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Amalgamation- companies Act

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  1. 1. P R E S E N T A T I O N B Y : A B H I S H E K A N A N D M F C P A R T I G U I D E D B Y : D R . N I D H I J A I N AMALGAMATION
  2. 2. Definition  Amalgamation means union of two or more companies, so as to form a third entity or one company is absorbed into another company.  Thus, the formation of a new company is not absolutely necessary for amalgamation.  Transferor company means the company which is amalgamated into another company. (Amalgamating company)  Transferee company means the company into which a transferor company is amalgamated (amalgamated company).
  3. 3. Reasons for Amalgamation  (i) Synergy in operating economies: When two or more undertakings combine their resources and efforts they may with combined efforts produce better results than two separate undertakings because of the savings in operating costs viz. Combined sales offices, staff, staff facilities, plant management etc. Synergy is also possible in areas of production, finance, technology etc.  (ii) Taxation advantages: Mergers take place to have benefits of tax laws and company having accumulated losses may merge with profit earning company that will shield the income from taxation. Section 72A of the Income Tax Act provides this incentive.  (iii) Other advantages:  Growth  Diversification  Production capacity reduction  Operating efficiencies  Procurement of supplies  Financial Strength (because of larger size of merged assets)
  4. 4. Legal Procedures (Section 394 & 395)  Amalgamation can be carried out as per sections 394 and 395 of the Indian companies Act, 1956.  Section 394 lays down that, where, on an application under section 391, it is shown to the court that the scheme of Arrangement or Compromise has been proposed for the purpose of Amalgamation of two or more companies, and the whole or part of the undertaking, property or liabilities of one company is to be transferred to another company, the Court may, either by the order sanctioning the compromise or Arrangement or by a subsequent order, provided for all or any of the following matters : - Transfer of the undertaking, property or liabilities of one company to another;
  5. 5. Section 394 contd..  The allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company;  The continuation by or against the transferee company of any legal proceedings pending by or against the transferor company.  the dissolution, without winding up, of any transferor company;  the provision to be made for any person who, dissents from the scheme; and  such incidental, consequential and supplemental matters are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.
  6. 6. Contd..  Provided that – -The Court can not sanction a scheme for Amalgamation of a company which is being wound up, unless it has received a report from the Company law board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. -Similarly, an order for the dissolution of the transferor company shall not be made by the Court, unless a similar report has been received from the official liquidator. -It is obligatory on the part of the Court to give notice to the Central Govt. of every application made to it under this section and take into consideration the representation made by the Govt. before passing its order on the proposed scheme of Amalgamation. (394A)
  7. 7. Contd.. -Where such an order is made, it is the duty of every company concerned, to file a certified copy thereof with the Registrar of registration within 30 days after the making of the order. If the company defaults, it along with every officer of the company who is in default, shall be punishable with fine which may extend to Rs. 500. [section 394(3)]
  8. 8. “Take-Over Bid”  A „take-over‟ bid means an offer to acquire shares of a company with a view to obtain legal control of the company. Such offer to purchase shares may be either for cash or in exchange for the shares of the offeror company. The transferee company may make an offer to the transferor company, so that the scheme or contact may be placed before the shareholders of the transferor company.  If the shareholders accept the offer by the transferee company then there‟s no problem. If there are dissenting shareholders then the transferee company can proceed to acquire the shares of dissenting shareholders under section 395.
  9. 9. Section 395  Section 395 provides for the compulsory acquisition of the shares of the dissenting minority, by the transferee company, on the terms on which the shares of the approving shareholders are to be transferred to it.  Thus, this section aims to prevent a small minority from demanding an unreasonably high price for their shares.
  10. 10. Section 395  Provisions: - The offer of the transferee company to acquire the shares of any class of shares, must be placed before the shareholders of the transferor company. - The shareholders have the option to approve the offer within 4 months. Approval must be accorded by holders of atleast 90% in value of shares. (other than shares already held by the transferee company). - If the scheme is so approved, the transferee company may, within 2 months, after the expiration of the above 4 months, give notice to the dissenting shareholders.
  11. 11. Contd.. - The dissenting shareholders can within one month of receipt of notice, apply to the Court for annulling the scheme. - If the Court refuses to issue the order annulling the order or if no application is made to the Court, the transferee company shall be entitled and bound to acquire the shares of the dissenting shareholders. - The transfer of shares pursuant to the notice given by the transferee company, or after the disposal of the appeal filed by dissenting shareholders, shall be, by means of an instrument of transfer, executed on behalf of the shareholders by any person appointed by the transferee company an don its own behalf by the transferee company, and pay the amount and other consideration to the transferor company, who shall thereupon register the transferee company as the holder of these shares. - Any sums which are so received by the transferor company must be paid into a separate bank account and must be held for dissenting shareholders.
  12. 12. Amalgamation in National Interest (Sec.-396)  Under section 396 of the companies act, the Central Govt. is given power to order amalgamation of 2 or more companies in public interest. - Where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, then, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges; and with such liabilities, duties, and obligations; as may be specified in the order. - The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and may also contain such consequential, incidental and supplemental provisions as may be necessary to give effect to the amalgamation.
  13. 13. Contd.. -Every member or creditor (including a debenture holder) of each of the companies before the amalgamation continues to have the same interest in the new company resulting from the amalgamation as he had earlier in one of the amalgamating company; incase amalgamation affects his interests or rights adversely, he is entitled to compensation which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the Official Gazette. The compensation so assessed shall be paid to the member or creditor concerned by the new company.  No order under this section shall be made by the Central Govt. unless: a) A draft copy of the proposed order has been sent to each of the companies in order to enable such companies to file their objections and suggestions. The period of filing objections will be fixed by the Govt. which should not be less than 2 months from the date of receipt of draft copy;
  14. 14. Contd.. b) The time for preferring an appeal to Company law Board has expired or where any such appeal has been preferred, the appeal has been finally disposed of; and c) the Central Government has considered, and made such modifications, if any, in the draft order as may seem to it desirable in the light of any suggestions and objections which may be received by it from any such company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof.  Copies of every order made under this section shall, as soon as possible, be laid before both Houses of Parliament.
  15. 15. Preservation of Books and Papers of Amalgamated Companies The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company shall not be disposed of without the prior permission of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs of the company.
  16. 16. Changes in the New Companies Bill, 2012  The Companies Bill has also proposed replacing the High Court with the National Company Law Tribunal (“NCLT”). All merger and de-merger schemes would now have to be filed before the NCLT for approval.  Clause 230 (5) of the Companies Bill, makes it mandatory that a notice for a merger or de-merger to be sent to the: Central Government, Income tax authorities, RBI, SEBI, Registrar, Stock exchanges, CCI, official liquidator, and any other sectoral regulator.  In a “fast-track approval”, companies need not file schemes with the NCLT. The Central Government has the power to approve the scheme. Once approved, the scheme may be filed with the Registrar of Companies within thirty days. On registration, the scheme will be effective. (Clause 233)
  17. 17. Contd..  Clause 234 of the Companies Bill permits a foreign company, subject to the prior approval of the RBI, to merge, or amalgamate into an Indian company or vice-versa. The Companies Act on the other hand, only permitted a merger of a foreign company with an Indian company.