ASSIGNMENT ON COMPANY LAW

MERGING MINDS: NAVIGATING AMALGAMATION AND MERGER LAW

UNDER THE COMPANIES ACT

SUBMITTED BY:
ADVIKA DWIVEDI
VIth SEM
BBALLB - A
REGISTRATION NO.: 45420341006

SUBMITTED TO:
ASST. PROF. MS. VIDYA A R

10TH August 2023

 DECLARATION

I hereby declare that the Research Assignment tiled - Merging Minds: Navigating
Amalgamation And Merger Law Under The Companies Act carried out under the
guidance of Asst. Prof. Ms. Vidya A R is a record of bona-fide research work
undertaken by me in partial fulfillment for the award of 5 Year B.B.A. LL.B. offered by
Christ Academy Institute of Law, Bengaluru. The said work is an authentic research and
not submitted before any other University/Academic Programs for the award of any other
degrees.

Date - 10/08/23

Advika Dwivedi
Reg. No.: 45420341006
VIth Semester B.B.A.LL.B.

Place - Bangalore
 CERTIFICATE

This is to certify that Advika Dwivedi a student of VIth Semester, 45420341006 has
successfully completed the Research Assignment on the topic - Merging Minds:
Navigating Amalgamation And Merger Law Under The Companies Act under the
guidance of Ms. Vidya A R during the academic year 2022-23 in partial fulfillment for
the award of 5 Year B.B.A.LL.B. offered by Christ Academy Institute of Law,
Bengaluru.

Date - 10/08/2023

Ms. Vidya A R
Assistant Professor

Place - Bangalore
 ACKNOWLEDGEMENT

In the successful accomplishment of this research assignment, I am indebted to my

supervising Guide Ms. Vidya A R who gave me proper direction by apt corrections,
suggestions and academic review at every stage of research. I would also like to place on
record my gratitude to the Principal Rev. Fr. Prof. Dr. Davis Panadan whose constant
guidance and insistence on scientific research has nurtured in me a sense of systematic
inquiry in all academic writings.My parents and good friends have always stood by me in
all academic endeavours and helpful in various phases of the completion of this
assignment. Last but never the least I am forever indebted to God Almighty for providing
me such enriching opportunities of learning, further enabling me to be a better person and
reminding me to repose my complete faith and confidence in divine blessings for success
of anything in life.

Date - 10/08/2023

Place - Bangalore

Advika Dwivedi
Reg. no.: 45420341006
VIth Semester B.B.A. LL.B.
 INTRODUCTION

In India's history of corporate regulations, the 2013 introduction of the Companies Act was a significant
development. The Companies Act of 2013 included 29 chapters, 479 clauses, and 7 schedules when it was first
adopted. Since then, the Ministry of Corporate Affairs has gradually switched over to the new Act from the
Companies Act, 1956. The Ministry of Corporate Affairs announced on December 7th that 90 Sections of the
Companies Act, 2013, will go into force on December 15th. These Sections also contain the Chapter XV
(Sections 230–240) provisions on Compromises, Arrangements, and Amalgamations.

Additionally, the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 were published
and went into force on December 15th, 2016. Additionally, Section 434(1)(c) was also made known, which
allows cases involving the 1956 Act that are ongoing before any District or High Court to be transferred to the
appropriate bench of the National Company Law Tribunal.

According to the Companies Act of 2013, a "merger" is the combining of two or more businesses into one, with
the intended outcome being more than simply the consolidation of the assets and liabilities of the several
entities but also their organisation into a single firm.

Within the course of its corporate existence, a corporation must inevitably reorganise itself in order to expand.
Re-organization or rebuilding are two examples of this restructuring. There are two types of corporate
restructuring: organic and inorganic. The term "organic" or "internal restructuring" refers to changes made
internally to the firm. It might be managerial, financial, or operational. While inorganic or external restructuring
refers to changes brought about with the aid of outside forces. Inorganic corporate restructuring includes
agreements, deals, mergers, amalgamations, and acquisitions.

Significance of the Study

Merger and amalgamation laws provide a legal framework that enables companies to reorganize and restructure
their operations, facilitating strategic decision-making and business growth. These laws allow for the
consolidation of resources, diversification of business activities, and expansion into new markets.

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 the amalgamation of the Companies.

Literature Review
1. Diksha Jain, Mergers & Acquisitions under the Companies Act, 2013: A Critical Analysis, The Chartered
Accountant, September 2018
2. Mr. Atal Kumar, Mergers and Acquisitions (M&A): Process & Judicial Response, AIJJS

Research Objectives:
 To understand the provisions concerning merger and amalgamation under the Companies Act, 2013.
 To study various judicial interpretations about the merger and amalgamation law in India.

Research Problem:
The assignment assesses the legal framework governing mergers and amalgamations in India and analyses the
role played by judiciary amidst providing clarity in ambiguity.

