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India Inc faces delay in its M&A, restructuring proposals, as NCLT grapples with Covid-19 related restrictions


India Inc is facing a delay in its planned mergers and acquisitions (M&A), amalgamation or general restructuring activities owing to longer approval time taken by the National Company Law Tribunal (NCLT).

The short-staffed adjudicating authority is currently hearing only emergency matters due to Covid-19 related restrictions. These matters include cases related to time-bound Insolvency and Bankruptcy Code (IBC) as well as matters related to oppression and mismanagement in companies.

This has pushed the general scheme matters on the back burner, causing delays for the companies planning to act on their scheduled restructuring.

“M&A transactions, which are structured through schemes of arrangement such as a merger of two competitor companies, require NCLT approval. When NCLT was operationalised in 2016, scheme matters were shifted from the high Courts to NCLT with the expectation that such schemes would move much faster,” said Ketan Dalal, founder, Katalyst Advisors. “Unfortunately, there are currently endless delays and many matters are getting derailed, completely contrary to the objective of ease of doing business. This becomes even more frustrating when it is not an internal merger or demerger but is an external M&A transaction.”

As per the latest available data, about 21,259 cases are pending in the various NCLTs, out of which around 1,723 are under the IBC. The remaining cases are related to various scheme matters that include mergers, amalgamation, restructuring and demergers, as well as shareholder disputes such as those related to oppression and mismanagement.

“Insolvency cases, which have strict timelines, tend to get precedence, as a result of which cases pertaining to mergers/demergers or corporate disputes tend to get pushed to the back of the queue,” said advocate Tahira Karanjawala of Delhi-based firm Karanjawala & Co. “However, we witness a greater delay in the adjudication of corporate disputes in comparison to the sanctioning of mergers/demergers, as in the case of the latter the interests of the parties are usually aligned. Corporate disputes see greater delays since it is often in the interest of one party to delay the matter.”

There is a sanctioned limit of 63 judges, but the current strength is just about half.

On May 31, the Supreme Court had directed the Centre to complete reappointing NCLT judges within two months as well as expedite the process to appoint new tribunal members. The apex court was hearing petitions filed by the NCLT and appellate tribunal bar association and a practising advocate, Amrendra Kumar Singh.

According to Shreya Sircar, partner at law firm Bharucha & Partners, delay in obtaining scheme approvals either lead to a slowdown of transactions or an outright deal failure. This is especially relevant when the country is witnessing waves of the raging pandemic, with numerous businesses undergoing restructuring.

“With a limited number of benches of the NCLT functioning, scheme approvals and merger sanctions have been relegated to the back burner, with insolvency matters occupying the foreground,” said Sircar. “Its ripples will also be felt in the long run when India Inc will be viewed as a less conducive destination for cross-border mergers, adversely affecting future investments. This, in turn, will impact India’s global economic ranking in ease of doing business.”

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