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PROVISION OF COMPANIES ACT 1956 FOR MERGERS AND ACQUISITIONS

the shareholders of the two companies .MERGER ‡ "MERGER" its an arrangement. which has as its shareholders all. one company (which may or may not be one of the original two companies). or substantially all. or under the control of. whereby the assets of two companies become vested in.

Procedure for Amalgamation / Merger according to companies act 1956 ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ PERMISSION FOR MERGER INFORMATION TO THE STOCK EXCHANGE APPROVAL OF BOARD OF DIRECTORS SHAREHOLDERS AND CREATORS MEETINGS SANCTION BY THE HIGH COURT FILING OF THE COURT ORDER TRANSFER OF ASSETS AND LIABILITIES PAYMENT BY CASH OR SECURITIES .

The meetings. for approving a scheme of arrangement. 1956 specifies the broad parameters of the disclosures which should be given to the shareholders / creditors. Companies Act.PROVISION OF COMPANIES ACT 1956 RELATING TO MERGERS AND ACQUISITIONS ‡ A resolution to approve the scheme of arrangement has to be passed by the shareholders in the general meetings. . Section 393 of the statement. arrangement. shareholders have to vote on the resolutions on the schemes of arrangement on the basis of the disclosures in the notice/explanatory statement.

Section 391 394 of the Companies Act. 1956 deals with Compromises. Section 393 of the Companies Act. for approving a scheme of arrangement. The meetings. arrangement. 1956 specifies the broad parameters of the disclosures which should be given to the shareholders / creditors. statement. Arrangements and Reconstructions and other related issues through schemes of arrangement approved by the High Courts ‡ . . shareholders have to vote on the resolutions on the schemes of arrangement on the basis of the disclosures in the notice/explanatory statement. A resolution to approve the scheme of arrangement has to be passed by the shareholders in the general meetings.

which is proposed between a company and its creditors or any class of them or between a company and its members or any class of them. because of non formation of National Company Law Tribunal. ‡ The order made by Tribunal will come in to effect only after the filing of certified copy with the Registrar of Companies . these powers still lie with High Courts and the parties concerned can make applications to high courts. ‡ If the Creditors. However. 1956 in year 2002 gave powers to National Company Law Tribunal to review and to allow any compromise or arrangement. Members present at a General meeting representing three fourth of total number agree to any compromise or arrangement. it becomes binding on the rest of the members or creditors provided the tribunal sanctions the compromise or arrangement.SECTION 391 ‡ Amendment in the Companies Act.

. give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the arrangement. and ‡ may. it may on it own motion or on the basis of an application made by an interested party may order winding up of the company under section 433 of the Act. ‡ If the court is of the view that a compromise /arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications. at the time of making such order or at any time thereafter. the court has power to supervise the carrying out of the compromise or an arrangement.SECTION 392 ‡ Under this section.

‡ ‡ . managing directors of the company. who is found guilty. 50. 000 against the concerned official of the company.SECTION 393 ‡ ‡ ‡ This section prescribes the procedure required for convening the meeting of the members or creditors called under section 391. the statement must state all material interest of the directors. Where the compromise or arrangement affects the rights of debenture holders of the company. Any default in complying with the requirements under this section may lead to a fine of Rs. the statement shall give the information and explanation in respects to the trustees of any deed for securing the issue of the debentures as it is required to give in respect of directors. whether in their capacity as such or as members or creditors of the company or otherwise. The notice for the meeting should be sent along with a statement setting forth the terms of the compromise and or arrangement and explaining its effect and in particular.

SECTION 394 Where the court is of the view that the proposed arrangement/scheme is of such nature that the scheme is for the reconstruction of any company or for amalgamation of any two or more companies. of any transferor company. The provisions for any dissenting persons. . The transfer to Transferee Company of the property or liabilities of transferor company. Who are opposing such scheme or any other matter. and that under the scheme the whole or any part of the undertaking property or liabilities of any concerned company is to be transferred to another company.     The allotment or appropriation by the transferee company of any shares. without winding up. under the arrangement. which the court deems fit. debentures or other like interest in that company which. The continuation of any legal proceeding against the transferee company by the transferor company. the court may make provision for all or any of the following matters. are to be allotted or appropriated by that company to. The dissolution.

Securities and Exchange Board of India (Merchant Bankers) Rules/Regulation 1992. Securities and Exchange Board of India (Prohibition of Insider Trading Regulation ). The Depositories Act. Foreign Exchange Management Act. Companies Act. The Securities and Exchange Board of India Act. SEBI (substantial Acquisition of shares &Takeovers) .2003. Security Contract Regulation Act . SEBI (Delisting of Securities )Guidelines.1992.1956 .MAJOR LAWS INVOLVED IN ACQUISITION AND TAKEOVERS ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Regulations 1997. SEBI Disclosure and Investor Protection Guidelines 2000.1956.1999.1992 .1956.

. All the properties and liabilities of the transferor company/companies become the properties and liabilities of Transferee Company. ‡ ii. It covers mergers also.PROVISION OF INCOMETAX ACT REGARDING MERGERS AND ACQUISITIONS ‡ The term amalgamation is defined in sec 2 (1B) of the act. the transferee company or its subsidiaries) become shareholders of the transferee company. Shareholders holding not less than 75% of the value of shares in the transferor company (other than shares which are held by. or by a nominee for. ‡ Some important provisions of income tax act regarding mergers and acquisitions are as follows: ‡ Section 2 (IB): Amalgamation means merger of either one or more companies with another company or merger of two or more companies to form one company in such a manner that: ‡ i.

.Section 47 (vii): The transfer of shares by the shareholders of the transferor company in lieu of shares of the transferee company on merger is not regarded as transfer and hence gains arising from the same are not chargeable to tax in the hands of the shareholders of the transferee company. which were acquired in pursuant to merger will be the cost incurred for acquiring the shares of the transferor company. of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company is not regarded as transfer and not chargeable to tax. in a scheme of amalgamation. ‡ Section 49 (2): In case of merger. cost of acquisition of shares of the transferee company. ‡ Section 47 (vi): Any transfer. ‡ Section 72A: Government can allow carry forward of losses and unabsorbed depreciation provided the amalgamated company carry on the business of the amalgamating company for at least 5 years.