Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

RESEARCH PROJECT ON

[ MERGER & AMALGAMATION ]

For

COURSE ON ‘COMPANY LAW’

CLASS: B.Com., LL.B (Hons.) 6th Semester

Submitted by

[ Manas Dhar Dubey ]

[ 20 ]

Academic Session: 2019-20

Under the Supervision of

Mr. Shail Shakya

Prof. in Law
Faculty of Law
Dr. ShakuntalaMisra National Rehabilitation University

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 INDEX

S.NO TOPIC PAGE.NO REMARK

1. INTRODUCTION 4-5
2. REASON FOR MERGER AND 6
AMALGAMATION
3. WHO CAN FILE APPLICATION FOR MERGER 7-12
AND AMALGAMATION
4. MERGING OF LISTED CO. WITH UNLISTED 13-14
CO.
5. CASE LAWS 15
6. CONCLUSION 15
7. BIBLIOGRAPHY 16

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Mr. Shail Shakya

who gave me the golden opportunity to do this wonderful project on the topic Merger

& Amalgamation, which also helped me in doing a lot of Research and i came to know

about so many new things I am really thankful to them.

Secondly i would also like to thank my parents and friends who helped me a lot in

finalizing this project within the limited time frame.

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 INTRODUCTION

In relation to merger and acquisitions (M&A), Companies Act, 2013 has replaced the
1956 Act. The new Act enhanced disclosure norms and providing protection to
investors and minorities thereby making M&A smooth and efficient. It helps in the
overall process of acquisitions, mergers and restructuring, facilitate domestic and cross-
border mergers and acquisitions. Under the Companies Act 2013, the concept of merger
& amalgamation is fully explained whereas under companies Act 1956, the term
‘merger’ is not defined and also under the Income Tax Act, 1961.

The merger is a combination of two or more entities into one; it is not just the
accumulation of assets and liabilities of the distinct entities, but the organization of the
entity into one business. Central Government issued notification for enforcement of
sections related to merger & amalgamation on 7th November 2016.Vide notification
dated 14th December 2016 of Ministry of Corporate Affairs issued rules regarding
Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.

Even though substantial changes have been incorporated in the new act but still there
are certain provisions which remain unchanged such as pre-condition to merger & an
amalgamation of accepting scheme by three-fourths of shareholders is still a pre-
condition under the new act. Central government still has the power to order merger &
amalgamation in the interest of the nation. There is also an obligation to maintain
records of merger & amalgamation under section 239. There are some other provisions
which remain unaltered related to convening meetings, obtaining the permission of
regulatory authorities and central government. Application filed in relation to the
reconstruction of the company under section 230 for compromise & arrangement or
which involves merger or amalgamation of two or more companies have to specify the
purpose of the scheme.

The Companies Act, 2013 (2013 Act) has seen the light of day and replaced the 1956 Act
with some sweeping changes including those in relation to mergers and acquisitions
(M&A).

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The new Act has been lauded by corporate organizations for its business-friendly
corporate regulations, enhanced disclosure norms and providing protection to investors
and minorities, among other factors, thereby making M&A smooth and efficient. Its
recognition of intense shareholder rights takes the law one step forward to an investor-
friendly regime. The 2013 Act seeks to simplify the overall process of acquisitions,
mergers and restructuring, facilitate domestic and cross-border mergers and
acquisitions, and thereby, make Indian firms relatively more attractive to PE investors.

The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and
under Income Tax Act, 1961 (“ITA”). However, the Companies Act, 2013 (“CA 2013”)
without strictly defining the term explains the concept. 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.

On 7th November, 2016 Central Government issued a notification for enforcement of

section 230-233, 235-240, 270-288 etc i.e. 15th December, 2016. But still rules were not
available till date for CAA.

MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016. These rules will be
effective from 15th December, 2016. Consequently, i.e. 15.12.2016 all the matters relating
to Compromises, Arrangements, and Amalgamations (hereafter read as “CAA”) will be
dealt as per provisions of Companies Act, 2013 and The Companies (Compromises,
Arrangements, and Amalgamations) Rules, 2016.Where a compromise or arrangement
is proposed for the purposes of or in connection with scheme for the reconstruction of
any company or companies, or for the amalgamation of any two or more companies,
the petition shall pray for appropriate orders and directions under section 230 read with
section 232 of the Act.

