 

3.2       The Magistrate would then examine the complainant upon oath. If the Magistrate is of the opinion that there is sufficient ground for proceeding further in the case then the following provisions would apply:

(a)        If the case is a ‘summons-case’ then he shall issue a summons for the attendance of the accused; or

(b)        If the case is a ‘warrant-case’ then he shall issue a warrant or a summons for the attendance of the accused.

3.3       A warrant-case has been defined as one relating to an offence the punishment for which is one of the following:

            (a)           death penalty;

            (b)           life imprisonment; or

            (c)           imprisonment exceeding 2 years

            A summons-case is a case which is not a warrant-case.  The procedure for the trial of a warrant-case and a summons-case are different.

3.4       Summons-case trial

3.4.1    Once a summons has been issued to an accused the Magistrate may dispense with his personal attendance if he sees reason to do so. However, an application for such exemption must be made to the Magistrate. 

3.4.2    When the accused appears before the Magistrate he shall be asked whether or not he pleads guilty to the offence. If he pleads guilty, the Magistrate would convict him as per his discretion.

3.4.3    In case the accused does not plead guilty, then the Magistrate shall record evidence and hear both the parties and admit all evidence in this respect. Ultimately, the Magistrate must pass:

(a)     an order of acquittal if he finds the accused not guilty; or

(b)     a sentence / an order of conviction if he  finds the accused guilty. 

3.4.4    The complainant may at any time withdraw the complaint with the previous approval of the Magistrate. A withdrawal would lead to an automatic acquittal.

3.5       Warrant-case Trial

3.5.1    A warrant-case trial can take place either on the basis of a police report or otherwise than on a police report.

3.5.2    In case of a warrant-case trial on the basis of a police report the procedure is as under:

(a)        The accused must be furnished with a copy of the Police Report, the First Information Report, the statements recorded of the complainants and their witnesses.

(b)        After considering the above documents, if the Magistrate feels that the charge against the accused is baseless then he shall discharge him. However, if he feels that there exist grounds for presuming that he has committed an offence, then he shall frame a written charge against the accused.  This is known as a plea of the Accused/Charge. The charge must be read and explained to the accused. A charge is a very important step in the criminal proceedings and it may be defined as a precise formulation of a specific accusation against the accused of an offence alleged to have been committed by him.     

(c)        The accused is then asked whether or not he pleads guilty to the offence. If he pleads guilty, the Magistrate would convict him as per his discretion as permissible under the law.

(d)       In case the accused does not plead guilty, then the Magistrate shall fix a date to examine the prosecution witnesses. He would also admit all evidence in this respect and the defence submissions, witnesses and cross-examinations.

3.5.3    Ultimately, the Magistrate must pass:

(a)     an order of acquittal if he finds the accused not guilty; or

(b)     a sentence / an order of conviction if he  finds the accused guilty. 

IV.       Arrest Provisions

4.1       Arrest in case of Cognizable offences

4.1.1    In case of most offences whether under the Indian Penal Code or under other Acts one comes across the words “the offence shall be deemed to be cognizable”. The term ‘cognizable offence’ means an offence for which the police can arrest without a warrant.  Thus, in case the act in question is a cognizable offence then the police officer need not wait for the issuance of a warrant against the accused. Conversely,  a non-cognizable offence would mean one where the police can arrest only on the basis of a warrant. For instance, all offences under the Companies Act are expressly stated to be non-cognizable.

4.1.2    S.56 of the Code states that in case an arrest is made without a warrant the police shall without unnecessary delay produce the person arrested before a Magistrate. Further the police officer can keep him in custody only for a maximum period of  24 hours after which he must be produced before a Magistrate’s court. The Magistrate can then extend the remand.

4.2       Arrest in case of non-cognizable offences

4.2.1    In case of non-cognizable offences the police requires a  Court warrant which must bear the seal of the Court.

4.2.2    The police shall without unnecessary delay produce the person arrested before the Court. Further such delay cannot exceed 24 hours.

V.        Bail & Bonds

5.1       Bailable Offences

            An accused in a ‘bailable offence’ who is willing to give bail must be released on bail at any stage of the proceedings.    A ‘bailable offence’ is one which so shown in the First Schedule to the Code. The term bail means the accused is released from the custody. If the Court thinks fit than it can discharge the accused on the execution of a bond without sureties. There is no element of discretion involved in granting bail in the case of a bailable offence.

