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AMALGAMATION AND MERGER OF COMPANIES
INTRODUCTION
Chapter XV (Section 230 to 240) of Companies Act, 2013(the Act) contains provisions on ‘Compromises, Arrangements and Amalgamations’, that covers compromise or arrangements, mergers and amalgamations, Corporate Debt Restructuring, demergers, fast track mergers for small companies/holding subsidiary companies, cross border mergers, takeovers, amalgamation of companies in public interest etc.,. The procedural aspects involved such as format of application to be made to National Company Law Tribunal (the Tribunal), form of notice and the procedural aspects involved with respect to the substantive law are covered under the Rules made under Chapter XV of the Act.
Reference Table : -
Chapter
No.
Details of Provisions Section Rule Details of the Rules Form No
XV Power to compromise or make arrangements with creditors and members.
i.
ii.
iii.
iv.
Application for order of a meeting under section 230 (1) with –
- A Notice of Admission
- An Affidavit
- A copy of scheme of compromise and arrangement including disclosures as per section 230 (2)
- Prescribed fee as per fee schedule.
If more than one company involved the joint application under rule 3 (1) can be filed.
if company is not the applicant, a copy of notice of admission and of affidavit shall be served to the company, or to its liquidation, as the case may be.
Disclosure for basis for identification of class of members or creditors for approval of scheme.
NCLT – 1
NCLT – 2
NCLT – 6
4 Disclosures in application made to the Tribunal for Compromise or Arrangement
- Creditors Responsibility Statement under section 230 (2) (i) (c).
CAA – 1
5 Tribunal may give directions at hearing of the application
6 Notice of the meeting under section 230 (3) to each of members or creditors.
CAA – 2
7 Advertisement of the notice of meeting under section 230 (3).
CAA – 2
8 Notice to Statutory Authorities i.e. CG (RD), ROC, ITA, RBI, SEBI, CCI, Stock
CAA – 3
XV Power of Central Government to provide for amalgamation of companies in public interest.
XV Registration of offer of Schemes involving
transfer of shares
XV
Preservation of books and papers of amalgamated companies
XV Liability of officers in
respect of offences
committed prior to
merger, amalgamation,
etc.
PROVISIONS RELATED TO AMALGAMATION AND MERGER OF COMPANIES:
Power to compromise or make arrangements with creditors and members Section 230: -
Section 230
- Where 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 company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, 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.
Explanation: - For the purposes of this sub-section, arrangement includes a reorganization of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods.
- The company or any other person, by whom an application is made under sub-section ( 1 ), shall disclose to the Tribunal by affidavit –
a. All material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;
b. Reduction of share capital of the company, if any, included in the compromise or arrangement;
c. 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 prescribed form;
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; and
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.
- Where 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:
Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed:
Provided further that where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company.
- A notice under sub-section ( 3 ) shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the
Provided that 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.
- The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.
- The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent. Value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
- No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68.
- (^) Any compromise or arrangement may include takeover offer made in such manner as may be prescribed:
Provided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
- An aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit.
Explanation: - For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.
Power of Tribunal to enforce compromise or arrangement Section 231:-
Section 231
- Where the Tribunal makes an order under section 230 sanctioning a compromise or an arrangement in respect of a company, it –
a. shall have power to supervise the implementation of the compromise or arrangement; and
b. may, at the time of making such order or at any time thereafter, 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 implementation of the compromise or arrangement.
- If the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230 cannot be implemented satisfactorily with or without modifications, and the company
is unable to pay its debts as per the scheme, it may make an order for winding up the company and such an order shall be deemed to be an order made under section 273.
- The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act sanctioning a compromise or an arrangement.
Merger and amalgamation of companies Section 232:-
Section 232
- Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal –
a. that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and
b. that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies, the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections ( 3 ) to ( 6 ) of section 230 shall apply mutatis mutandis.
- Where an order has been made by the Tribunal under sub-section ( 1 ), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:-
2.a. the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
2.b.confirmation that a copy of the draft scheme has been filed with the Registrar;
2.c. a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promotors and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;
2.d.the report of the expert with regard to valuation, if any;
2.e. a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.
