Module 2

Types of Companies

There are five commonly-referred to types of business combinations known as mergers: conglomerate
merger, horizontal merger, market extension merger, vertical merger and product extension merger. The
term chosen to describe the merger depends on the economic function, purpose of the business transaction
and relationship between the merging companies.

1. Conglomerate

A merger between firms that are involved in totally unrelated business activities. There are two types of
conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in
common, while mixed conglomerate mergers involve firms that are looking for product extensions or
market extensions.

2. Horizontal Merger

A merger occurring between companies in the same industry. Horizontal merger is a business
consolidation that occurs between firms who operate in the same space, often as competitors offering the
same good or service. Horizontal mergers are common in industries with fewer firms, as competition
tends to be higher and the synergies and potential gains in market share are much greater for merging
firms in such an industry.

3. Market Extension Mergers

A market extension merger takes place between two companies that deal in the same products but in
separate markets. The main purpose of the market extension merger is to make sure that the merging
companies can get access to a bigger market and that ensures a bigger client base.

4. Product Extension Mergers

A product extension merger takes place between two business organizations that deal in products that are
related to each other and operate in the same market. The product extension merger allows the merging
companies to group together their products and get access to a bigger set of consumers. This ensures that
they earn higher profits.

5. Vertical Merger

A merger between two companies producing different goods or services for one specific finished product.
A vertical merger occurs when two or more firms, operating at different levels within an industry's supply
chain, merge operations. Most often the logic behind the merger is to increase synergies created by
merging firms that would be more efficient operating as one.

Compromise, Arrangement and Amalgamation of Companies under

Companies Act, 2013 and its comparison with Act of 1956
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.

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.

• Reason for Merger & Amalgamation

1. Expansion and Diversification

2. Optimum Economic Benefit

3. Risk Strategy

4. Scaling up operations for competitive advantages

5. Increase the Market capitalization

6. Reducing overheads for cost reduction

7. Increasing the efficiencies of operations

8. Tax Benefits

9. Access Foreign Markets

• Terms

Amalgamation

It is a combination of two or more businesses into a single business enterprise.

Demerger

There is a transfer of an undertaking of a company into another company.

Reconstruction

Under this, there is re-organization of share capital, varying the rights of shareholders.

Arrangement

It includes all modes of reorganizing share capital.

• Who can File Application for Merger & Amalgamation?

An application is required to be a file with Tribunal (NCLT). An application shall be made by both the
transferor and the transferee company in the form of a petition to the tribunal for the purpose of
sanctioning the scheme of amalgamation.

Joint Application

In the case where more than one company is involved than at the discretion of such companies, an
application may be filed as a joint application.

But if the registered office of the Companies is in different states then, in that case, there will be two
tribunals having jurisdiction hence separate petition is required to be filed.

Process

Companies should have the power in the object clause of their Memorandum of Association for
amalgamation.

Scheme of amalgamation shall be drafted for the purpose of getting it approved at a Board meeting of the
company.

Format of Application

An Application is required to be filed with the tribunal for Merger & Amalgamation and this application
will be submitted in form NCLT-1 along with the following documents:

 Notice of admission in Form NCLT-2.

 Affidavit in form NCLT-6.

 Copy of Scheme of Compromise & Arrangement / Merger & Amalgamation.

 Following Disclosure in form of the affidavit:

 Material facts relating to the company, such as

1. Latest Information related to the financial position of the company.

2. Latest auditor’s report of the company

 3. Information related to investigation or proceedings against the company

 Reduction of the share capital of the company.

 Consent of the secured creditors have been obtained by not less than 75% in relation to scheme of
Corporate Debt Restructuring

1. Creditor’s Responsibility statement in form CAA-1.

2. For the protection of secured and unsecured creditors, Safeguards.

3. Auditor’s Report that the fund requirements of the company after the corporate debt restructuring
is approved.

4. The statement in relation to company proposes to adopt the corporate debt restructuring
guidelines specified by the Reserve Bank of India.

5. Valuation report by a registered valuer in respect of the shares, property, and assets, whether
tangible and intangible/ movable and immovable/ of the company.

 It is required for an applicant to disclose to the tribunal, the basis on which each class of
members or creditors has been identified for the purposes of approval of the scheme in the
application.

• Calling for Meeting by Tribunal

On the application Tribunal shall unless it thinks necessary to dismiss the application, will provide such
directions in respect of the meeting of the creditors or class of creditors, or of the members or class of
members to be called or held and conducted in such manner as prescribed.

1. Fix the time and place of the meeting.

2. Appoint a Chairperson and scrutinized for the meeting and fix the term of the appointment and
remuneration;

3. Fix the quorum and procedure to be followed at the meeting including voting in person or by
proxy or by postal ballot or by voting through electronic means.