5.2       Non-bailable offence  

            A ‘non-bailable offence’ is one which is not a bailable offence. An accused in a non-bailable offence can be released on bail only if the following conditions are satisfied:

(a)        he is not believed to be guilty of an offence punishable with death or a life term; and        

(b)        the offence is a cognizable offence and he has been previously convicted of an offence punishable with death or a term exceeding 7 years or on two or more occasions of a non-bailable and cognizable offence.

Thus, as compared to a bailable offence, granting of bail in the case of non-bailable offences is not merely procedural but a subjective decision.

5.3    Anticipatory Bail

Any person who has reason to believe that he may be arrested for a non-bailable offence may apply to the High Court or the Sessions Court for an anticipatory bail. The Court may grant such bail on such terms and conditions as it deems fit. Thus, on the basis of mere reason to believe, any accused may apply for anticipatory bail. It may be noted that the words “anticipatory bail” are not found in the Code but have their genesis in common parlance. Since anticipatory bail is granted in anticipation of arrest it becomes effective at the very moment of the arrest.   

5.4       Bonds

Before any person is released on bail or bonds, he must execute a bond for such some on money as the Court thinks fit. Further, on being released on bail one or more sureties must execute a bond guaranteeing that he would attend at the time and place mentioned in the bond. If the bail specifies any condition for the grant of the bail, then he bail shall also specify the same. The Code however, does not authorise the Court to demand a cash surety as a  bond.       

VI.       Search Warrants

6.1       A Court may issue a Search Warrant in any of the following circumstances :

(a)        Where the Court has reason to believe that the person to whom a summons or order or requisition is addressed will not produce such documents, or things; or

(b)        Where such document or thing is not known to the Court to be in the possession of any particular person; or

(c)        If the Court considers that the purpose of any inquiry or other proceedings would be served by such a search.

6.2       In addition to the above search provisions, a District Magistrate may issue a search warrant for certain objectionable articles, such as, forged documents, counterfeit coins /stamps, etc.

VII.     FIR

7.1       U/s. 154 of the Code, if any information relating to the commission of a ‘cognizable offence’ is given orally to a Police Officer in charge of a particular Police Station, then the same must be reduced to writing by him and read out to the person informing him about the same. This information should also be signed by the informant and a record of the same must be made in a Register maintained for this purpose at the Station. The informant is also entitled to a free copy of the information. This information is more popularly known as a “First Information Report” or FIR. The Register maintained at the Police Station is known as the Station Diary or the Station House Register. It may be noted that the informant is immediately entitled to a copy of the FIR.

7.2       The noting of the information or the FIR sets the whole machinery in motion and hence, it is an important document in a criminal proceeding. In case any Police Officer refuses to lodge an FIR, then the aggrieved may himself send the information to the Superintendent of Police. The Superintendent may then take such action as  he deems appropriate.    

VIII.    Statements and Confessions

8.1         Any statement made by a person to a Police Officer in the course of an investigation shall not be signed nor shall it be used, in whole or in part, for any purpose at any inquiry or trial in respect of the offence. The statement may be recorded in a Police Diary or anywhere else. However, any statement of a witness, if duly proved, may be used by the accused and also by the Prosecution to contradict him in the manner provided by the Evidence Act.   

8.2         A Metropolitan / Judicial Magistrate has powers to record any confession made to him in the course of any investigation. It is not relevant whether or not the Magistrate has any jurisdiction in the case. The Magistrate must forewarn the person confessing that he is not bound to confess and that if he does confess, then his statement may also be used as a evidence against him. The Magistrate cannot record the confession unless he is satisfied that the same has been made voluntarily.   

IX.        Summons and Warrants of Arrest

9.1         Whenever the attendance of any person is required in a Court, the Court would issue a Summons to such person. It is thus a process issued to compel attendance of any accused, witness, etc. The following factors are a must for a valid Summons:

            (a)           It must be issued by a Court;

            (b)           It must be in writing;

            (c)           It must be issued in the duplicate

            (d)          It must be signed by the Presiding Officer of the Court;

            (e)           It must bear the Common Seal of the Court

              In addition, the Summons must clearly state the Date, time, place and the Name of the Court where the person has been summoned. As far as practicable, every Summons shall be personally served on the person named in the Summons by delivering to him a copy of the duplicate Summons and by obtaining a receipt for the same on the back of the other copy. In case the person summoned cannot be found, it may be left with some adult male member of his family (not being a servant) who is residing with him.   In case even this mode of service is not possible, then a copy of the summons may be affixed on any conspicuous part of the residence of the person summoned. The summon must be served by a Police Officer or some other public servant, if the State Government rules so provide.

