This document discusses mergers and amalgamations under Indian law. It defines a merger as when one company transfers its assets and liabilities to another company, ceasing to exist, while an amalgamation occurs when two or more companies merge into a new third company and the original companies cease to exist. It outlines the legal process under the Companies Act and Income Tax Act, including requirements for shareholder approval, court petitions, allotment of shares, and carryover of losses/depreciation. It also discusses precedents set in previous court cases related to mergers and amalgamations in India.

1. MERGERS & AMALGAMATIONS
Institute of Company Secretaries of India
Hyderabad Chapter

2. The Meaning
 Merger-
Where Assets and Liabilities of one company
are transferred to another and the first company
loses its existence
 Amalgamation-
Where two or more companies merge into a
third new company and the existing cos lose
their existence

3. The reasons
 Expansion and Diversification
 Optimum Economic Benefit
 De-risking Strategy
 Scaling up of operation for competitive advantages
 Increase the Market capitalization
 Cost reduction by reducing overheads
 Increasing the efficiencies of operations
 Tax benefits
 Access foreign markets

4. Legal Issues
 The Companies Act. 1956
 The Income Tax Act
 Other Laws
 The procedure
 Precedents

5. The Companies Act
 Section 391 to 394
-Arrangement
-The Scheme
-The Petition to the Court
-Chairman appointed by Court
-Meeting under Court’s supervision
-Voting by Poll (Postal Ballot!?)
-Notice to Central Govt.
-No objection from Official liquidator

6. The Income tax Act
 Carry forward and set off of accumulated loss
and unabsorbed Depreciation:
- Sec 72A of the Income Tax Act
- Available to Industrial Undertakings
(Manufacture,Computer, Power, Mining construction Ship,Aircraft,
rail)
- 3/4th Value of Assets to be held for 5 years
- Continue the business of transferor Co. for 5
Years

7. The Income Tax Act…
 Transferor company need not pay any capital
gains {Sec 47 (vi)}
 Amortization cost can continue in the transferee
Co.
 Carry forward of losses/ depreciation in the
transferor company
 Issue of Shares to the shareholders of shares to
the transferor Co. does not attract capital gains
{Not a transfer – SEC 47(vii)}

8. Other Laws
 Pass on of Modvat to the transferee company
 New undertaking benefits available to the
transferee company
 Stamp duty-
In A.P., Maharashtra, Gujarat and Karnataka
stamp duty is to be paid on the Court orders

9. Other Laws…..
 Maharashtra - 0.7% of value of shares allotted
or 7% of value of immovable properties in
Maharashtra subject to a ceiling of 10% of the
value of shares
 Gujarat = Maximum 2% of value of shares
allotted
 Karnataka: 0.1% of value of properties in
Karnataka
 A.P- 2% on the market value of shares

10. The Procedure
The Terms used
 Appointed Date
 Effective Date
 Record Date
 Transferor Company- Can be any body Corporate
 Transferee Company – Can only be company under
this Act.

11. The Procedure
The Terms used
 Compromise -- ―a dispute, a sacrifice‖
 Arrangement – ―parties agree without any
dispute between them‖
―Compromise and arrangement covered u/s 391 are of
the widest character, ranging from a simple composition
or moratorium to an amalgamation of various
companies, with a complete reorganisation their share
and loan capital….. Sec 391 is a complete code by itself‖
–Navjivan Mills Co. Ltd In re.(1972) Comp. Cas.265
(Guj.)

12. The Procedure…
 To Review of Memorandum of Association
-to verify that power to amalgamation is
available
-transferee has power to carry on the business
of the transferor company.
 Value the Company and determine value of
shares as of appointed date
 The Scheme of Merger/Amalgamation
- Transfer of Licences, permits, Sanctions

13. The Procedure…
 Hold the Board Meeting of both companies and approve
in principle the amalgamation
 File the applications to the Court
 File details of Shares of held by Non Residents with RBI
(FEMA/20 Para 7)
 Court appoints chairman for both the companies
 Prepare Notice convening the Meeting
 Court appointed chairman convenes shareholders
meeting (Certificate of Posting)
 Paper advertisement of the notice

14. The Procedure…
 Pass the resolution by poll
 On the same day the transferee company can hold EGM
to increase the authorised capital/81(1A) resolution
 Get the minutes of the meeting approved by the court
appointed chairman
 Petition to high courts seeking approval of the scheme
 High court sends copy of petition to the central Govt
(R.D.) And official liquidator seeking their report that the
affairs of the company have not been conducted in a
manner prejudicial to the members or public interest

15. The Procedure…
 Public Notice in local dailies intimating the hearing date
of the petition by the advocate
 Official Liquidator on scrutiny of the books and papers of
the company files his report to the Court in respect of
transferor companies being wound up.
 Where the Court Passes an order providing for transfer
any property or liabilities then, the properties shall be
transferred to and vest in, and liabilities shall become
liabilities of transferee company.
 --The Dept does not permit transfer of Authorised
Capital….. (property includes powers of every
description)

16. The Procedure…
 File the Certified copies of the Court orders with ROC
within 30 days
 Attach Copy of the order made by Court u/s 391(2) to
every Memorandum of the company
 Intimation to Stock Exchanges, and apply for in principle
approval for allotment of shares
 Apply to RBI for getting in principle approval to allot
shares to Non Residents ( Approval from FIPB in case %
increases)
 Fix the Record Date
 Convene Board Meeting and allot shares as per the
Scheme
 File the return of allotment (Which Form to be used)

17. Post Merger
 Board Meeting
 Intimation to Stock Exchanges
 General Intimation in news papers
 Transfer of Licences, Registrations, Bank Accounts,
Mutation of Title Deeds, RC Books of vehicles,
Insurance policies, PF, ESI, Sales Tax
 Action plan for integration in Finance and Accounts
 Intimate the Auditors of the transferor company
 Any pending legal cases to be in the name of transferee
Co. (Obtain sufficient copies of Certified order of the
Court)
 What happens to Remuneration of Directors where Appointed date
is substantially larger?

18. Precedents
 Tenancy rights cannot be transferred to
transferee company– General Radio & Appliances Co. Ltd.
V. M.A. Khader (1986) 60 Company Cas.1013
 Employees cannot be compulsorily transferred
to another under a scheme—John Wyeth (India) Ltd., In.
re. (1988) In. re. (1988) 63 Comp. Cas.233 (Bom)
 Who can file petition under Section 391?
Creditor, member or liquidator in addition to the company only can
move a petition u/s391 -- S.K. Gupta Vs. KP Jain (1979) Comp.
Cas. 342 (SC)

19. Precedents…
 Rights of creditors or members of a
company to make an application u/s 391
are not taken away after winding up order
has been passed -- Rajdhani Grains & Jaggery
Exchange Ltd., In re (1983) 54 Comp. Cas.166 (Delhi)
 It is not compulsory for Court to give direction to
convene a meeting contemplated under Section 391(1)–
Sakamari Steel & Alloys Ltd. In re (1981) 51 Comp.
Cas.266 (Bom)

20. Precedents…
 Scheme once sanctioned becomes
binding and cannot be varied except with
the Sanction of Court—JK (Bombay)(P) Ltd.
Vs.New Kaiser-I-Hind Spg. & Wvg. Co. Ltd (1970) 40
Comp. Cas.689 (SC)