4. Determine the values of the creditors or the members, whose meeting is required to be held.

5. Notice to be given of the meeting with the advertisement of such notice.

6. Notice to be given to authorities required under sub-section (5) of section 230.

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

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

• Notice of Meeting

Notice of the meeting after the order of tribunal is required to be given in Form No. CAA-2.

Who is Entitled to Receive the Notice?

It is required to be sent to each Creditor/Member and debenture-holders at the registered address of the
company.

Who is Authorized to Send the Notice?

1. Chairman of the Company.

2. In case Tribunal direct than either by the Company or its liquidator or by any other person.

Modes of Sending of notice

1. Registered post, or by Speed post/ courier

2. E-mail or by hand delivery

3. By any other mode as directed by the tribunal

Documents Required to be Sent Along with Notice

It is required to send a notice of meeting along with the Copy of Scheme of compromise & arrangement.

Following details of compromise & arrangement is required to be mentioned:

• All the required details of the Tribunal’s order regarding the calling, convening and conducting of the
meeting:-

1. Date of the Order;

2. Date, time and place of the meeting.

• Following Details of the company:

1. Corporate Identification Number (CIN) / Global Location Number (GLN)

2. Permanent Account Number (PAN);

3. Name of the company;

4. Date of incorporation;

5. Type of the company (public or private or one person company);

6. Registered office address of the company and e-mail address;

7. Main object as per the memorandum of association.

8. Details regarding the name change of the company registered office details and objects of the
company during the last five years;

9. Details of the stock exchange where securities of the company are listed;

10. Details of the capital structure of the company such as authorized capital, issued capital,
subscribed capital and paid up share capital;

11. Names of the promoters and directors along with their addresses.
• Combined Application

In case scheme of compromise or arrangement is related to more than one company then the details of the
relationship between such companies who are parties to such scheme including holding, subsidiary or
associate companies.

• Disclosure of the effect of M&A on material interests of directors, Key Managerial Personnel (KMP)
and debenture trustees.

• Board Meeting Details:

1. Date on which the scheme was approved at the board meeting of the board of directors.

2. Name of the directors voted in favor of the resolution.

3. Name of the directors who voted against the resolution.

4. Name of the directors who did not vote or participate in such resolution.

• Explanatory Statement disclosing following details of the scheme of compromise or arrangement:

1. Parties in compromise or arrangement;

2. Appointed date, effective date, share exchange ratio (if applicable);

3. Summary of valuation report including basis of valuation and opinion of the registered valuer
with the declaration that the valuation report is available for inspection at the registered office of
the company;

4. Capital details or details of debt restructuring;

5. Rationale for the compromise or arrangement;

6. Rationale for the compromise or arrangement;

7. Benefits of the compromise or arrangement as perceived by the Board of directors to the

company, members, creditors, and others (as applicable);

8. Benefits of the compromise or arrangement as perceived by the Board of directors to the

company, members, creditors, and others (as applicable);

9. Amount due to unsecured creditors.

• Disclosure regarding the effect of the Merger & Amalgamation on the following:

1. Key Managerial Personnel;

2. Directors;

3. Promoters;

4. Non-Promoter Members;

5. Depositors;
 6. Creditors;

7. Debenture holders;

8. Deposit trustee and debenture trustee;

9. Employees;

• A report on explaining the effect of compromise on each class of shareholders, key managerial
personnel, promoters and non-promoter shareholders adopted by the directors of the merging companies.

• Following details required to be mentioned:

1. Investigation or any proceedings pending against the company.

2. Details of approvals, sanctions or no-objection from regulatory authorities which is received or

pending for the proposed scheme of compromise or arrangement

3. The statement in relation to the persons to whom the notice is sent may vote at the meeting either
in person or by proxies or by voting through electronic means.

4. A copy of the evaluation report, if any.

Details of availability of documents:

Details of the following documents for inspection by the members and creditors, namely

1. Latest audited financial statements of the company (including consolidated financial statements).

2. Copy of the order of Tribunal in relation to which the meeting is to be convened or has been
dispensed with.

3. copy of scheme of Merger & Amalgamation;

4. Contracts or agreements material to the Merger & Amalgamation;

5. Certificate issued by Auditor of the company in relation to accounting treatment.

6. Proposed scheme of Merger & Amalgamation is in conformity with the Accounting Standards
prescribed under Section 133 of the Companies Act, 2013.

7. Such other necessary information or document relevant to making a decision in favor or against
the scheme.

Other Documents: Order made by the Tribunal under section 232(1) for merging companies or the
companies in respect of which a division is proposed, shall also be required to circulate the following:

1. Drafting of the proposed terms of the scheme adopted by the directors of the merging company;

2. Confirmation that a copy of the draft scheme has been filed with the Registrar of Companies;

3. Valuation Report (if any).

Comparison of Companies Act 2013 to Companies Act 1956:

• Relevant Provisions For Merger & Amalgamation

Under Companies Act, 1956 – Section 390-396A.