9.2         In certain serious cases, the Court may issue a Warrant of Arrest instead of a summons. A Court may issue a Warrant of Arrest to a person in cases where:

(a)        either before the issue of a summons or after its issue but before the time fixed for his appearance, the Court has reason to believe that he would not obey the summons.

(b)        he has wilfully disobeyed the summons.

A Warrant of Arrest must have the following characteristics:

(a)           It must be issued by a Court;

            (b)           It must be in writing;

            (c)           It must be signed by the Presiding Officer of the Court;

            (d)          It must bear the Common Seal of the Court

            (e)           It must bear the name of the accused

            (f)           It must clearly state the offence of the accused. 

The Court can also allow the release of the person if he furnishes satisfactory surety/bonds to the Court.    

X.        Directors’ Responsibilities

10.1     The number of prosecution cases involving companies has increased recently. Criminal cases involving companies in matters such as cheque bouncing, company law violations, etc., have become quite common and hence, there is an increasing need for directors to be aware of their rights and responsibilities in such criminal cases.   

10.2     Further when a company wants to lodge a criminal complaint it would be desirable if the directors have at least some basic understanding of the process involved and procedures.  This would be of great significance in terms of speed on the Company’s part in taking effective action.

A brief on Family Arrangement

FAMILY SETTLEMENT

I.          Introduction

1.1       Maximum disputes take place within family members rather than among strangers. Family fights are something which India has witnessed right from the times of the Mahabharata.  Corporate India has witnessed a spate of family feuds in almost all major corporate houses, such as Bajajs, Modis, Birlas, Appollo Tyres, Ranbaxy, BPL, Mafatlals, Thapars, etc. The Reliance dispute is the newest entrant to the fast growing list of family disputes.   

1.2       A family arrangement is one of the oldest alternative dispute resolution mechanisms which is known. The scope of a family arrangement is extremely wide and is  recognised even in ancient English Law. This is because the world over, Courts lean in favour of peace and amity within the family rather than family disputes.  

1.3       In the last about 50 years, a good part of the law relating to Family Arrangement / Settlement is well settled through numerous court decisions including several decisions of the Supreme Court.  It is ironic that in a country where a substantial part of businesses are run and owned by joint families, there is no legislation which governs or regulates such family settlements or arrangements. Hence, the entire law in this respect is case-law made.  

           

II.        What is a Family Settlement/ Arrangement?

            It is important to analyse the basic principles governing family settlement involving properties held mainly by individuals.  Various Courts, including the Supreme Court of India,  have laid down the basic principles relating to family arrangements.  

2.1       Concepts and principles of family arrangements/settlement

            From the analysis of the numerous judgments of the Supreme Court, the concepts and principles of family arrangement are summarised below :

(a)      A family arrangement is an agreement between members of the same family intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour.

(b)      If the arrangement of compromise is one under which a person, having an absolute title to the property, transfers his title in some of the items thereof to the others, the formalities presented by law have to be complied with since, the transferees derive their respective title through the transferor.  If, on the other hand, the parties set up competing titles and differences are resolved by the compromise, there is no question of one deriving title from the other and, therefore, the arrangement does not fall within the mischief of s. 17 read with s. 49 of the Registration Act, as no interest in property is created or declared by the document for the first time.  It is assumed that the title had always resided in him or her, so far as the property falling to his or her share is concerned, and therefore, no conveyance is necessary.

(c)      A compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. 

(d)       By virtue of a family settlement or arrangement members of a family descending from a common ancestor or a near relation  seek to sink their  differences and disputes, settle and resolve their conflicting claims or disputed titles once for all in order to buy peace  of mind and bring about complete harmony and goodwill in the family.  Family arrangements are governed by a special equity  peculiar to themselves, and will be  enforced if honestly made.                               

(e)      The term "family" has to be understood in a wider sense so as to  include within its fold not only close relations or legal heirs  but even those persons who may have some sort of antecedent title, a semblance of a claim  or even if  they  have a spes successions. The word 'family' in the context of a family arrangement is not to be understood in a narrow sense of being a group or a group of persons who are recognised in law as having a right of succession or having a claim to a share in the property in dispute.  

(f)       Courts have made every attempt to sustain a family arrangement rather than to avoid it, having regard to the broadest considerations of family peace and security. 

(g)        The said settlement must be voluntary and should   not be induced by fraud, coercion or undue influence. 