Mergers and amalgamations are vital corporate transactions and completely overhaul
and transform the structure of the merging entities. 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 Ministry of Corporate Affairs, Government of India, vide notification dated 14th
December 2016 has issued rules i.e. the Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016. These rules came into effect from 15th December, 2016. As

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a consequence, i.e. 15th December 2016, all compromises, arrangements and mergers
have been carried out in accordance with the Companies Act 2013 (essentially Sections
230, 231 and 232) and the Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016.

REASON FOR MERGER AND AMALGAMATION

 Expansion and Diversification

 Optimum Economic Benefit

 Risk Strategy

 Scaling up operations for competitive advantages

 Increase the Market capitalization

 Reducing overheads for cost reduction

 Increasing the efficiencies of operations

 Tax Benefits

 Access Foreign Market

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 WHO CAN FILE APPLICATION FOR MERGER AND AMALGAMATION

An application for Merger & Amalgamation can be file with Tribunal (NCLT). Both
the transferor and the transferee company shall make an application in the form of
petition to the Tribunal under section 230-232 of the Companies Act, 2013 for the
purpose of sanctioning the scheme of amalgamation.

Joint Application: Rule 3(2)

Where more than one company is involved in a scheme, such application may, at the
discretion of such companies, be filed as a joint-application.

However, where the registered office of the Companies are in different states, there will
be two Tribunals having the jurisdiction over those, companies, hence separate petition
will have to be filed.

PROCESS

It must be ensure that the companies under amalgamation should have the power in the
object clause of their Memorandum of Association to undergo amalgamation though
the absence may not be an impediment, but this will make matters smooth.

A draft scheme of amalgamation shall be prepared for getting it approved in Board

meeting of each company.

1. Format of Application

Application to the tribunal for Merger & Amalgamation will be submitted in form
no. NCLT-1along with following documents: Rule 3(1)

A) A notice of admission in Form No. NCLT-2

B) An affidavit in form no. NCLT-6

C) A copy of Scheme of C&A (Merger & Amalgamation)

D) A disclosure in form of affidavit including following points Section 230(2)

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All material facts relating to the company,

i. The latest financial position of the company.

ii. The latest auditor’s report on the accounts of the company.

iii. The pendency of any investigation or proceedings against the company.

Reduction of share capital of the company, if any, included in the compromise or  
arrangement

E) Any scheme of Corporate Debt Restructuring consented to by not less than seventy

five per cent. of the secured creditors in value including.

i. A Creditor’s Responsibility statement in the form No. CAA-1.

ii. Safeguards for the protection of other secured and unsecured creditors.

iii. Report by the auditor that the fund requirements of the company after the corporate
debt restructuring as approved shall conform to the liquidity test based upon the
estimates provided to them by the Board.

iv. Where the company proposes to adopt the corporate debt restructuring guidelines
specified by the Reserve Bank of India, a statement to that effect.

v. A valuation report in respect of the shares and the property and all assets, tangible
and intangible, movable and immovable, of the company by a registered valuer.

F) The applicant shall also disclose to the Tribunal in the application, the basis on which
each class of members or creditors has been identified for the purposes of approval of
the scheme.

2. Calling of Meeting by Tribunal

Upon hearing of the application Tribunal shall, unless it thinks fit for any reason to
dismiss the application, give such directions / order as it may think necessary in respect
meeting of the creditors or class of creditors, or of the members or class of members, as
the case may be, to be called, held and conducted in such manner as prescribed in rule 5
of CAA Rules, 2016 as follow:

i. Fixing the time and place of the meeting or meetings.

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ii. Appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as
the case may be and fixing the terms of his appointment including remuneration.

iii. Fixing the quorum and the procedure to be followed at the meeting or meetings,
including voting in person or by proxy or by postal ballot or by voting through
electronic means.

iv. Determining the values of the creditors or the members, or the creditors or members
of any class, as the case may be, whose meetings have to be held.

v. Notice to be given of the meeting or meetings and the advertisement of such notice.

vi. Notice to be given to sect oral regulators or authorities as required under sub-section
(5) of section 230.

vii. The time within which the chairperson of the meeting is required to report the result
of the meeting to the Tribunal.

viii. Such other matters as the Tribunal may deem necessary.