Under Companies Act, 2013- Section 230-240

• Disclosures in Connection With Merger & Amalgamation

Under Companies Act, 1956

Tribunal had Power to sanction any compromise or arrangements with creditors and members if satisfied
that company or any other person by whom an application has been made (by way of first motion
Petition) has disclosed all material facts relating to company with an affidavit such as latest financial
position of the Company, accounts of the company, latest auditor's report etc. For the compliance part, the
notice of meeting was required to be sent along with statement setting forth the terms of the compromise
or arrangement and explaining its affect in particular, the statement must state all material interest of
directors of the company, whether in their capacity as such or as member or creditors of company or
otherwise. The tribunal should also give notice to Central Government (Regional Director and Registrar
of Companies) and shall take into consideration the representations, if any, made to it by that government
before passing any order. Also, during the same period there was a requirement of newspaper publication
and any objections by any of the shareholders, creditors if any, be raised before the Court during the
hearing of the second motion Petition. All disclosure provision under 1956 Companies Act has been
stated.

Under Companies Act, 2013

The provisions of section 230 of the Companies Act, 2013 provide the additional disclosure if the
proposed scheme involves; Reduction of Share Capital or the scheme is of Corporate Debt restructuring;
consented not less then 75% in value of secured creditors, Every notice of meeting about scheme to
disclose valuation report explaining affection various shareholders. Further, no compromise or
arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been
filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards prescribed under section 133
of the Companies Act, 2013.

• Cross Border Merger & Amalgamation

Under Companies Act, 1956

As per section 394, Court can sanction arrangement between two or more Companies where whole or part
of undertaking, property or liability of any company referred to as transferor Company is to be transferred
to another company referred as transferee company. According to the provisions of Companies Act, 1956,
Inbound merger (Foreign Company merges into an Indian Company) was permissible however, outbound
merger (Indian company cannot merge with foreign Company) was not allowed. According to this section
only inbound merger is allowed where transferor/target company means any body corporate whether or
not registered under 1956 Act, that a foreign company could be transferor or target company. Transferee
Company means an Indian Company. Cross Border merger allowed under 1956 Act as long as the
Acquirer/transferee is Indian Company.

Under Companies Act, 2013

In bound and out bond foreign company merger are allowed, which means Foreign Company merging
into Indian Company and Indian Company merging into foreign Company could be done with RBI
approval. Therefore both these options are open under 2013 Act if foreign companies to be in notified
countries, under Exchange Control Regulation, shares can be issued under Automatic route to non-
resident, subject to certain consideration, consideration to shareholders of merging Company may include
cash, depository receipts or combination of both. This section has widen the scope for Indian Companies
as now they have both options of arrangement.

• Fast Track Merger

Fast Track merger or quick form merger is the new provision which is added in Companies Act, 2013.
Fast track merger is merger between two or more small companies5, holding company and its wholly own
subsidiary and such other company as may be prescribed.

Fast Track merger does not involve Court or Tribunal, approval of National Company Law Tribunal is
also not required. For fast track merger board of directors of both the Companies would approve the
scheme. However, notice has to be issued to ROC and official liquidator and objections / suggestions has
to be placed before the members. The scheme needs to be approved by members holding at least 90
percent of the total number of shares or by creditors representing nine-tenths in value of the creditors or
class of creditors of respective companies. Once the scheme is approved, notice would have to be given to
the Central Government, ROC and Official Liquidator. NCLT may confirm the scheme or order that
consider as normal merger under section 232 of Companies Act, 2013.

• Objection To Scheme Of Amalgamation

Scheme of Amalgamation can be objected as per section 230(4) of Companies Act, 2013, only by
shareholders having not less than 10% holdings or creditors debt is not less than 5% of total outstanding
debt as per the last audited financial statement. whereas earlier under Companies Act, 1956 there was no
such limit which state that person holding even 1% in the company can object the scheme which was not
fair at all therefore the new threshold limit for raising objections in regard to scheme or arrangement will
protect the scheme from small shareholders' and creditors' unnecessary litigation and objection.

• Meeting of Creditors/Shareholders to approve the scheme

Under Companies Act, 1956

Scheme to approved by 3/4th value of creditors or members, agree to scheme, then it will be binding, if
sanctioned by court as stated under section 391(2), voting in person or a proxy at meeting. E-Voting is not
permitted under 1956 Act.

