amalgamation UNDER COMPANIES ACT 2013 .pptx

Dr. M.K. PANDEY. LL.M, MBA, FCS, FCMA , Ph.D.
Advocate Supreme court of India
09871548899
MERGER & AMALGAMATION
An overview...

CORPORATE RESTRUCTURING
Corporate restructuring is a process involved in changing the organization of a
business. It implies rearranging the business for increased efficiency and
profitability.
There are primarily two ways of growth of business organization, i.e. organic
and inorganic growth.
Organic growth may relate to business or financial restructuring within the
organization that results in enhanced customer base, higher sales, increased
revenue, without resulting in change of corporate entity.
Inorganic growth may relate to restructuring through mergers, amalgamation
etc. Merger and amalgamations constitute one of the most important methods
for securing inorganic growth.

BACKGROUND
The Companies Act, 2013 has brought pragmatic reforms for Merger &
Amalgamation, which could make the process, easier, faster and cleaner for
companies involved in Merger & Amalgamation.
Some of the highlights include fast track mergers, merger between Indian
Companies and foreign companies and setting up of National Company Law
Tribunal (NCLT) to hear and decide on M&A proposals, cutting down on the
probability and scope of objections to M&A’s and easier as well as wider
participation of shareholders through postal ballot approval.
Chapter XV of the New Act deals with “Compromises, Arrangements, and
Amalgamations”, and consolidates the applicable provisions and related
issues. The Old Act required M&A to be sanctioned through a Court process
but the jurisdiction of court with regard to such Schemes will now vest with
NCLT.

What is Merger & Amalgamation?
Concept of Merger / Amalgamation:
The terms “merger” and “amalgamation” are synonymous.
In amalgamation the properties, assets and liabilities of one or more company
(amalgamating company) are transferred to an existing or a new company
(amalgamated company) and the amalgamated company issues share to the
shareholders of the amalgamating company in lieu thereof.
Under this process, the amalgamating company is dissolved without going
through the process of winding up.

•The expression “amalgamation” is not defined in the Companies Act, 1956/
2013.
•Section 2 (1B) of the Income Tax Act defines the term “amalgamation” as
“Amalgamation”, in relation to companies, means the merger of one or more
companies with another company or the merger of two or more companies to
form one company…….”
Conditions :
a) All properties to be transferred to the amalgamated company
b) All liabilities to be transferred to the amalgamated company
c) Shareholders holding atleast 3/4th in value of shares of the amalgamating
company should become shareholders of the amalgamated company.
Definition

Modes of Merger & Amalgamation
• Horizontal Merger: Merger of two or more companies that compete in the same
industry.
• Vertical Merger: Merger which takes place upon the combination of two companies
which are operating in the same industry but at different stages of production or
distribution system.
• Co-generic Merger: Where two companies are in the same or related industries but do
not offer the same products, but related products and may share similar distribution
channels, providing synergies for the merger.
• Conglomerate Merger: Conglomerate mergers are merger of different kinds of
businesses under one flagship company. (Diversity of objects of two companies cannot be ground
for declining sanction to proposed scheme of amalgamation-(Steel Kingdom Netcom Ltd., in re (2005) 59
SCL 544(Del)/Mcleod Russel (India) Ltd., In re (1997) 13 SCL 126 (Cal).

 Companies Act, 2013, (Sec 230-240)
 SEBI (LODR) Regulations, 2015, (Reg. 11, 37 and 94)
 Accounting Standard - 14
 FEMA (in case of merger of companies having foreign capital)
 Prior approval of RBI in case of cross-border merger
Competition Act, 2002
 Income Tax Act, 1961
 Indian Stamp Act, 1899
Any other sectoral-regulatory approval.
Regulatory Framework

CONSTITUTION OF NATIONAL COMPANY LAW TRIBUNAL
The Central Government, by notification, w.e.f. 01.06.2016, constituted the
‘National Company Law Tribunal and National Company Law Appellate
Tribunal under the provisions of Companies Act, 2013. This effectively
dissolved the Company Law Board (CLB), constituted under the Companies
Act, 1956 from the same day.

