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Company law 2013 merger and amalgamation
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SCHOOL OF LEGAL STUDIES
COMPANY LAW ASSIGNMENT
Submitted by
Mohith S
4th
Sem LLB (Reg.)
AMALGAMATION
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INTRODUCTION
Amalgamation is the blending of two or more companies into one company, the
shareholders of each blending company becomes substantially the shareholders of the
other company which holds blended undertakings. Companies opt for amalgamation due
to various reasons including:
• Achieving growth through inorganic pursuits
• Achieving synergies through complementary pursuits
• Eliminate or reduce competition
• Market access, product access, technology access, etc.
• Diversification of business interests
• Regulatory, tax and fiscal considerations
TYPES OF AMALGAMATION
a) Merger
Merger is a form of amalgamation where all the properties and liabilities of transferor
company get merged with those of the transferee company leaving behind with the
transferor company nothing but its name, which also gets removed by the process of law.
It was held in Re: Areva T and D India Ltd [2008 81 SCL 140 (Cal.)] that companies do
not merge, only the assets and liability merge.
A ‘merger’ is a combination of two or more entities into one; the desired effect being not
just the accumulation of assets and liabilities of the distinct entities, but organization of
such entity into one business. The control over assets of the acquired company passes
to the acquirer.
Amalgamation
S. 232
Merger
with Indian Co
- S. 232
with Foreign
Co - S. 234
Acquisition /
Take-over
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Mergers may be horizontal merger, vertical merger, cogeneric merger, conglomerate
merger, cash merger etc as provided for in the Competition Act, 2002.
b) Acquisition or Take-over
It is a form of amalgamation where the shareholding in the combined enterprise will be
spread between the shareholders of the two companies – Re: Bihari Mills Ltd [1985 58
Comp.Cas.6(Guj.)].
LEGAL PROVISIONS
Before promulgation of Companies Act 2013, Section 390 to 395 of Companies Act, 1956
dealt with arrangements, amalgamations, mergers and the procedure to be followed for
getting the arrangement, compromise or the scheme of amalgamation approved.
Now, Sections 230, 231 and 232 of the Companies Act 2013 read with the Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016 notified by the Ministry
of Corporate Affairs, Government of India, govern the amalgamation of companies in
India.
Section 230 deals with Compromise & Arrangement in general
Section 232 deals with Amalgamation including Merger in particular
Section 239 provides that 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 off without the prior permission of the Central Government.
PROCEDURE
The procedure for amalgamation of companies are as follows:
• Conceptualization of Amalgamation scheme
This stage involves evaluation of transaction structure and review of all aspects before
taking final decision on M&A involving a scheme of arrangement and preparation and
finalization of Scheme of Amalgamation / Arrangement.
Complete valuation of the companies by valuation reports from Registered Valuer and
Fairness Opinion from a registered merchant banker are required. Typically, schemes of
amalgamation and arrangement require a swap ratio to be determined basis on a
valuation exercise performed on both the transacting companies. Such a swap ratio is
certified by the registered valuer.
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The Companies Act, 2013 also makes it mandatory that notice of meeting to discuss the
scheme of amalgamationarrangement must be accompanied by valuation report.
Further, in case of listed companies in addition to the valuation report issued by the
registered valuer, a merchant banker registered with SEBI shall issue a fairness opinion
on the derived swap ratio.
• Convening of Board Meeting by Company
The meeting shall pass a resolution endorsing the decision to amalgamate with another
Company
• Application or Joint Application to NCLT (u/s 230) & Advertisement
An application or joint application by two or more companies are filed with the NCLT along
with below documents:
✓ Application seeking NCLT order for holding meeting(s)
✓ Notice of admission
✓ Affidavit
✓ Copy of scheme which should include disclosures required u/s 230(2) such as
latest financial position, auditor’s report and details about pending
investigations/proceedings, etc
• Notice of Meeting to creditors, shareholders & members
• Advertisement of Notice of Meeting in Newspapers
In the case of Mohan Exports Ltd. V/s Tarun Overseas Pvt. Ltd. [54 (1994) DLT 513] it
was held that if both the Companies are under the jurisdiction of the same High Court,
Joint petition may be made.
Advertisement of such notice in newspapers (1 English and 1 vernacular) and on
company website at least 1 month before date fixed for meeting.
• Notice to Central government & statutory authorities
Dispatch of Notice and Explanatory Statement to prescribed Statutory Authorities (ROC,
IT, SEBI, Official Liquidator, RBI, etc.)