Under Companies Act, 2013

Scheme is to be approved by 3/4th of creditors or members, agree to scheme, then it will be binding, if
sanctioned by National Company Law Tribunal as stated under section 230(6)(1). The 2013 Act
additionally allows the approval of the scheme by postal ballot. Postal ballot gives an equal opportunity of
vote to all stake holders. E-Voting is permitted under new 2013 Act. Therefore concept of E-Voting is
introduced under new Act and section 108 of the Companies Act, 2013 read with rule 20 of
Companies(Management and Administrative) rules, 2014 deal with exercise of right to vote by member
by electronic means. Therefore postal ballot system and introduction E-Voting will protect the
shareholders interest and will also increase the participation of shareholders of the company in voting.

• Merger Of A Listed Company Into Unlisted Company

The Companies Act, 2013 requires that in case of merger between a listed transferor company and an
unlisted transferee company, transferee company would continue to be unlisted until it becomes listed.
Shareholders of listed Company have the option to exit on payment of value of their shares, as otherwise
they will continue as a shareholder of the unlisted company. the Payment to such shareholders willing to
exit shall be made on pre-determined price formula or after valuation. Whereas; under Companies Act,
1956 there was no such provision. Therefore reverse merger of listed Company into an unlisted Company
does not automatically result in a listing of surviving entity, which may be the unlisted Company.

• Body Of Approving Merger

Approval of scheme requires an independent body of oversight and fairness. According to 1956
Companies Act , scheme of arrangement was to be approved by respective High Court which has
jurisdiction over Acquirer and Target companies. Whereas; under Companies Act, 2013 National
Company Law Tribunal will deal with matters related to Merger & Acquisition.

NCLT would be one specified body dealing with cases opposed to multiple High Court in case of the
companies falling under the jurisdiction of different high courts.

• Valuation Report

The 2013 Act makes it mandatory that notice of meeting to discuss a scheme must be accompanied by
valuation report prepared by an expert whereas, Companies Act,1956 Act is silent on disclosing the
valuation report to the stakeholders, as a matter of transparency and good corporate governance. Courts
also required annexing of the valuation report to the application submitted before them.

Reduction of Share Capital & Buy Back of Shares

For any company, a capital reorganization issue is a process by which restructuring takes place and
surplus cash is returned to shareholders. The other diagonally opposite reasons for reduction of capital is
that there is no cash, in fact, capital is lost. The need of reducing capital may arise in various
circumstances, for example, accumulated business losses, assets of reduced or doubtful value. As a result,
the original capital may either have become lost or a company may find that it has more resources that it
can profitably employ. So, in either of these cases, the need will arise to adjust capital and assets.

The structure varies from company to company as some may decide to replace existing ordinary shares
with a different class of shares. The capital reorganization process takes place to reduce the number of
ordinary shares in circulation and provide a mechanism that makes capital payment to the shareholders.
The new share price may be different for the old share price.

If the capital of the company is reduced, it results in changes its memorandum by reducing the amount of
its share capital and shares accordingly. If the company has arrears in repayment of deposits or interest
payments, reduction of capital cannot be made by the company.

Reasons for reduction of capital

The requirement to reduce capital may arise because of many factors like to distribute assets to
shareholders, pare off debt, make up for trading losses, capital expenses, etc. Many a times companies
may have more capital resources and reserves than they can employ. Also, when the company is making
losses, the financial position does not present a true and fair view of the company. The assets are
overvalued and the balance sheet consists of fictitious assets with debit balance in profit and loss account.
In order to reduction of capital will write-off that portion of capital which is already lost and will make
the balance sheet look healthy.

So, reconstruction in which the once again reorganized by reevaluation assets and liabilities and writing
off the losses by reducing the paid up of shares. Such a process is called internal reconstruction which is
carried out without liquidating the company. It is an agreement to pare losses by creditors and
shareholders.

Moreover, external reconstruction, which is totally different from internal reconstruction, can also take
place because of the following reason:

1. To increase or to create distributable reserves to enable future dividends to be paid to

shareholders

2. To return surplus capital to shareholders

3. To facilitate a share buyback or redemption of shares

4. As a part of a scheme of arrangement

How to reduce capital

The share capital of a company is the only security on which creditors rely. So, any reduction of share
capital diminishes the fund out of which they are to be paid. As a result, companies with shares are not
allowed to reduce the capital frequently. However, there may be genuine reason to reduce capital. The
entity applying for reduction of capital will either be a company limited by shares or a company limited
by guarantee but having share capital. The company can reduce capital by employing one of the following
methods:

• Reduce the liability of its shares in respect of the share capital not paid-up

• Cancel any paid up share capital which is lost or is unrepresented by available assets

• Pay off any paid up share capital which is in excess

Managing capital reorganisation

During the times of managing capital reorgansiation issues, investors are told about the ratio of the old to
new share, or the number of new shares cancelled or received for each class of shares. In cases where
multiple classes of shares are received, the value of each class of share on the date of the capital
reorganization is required to share out cost between the shares. Since reduction of capital is a very
sensitive issue, the company has to get approval by the Tribunal on the application made. The tribunal
will give notice to every application made for reduction of capital to the Central government, Registrar
and to the Securities and Exchange Board of India in case of listed companies.

