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Merger and Amalgamations
23 Feb 2016


Merger means an arrangement whereby one or more existing companies merge their identity into another existing company or to form a distinct new entity. Merger is a restructuring tool available to business entities which aims to expand and diversify their business to gain competitive advantage.A merger is basically an addition of the assets and liabilities of the amalgamating companies, whereby all assets and liabilities of the transferor company before the amalgamation become the assets and liabilities of the transferee company on amalgamation. Merger and amalgamation are widely used in fields such as Information technology,telecommunication and business process outsourcing to expand the customer base or enter into new market or product segment. Merger and amalgamation may be undertaken to reduce competition, to get a market share, to reduce tax liabilities, to access the market through an established brand. The relevant main statutory provisions are Section 394 of the Companies Act 1956 until NCLT becomes operational and thereafter under section 232 of the Companies Act, 2013 which deals with mergers and amalgamation including demergers and Draft Rules under Chapter 15 of the CA 2013, shall be operational once NCLT is notified.

Applicability of Competition Commission of India with reference to Merger and Amalgamation states that all Merger and Amalgamation transactions needs to get a prior clearances from CCI authority if the combination [‘combination’ as defined under section 5(a) (b) and (c)] exceeds any of the thresholds of section 5 of the Competition Act.

Merger and Amalgamation Section 232 sub- section (1)

Where an application is made to the Tribunal under section 230 for sanctioning of compromise or an arrangement proposed between a company and its creditor or a company and its members, then tribunal may order a meeting of creditors or class of creditors or of the members or class of members to be held and conducted in such manner as the tribunal may direct. The tribunal order a meeting only on application of the company or of any creditor or member of the company and in case of company being wound up, application of the liquidator to the tribunal. The application has to be supported by an affidavit in Form no. 15.1 under sub-section (1) of section 230.

Meeting is ordered when it is shown to the Tribunal:-

(a)    That the compromise or arrangement has been proposed in connection with a scheme for 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 and liabilities of the Transferor Company is required to be transferred to Transferee Company or is proposed to be divided among and transferred to two or more companies.

Applicability of Provisions of Section 230

The meeting may be held and conducted in such manner as the Tribunal may direct and the provision of sub-section (3) - (6)of Section 230 shall apply.                                            

Disclosure in Application made to the Tribunal

As per Section 230 (2) the application made by company or any other person shall disclose to the tribunal by affidavit:-

(a)  All material facts such as latest financial position of the company, the latest auditor’s report on accounts of the company, any proceedings or pendency of investigation 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 75%  of the secured creditors including:-

·       A creditor’s responsibility statement in Form no. 15.2;

·        Safeguards for the protection of other secured or unsecured creditors;

·     A statement to that effect where a company proposes to adopt the corporate debt restructuring guidelines as specified by the Reserve Bank of India; 

·     Valuation report in respect of the shares and the property and all assets, tangible and intangible,movable and immovable, of the company by the registered valuer; and

·        Report by the auditor that the fund requirement of the company after corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board.

Manner of Meeting

As per sub-section (3), of section 230, 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 in Form no. 15.3 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.

Such notice and other documents shall also be placed on the website of the company, and in case of a listed company, these documents shall be sent to the SEBI and stock exchange where the securities of the companies are listed.

Rule 15.3 states that the notice of the meeting pursuant to the order of the Tribunal to be given in Form No. 15.3, and shall be sent individually specifying therein:-

1.      Details of the order of the Tribunal directing the calling, convening and conducting of the meeting;

·        Date of the Order

·        Date, Time and Venue of the Meeting

2.      Details of the company including:

·        CIN / GLN of the company;

·        Name of the company;

·        Date of incorporation;

·        Status of the company (whether public/private/OPC);

·        Registered Office address and E-mail id;

·  Details of the promoters, directors and key managerial personnel including name, address and designation and other particulars; and