Merger and Amalgamation process
 Check whether objects clause of Memorandum of Association of both the
transferor and the transferee companies authorizes merger. (Power to amalgamate is a
statutory power, notwithstanding the fact that the MOA may not contain express power to amalgamate with
another company- EITA India Ltd., In re(2000)99 Com Case 276 Calcutta.)
 Convene a Board meeting of both the transferor and the transferee companies
to consider the proposal of merger.(Advisable)
 Draft a scheme of merger/amalgamation.
 Convene a Board meeting of both the transferor and the transferee companies
to consider the scheme of merger.
Preliminary Steps To Be Followed

 Compliance with the regulatory provisions.
 Rationale for the merger/ amalgamation.
 Provision under the scheme for protection of interest of creditors and
shareholders, employees and all other stakeholders.
 Scheme in consonance with public interest.
Issues considered by NCLT in a Scheme of
Merger/Amalgamation

Important points to be followed while drafting of a Scheme
Drafting of Scheme
Background and
description of
Companies
seeking approval
Purpose of the
Scheme
Rationale of
the Scheme
General
Part I
Definitions &
Interpretation
Part II
Capital
Structure
Part III
Accounting treatment,
merger of authorised
share capital and
matters incidental
thereto
Part IV
General terms and
conditions
applicable to all
parts of Scheme

Drafting of Scheme
Background and description of Companies :
• Name of the Companies
• Act under which it is incorporated
• Date of Incorporation
• Registered office address of the Companies
• Principal Objects of the Companies

Drafting of Scheme
Purpose of the Scheme
The Scheme shall be consistent with the provisions of Section 2(1B) of the Income Tax Act, 1961 (“IT Act”)
whereby:
(a)All the property of each Transferor Company immediately before the amalgamation becomes the property of the
Transferee Company by virtue of the amalgamation;
(b)All the liabilities of each Transferor Company immediately before the amalgamation become the liabilities of
the Transferee Company by virtue of the amalgamation;
(c)Shareholders holding not less than 3/4th in value of the shares in each Transferor Company (other than shares
already held therein immediately before the amalgamation by, or by a nominee for, the Transferee Company or its
subsidiary, or shares cancelled pursuant to the Scheme) become shareholders of the Transferee Company by virtue
of the amalgamation.
Accordingly, all the provisions of this Scheme will be read so far as circumstances permit to be consistent with the
requirements of Section 2(1B) of the IT Act.

Drafting of Scheme
Rationale of the Scheme
• Consolidation of business operations thus resulting in significant impetus to
growth.
• Reduction in overheads, administrative, managerial and other expenditure,
which may bring about operational rationalization, efficiency and optimal
utilization of various resources.
• Consolidation of managerial expertise of both the Companies thereby giving
additional strength to the operations and management of the Transferee
Company.
• Elimination of administrative function and multiple records-keeping
resulting in reduction in expenditure.
• Ultimate obtainment of Synergies.

Drafting of Scheme
General Part
• Definitions and Interpretation
• Capital Structure of Transferor and Transferee Companies
• Discharge of consideration, Accounting-Treatment, Merger of
Authorised Share Capital and matters incidental thereto
• General terms and conditions may contain conditions to
effectiveness of the Scheme

Steps to be followed for merger
Section 230 to 232 of Companies Act, 2013
Application (Section -230)
First Motion
1. Transferor & Transferee companies shall file an application to NCLT in Form NCLT-
1 along with:
Copy of scheme with disclosures u/s 230(2).
A notice of admission in Form No. NCLT-2
Affidavit in Form No. NCLT-6
NOCs from both creditors and shareholders (seeking dispensing of meetings of
shareholders and creditors, by way of affidavit)
A certificate from the Auditor of the Company to the effect that the accounting
treatment in the scheme of compromise or arrangement is in conformity
with the accounting standards prescribed under Section 133.
Upon the application, the Hon’ble NCLT may direct a meeting of the creditors or
class of creditors or the members or class of members and debenture holders to
consider the scheme of merger/ amalgamation as per Section S.232 (1)(a) & (b),
S.230(3)–(6) read with rule 5. Meeting of creditors can be dispensed with if 90% of
the value of creditors give their consent under Section 230 (9).

2. The transferor & the transferee companies will send notices to the members/ creditors
in compliance of the order of Hon’ble NCLT in Form CAA-2, 30 days prior to the date
fixed for meeting. (S.230(3)-(6) read with rule 6).
Annexure to the notice calling meetings:
•Draft scheme
•Explanatory statement
•Confirmation that a copy of draft scheme has been filed with ROC
•Expert reports on valuation, if any
•Report by Directors explaining its impact on each class of shareholders, KMP,
promoter and non-promoter etc.
•Supplementary accounting statement when annual accounts is older than six months
before the first meeting of Board for approving scheme.
And other details as per Annexure A.
And other details as per Annexure A.
Publication of notice in one English and one vernacular newspaper having wide
circulation or such newspapers as may be directed by the NCLT (Section – 230(3)
read with rule 7) and send notice to other applicable authorities i.e. Central
Government, IT authorities, ROC as the case may be (Section -230(5) read with rule
-8) in Form CAA-3.