Notices will also be given to all the creditors of the company. In case no remark is made by these
institutions and creditors within three months, then it will be presumed that they have no objection to the
reduction of capital. The order of confirmation of the reduction of share capital by the tribunal will have
to be published by the company. If the company fails to comply with the provisions relating to
publication of order, it shall be punishable with fine which shall not be less than Rs 5 lac. Also, the
company will deliver a certified copy of the Tribunal mentioning the amount of share capital, the number
of shares into which it is to be divided and the amount of each share.

Reduction of capital without tribunal’s sanction

Reduction of capital can take place without the sanction of the tribunal/court in case of buy back of
shares. In case of forfeiture of shares, a company may if authorized by its articles forfeit shares for non-
payment of calls by the shareholders. Such proceedings will amount to reduction of capital but the act
does not need court sanction for this purpose.

Buyback of Shares
Buyback of Shares refers to the process by which a company re-purchases its shares and other specified
securities from its existing shareholders at a price higher than the market price.

Besides, whenever a company repurchases its shares, the outstanding shares in the market fall. The buy-
back of shares is governed by Section 68 of the Companies Act, 2013.

Furthermore, it’s a method of the cancellation of share capital. The buy-back of shares is also referred to
as ‘share repurchase.’ Generally, the need for buyback arises when the management considers that the
shares are undervalued or if the outstanding shares are falling.

Regulatory Framework for Buyback of Shares

The legal framework that regulates the buy-back of shares and other specified securities are the following:

 Companies Act, 2013;

 Companies (Shares Capital & Debenture) Rules 2014; and

 SEBI (Buy-back of Securities Amendment) Regulations, 2013 as well as subsequent

amendments.

Modes of Buyback of Shares

The shares can be bought back through any of the following:

  The existing shareholders on the proportionate basis;

 The Open Market; and

 Buying shares from the employee under the Scheme of Sweat Equity or Employee Stock Option.

Conditions & Requirements for Buyback of Shares and Other Securities

According to new SEBI (Buy-back of Securities) Regulations, 2018, the applicant requires fulfilling the
following conditions for buyback of shares and other specified securities:

• The maximum limit of buy-back of shares/securities shall be 25% or less of the total paid-up capital and
free reserves of the company.

• The ratio of the total secures and unsecured debts that the company owes after buyback shouldn’t be
more than twice the paid-up capital and free reserves.

• All shares and other securities for buy-back should be wholly paid-up.

• Companies may buy back their shares or other securities by any of the following means:

1. The existing shares other specified security-holders on the basis of proportion through the tender offer;

2. Open market through-

-Book-building process

-Stock Exchange

3. Odd-lot holder

• A company could undertake a buy-back of its own shares or securities out of the following:

1. Its free reserves,

2. The securities premium account, or

3. The proceeds of the issue of any shares or securities as specified:

Restrictions on Buyback

 A company can’t buy-back its shares or other specified securities from any individual via
negotiated deals, whether on or off the stock exchange or through any private arrangement or
through spot transactions.

 Companies cannot buy-back their shares or other specified securities from the stock exchange for
the purpose of delisting their shares or other specified securities.

 Companies can’t offer any buy-back within a period of one year reckoned from the expiry date of
the buyback period of the preceding offer of the buyback if any.
  The company can’t let buyback of its shares unless the consequent reduction of its share capital is
affected.

 A company can’t purchase its own shares or other specified securities either directly or indirectly:

 Through any subsidiary company consisting of its own subsidiary companies;

 Via any investment company or group of investment companies; or

 In case the company has made a default in the repayment of the deposits accepted either before or
after the commencement of the Companies Act, interest payment thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder, or repayment of any
term loan or interest payable thereon to any financial institution or banking company.

Procedure for Buyback of Shares India

Now that you are aware of the conditions and if you meet the requirements, then you can go for the
process for buyback of shares in India:

Step 1: Convene the Board Meeting

Firstly, the applicant needs to call a board meeting. For the same, a notice must be sent to the directors of
the company at least 7 days prior to the date of the meeting.

Step 2: Approval for EGM

In the board meeting, the applicant company needs to approve the buy-back, fix the date of the EGM
(Extra-Ordinary Meeting), and approve the EGM’s notice along with the explanatory statement under
Section 102.

Step 3: Send the notice for EGM

Once the notice for EGM is approved, the applicant must send it at least 21 days before the date of the
meeting.

