MCA new rule

MCA new rule

Subject: Economy

Section: Indian economy

Context:

The Ministry of Corporate Affair has announced a new rule to strengthen the checks and balances against opportunistic takeover of Indian companies by entities in countries with which India shares its land border.

Details:

It has mandated that the inbound mergers in India involving entities incorporated in countries where India shares its land border should file an additional declaration to the National Company Law Tribunal (NCLT)  that all necessary approvals under FEMA have been obtained regarding the  transactions involving compromise, arrangement, merger or demerger.

Earlier policy change towards countries sharing land border with India :

An entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.

A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.

India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar.

Concept:

The National Company Law Tribunal or NCLT is a quasi-judicial body in India adjudicating issues concerning companies in the country. It was formed on June 1, 2016, as per the provisions of the Companies Act 2013 (Section 408) by the Indian government

NCLT was formed based on the recommendations of the Justice Eradi Committee that was related to insolvency and winding up of companies in India. Decisions taken by the NCLT can be appealed to the National Company Law Appellate Tribunal (NCLAT). The decisions of the NCLAT can be appealed to the Supreme Court on a point of law.

NCLT Functions

• All proceedings under the Companies Act such as arbitration, arrangements, compromise, reconstruction, and winding up of the company will be disposed of by the Tribunal.
• The NCLT is also the Adjudicating Authority for insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
• In the above-mentioned subjects, no civil court will have jurisdiction.
• The NCLT has the authority to dispose of cases pending before the Board for Industrial and Financial Reconstruction (BIFR), as well as those pending under the Sick Industrial Companies (Special Provisions) Act, 1985.
• Also to take up those cases pending before the Appellate Authority for Industrial and Financial Reconstruction.
• It can also take up cases relating to the oppression and mismanagement of a company.