• Conduct of meeting & voting
This stage involves convening of Meeting(s) as per NCLT Order and passing Resolutions
for approval of the Scheme with such majority (i.e. majority of those present and
representing 75% of value of company) as required under the Companies Act, 2013 and
filing of Chairman’s Report by the Chairperson of the Meeting with the NCLT within 3 days
of the conclusion of meeting.
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• Petition for confirming Amalgamation plan before NCLT
Once the Scheme has been agreed by the members and creditors, the Companies shall
file a petition with the NCLT for sanction of scheme, within 7 days of filing of Chairman’s
report.
• Hearing & Order on petition under Section 232 by NCLT
NCLT shall pass an Final Order on the petition in Form no. CAA.7
• Statement of compliance in mergers and amalgamations
The Company shall file Certified Copy of Order with the ROC within 30 days of its’ receipt.
It shall also execute allotment and credit of Shares to shareholders pursuant to the
Scheme of Amalgamation and Arrangement and apply to Stock Exchanges for Listing of
New Equity Shares issued as consideration.
SPECIAL PROCEDURE IN CERTAIN CASES
Section 233: Amalgamation of two or more Small Companies or between a holding
company and its wholly-owned subsidiary company
The merger and amalgamation procedure in these cases are different in that it does not
involve NCLT approval but post the approval of the board of directors of the company,
notice would be sent to the ROC and official liquidator inviting objections/suggestions to
scheme.
Further, approval from at least 90% shareholders and 90% creditors (by value) would be
required.
Section 234: Amalgamation with foreign company
According to the Act, ‘foreign company’ means any company or body corporate
incorporated outside India whether having a place of business in India or not.
A foreign company, may with the prior approval of the Reserve Bank of India, merge into
a company registered under this Act or vice versa and the terms and conditions of the
scheme of merger may provide, among other things, for the payment of consideration to
the shareholders of the merging company in cash, or in Depository Receipts.
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Section 237: Power of Central Government to provide for amalgamation of
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, 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.
An example is merger of Tata Oil Mills Co. Ltd. (TOMCO) and Hindustan Lever Ltd (HLL).
In Hindustan Lever Employees’ Union vs. Hindustan Lever Ltd [1994 4 Comp. LJ 267 SC]
the Supreme Court evolved the ‘prudent business management test’ i.e. the merger
scheme should not impede promotion of industry nor obstruct growth of national economy
in the background of liberalized economic policy.
OFFENCES AND PENALTIES
Under the Companies Act 1956, only failure to file a certified copy of the order of the
NCLT with the RoC was a criminal offence. However, under the 2013 Act, Section 232(8)
provides punishment for failure to comply with obligations imposed by Section 232 in
relation to merger and amalgamation of companies.
The Company Law Committee constituted by the Ministry of Corporate Affairs in its
Report submitted in November 2019 observed that other than filing of certified copy of
NCLT order with the RoC, obligations imposed under Section 232 of the 2013 Act are
based on directions of the NCLT and therefore, need not be dealt with through criminal
provisions.
Accordingly, the Committee recommended that Section 232(8) should be amended to
impose a civil penalty for failure to file a certified copy of the order of the NCLT under
Section 232 with the RoC, within 30 days of such order.
CONCLUSION
The Companies Act, 2013 along with the Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016 has codified the provisions for amalgamation, merger and
takeover of companies in the Indian context.
However, there is further need to lessen the timeframes for amalgamation - merger &
acquisition activity by easing procedural bottlenecks and adopting digital workflow
practices.
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REFERENCES
1. The Companies Act, 2013 -
https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
2. Mergers And Acquisitions – Companies Act Framework And Broad Process -
http://bathiya.com/mergers-and-acquisitions-companies-act-framework-and-
broad-process/
3. Merger and Amalgamation Under Companies Act, 2013 -
https://taxguru.in/company-law/merger-amalgamation-companies-act-2013.html
4. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
- https://taxguru.in/company-law/companies-compromises-arrangements-
amalgamations-rules-2016.html
5. General Procedure for Amalgamation under Companies Act 2013 -
https://taxguru.in/company-law/general-procedure-amalgamation-companies-act-
2013.html
6. Report of Company Law Committee, Ministry of Corporate Affairs (November
2019) - http://www.mca.gov.in/Ministry/pdf/CLCReport_18112019.pdf