Research Question :
I. What are the provisions concerning International Merger and Amalgamation under the Companies Act,
2013?
II. How mergers and amalgamation affects shareholders of companies?
III. What is the stance of judiciary whilst the interpretation of merger and amalgamation laws?

Hypothesis:
The merger and amalgamation rules in India have a favourable influence on corporate in restructuring,
economic efficiency, and stakeholder protection.

Research Methodology
In this Research, Doctrinal research methodology has been used where, the data collected are from secondary
sources like books, articles, etc.
What are the provisions concerning International Merger and Amalgamation under the Companies Act,
2013?

The Companies Act of 2013 has a special clause that permits two-way cross-border mergers, in contrast to the
earlier Act of 1956, which only permitted a foreign firm to combine with an Indian business and not the other
way around. The Reserve Bank of India must now approve any merger between an Indian firm and a foreign
corporation under the terms of the new Act.

According to section 234, the Central Government may establish regulations pertaining to mergers and
amalgamations permitted under this section after consulting with the Reserve Bank of India. A foreign company
may merge into an Indian company registered under this Act or vice versa with the prior approval of the
Reserve Bank of India, subject to the provisions of any other law currently in effect. The terms and conditions
of the merger plan may, among other things, provide for the payment of consideration to the shareholders of the
merging company in cash, in Depository Receipts, or partially in cash and partially in Depository Receipts.

For the purposes of this provision, a foreign corporation is any company or body corporate that was established
outside of India, whether or not it has a place of business there.Transfer of control and power over the merged
or acquired firm will follow from a cross-border merger. In terms of a merger, the assets and liabilities of two
businesses from different nations are combined to form a new legal entity. In contrast, in terms of a cross-border
acquisition, the assets and liabilities of a local business are transferred to a foreign business (foreign investor),
at which point the local business will automatically become affiliated.
Recently, the concept of inbound and outbound mergers was also introduced in the Companies Act, 2013 as part
of Section 234 of the Act. Inbound M&A’s : In this process foreign company mergers with or acquires an
Indian company. E.g.- Daichii Acquiring Ranbaxy. Outbound M&A’s : In this process an Indian company
merger with or acquires a foreign company. E.g. Tata steel Acquires Corus.

Other statutes governing cross border merger are:-

The following laws govern cross border mergers in India:
1. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
2. Foreign Exchange Management (Cross Border Merger) Regulations, 2018
3. Competition Act, 2002
4. Insolvency and Bankruptcy Code, 2016
5. Income Tax Act, 1961
6. The Department of Industrial Policy and Promotion (DIPP)
7. Transfer of Property Act, 1882
8. Indian Stamp Act, 1899
9. Foreign Exchange Management Act, 1999 (FEMA)

How mergers and amalgamation affects shareholders of companies?

In the disciplines of Indian corporate law, the issue of shareholders' rights is both crucial and contentious.
Among these, the minority shareholder right is frequently in dispute. Because they are the company's minority
shareholders, they are frequently denied their rights. But when they are being denied their rights by the majority
stockholders of a corporation, the government and courts constantly work to preserve the interests of this
minority class. Several clauses of the Company Act of 2013 also address minority interests during mergers and
amalgamations.

Sections 235 and 236 were added by the legislature to safeguard minority shareholders. But it begs the question:
Are they covered by this new Act of 2013? Although the previous Act of 1956 had provisions for the protection
of minority owners, they were not as thorough. But the 2013 Act, which was recently passed, makes it much
more precise. The revised Companies Act 2013's sections 235 and 236 address, respectively, "the power to
acquire shares of shareholders dissenting from scheme or contract approved by the majority" and "purchase of
minority shareholding by the majority shareholding".

The minority stockholders may be squeezed out in accordance with Section 236. 'Squeeze out' in this context
refers to a 'freezeout' or a 'buy out'. According to their legislative authority, the majority shareholders go
through this process to acquire the minority stockholders. In this manner, the majority shareholder might
acquire the minority's shares and gain complete control over the company's stock. Simply put, it is a procedure
wherein the minority and majority shareholders trade shares of a company at the moment of a change in the
firm's ownership through a merger, amalgamation, or acquisition.
It consists of the authority that the majority shareholder has obtained by purchasing the shares of the minority
shareholder.

By reducing their shares, the dominant shareholders openly control the minority shareholders. Additionally,
they are compelled to accept the price set by the majority shareholdings when choosing the price for their
shares. The rights and shares of the minority shareholders are sacrificed and erased by the majority shareholding
with the goal of the corporation since this process of squeezing out improves the worth of the firm.