3. Notice of Meeting:

 The Notice of the meeting pursuant to the order of tribunal to be give in Form No.
CAA-2. Rule 6

Person entitled to receive the notice The notice shall be sent individually to each of the
Creditors or Members and the debenture-holders at the address registered with the
company. Section 230(3)

Person authorized to send the notice:

 Chairman of the Company.

 If tribunal so direct- by the Company or its liquidator or by any other person.

Modes of Sending of notice:

 By Registered post, or by Speed post, orby courier, or

 By e-mail, or by hand delivery, or by any other mode as directed by the tribunal

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Documents to be send along with notice:

 The notice of meeting send with (i) Copy of Scheme of C&A and (ii) Following below
mentioned details of C&A if not included in the said scheme:

A. Details of the order of the Tribunal directing the calling, convening and conducting
of the meeting:-

 Date of the Order;

 Date, time and venue of the meeting.

B. Details of the company including:

 Corporate Identification Number (CIN) or Global Location Number (GLN) of the

company;
 Permanent Account Number (PAN);
 Name of the company;
 Date of incorporation;
 Type of the company (whether public or private or one person company);
 Registered office address and e-mail address;
 Summary of main object as per the memorandum of association; and main
business carried on by the company;
 Details of change of name, registered office and objects of the company during
the last five years;
 Name of the stock exchange (s) where securities of the company are listed, if
applicable;
 Details of the capital structure of the company including authorised, issued,
subscribed and paid up share capital; and
 Names of the promoters and directors along with their addresses.

C. Relationship in case of Combined Application: if the scheme of compromise or

arrangement relates to more than one company, then the fact and details of any
relationship subsisting between such companies who are parties to such scheme of
compromise or arrangement, including holding, subsidiary or of associate companies.

D. Disclosure about effect of M&A on material interests of directors, Key Managerial

Personnel (KMP) and debenture trustee.

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E. Details of Board Meeting:

 The date of the board meeting at which the scheme was approved by the board
of directors
 The name of the directors who voted in favour of the resolution,
 The name of the directors who voted against the resolution and
 The name of the directors who did not vote or participate on such resolution

F. Explanatory Statement disclosing details of the scheme of compromise or

arrangement including:

 Parties involved in such compromise or arrangement;

 Appointed date, effective date, share exchange ratio (if applicable) and other
considerations, if any;
 Summary of valuation report (if applicable) including basis of valuation and
fairness opinion of the registered valuer, if any, and the declaration that the
valuation report is available for inspection at the registered office of the
company;
 Details of capital or debt restructuring, if any;
 Rationale for the compromise or arrangement;
 Benefits of the compromise or arrangement as perceived by the Board of
directors to the company, members, creditors and others (as applicable);
 Amount due to unsecured creditors.

G. Disclosure about the effect of the Merger & Amalgamation (C&A) on: Section 230(3)

 Key Managerial Personnel;

 Directors;
 Promoters;
 Non-Promoter Members;
 Depositors;
 Creditors;
 Debenture holders;
 Deposit trustee and debenture trustee;
 Employees of the company:
 Share holders of the Company

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H. A report adopted by the directors of the merging companies explaining effect of
compromise on each class of shareholders, key managerial personnel, promoters and
non-promoter shareholders laying out in particular the share exchange ratio, specifying
any special valuation difficulties;

I. Below Mentioned Details: Following below mentioned details

 Investigation or proceedings, if any, pending against the company under the Act.
 Details of approvals, sanctions or no-objection(s), if any, from regulatory or any
other governmental authorities required, received or pending for the proposed
scheme of compromise or arrangement
 A statement to the effect that the persons to whom the notice is sent may vote in
the meeting either in person or by proxies, or where applicable, by voting
through electronic means
 A copy of the valuation report, if any Section 230(3)

J. Details of avaibility of documents: Details of the availability of the following

documents for obtaining extract from or for making or obtaining copies of or for
inspection by the members and creditors, namely