3. The transferor & the transferee Companies shall file an affidavit of service (Section-
232 read with rule -12) to the Hon’ble NCLT not less than 7 days before the date fixed
for the members/ creditors meetings along with Statement that the directions
regarding the issue of notices and the advertisement have been duly complied with in
the affidavit itself.
4. Convene the meeting of members & creditors as the case may be at the earliest after
filing affidavit of service under Section (S.232(1) read with S.230(3)-(6).
5. Filing a representation by the CG, IT authorities, RD as the case may be to the
Hon’ble NCLT within 30 days from the date of receipt of notice by the authorities under
Section (Section 230(5).
6. Chairperson of the meeting of both the companies shall submit result of the
creditors/ members meeting in Form CAA-4 within 3 days of conclusion of meeting.
(Section – 230 (6) read with rule 14).

Second Motion
7. Both the Companies shall file the Petition to the Hon’ble NCLT in Form
CAA-5 along with an Affidavit in Form NCLT-6 in support of the petition and
verifying any matters not provided in any prior affidavit such as advertisement
etc. within 7 days of filing of report by chairman (Section 232 read with rule
15).
8. Fixing the date of hearing for the Petition by the Hon’ble NCLT (Section 232
read with rule 16(1).
9. Sending of notice of hearing by the Hon’ble NCLT to the objectors or to their
representatives u/s 230(4) and to the CG, IT authorities, ROC as the case may
be under Section 232 read with rule 16 (2).
10. Transferor/Transferee Company shall publish advertisement in the same
newspaper in which the notice of meeting was published before 10 days the date
fixed for hearing (Section -232 read with rule 16(1).

12.Final hearing by the Hon’ble NCLT and order for amalgamation in Form –
CAA 7 (Section 232 read with rule 19 & 20).
13. The transferee company shall file the order of the Hon’ble Tribunal to the
ROC within 30 days of receipt of order in Form CAA-6. (Section 232 read
with rule-17.
14. Both the Company will file statement of compliance until the scheme is fully
implemented to ROC in Form CAA 8 duly certified by CA/CMA/CS in
practice within 210 days of the end of each financial year (Section 232 (7)
read with rule-21).

Merger of listed with unlisted Company
Transferor
Listed
Transferor
Unlisted
Amalgamated
Unlisted
The transferee company shall remain an unlisted Company until becomes
listed Company.
If shareholder of the transferor company decide to opt out of the transferee
company, provision shall be made for payment of the value of shares held by
them and other benefits in accordance with a pre-determined price formula or
after a valuation is made and the arrangements under this provision may be
made by the Tribunal:
Provided that the amount of payment or valuation under this clause for any
share shall not be less than what has been specified by the SEBI under any
regulation framed by it.

The books and papers of a company which has been amalgamated with or
whose shares have been acquired by, another Company under this Chapter 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 transferor-company or its amalgamation or the acquisition of its shares.
Preservation of books and papers of amalgamated
companies (Section -239)

The liability in respect of offences committed under this Act by the officers in
default, of the transferor company prior to its merger, amalgamation or
acquisition shall continue after such merger, amalgamation or acquisition.
Liability of officers in respect of offences committed
prior to Merger, Amalgamation ( Section – 240)

Scheme of Arrangement for listed entity
SEBI (Listing Obligations and Disclosure Requirements), 2015
Applicable Regulations
Regulation 11
The listed entity shall ensure that any scheme of arrangement / amalgamation
/merger/reconstruction /reduction of capital etc. to be presented to Tribunal does not in any way
violate, override or limit the provisions of securities laws or requirements of the stock exchange(s):
Provided that this regulation shall not be applicable for the units issued by Mutual Fund which are
listed on a recognised stock exchange(s)
Regulation 37
Without prejudice to provisions of regulation 11, the listed entity desirous of undertaking a scheme
of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement,
proposed to be filed before Tribunal under Sections 230-234 and Section 66 of Companies Act,
2013, whichever applicable, with the stock exchange(s) for obtaining Observation Letter or No-
objection letter, before filing such scheme with Tribunal, in terms of requirements specified by the
Board or stock exchange(s) from time to time.
).