(h)        Even if bona fide disputes, present or possible, which may not involve legal claims, are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement. 

       

(i)         The consideration for such a settlement, if one may put it that way, is the expectation that such a settlement will result in establishing or ensuring amity and goodwill amongst persons bearing relationship with one another.

          (j)          The ultimate aim of the agreement is to preserve amity and goodwill within the family and avoid bad blood. However, every document cannot be styled as a family arrangement. For example, if the patriarch of a family makes a will under which he divides his personal shares in various businesses and family properties among his family members, then the same cannot be called a family arrangement as it is merely a distribution of the deceased’s estate as per his  will. One of the key requirements for a family arrangement is the existence of a dispute or a possible dispute. 

(k)        Consideration is one of the important aspects of any contract. Under the Indian Contract Act, any contract without consideration is null and void. In the case of a family settlement, the consideration is the giving up of mutual claims and rights and love and affection. In India, the Courts do not enquire into the adequacy of consideration as in the case of USA. 

III.       What properties can be covered? 

3.1       Types of properties: From the various principles laid down regarding valid family arrangements, it is clear that valid family arrangements can  relate  to self-acquired properties, or other properties of the family.  It is neither a pre-requisite nor even a necessary condition that a valid family arrangement must relate to ancestral property only. An analysis of the various decided Case Laws reveals that even where the property involved in the family settlement was other than an ancestral property, and the family arrangements were held to be valid :

(a)        The family settlement was valid and the transaction was not a transfer for the purposes of the Gift tax. A family settlement entered into bona fide by the parties who are members of a family to put an end to disputes among themselves is not a transfer.  It is not also the creation of an interest. 

(b)        The property involved was that of the relatives of the partners of a firm, which firm had mounting creditors.  These relatives conveyed their properties for the benefit of the creditors of the firm to discharge debts incurred by the firm.  It was held that the conveyance amounted to a valid family arrangement and hence was not exigible to gift tax

(c)        An oral family arrangement, made by father, during his lifetime, under which he directed a larger share to one son out of his self-acquired non-ancestral property was held to be a valid family arrangement.

(d)       The property involved was certain joint family land.  Major part of the  property was apportioned to the sons of the Karta.  It was held that the transaction was a family settlement and no gift tax was leviable.

(e)        Payments promised under a family arrangement to be made to the assessee's son out of the assessee's private property, was held to be a valid family arrangement.

 IV.      CAPITAL GAINS TAX LIABILITY 

4.1       Primary Condition: U/s. 45 of the I.T. Act, "Any profits or gains arising from the transfer of a capital asset" are chargeable to capital gains tax.       Thus, the primary condition for levy of capital gains tax is that there must be a "transfer" as defined in s.2(47) of the I.T. Act. This primary condition must be satisfied before a tax levy on a capital gain may come in (C.A. Natarajan v. CIT, 92 ITR 347 (Mad)).

4.2       No Transfer: A family arrangement, in the interest of settlement, may involve movement of property or payment of money from one person to another.  As explained above in numerous case laws of the Supreme Court, High Courts and Tribunals, there is no "transfer" involved in a family arrangement.  Therefore, there is no question of capital gains tax incidence under a family arrangement.       

4.3       Principles: The following principles emerge from various decided cases:

(a)        The transaction of a family settlement entered into by the parties bona fide for the purpose of putting an end to the dispute among family members, does not amount to a "transfer".  It is not also the creation of an interest.

(b)        The assumption underlying the family arrangement is that the parties had antecedent rights in all the assets and this proposition of law leads to the legal inference that the same does not amount to any transfer of title.  Section 47 of the I. T. Act excludes certain transfers and since the family arrangement is not held to be a transfer, it would not require to be listed in section 47 unlike a partition which is a transfer and had to be specifically excluded from section 45.  Since section 45 can apply only to capital gains arising from transfers, family arrangements fall outside the scope of section 45, in view of the legal position that a family arrangement is not a transfer at all. 

(c)        In a family settlement, the consideration for assets received is the mutual relinquishment of the rights in joint property and hence, cost of assets received on settlement is the cost to the previous owner. 

(d)       Even a married daughter can be made a party to a family settlement between her paternal family members – State of AP v M. Krishnaveni (2006) 7 SCC 365. If she surrenders shares held by her pursuant to a family arrangement, then it would not be a taxable transfer – Mrs. P. Sheela, 308 ITR (AT) 350 (Bangl).