Provided that the amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board under any regulations framed by it;
2.n.where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation; and 2.o.such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out:
Provided that 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.
- Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect.
- Every company in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order.
- The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.
- Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not.
- If a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.
Explanation: - For the purposes of this section, -
i. in a scheme involving a merger, where under the scheme the undertaking, property and liabilities of one or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to another existing company, it is a merger by absorption, or where the undertaking, property
and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to a new company, whether or not a public company, it is a merger by formation of a new company;
ii. references to merging companies are in relation to a merger by absorption, to the transferor and transferee companies, and, in relation to a merger by formation of a new company, to the transferor companies;
iii. a scheme involves a division, where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies each of which is either an existing company or a new company; and
iv. property includes assets, rights and interests of every description and liabilities include debts and obligations of every description.
Merger or amalgamation of company with foreign company under section 234:-
Section 234
- The provisions of this Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies registered under this Act and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government:
Provided that the Central Government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this section.
- Subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the 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, as the case may be, as per the scheme to be drawn up for the purpose.
Explanation: - For the purposes of sub-section ( 2 ), the expression “foreign company” means any company or body corporate incorporated outside India whether having a place of business in India or not.
Power to acquire shares of shareholders dissenting from scheme or contract approved by majority under section 235:-
Section 235
- Where a scheme or contract involving the transfer of shares or any class of shares in a company (the transferor company) to another company (the transferee company)has,
b. in sub-section ( 3 ), the words “together with an instrument of transfer, to be executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferor company” shall be omitted.
Explanation:- For the purposes of this section, “dissenting shareholder” includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract.
Purchase of minority shareholding under section 236:-
Section 236
- In the event of an acquirer, or a person acting in concert with such acquirer, becoming registered holder of ninety per cent. or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming ninety per cent. majority or holding ninety per cent. of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares.
- (^) The acquirer, person or group of persons under sub-section ( 1 ) shall offer to the minority shareholders of the company for buying the equity shares held by such shareholders at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed.
- Without prejudice to the provisions of sub-sections ( 1 ) and ( 2 ), the minority shareholders of the company may offer to the majority shareholders to purchase the minority equity shareholding of the company at the price determined in accordance with such rules as may be prescribed under sub-section ( 2 ).
- The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section ( 2 ) or sub-section ( 3 ), as the case may be, in a separate bank account to be operated by the transferor company for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:
Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement.
- In the event of a purchase under this section, the transferor company shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be.
- In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and
the transferor company shall be authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section ( 4 ) by the majority in advance to the minority by dispatch of such payment.
- In the event of a majority shareholder or shareholders requiring a full purchase and making payment of price by deposit with the company for any shareholder or shareholders who have died or ceased to exist, or whose heirs, successors, administrators or assignees have not been brought on record by transmission, the right of such shareholders to make an offer for sale of minority equity shareholding shall continue and be available for a period of three years from the date of majority acquisition or majority shareholding.
- Where the shares of minority shareholders have been acquired in pursuance of this section and as on or prior to the date of transfer following such acquisition, the shareholders holding seventy-five per cent. or more minority equity shareholding negotiate or reach an understanding on a higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such negotiation, understanding or agreement, the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata basis.
Explanation: - For the purposes of this section, the expressions “acquirer” and “person acting in concert” shall have the meanings respectively assigned to them in clause ( b ) and clause ( e ) of sub-regulation ( 1 ) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
- When a shareholder or the majority equity shareholder fails to acquire full purchase of the shares of the minority equity shareholders, then, the provisions of this section shall continue to apply to the residual minority equity shareholders, even though, -
a. the shares of the company of the residual minority equity shareholder had been delisted; and
b. the period of one year or the period specified in the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, had elapsed.
Power of Central Government to provide for amalgamation of companies in public interest under section 237: -
- Where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be specified in the order.
b. every such offer shall contain a statement by or on behalf of the transferee company, disclosing the steps it has taken to ensure that necessary cash will be available; and every such circular shall be presented to the Registrar for registration and no such circular shall be issued until it is so registered:
Provided that the Registrar may refuse, for reasons to be recorded in writing, to register any such circular which does not contain the information required to be given under clause ( a ) or which sets out such information in a manner likely to give a false impression, and communicate such refusal to the parties within thirty days of the application.
