mergers

MAHIMA SAJANI JACOB
ASSISTANT PROFESSOR
PIL
Chapter XV of Companies Act, 2013 comprising Sections 230 to 240
contains provisions on Compromises, Arrangements and Amalgamations.
The scheme of Chapter XV is as follows:
1. Section 230-231 deals with compromise or arrangements with creditors and
members and power of the Tribunal to enforce such a compromise or
arrangement.
2. Section 232 deals with mergers and amalgamation including demergers.
3. Section 233 is relating to the merger or amalgamation of small companies or
between the holding company and its wholly owned subsidiary (also called fast
track mergers)
4. Section 234 deals with amalgamation with foreign company (also called cross
border mergers).
5. Section 235 deals with acquisition of shares of dissenting shareholders.
6. Section 236 deals with purchase of minority shareholding.
7. Section 237 contains provisions as to the power of the Central Government
to provide for amalgamation of companies in public interest.
 Chapter XV of Companies Act, 2013 comprising Section 230 to 240
contains provisions on ‘Compromises, Arrangements and
Amalgamations’. The scope of the Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 made under Chapter XV
of the Companies Act, 2013 includes detailed procedural aspects
relating to substantive law.
 Section 230(1) states that when a compromise or arrangement is
proposed –
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them,
the Tribunal may, on the application of the
(i) company, or
(ii) any creditor or
(iii) member of the company, or
(iv) in the case of a company which is being wound up, of the liquidator,
appointed under this Act or under Insolvency and Bankruptcy Code, 2016
order a 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 the Tribunal directs.
 Section 230(3) states that when a meeting is proposed to be called in
pursuance of an order of the Tribunal under sub-section (1), a notice of such
meeting shall be sent to all the creditors or class of creditors and to all the
members or class of members and the debenture-holders of the company,
individually at the address registered with the company which shall be
accompanied by:
-a statement disclosing the details of the compromise or arrangement,
-a copy of the valuation report, if any, and explaining their effect on creditors,
key managerial personnel, promoters and non-promoter members, and the
debenture-holders, and the effect of the compromise or arrangement on any
material interests of the directors of the company or the debenture trustees,
and such other matters as may be prescribed.
 The notice of the meeting pursuant to the order of the Tribunal shall be in
Form No.CAA2 and shall be sent individually to each of the creditors or
members.
The Regulatory framework of Mergers and Amalgamations
covers:
 1. The Companies Act, 2013
 2. National Company Law Tribunal Rules, 2016
 3.Companies (Compromise, Arrangements and

Amalgamations) Rules, 2016
 4. Income Tax Act, 1961
 5. SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2015
 6. Competition Act, 2002
 7. Approval from industry specific regulators, wherever