(e)        A Family settlement is analogous to partition attracting s. 49(1) hence, in case of property acquired by way of a family settlement dated 1^st September, 1997 effective from 31st July 1992, for the purposes of computing capital gains, deduction has to be allowed on indexed cost of acquisition by taking in to account its fair market value as on 1st April, 1981, since the property was acquired by the previous owner before 1981 - ACIT vs. Baldev Raj Charla & Ors. (2009) 121 TTJ 366 (Del.)

A Check List on Business Restructuring

BUSINESS RESTRUCTURING:  A CHECKLIST

I.          Factors to be considered

Business restructuring may be achieved by a variety of methods, such as, Merger, Demerger / Spin Off, Slump Sale, Acquisition of Shares, etc. Each method has its own pros and cons and must be selected keeping in mind the objectives to be achieved. While adopting a particular method, the following legal factors, wherever applicable,  need to be considered, in addition to the commercial and financial justification:

·          Income-tax impact on the Companies and their shareholders, e.g., capital gains on the transfer, set-off of losses and depreciation, transfer of deduction u/s. 80-IA/IB, 10A/10B, cost of assets to the Transferee, etc.

·          Stamp duty, e.g., levy, concessions, etc.   

·          Companies Act provisions

·          Competition Law provisions

·          SEBI Takeover Regulations and SEBI DIP Guidelines

·          Listing Agreement provisions and procedural requirements

·          FEMA and FIPB Policies

·          Sales tax / VAT – transfer of Exemption Schemes and tax on the transfer of business

·          Transfer of CENVAT Credit and Excise Registration 

·          Transfer of Licences under EPCG (Export Promotion Council Guarantee) Scheme, Project Import Regulations, etc.

·          Transfer of tenancies under Rent Control Laws

·          Labour law implications, e.g., Govt. permission for closure of a unit with more than 100 workers

·          Permissions required under contractual agreements, e.g., lenders, Govt. ministries in case of infrastructure / telecom projects, etc.

·          Transfer of environmental licences

·          Accounting implications of a particular method

II.        Checklist for Mergers

2.1       While considering a Merger proposal, ensure that the following points are addressed: 

·	Examine whether a Forward Merger or a Reverse Merger is more beneficial : the factors to be considered are tax benefits, listing, etc.
·	Ensure that the Main Objects or the incidental objects of the Memorandum of Association contain the power to amalgamate.
·	Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.
·	Consider whether the merger would be a merger considered to be a ‘Combination’ under the Competition Act, 2002 and hence, one which requires the permission of the Competition Commission.
·	Valuation of shares for fixing the Share Exchange Ratio
·	Convene a Board Meeting to approving the Scheme of Amalgamation
·	Obtain the consent/approvals, if any, required prior to the merger
·	Prepare the Scheme of Amalgamation and Explanatory Statement.
·	The Explanatory Statement forwarded must disclose the pre and post-merger capital structure and shareholding pattern
·	File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal. Listed companies must also submit to the stock exchange, an auditors’ certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.
·	Receive the approval of the Stock Exchange
·	Apply to the High Court / National Company Law Tribunal in Form No 33 and 34
·	Send a copy of the Application to the ROC within 30 days
·	Send the Notice (in Form No. 36) convening the General Meeting to every member and creditor  as directed by the Court along with the Explanatory Statement and Form of Proxy (in Form No. 37).  Ensure that the Notice reaches the member at least 21 days before the date of the GM.
·	If the Court directs give an advertisement of the notice meeting  (Form 38)
·	Hold the Meeting and pass Resolutions  approving the Scheme
·	File the Report of the Meeting’s Chairman (in Form No. 39) with the Court
·	Prepare a Petition in Form No. 40 for obtaining the Court’s sanction to the Scheme.
·	At least 10 days before the date fixed by the Court for the hearing of the Petition, advertise the date of hearing
·	Obtain the Official Liquidator’s Report
·	Receive the Court’s Order sanctioning the Scheme
·	File a copy of the Order of the Court with the ROC within 30 days from the date of receipt of the Order.
·	Allot the securities to the shareholders of the Transferor Company
·	Attach a copy of the Court Order with every copy of the Memorandum and Articles of Association

 

2.2       Merger Scheme

The Merger Scheme / Scheme of Amalgamation must cover the following:

(a)        Definitions of important terms such as Appointed Date, Effective Date, Record Date for issue of shares, etc.