 Latest audited financial statements of the company including consolidated

financial statements;
 Copy of the order of Tribunal in pursuance of which the meeting is to be
convened or has been dispensed with;
 Copy of scheme of Merger & Amalgamation ( C&A);
 Contracts or agreements material to the Merger & Amalgamation ( C&A);
 The certificate issued by Auditor of the company to the effect that the accounting
treatment, if any,
 Proposed in the scheme of Merger & Amalgamation ( C&A) is in conformity
with the Accounting Standards prescribed under Section 133 of the Companies
Act, 2013; and
 Such other information or documents as the Board or Management believes
necessary and relevant for making decision for or against the scheme;

K. Some Other documents: Where an order has been made by the Tribunal under
section 232(1), merging companies or the companies in respect of which a division is
proposed, shall also be required to circulate the following:

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  The draft of the proposed terms of the scheme drawn up and adopted by the
directors of the merging company;
 Confirmation that a copy of the draft scheme has been filed with the Registrar.

MERGING OF LISTED CO. WITH UNLISTED CO.

If a listed company merges with an unlisted company under the Act, then unlisted will
by default not become listed. The option is given to the transferee company to remain
unlisted till it is listed or applies for listing, provided the shareholders of the merged
listed company are given an exit opportunity. It also provides that provision should be
made by the NCLT for an exit route for the shareholders of a transferor company who
decide to opt out of the transferee company by making payment amounting to the value
of the shares and other benefits.

FAST TRACK MERGERS

 The Act provides for Fast track mergers in cases of merger between:
 Two or more small companies or
 Between a holding company and its wholly-owned subsidiary company or

Such other class or classes of companies as may be prescribed;

Under the procedure for fast track mergers, the notice of the proposal to the Registrar,
official regulators and persons affected by the merger has to be sent within thirty days.
They can provide their objections and suggestions. The merger proposal has to be
approved by member holders of 90% shares at the general meeting and majority
representing nine-tenths in value of the creditors at the meeting convened by giving 21
days notice. The notice to the meeting to members and creditors has to be accompanied
by merger scheme and declaration of solvency.

The transferee company has to file merger scheme (within 7 days of meeting) and
declaration of solvency with ROC. Objections of ROC or official liquidator have to be
communicated to Central Government within 30 days in writing. Central government
has time period of 60 days after receiving merger proposal to file objections before

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tribunal which will consider whether the scheme is appropriate for fast track merger or
not.

 CROSS BORDER MERGERS

The Act also permits ‘Cross border mergers’ between Indian and foreign company
located in a jurisdiction notified by Central government in consultation with RBI. The
consideration of a merger, which will also be subject to the approval of the RBI, could
either be in cash or depository receipts, or partly in cash and partly in depository
receipts.

DEMERGER

Demerger includes transfers, pursuant to the scheme of arrangement by a “demerged

company” of one or more undertakings to any resulting company in such a manner as
provided in section 2(19AA) of the Income Tax Act, 1961.  The rules prescribe that the
difference in the value of assets and liabilities in the books of a demerged company will
be credited to its capital reserve or debited to its goodwill. Moreover, the difference in
the net assets taken over and shares issued as consideration will be credited to the
capital reserve (excess) or debited to goodwill (deficit) in the books of the resulting
company.

A certificate from a Chartered Accountant will also be required to be submitted to the

NCLT to the effect that the accounting treatment is in compliance with the conditions so
prescribed.

MINORITY SHAREHOLDERS

Minority shareholders are provided with an exit mechanism, when majority

shareholders (90% or more) notify their intention to buy shares of such holders.
Minority shareholders may also offer their shares suo- motto to majority shareholders.
The buyback option will be at the price determined by registered valuer according to
SEBI’s regulations.

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 CASE LAWS

In the case of Kirloskar Electricals Co. Ltd., the Court held that various clauses of
Section 394(1) of the Companies Act suggest that both the transferor and the transfer
company shall make an application to the Court and under section 391-394 of the
Companies Act, 1956 for sanction of the scheme of Compromise or arrangement
involving amalgamation of the Companies.

 In the case of Mohan Exports Ltd. V/s Tarun Overseas Pvt. Ltd., it was held that if
both the Companies are under the jurisdiction of the same High Court, Joint petition
may be made.

CONCLUSION

Thus it may be concluded that the procedure for amalgamation under the Companies
Act 2013 is on the same lines as the one prescribed under the Companies Act 1956
except for a few changes.

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 BIBLIOGRAPHY

The content has been taken from

 Wikipedia

 Bare act

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