Step 4: Passing of Special Resolution for Buy-Back of Shares

In the EGM, a special resolution must be passed for the approval of the Buy-back of shares.

Step 5: File SH-8

After the resolution has been passed, one must file the Letter of Offer in Form SH-8 with the Registrar.
Furthermore, the form must contain the signature of two directors of the company.

Step 6: Declaration of Solvency

Along with the form SH-8, you need to annex form SH-9 which is the declaration of solvency. Again, the
form must be signed by the two directors of the directors.

Step 7: Letter of Offer to the Shareholders

Within 20 days of the filing of SH-8 with the Registrar, the applicant needs to dispatch the ‘Letter of
Offer’ to the shareholders of the company. Moreover, the Letter of Offer needs to be kept open for at least
15 days and a maximum of 30 days.

Step 8: Acceptance of Offer

The Offer will be considered as accepted if there’s no communication of rejection within 21 days of offer
closure.

Step 9: Opening of a Bank Account

So, if the shareholders have accepted the offer, the applicant company has to open a separate bank
account. Besides, the total consideration amount for the shares offered to be paid in Buy-back should be
deposited in a separate bank account.

Furthermore, the consideration must be paid within seven days of verification. Moreover, shares that are
to be bought back should be destroyed within seven days of the completion of buyback.

Step 10: Filing of SH-11

Lastly, the applicant needs to file form SH-11 within thirty days of the completion of the buyback return.

What are the provisions of the Buyback of Shares under Section 68?

In any case, the company is found to make any default in the process under Section 68 of the Companies
Act, 2013, or any listed company of any regulation made by SEBI, then-

• Such a company would be subject to a fine of not less than ₹1 lakh. In fact, it would exceed up to ₹3
lakhs.

• Every such officer engaged in the process who is in default shall be punishable for a period that could
extend up to three years or fine with an amount not less than ₹1 lakh.

Inter Corporate Loans & Investments

When a company provides loan, security or guarantee to another company or any entity is termed as inter-
corporate loans. And, when a company invests in any other company in any form is referred as inter-
corporate investment.

A firm can provide loans, investment, guarantee or security to another company after taking consent from
the board of directors or shareholders. The section 186 defines the laws made regarding loans and
investments by companies and specifies rules by which a company can give a loan and to whom it can
provide. We are going to know about this section under the Companies Act 2013 in detail in this article.

What is the Applicability for Inter Corporate Loans?

According to the Companies Act, 2013 investments cannot be made through more than two layers of
companies. According to the same, the word investment implies to:
  Subscribing or purchasing of shares

 Subscribing or obtaining of share warrants

 Subscribing or purchasing of debt securities

Also, it does not include:

 The making of loans or advances

 Financial transactions like lease purchase of receivables, or any credit facilities.

What is the Non-Applicability for Inter-Corporate Loans?

The non-applicability to follow the provisions of section 186(subsection 1) is for the following cases;

 Companies integrated outside India

 Companies having investment subsidiaries past two layers

 Private and public companies authorized by IFSC

 And a subsidiary company which has its investment subsidiary

The non-applicability to follow these provisions except subsection 1 of the section 186 is for the
following cases;

 A company who has any loan, guarantee, security or investment taken from, any banking firm,
Insurance firm, Any housing finance company, any company engaged in financing companies.

What are the Requirements for the Disclosure of Particulars of Loan?

The company needs to disclose to the directors, accordingly about

 The full details of the loan, investment

 Security or guarantee given

 And, the purpose of the demand for the loan by the recipient

And the notice of the general meeting for passing the resolution should stipulate the following;

 The purpose of the loan/security/guarantee/investment

 The details of the recipient

 Source of funding

 The limit of the loan amount which can be given

 Other specified details

What is the Rate of Interest for Inter-Corporate Loans?

A company should not provide a loan at a rate less than the yield of the previous one, three, five or ten
years whichever is the closest to the tenure of the given loan.

What is the Process of Keeping a Record of Inter-Corporate Loans?

According to section 186, subsection 9, The Companies Act 2013, every company has to maintain a
record of the loan given in a register containing all the prescribed details,subsequently. And
furthermore,according to subsection 10, the registry should be kept at the registered office for inspection
by the concerned department.

Fine for the Violation of Section 186

As the rule, if any corporation fails to comply with this act has to pay a fine of Rs 25000 to Rs 5 lakhs,
and the officer at default has to pay a fine ranging from Rs. 25000 to Rs. 1 lakh consequently.

Can a Company give a Loan to an Individual?

A Company can provide a loan to an individual or other corporate body under the norms contained in The
Companies Act 2013. Sub-section 2, Section 186 specifies that a company can give loan to a person or a
body corporate of less than sixty percent of paid up capital share, free reserves and securities premium
account or less than hundred per cent of the free reserves and securities premium account, whichever is
more.