(b)        Background, capital, history, etc. of the Transferor and Transferee Company

(c)        Rationale of the Scheme

(d)       Amalgamation of Transferor with Transferee Company and vesting of its undertaking, assets and  liabilities in the Transferee Company. Reduction of capital, if any, of the Transferee

(e)        Issue of securities, etc. by Transferee to shareholders of Transferor, Share Exchange Ratio, Valuation Report, etc.

(f)        Increase in Authorised Capital of Transferee, if required

(g)        The Date from when the Scheme comes into operation

(h)        Accounting Treatment of the amalgamation by the Transferee

(i)         All contracts, deeds, bonds, instruments, executed by the Transferor to be binding on and enforceable against the Transferee

(j)         All legal proceedings, by or against the Transferor to be binding on and enforceable against the Transferee

(k)        Transferee to carry on Transferor’ business until the Effective Date

(l)         Applications to relevant High Courts for their approval

(m)       All employees of Transferor to become the employees of Transferee

(n)        No dividends, bonus, rights, further shares to be issued by either company without prior approval of the other company

(o)        The approvals / sanctions upon which the Scheme is conditional and effect of non-receipt of such approvals

(p)        Sharing of merger costs and expenses

(q)        Change of Board of Directors of Transferee, if any

(r)        Dissolution without Winding-Up of Transferor

(s)        Change of name and registered office of the Transferee, if applicable

III.       Checklist for Demergers

3.1       While considering a Demerger proposal, ensure that the following points are addressed: 

·	Ensure that what is being Demerged is an Undertaking as per the Income Tax Act or else the tax benefits may be jeopardised
·	Decide whether the Resulting Company would be a New Company or an Existing Company.
·	Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.
·	Audited Balance Sheets of both the undertakings
·	Valuation of Undertaking to be demerged / Share Exchange Ratio
·	Reduction in capital of the Demerged Company
·	Accounting Adjustments, if any
·	Convene a Board Meeting to approving the Scheme
·	Obtain the consent/approvals, if any, required prior to the demerger
·	Prepare the Scheme of Arrangement and the Explanatory Statement
·	File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal.
·	Apply to the High Court / National Company Law Tribunal in Form No 33 and 34
·	Send a copy of the Application to the ROC within 30 days
·	Send the Notice (in Form No. 36) convening the General Meeting to every member and creditor  as directed by the Court along with the Explanatory Statement and Form of Proxy (in Form No. 37).  Ensure that the Notice reaches the member at least 21 days before the date of the GM.
·	If the Court directs give an advertisement of the notice meeting  (Form 38)
·	Hold the Meeting and pass Resolutions  approving the Scheme
·	File the Report of the Meeting’s Chairman (in Form No. 39) with the Court
·	Prepare a Petition in Form No. 40 for obtaining the Court’s sanction to the Scheme.
·	At least 10 days before the date fixed by the Court for the hearing of the Petition, advertise the date of hearing
·	Receive the Court’s Order sanctioning the Scheme
·	File a copy of the Order of the Court with the ROC within 30 days from the date of receipt of the Order.
·	Resulting Company to take over the assets and liabilities of the Demerged Company
·	Allot the securities to the shareholders of the Transferor Company

IV.       Checklist for a Slump Sale

·	Ensure that what is being sold satisfies the conditions of an ‘undertaking’ under the Income-tax Act
·	Ensure that the Main Objects in Memorandum of Association of Transferor contain the power to sell a business undertaking and in case of Transferee contain object(s) for carrying on such business
·		Audited Balance Sheets of the undertaking / business to be sold
·		Decide upon the lump sum consideration  and its mode of payment
·		Compute the tax impact u/s. 50B of the Income-tax Act
·	Ascertain the stamp duty and VAT impact, if any, on the sale
·	Draft the Slump Sale Agreement
·	Draft the Postal Ballot Notice + Draft Resolution + Explanatory Statement to be sent to the Members  in case the Transferor is a listed company
·	Board Meeting to approve the Sale, Agreement and Postal Ballot Notice
·	Intimate the Stock Exchanges about the decisions taken at the Board Meeting
·	Post the Postal Ballot Notices and comply with the Postal Ballot Rules
·	Pass the Resolution by way of Postal Ballot
·	File Form No. 23 in R.O.C. within 30 days of the Resolution u/s 293(1)(a)
·	Execute the Slump Sale Agreement
·	Give possession of the undertaking / business to the Transferee
·	Prepare a letter of possession
·	Board Resolution for giving and receiving the possession of the business
·	Pass Accounting entries for sale of business undertaking in the books