required.
 The term merger and amalgamation has not been defined
under the Companies Act, 2013.
 ‘Merger’ is the fusion of two or more companies, whereby the
identity of one or more is lost resulting in a single company
whereas ‘Amalgamation’ signifies the blending of two or more
undertaking into one undertaking, blending enterprises loses
their identity forming themselves into a separate legal identity.
 There may be amalgamation by the transfer of two or more
undertakings to a new or existing company.
 ‘Transferor company’ means the company which is merging
also known as amalgamating company in case of
amalgamation and ‘transferee company’ is the company
which is formed after merger or amalgamation also known as
amalgamated company in case of amalgamation.
 The word “amalgamation” is not defined under the Companies
Act 2013 whereas section 2(1B) of Income Tax Act, 1961 defines
Amalgamation as: “amalgamation”, in relation to companies,
means the merger of one or more companies with another
company or the merger of two or more companies to form one
company.
(i) all the property of the amalgamating company or companies
immediately before the amalgamation becomes the property of the
amalgamated company by virtue of the amalgamation;
(ii) all the liabilities of the amalgamating company or companies
immediately before the amalgamation become the liabilities of the
amalgamated company by virtue of the amalgamation;
(iii) shareholders holding not less than three-fourths in value of the
shares in the amalgamating company or companies (other than
shares already held therein immediately before the amalgamation
by, or by a nominee for, the amalgamated company or its
subsidiary) become shareholders of the amalgamated company by
virtue of the amalgamation,
 Amalgamation is a legal process by which two or more companies
are joined together to form a new entity or one or more companies
are to be absorbed or blended with another as a consequence the
amalgamating company loses its existence and its shareholders
become the shareholders of new company or amalgamated
company.
 In other words, property, assets, liabilities of one or more companies
is taken over by another or are absorbed by and transferred to an
existing company or a new company.
 A merger is a legal consolidation of two entities into one entity
which can be merged together either by way of amalgamation or
absorption or by formation of a new company. The Board of
Directors of two companies approve the combination and seek
shareholders’ approval. After the merger, the acquired company
ceases to exist and becomes part of the acquiring company.
 Majority Approval: Section 235 allows the acquisition of shares from
dissenting shareholders if the scheme or contract is approved by at least 90%
of the value of the shares involved.
 Notice to Dissenting Shareholders: The acquiring party must notify the
dissenting shareholders about the approved scheme and their intention to
acquire their shares.
 Application to Tribunal: If dissenting shareholders do not agree to the
acquisition, the acquiring party can apply to the National Company Law
Tribunal (NCLT) for an order to acquire the shares.
 Deposit of Consideration: The consideration for the acquired shares must be
deposited in a separate bank account by the transferor company for the
dissenting shareholders.
 Valuation and Offer: Section 236 requires the acquirer to notify the company
and offer to purchase the shares of minority shareholders, with the value of
the shares being determined by a registered valuer.
 Takeover offer under section 230
 Listed companies-SEBI Regulations, 2011
 Reconstruction- (1) the transfer of undertaking of an existing

company to another company, usually incorporated for the purpose.
 (2)the carrying on of substantially the same business by the same
persons
 (3)the rights of the shareholders in the old company are satisfied by
their being allotted shares in the new company.
 Purposes:
-To extend the operations of the company

-for purposes of reorganisation
 Reverse merger-weak company takes over a profitable
company and in turn absorbs it in its fold.
 Inability to raise capital through IPO- to avoid the difficulties
 Shell company
 Reconstruction or amalgamation can take the following

forms:
-By sale of undertaking(section 232)
-By sale of shares
-By a scheme of arrangement
Whether the power to amalgamate should be included in the
MOA?
-a statutory power and not to be included in the MOA-Sir
Mathurdas Vesanji Foundation, In re(1992), Eita(I) Ltd.(1996)
 Duties of the Tribunal
-To see that the scheme is reasonable and fair
-To ascertain the wishes of the members
-To see that the scheme is designed to overcome difficulties
and re-establish the business
Amalgamation with an existing company only not an individual-

Bird v. Bird’s Patent Sewage Company (1874)
 PROCEDURE
 1.Application for order of a meeting

 2. Hearing of application by the Tribunal
 3. Notices of meetings
 4.Voting and proxies
 5.Filing of petition
 6.Hearing of petition
 7.Application for direction under section 232
 Merger and amalgamation of certain companies-section 233
-a simplified procedure for two or more small companies or
between a holding company and its wholly-owned company
Merger or amalgamation with a foreign company – section 234
-Cross-border merger
Rule 25A of Companies(compromises, Arrangement and
Amalgamation)Rules 2016
Section 237-Amalgamation in public interest
Section 237(3)-protection of members and creditors
Section 240-offences committed prior to merger, amalgamation

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MAHIMA SAJANI JACOB

 2. National Company Law Tribunal Rules, 2016

 3.Companies (Compromise, Arrangements and

 5. SEBI (Listing Obligations and Disclosure Requirements)

 7. Approval from industry specific regulators, wherever

 Reconstruction- (1) the transfer of undertaking of an existing

-To extend the operations of the company

 Reconstruction or amalgamation can take the following

Amalgamation with an existing company only not an individual-

 1.Application for order of a meeting

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