Squeezing out provisions as found in the Companies Act of 2013 are more advanced and comprehensive than
those found in the Companies Act of 1956. In accordance with Section 236 of the Companies Act of 2013,
which addresses the purchase of minority shareholders by the majority at the time of merger and amalgamation,
an acquirer person may notify the company of their intention to purchase the remaining shares from the
minority shareholders if they hold 90% of the issued equity share capital through merger and amalgamation or
by any other means. There are no minority shareholder protections of any type under this clause.
According to the new Act of 2013, a contract between the majority and minority shareholders will define the
price at which the minority shareholder might propose to buy the shares of the latter.
The dominant shareholder squeezes the minority shareholder in this way. For the corporation's advantage, they
are removed from their minimum number of equity shares.

What is the stance of judiciary whilst the interpretation of merger and amalgamation laws?
The Companies Act's Merger Provisions are a comprehensive code in and of themselves, and the Tribunal now
has full authority to sanction any changes to a company's corporate structure that may be required to carry out
the proposed corporate restructuring. Earlier, the Courts had this authority under these provisions. The legal
system has very precisely defined the conditions under which such plans of arrangement may be proposed,
agreed by shareholders and creditors, and then given the court's blessing. The Supreme Court's judgements in
Miheer Mafatlal and Hindustan Lever are significant in this regard. The Tribunal has taken the position of the
High Court under the 2013 Companies Act.

The National Company Law Tribunal must essentially approve any scheme of arrangement or compromise
falling under sections 391-394 of the previous Act and the new provisions of the Act of 2013, so the judiciary
has thus far played a crucial role in corporate restructuring activities in India. According to the requirements of
the Companies Act, the court or tribunal has the following authority:
1. Power of the Court to sanction the Scheme
2. Power of the Court to stay proceedings
3. Power of the Court to reject or modify the scheme
4. Power of the Court to order winding up of the company or companies
The Supreme Court declared in Saraswathi Industrial Syndicate v. CIT, Haryana1 that an amalgamation is
when two or more businesses combine into one another or take control of one another. The merging firm loses
its identity when two businesses are combined in such a way as to create a third business, when one business is
absorbed into another, or when one business is mixed with another. Combinations may occur when two or more
enterprises are transferred to an already existing business.

In Gountermann Peippers (India) Ltd. vs. UOI, a scheme of arrangement was prepared and approved by the
majority of the creditors, shareholders, and creditors. However, two creditors objected because the unit had
significant debts, even though their objections were deemed unmaintainable. However, the tribunal made some
modifications while approving the merger.

The apex court ruled in Makin tosh Burn Limited vs. Sarkar and Chowdhury Enterprises Pvt. Ltd. that the
enlistment of a share cannot be rejected solely on the grounds that it would result in legal violations; rather,
other reasonable and sufficient grounds must be proven in order to reject a share.

Although the tribunal has broad discretionary powers, they are also subject to some limitations since, while it
can make amendments to the merger plan, it cannot add provisions that were not there in the initial application.

NCLT's current position on mergers

The NCLT handles disagreements or concerns brought up by lawsuits brought against the Companies Act of
2013, the Insolvency and Bankruptcy Code of 2016, and the Limitation Act of 1983. For some purposes, the
tribunal is constrained by the Civil Procedure Code of 1908. As all mergers plans must be authorised by the
NCLT, the tribunal has recently seen a significant increase in the number of cases involving mergers and
amalgamations. Small businesses frequently merge during recessionary periods to expand their operations and
to pool and combine their assets essentially to maximise their earnings. The NCLT is overloaded with cases and
applications involving mergers and similar amalgamations as a result of the rise in mergers. Due to the lengthy
merger proceedings, efforts are already taking place to lessen the NCLT's workload by limiting its ability to
sanction the merger plan. The legislature intends to improve the ease and comfort of doing business by
lessening the burden of the NCLT. It is fair to conclude that the merger process would be significantly impacted
if the suggested adjustments were to become effective. As the NCLT carefully examines all the paperwork and
procedures before authorising the merger plan. Given that NCLT consists of both judicial and technical
members, which qualifies them to decide on all merger petitions and cases, it is questionable if the regional
officer would meticulously examine all the processes or not.

1
(1991) 70 Com Cases 184, 188 : AIR 1991 SC 70 : 1990 Supp (1) SCC 675 : (1990) 3 Comp LJ 200
 CONCLUSION
Due to developments in the business sector's requirements, the Companies Act of 1956 had to be amended with
new law. The Act of 2013 is a comprehensive piece of law that assures both the protection of shareholders and
the expansion of the business. It also presents the idea of out-of-court settlements or fast track mergers, which
were previously exceedingly time-consuming and difficult for businesses to complete. This action is intended to
encourage small businesses to reorganise themselves through merging. Accountability, procedural simplicity,
disclosure, and harmonisation across numerous regulatory agencies are the four pillars on which the Companies
Act 2013 is built. Therefore, my hypothesis stands correct.