Faster M&A clearances may keep traffic moving—until the roadblocks hit

Mint

2 days ago

A new standard operating procedure has set the framework for slashing the longdrawn procedural drift involved in securing regulatory approvals for mergers and demergers, creating much-needed predictability for dealmakers. Yet, the toughest hurdles remain untouched.
The SOP rolled out by the National Stock Exchange of India Ltd and BSE Ltd, effective 1 August, promises a seven-working-day processing window for merger and demerger applications if all the documents are in order. Until now, the processing window typically stretched for 3-5 months.
The framework, which has been mandated by the Securities and Exchange Board of India, also scraps physical paperwork, requiring only digital filings through platforms such as NSE's Electronic Application Processing System and BSE's Listing Centre.
However, companies listed on stock exchanges still need to approach the National Company Law Tribunal (NCLT) to secure approvals for mergers and demergers, a time-consuming and laborious processthe government had considered eliminating.
Also, regulatory scrutiny and sequence can still stretch deal timetables, said market participants and lawyers, adding that the new framework's rigidity could create fresh risks.
'While the SOP imposes a streamlined and timebound mechanism it simultaneously gives rise to certain challenges, primarily due to the inflexible nature of the framework, undefined obligations of Sebi, and the absence of safeguards against unforeseen procedural failures," said Madhavan Srivatsan, senior partner, Emerald Law Offices.
The SOP enforces strict timelines at every stage. Companies must file their draft scheme for a merger or demerger within 15 days of board approval, and will be given only two opportunities to respond to queries from the exchanges.
The exchanges, if satisfied with the draft scheme, will issue a no‑objection certificate or observation letter to Sebi, which will then issue its clearance. Only then can a company approach the NCLT for a final sanction.
Ketan Dalal, managing director at compliance and advisory firm Katalyst Advisors, termed the first step of securing exchange and Sebi signoffs as 'long and tortuous".
'The first step of taking approval from exchanges (where they internally take Sebi's approval) is now taking 3-5 months. Unless this approval comes, companies cannot apply to the NCLT," he said.
Dalal urged for a structural change: Allow parallel NCLT filings, with companies committing to incorporate Sebi-driven amendments in their draft scheme or withdraw if the plan is rejected. 'This parallel tracking will help to save 4-5 months in a situation where the current timelines are out of sync with commercial reality," he said.
Some gaps, but keeps traffic moving
Srivatsan of Emerald Law Offices pointed to the lack of a statutory outer limit for Sebi's signoff in the new framework, leaving the overall timetable open-ended.
'The SOP could have clarified an outer timeline for exchanges to grant the NoC to the issuer, which actually matters the most to the issuer for filing the scheme with NCLT," he said.
Srivatsan also flagged the absence of redressal mechanisms for technology failures, which could potentially require restarting the review cycle.
The SOP's strict reminders-and-return mechanism for incomplete responses could penalize issuers even when delays stem from exchange systems or required third-party inputs, he added.
Other practitioners warned about the tighter response pressures in the new framework.
'They (companies) will now only get two opportunities to respond to the deficiencies before the application is rejected," said Yash Vardhan Singh, counsel, Sarvaank Associates, adding that the mandate to respond only through a digital platform could test the digital-readiness of a company.
Ravi Mehta, leader–transaction tax, BhutaShah and Co. Llp, flagged that limited timeline allowed for companies to respond to queries from the stock exchanges.
'Companies must respond to exchange queries in three working days, which may be tight if internal approvals, like (from the) board or auditors, are needed. There could also be risk of rejection or deferral if deadlines are missed," he said.
'The exchanges should ideally have the power to relax the time period for responding certain queries upon request," added Anand Jayachandran, partner at law firm Cyril Amarchand Mangaldas.
The new framework, despite these complaints, offers several advantages, market participants and lawyers said.
The fixed turnaround times and common checklists in the new SOP should cut friction, enable cleaner equity issuance timelines, and support capital deployment schedules for investors and private equity funds, said Mehta.
'The SOP also ensures quick transmission of documents to Sebi, which often has been a bottleneck in large deals. Investors and private equity can better estimate when regulatory clearance might arrive," he said.
'Any step that defines or reduces approval timelines is a net win," added Jayachandran. 'They may not eliminate traffic lights, but will ensure listed companies and exchanges try to keep the traffic moving."