Can a Company give Loan to LLPs (Limited Liability Partnerships?

A company can give loan to partnership firms following the prescribed rules given in the Companies Act
2013. According to the section 185, sub-section 1, the act defines that a company can give loan to body
corporate including the LLPs.

Can a Private Limited Company give Loan to Shareholders?

According to Section 185 of the Companies Act, 2013, no company can provide a loan to shareholders
possessing 2% or more shares of the company.

Can a Company give Loan to another Private Limited Company?

Companies Act, 2013. The section 185, sub-section 1, specifies that a director or “any other person in
which the director is interested” a company cannot give lone to such people, where “any other person in
which the director is interested” means;

 A firm in which the director or any of his relative is a partner

 Any private company where the director is a director or member

 A body corporate where the director has not less than 25% of the voting rights at a general
meeting

 A director of a lending company, any holding company or any other partner.

Winding up
Since we believe in Going Concern Assumption, as we want our business to flourish more & more, but at
some point of time due to several reasons one has to close down his business and that stage is known as
winding up of a company. It is the last stage of company in which its existence for past several years is
dissolved and all its assets are used to pay off the creditors, shareholders and other liabilities.

As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be
initiated either –

a) By the tribunal or,

b) Voluntary.

Winding up of a Company by a Tribunal:-

As per Companies Act 1956, a company can be wound up by a tribunal on the basis of the following
reasons:

1. Suspension of the business for one year from the date of incorporation or suspension of business for
whole year.

2. Reduction in number of minimum members as specified in the act (2 in case of private company and 7
in case of public company)

But with the introduction of new Companies Act 2013, these above stated grounds for winding up have
been deleted and some new situations for winding up have been inserted.

As per new Companies Act 2013, a company can be wound up by a tribunal in the below mentioned
circumstances:

1. When the company is unable to pay its debts

2. If the company has by special resolution resolved that the company be wound up by the tribunal.

3. If the company has acted against the interest of the integrity or morality of India, security of the state,
or has spoiled any kind of friendly relations with foreign or neighboring countries.

4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive
financial years.

5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.

6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any
person or management connected with the formation of company is found guilty of fraud, or any kind of
misconduct.

Filing Of Winding Up Petition:-

Section 272 provides that a winding up petition is to be filed in the prescribed form no 1, 2 or 3
whichever is applicable and it is to be submitted in 3 sets. The petition for compulsory winding up can be
presented by the following persons:

 The company

 The creditors ; or

 Any contributory or contributories

 By the central or state govt.

 By the registrar of any person authorized by central govt. for that purpose

At the time of filing petition, it shall be accompanied with the statement of Affairs in form no 4. That
petition shall state the facts up to a specific date which shall not more than 15 days prior to the date of
making the statement. After preparing the statement it shall be certified by a Practicing Chartered
Accountant. This petition shall be advertised in not less than 14 days before the date fixed for hearing in
both of the newspapers English and any other regional language.

Final order and its content:-

The tribunal after hearing the petition has the power to dismiss it or to make an interim order as it think
appropriate or it can appoint the provisional liquidator of the company till the passing of winding up
order. An order for winding up is given in form 11.

Voluntary Winding Up Of A Company:-

The company can be wound up voluntarily by the mutual decision of members of the company, if:

• The company passes a Special Resolution stating about the winding up of the company.

• The company in its general meeting passes a resolution for winding up as a result of expiry of the period
of its duration as fixed by its Articles of Association or at the occurrence of any such event where the
articles provide for dissolution of company.

Procedure For Voluntary Winding Up:-

1. Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration given by
directors that they are of the opinion that company has no debt or it will be able to pay its debt after
utilizing all the proceeds from sale of its assets.

2. Issues notices in writing for calling of a General Meeting proposing the resolution along with the
explanatory statement.

3. In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority or
special resolution by 3/4th majority. The winding up shall be started from the date of passing the
resolution.
4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion that
winding up of the company is beneficial for all parties then company can be wound up voluntarily.

5. Within 10 days of passing the resolution, file a notice with the registrar for appointment of liquidator.

6. Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and also
advertise in a newspaper.

7. Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in
general meeting.

8. Wind up the affairs of the company and prepare the liquidators account and get the same audited.

9. Conduct a General Meeting of the company.

10. In that General Meeting pass a special resolution for disposal of books and all necessary documents of
the company, when the affairs of the company are totally wound up and it is about to dissolve.

11. Within 15 days of final General Meeting of the company, submit a copy of accounts and file an
application to the tribunal for passing an order for dissolution.

12. If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have
been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving
such application.