·    Details of the capital structure of the company including authorized, issued, subscribed and paid up share capital; 

3.   Whether  the scheme of compromise or arrangement relates to more than one company, the fact and details of any relationship subsisting between such companies including holding, subsidiary or of associate companies;

4.      The date of the board meeting at which the scheme was approved by the Board of directors including the name of the directors voted in favor of the resolution, voted against there solution and not voted/ participated on such resolution;

5.      Details of the scheme of compromise or arrangement including:

·        Parties involved in such compromise or arrangement;

·        rationale for the compromise or arrangement;

·        details of capital/debt restructuring, if any;

·        valuation report including basis of valuation and fairness opinion of the registered valuer, if any;

·      in case of amalgamation or merger, appointed date, share exchange ratio and other consideration, if any;

6.      Disclosure of nature and extent of interest and effect of compromise or arrangement on such interest of:

·        key managerial personnel;

·        directors;

·        promoters;

·        non-promoter members;

·        depositors;

·        creditors;

·        debenture holders;

·        deposit and debenture trustees;

·   promoters, directors, and key managerial personnel of holding company, subsidiary and associate companies;

7.      Where there is no interest or there is no effect on such interest of any promoter, director or key managerial personnel, a statement to the effect that there is no interest or there is no effect of the scheme of compromise or arrangement on such interests of such persons;

8.      If there is any investigation proceedings pending against the company or against any promoter, director or key managerial personnel of such company;

9.      Details of shareholding of directors, key managerial personnel and promoters of the company as on the date of making this statement and change in their shareholding in the last six months including the date on which and price at which change took place;

10.  Details of the availability of the following documents for obtaining extract from or for making copies of or for inspection by the members and creditors, namely:

·        copy of the order of Tribunal in pursuance of which the meeting is to be convened;

·        latest audited financial statements of the company including consolidated financial statements;

·        copy of scheme of compromise or arrangement;

·        such other information/documents as the Board/Management believes necessary and relevant for making decision for /against the scheme;

11.  Declaration to the effect that the scheme is in the best interests of the employees, creditors,debenture holders, members particularly non-promoter members and minority shareholders of the company, as detailed in the scheme.

12.  Status of approval(s) of regulatory or any other authorities, required, if any in connection with compromise or arrangement.

Time period for Adoption of Compromise or arrangement

As per sub-section (4), of section 230, 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 adoption of the compromise or arrangement within one month from the date of receipt of such notice.

Any objection to the compromise or arrangement shall be made only by persons holding not less than 10% of the shareholding or having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement.

Notice to Central Government (Rule 15.4)

As per sub section (5) of Section 230, a notice under sub-section (3) along with a copy of scheme of compromise or arrangement in Form No. 15.4 shall also be sent to Central Government, the income-tax authorities, the RBI, the SEBI, the Registrar, the respective stock exchanges, the Official liquidator, the Competition Commission of India u/s 7 (1) of the Competition Act, 2002, if necessary, and such other sectoral regulators which are likely to be affected by the compromise or arrangement and shall require that representations,if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representation to make on the proposals.

Provided that a copy of the representation, if any,shall be sent to the chairperson of the meeting within a period of 30 days from the date of receipt of such notice.

The notice to the above authorities shall be sent forthwith after the notice has been sent to the members or creditors of the company, either by hand delivery or by registered or speed post or by electronic means.

Advertisement of Notice of meeting (Rule 15.5)

The notice of the meeting shall be advertised in such newspapers and in such manner as the Tribunal may direct, not less than 14 clear days before the date fixed for the meeting. The advertisement shall be in Form No. 15.5.

Approval and sanction of scheme

As per sub section (6)of Section 230, where at a meeting held in pursuance of sub-section (1), majority of persons representing 3/4th in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company.

Circulation of Documents Section 232 sub-section (2)

Section 232(2) states that, 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:-

(a)    The draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;

(b)   Confirmation that a copy of the draft scheme has been filed with the Registrar;

(c)    A report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;

(d)   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.