- (^) An appeal shall lie to the Tribunal against an order of the Registrar refusing to register any circular under sub-section ( 1 ).
- (^) The director who issues a circular which has not been presented for registration and registered under clause ( c ) of sub-section ( 1 ), shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.
Preservation of books and papers of amalgamated companies under section 239: -
Section 239
The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the transferor company or its amalgamation or the acquisition of its shares.
Liability of officers in respect of offences committed prior to merger, amalgamation, etc. under section 240: -
Section 240
Notwithstanding anything in any other law for the time being in force, the liability in respect of offences committed under this Act by the officers in default, of the transferor company prior to its merger, amalgamation or acquisition shall continue after such merger, amalgamation or acquisition.
Application for order of a meeting: -
Rule 4 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016:
- (^) An application under sub-section (1) of section 230 of the Act may be submitted in Form no. NCLT-1 (appended in the National Company Law Tribunal Rules, 2016) along with:
i. (^) a notice of admission in Form No. NCLT-2 (appended in the National Company Law Tribunal Rules, 2016);
ii. an affidavit in Form No. NCLT-6 (appended in the National Company Law Tribunal Rules, 2016);
iii. a copy of scheme of compromise or arrangement, which should include disclosures as per sub-section (2) of section 230 of the Act; and
iv. fee as prescribed in the Schedule of Fees.
- Where more than one company is involved in a scheme in relation to which an application under sub-rule (1) is being filed, such application may, at the discretion of such companies, be filed as a joint-application.
- Where the company is not the applicant, a copy of the notice of admission and of the affidavit shall be served on the company, or, where the company is being wound up, on its liquidator, not less than fourteen days before the date fixed for the hearing of the notice of admission.
- The applicant shall also disclose to the Tribunal in the application under sub-rule (1), the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme.
Disclosures in application made to the Tribunal for compromise or arrangement: -
Rule 5 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016:
Upon hearing the application under sub-section (1) of section 230 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters:-
a. determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230;
b. fixing the time and place of the meeting or meetings;
c. 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;
d. (^) 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:
Explanation: - For the purposes of these rules, “voting through electronic means” shall take place, mutatis mutandis , in accordance with the procedure as specified in rule 20 of Companies (Management and Administration) Rules, 2014.
d. date of incorporation;
e. type of the company (whether public or private or one-person company);
f. registered office address and e-mail address;
g. summary of main object as per the memorandum of association; and main business carried on by the company;
h. details of change of name, registered office and objects of the company during the last five years;
i. name of the stock exchange (s) where securities of the company are listed, if applicable;
j. (^) details of the capital structure of the company including authorised, issued, subscribed and paid up share capital; and
k. names of the promoters and directors along with their addresses.
iii. if the scheme of compromise or arrangement relates to more than one company, 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;
iv. the date of the board meeting at which the scheme was approved by the board of directors including the name of the directors who voted in favour of the resolution, who voted against the resolution and who did not vote or participate on such resolution;
v. explanatory statement disclosing details of the scheme of compromise or arrangement including:-
v.a. parties involved in such compromise or arrangement; v.b. in case of amalgamation or merger, appointed date, effective date, share exchange ratio (if applicable) and other considerations, if any;
v.c. 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;
v.d. details of capital or debt restructuring, if any;
v.e. rationale for the compromise or arrangement;
v.f. benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors and others (as applicable);
v.g. amount due to unsecured creditors;
vi. disclosure about the effect of the compromise or arrangement on;
v.h. key managerial personnel;
v.i. directors;
v.j. promoters;
v.k. non-promoter members;
v.l. depositors;
v.m. creditors;
v.n. debenture holders;
v.o. deposit trustee and debenture trustee;
v.p. employees of the company:
vii. Disclosure about effect of compromise or arrangement on material interests of directors, Key Managerial Personnel (KMP) and debenture trustee.
Explanation – For the purposes of these rules it is clarified that –
v.q. the term ‘interest’ extends beyond an interest in the shares of the company, and is with reference to the proposed scheme of compromise or arrangement.
v.r. the valuation report shall be made by a registered valuer, and till the registration of persons as valuer is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years.