13. The appointed liquidator would then file a copy of order with the registrar.

14. After receiving the order passed by tribunal, the registrar then publish a notice in the official Gazette
declaring that the company is dissolved.

Merger of Foreign Companies with Indian Companies

Under Section 394 of the erstwhile Companies Act 1956, the merger of a Foreign Company with an
Indian Company (Inbound Merger) was allowed but the merger of an Indian Company with a Foreign
Company (Outbound Merger) was not allowed.
On April 13, 2017, the Central Government amended the Companies (Compromises, Arrangement and
Amalgamations) Rules, 2016 and inserted rule 25A. Further, through S.O. 1182(E) dated April 13, 2017,
Section 234 of the Companies Act, 2013 also came into effect, which allows the merger of an Indian
company with a Foreign company. This means that, now both inbound and outbound mergers are
allowed.

New Rules related to Cross Border Merger

 In cases of cross border merger, prior approval of the Reserve Bank of India (hereinafter referred
to as "RBI") is mandatory.
 The notification imposes responsibility on Transferee Company to have valuation of merger by
professional of recognized professional body and to ensure that such valuation is as per
internationally accepted accounting and valuation principles. Also declaration of that shall be
attached at the time of making application to the RBI.
  The company shall file application to the jurisdictional National Company Law Tribunal
(hereinafter referred to as "NCLT") as per provisions of Section 230-232 of the Companies Act
2013 and Companies (Compromises, Arrangement and Amalgamations), Rules 2016.
Jurisdictions in which Outbound Mergers are allowed
1. A jurisdiction whose securities market regulator is a signatory to the International Organisation of
Securities Commission's Multilateral Memorandum of Understanding or a signatory to a bilateral
MoU with Securities and Exchange Board of India; or
2. A jurisdiction whose Central Bank is a member of the Bank of International Settlements; or
3. A jurisdiction, not identified in the public statement of the Financial Action Task Force as:
a) Jurisdiction having a strategic anti-money laundering or combating the financing of terrorism
deficiencies to which counter measures apply; or
b) Jurisdiction that has not made sufficient progress in addressing the deficiencies or has not
committed to an action plan developed with the Financial Action Task Force to address the
deficiencies.

Compliance under Section 230-232 of Companies Act 2013 and Companies (Compromises,
Arrangement and Amalgamations), Rules 2016.
 Firstly, the Company, seeking to undergo such Cross-Border Merger, must be authorized to carry
out amalgamation through its Memorandum of Association. If it is so authorized then a draft
scheme for amalgamation is to be prepared for approval in Board Meeting.
 After obtaining prior approval of the Board, followed by approval from the RBI, an application
for should be filed by the Indian Company with the NCLT in form NCLT-1 seeking an order in
favour of calling a meeting of members/creditors for approving the proposed Merger and
Amalgamation. Copy of the scheme, affidavit verifying petition and notice of admission along
with material disclosures relating to company such as latest financial position, latest auditor's
report, and pendency of proceeding against company is also required to be submitted. The
Tribunal has the right to either accept or dismiss the application.
 It is pertinent to note that if a Scheme of corporate debt structuring is to be filed, the same should
be accompanied with documents such as inter alia the Creditor Responsibility Statement,
valuation report in case of shares, tangible, intangible asset by a registered valuer.
 Once the Tribunal allows the Company to hold the meeting of members/ creditors, notice of such
meeting along with scheme, details of company, details of board meeting, impact of such merger
etc. is to be given to each member/creditor/debenture holder not less than 30 days before date
fixed for meeting. Such notice shall also be published in newspapers, on the website of the
company, Stock Exchanges, The Securities and Exchange Board of India (hereinafter referred to
as "SEBI").
 It is pertinent to note that notices must mandatorily be given to the statutory authorities such as
Central Government, Registrar of Companies, and Income Tax authorities. Notices may also be
sent to RBI, SEBI, and other sectoral authorities as may be required by the Tribunal so that they
may make a representation 30 days from date of receipt of notice.
 Members may vote on the matter within 30 day of receipt of notice vote in the meeting through
person, proxy, postal ballot or electronic means. The report of the results of meeting shall be filed
with the Tribunal within 3 days. If the scheme is approved by the majority of members/creditors,
then a Petition for confirming compromise, arrangement shall be made to the Tribunal within 7
days of filing of report of result.
 The Tribunal after being satisfied that the procedure specified has been complied with, shall pass
the order to sanction the scheme and make provisions related to matters such as transfer of whole
or part of undertaking, property, liability of Transferor company to Transferee Company,
allotment of shares by transferee company, payment of consideration to the shareholders of the
merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository
Receipts, transfer of legal proceedings, transfer of employees, dissolution of transferor company
etc. The Company should file such order of the Tribunal with the Registrar of Companies within
30 days.