Sanctioning of Scheme by the tribunal Section 232(3)

When the Tribunal is satisfied that the procedure specified in sub-section (1) and (2) has been complied with then it may by order sanction the compromise or arrangement or by subsequent order, make provision for the following matters, namely :-

(a)    The date of the transfer to the Transferee Company of the whole or any part of the undertaking, property or liabilities of the Transferor Company to be determined by the parties unless the Tribunal decides otherwise and reason for recording it in writing.

(b)  The allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company which,under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person:

Provided that the transferee company shall not, as a result of compromise or arrangement, hold any shares inits name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies and any such shares shall be cancelled or extinguished;

(c)   Dissolution, without winding-up, of any transferor company;

(d)  Continuation by or against the transferee company of any legal proceedings pending by or against transferor company on the date of transfer;

(e)   The provision to be made for any person who, within such time and in such manner as the tribunal directs, dissent form the compromise or arrangement;

(f)   The transfer of employees of the transferor company to the transferee company;

(g)   Such incidental,consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is effectively carried out.

Auditor’s Certificate as to conformity with accounting standard

Compromise or arrangement shall be sanctioned by the Tribunal only when the 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 standard as prescribed under section 133.

Transfer of property or liabilities Section 232(4)

As per section 232 sub-section (4), where an order provides for any transfer of property or liabilities, then by virtue of the order, that property and liabilities shall be transferred to the transferee company and any property may,if order so directs, which ceases to have effect by virtue of merger and amalgamation,shall be freed from any charge.

Certified copy of the order to be filed with Registrar Section 232 (5)

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 and such certified copy being so is filed with ROC the transferor company shall be dissolved.


Effective date of the Scheme Section 232 (6)

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.

Annual statement filed with Registrar Section 232 (7)

 As per section 232 (7) every company in relation to which the order is made, shall file a statement in Form no. 15.11 and within 30 days from the end of each financial year with the registrar every year until the completion of the scheme. The form must be duly certified by a practicing professional (CA/CS/CWA) indicating that whether the scheme is being complied in accordance with the order of Tribunal or not.

Penalty Section 232 (8)

As per section 232 sub-section (8), if a transferor company or a transferee company contravenes the provisions of Section 232, then the transferor or 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. Every officer of such 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 and may extend to three lakh rupees or with both.

NCLT approval for Merger Schemes

Now the High court to be replaced by the National Company Law Tribunal in reference to all the matters related to merger and amalgamation schemes. All the merger and de-merger schemes would have to be filed before the NCLT for its approval. The creation of single forum for all the company related matters will ease the working of High Courts and the proceedings will not be cumbersome though it is still to be seen when the NCLT will come into existence. Till the NCLT is formed the power to approve schemes will continue to lie with the High Courts and all the provisions of Section 394 of the Companies Act 1956 shall apply for the mergers,reconstructions and acquisitions. The NCLT and NCLAT once established will be the consolidated bodies which would adjudicate and decide all issues relating to companies in India. Any cases pending before the various benches of the Company Law Board, the BIFR, the AAIFR and all the Company Courts across the country would be transferred to the NCLT and the NCLAT. The proceedings before the NCLT and NCLAT will be closed in a more efficient manner. The NCLT and NCLAT have been held as constitutionally valid by the Supreme Court of India,but it is still to be seen that when does it comes into operation.

Forms of Business Restructuring

There are forms of business mergers, acquisitions and restructuring for the purpose of explanation to Section 232 are:-

(a)  Merger by absorption: Where 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.

(b)  Merger by formation of new Company: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 irrespective of whether it is a public company or not.

Here, property includes assets,rights and interests of every description and liabilities debts and obligations of every description.


For any clarification and consultation please email to Mr. Hemant Paliwal, Practicing Company Secretary at:


Kumar Vineet