Regulation 94
The designated stock exchange, upon receipt of draft schemes of arrangement and the documents
prescribed by the Board shall forward the same to the Board, in the manner prescribed by the Board.
The stock exchange(s) shall submit to the Board its Objection Letter or No-Objection Letter on the
draft scheme of arrangement after inter-alia ascertaining whether the draft scheme of arrangement is
in compliance with securities laws within thirty days of receipt of draft scheme of arrangement or
within seven days of date of receipt of satisfactory reply on clarifications from the listed entity
and/or opinion from independent chartered accountant, if any, sought by stock
exchange(s), as applicable.
The stock exchange(s), shall issue Observation Letter or No-objection letter to the listed entity
within seven days of receipt of comments from the Board, after suitably incorporating such
comments in the Observation Letter or No-objection letter:
Provided that the validity of the ‘Observation Letter’ or No-objection letter of stock exchanges shall
be six months from the date of issuance.

Regulation 94 contd.
The stock exchange(s) shall bring the observations or objections, as the case
may be, to the notice of Court or Tribunal at the time of approval of the scheme
of arrangement.
Upon sanction of the Scheme by the Court or Tribunal, the designated stock
exchange shall forward its recommendations to the Board on the documents
submitted by the listed entity in terms of sub-regulation (5) of regulation 37.

Practical & Procedural Aspects of
Drafting Petition/ Pleading

PREPARATORY POINTS
• Take minute facts from the client.
• Lend your complete ears to the client.
• Put question to the client.
• Convey to the client about exact legal position.
• Give correct picture of judicial views.

DRAFTING OF PLEADINGS
• Quote relevant provisions in the petition.
• Do not suppress facts.
• Highlights material facts, legal provisions and Court
decisions, if any.
• State important points together with reference.

CONDUCT AND ETIQUETTE
DUTY TO THE TRIBUNAL - Conduct yourself with dignity
and self-respect.
DUTY TO CLIENT - Don’t withdraw from engagements
once accepted, without sufficient cause.
DUTY TO OPPONENT - Do your best to carry out promises
made to the opposite-party.

TIME MANAGEMENT
1. Being busy isn’t the same as being effective.
2. Spend more time on specific activities.
3. Use your free time wisely.
4. Attempt the assignment on priority basis.

Some Important case laws on merger/demerger under
Companies Act, 2013
In the matter of Scheme of Amalgamation
of
Apollo Pipes Limited
(Transferor Company/Applicant Company No. 1
AND
Amulya Leasing and Finance Limited
(Transferee Company/Applicant Company No. 2)
with
Their respective Shareholder and Creditor
NCLT Order dated : 03/03/2017
Case Law - 1

Companies Act, 2013
A) In relation to the Transferor Company/Applicant Company No. 1
(i) With respect to Equity shareholders
Meeting of Equity shareholders of the Transferor Company/Applicant
Company No.1 is dispensed with as there are 7 Shareholders, out of which
one is Transferee Company, and other six equity shareholders’ consents have
been obtained and is already placed on record.

Companies Act, 2013
In the matter of the Composite Scheme of Arrangement
Between
Fortis Healthcare Limited
(Demerged Company)
AND
SRL Limited
(Amalgamating Company)
AND
Fortis Malar Hospitals Limited
NCLT Chandigarh Bench at Chandigarh
Order dated : 21.02.2017
We dispense with the convening of the meetings of the secured creditors of all the three
applicant companies as each of them is said to have given their consent to the proposed
scheme.
Case Law - 2

Companies Act, 2013
In the matter of
Jaiprakash Associates Limited
(Transferor Company/ Applicant No. 1)
AND
Jaypee Infrastructure Development Limited
(Transferee Company/ Applicant No. 2)
Order dated : 08.12.2017
Case Law - 3

Companies Act, 2013
i. The meetings of the shareholders and Secured and Unsecured creditors
of the Transferor Company are being dispensed with , with such a
direction that instead of meetings their to be obtained through postal
ballot with facility of voting through electronic means (e-voting),
wherever possible as per provisions of Section 110(1)(b) of the
Companies Act, 2013 and provision contained in Rule 20 of Companies
(Management and Administration) Rules, 2014.
Physical meetings were dispensed with in order to promote the larger
participation of shareholders and Secured and Unsecured creditors in
the voting.

The Companies Act, 2013 contains a number of provisions which have
implications on Mergers and Restructurings.
There are some pragmatic reforms such as: fast-track schemes, which being cost
and time effective will encourage corporate restructurings for small and group
companies; merger of an Indian company into a foreign company should give
impetus to cross-border M&A activity; introducing the threshold for raising
objections to a scheme would deter frivolous objections and postal ballot
approval would ensure a wider participation of the stakeholders.
CONCLUSION

amalgamation UNDER COMPANIES ACT 2013 .pptx

amalgamation UNDER COMPANIES ACT 2013 .pptx

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