PROJECT REPORT

Legal Provisions
on
Merger & Amalgamation
SUBMITTED TO

INSTITUTE OF COMPANY SECRETARIES OF INDIA

Guided by: CS SagarShrivastava

Membership No: 10774
COP No: 14617

Submitted by: Rupali Jain

Registration No: 140164793/02/2016

Signature:
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CONTENTS

Definition of merger & amalgamation

Why Merger & Amalgamation

Power to Compromise or Arrangement (Section 230)

Merger and Amalgamation of Companies(Section 232)

Power of Central Government to Provide for Amalgamation

of Companies in Public Interest (Section 237)

Fast track mergers (Section 233)

Minority Squeeze Out (Section 236)

Post Merger

Aspects to consider under the Income Tax Act, 1961

Accounting Treatment : Overview

Role of a Company Secretary in M & A

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 INTRODUCTION
The Companies Act, 2013 appears to be opening new and simple avenues for
mergers,acquisitions and restructuring operations in India. While the Act
retains the old provisions, italso adds robust and progressive new ones.
Changes made in it are likely to have a positiveimpact on the manner in which
corporate structuring is undertaken in India due to numerousprocedural
changes.

The 2013 Act seeks to simplify the overall process of acquisitions, mergers
andrestructuring, facilitate domestic and cross-border mergers and
acquisitions, and thereby,make Indian firms relatively more attractive to PE
investors. Some of the changes tolook for at the conceptual level include
merger/demerger processes, cross-border and fasttrack mergers between small
companies and holdings, subsidiaries and provisions relatingto minority
shareholders’ protection and exits.

This project report looks at some key provisions relating to mergers,

compromises andarrangements in the 2013 Act and provides a quick impact
analysis of these.

WHAT IS MERGER / AMALGAMATION?

Mergers -------------- M -------- Marriages

De-mergers ------ D --------- Divorces

The terms ‘merger’ and ‘amalgamation’ are synonymous

In amalgamation, the undertaking, i.e. property, assets and liability of one or
more company (amalgamating company) are absorbed by an existing or a new
company (amalgamated company)
The amalgamating company integrates with amalgamated company and the
former is dissolved without winding up.

The term amalgamation is not defined under the Companies Act, 2013. Thus
resort has to be taken to the following dictionary and other meanings of the
term amalgamation:

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As per general dictionary meaning: Amalgamation is to compound, to
consolidate or to combine two or more things.

As per Halsbury's Laws of England: Amalgamation is the blending of two or

more existing undertaking, the shareholders of each blending company
becoming substantially the shareholders in the company, which is to carry on
the blended undertakings. There may be amalgamation either by the transfer of
two or more undertakings to a new company, or by the transfer of one or more
undertakings to an existing company.

From the above, it can be concluded that:

Amalgamation means mixing up or uniting together. The resultant position of
amalgamation is not annihilation, although the identity of one unit would
stand integrated with the other. It is the non-organic (external) unification of
two entities or undertakings or the fusion of one with the other.

WHY MERGER & AMALGAMATION?

To achieve economies of scale

To reduce the gestation period for new business
To compete globally

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 To put to use the liquidity available with the company for achieving
growth through diversification
To acquire and maximize the available managerial skills to increase the
profitability
To take advantage of the concession given by the tax laws
Elimination of Competition

POWER TO MAKE COMPROMISE OR

ARRANGEMENTS
MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The
Companies(Compromises, Arrangements and Amalgamations) Rules, 2016.
These rules have been effective from 15th December, 2016. Consequently,
w.e.f. 15.12.2016 all the matters relatingto Compromises, Arrangements, and
Amalgamations (hereafter read as “CAA”) will be dealtas per provisions of
Companies Act, 2013 and The Companies (Compromises,Arrangements, and
Amalgamations) Rules, 2016.

As per the latest rules below mentioned will be process of Compromise and
arrangement.

1. Between whom the Compromise & Arrangement can propose: Section

230(1)
1. between a company and its creditors or any class of them; or
2. between a company and its members or any class of them

2. Who can file the application for Compromise & Arrangement can
propose: Section230(1)
An application for Compromise & Arrangement can be file with Tribunal (NCLT)
byfollowings:
1. The Company or
2. Creditor or
3. Member of the Company, or
4. In the case of a company which is being wound up, of the Liquidator.

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Joint Application:Rule 3(2)
Where more than one company is involved in a scheme, such application may,
at thediscretion of such companies, be filed as a joint-application.

Conditions for serving of application, in situation where application is not

served bythe Company:Rule 3(3)
Where the application is not filed by the Company then, at least 14 days before
the datefixed for the hearing of the notice by the tribunal-

A copy of notice of admission and of the affidavit shall be served on the

Company, or,
Where the company is being wound up, on its liquidator.
The applicant shall also disclose to the Tribunal in the application under sub-
rule (1), thebasis on which each class of members or creditors has been
identified for the purposes ofapproval of the scheme. [Rule 3(4)]

3. Format of Application
Application to the tribunal for Compromise & Arrangement will be submitted in
formNCLT-1 along with following documents: Rule 3(1)

a) A notice of admission in Form No. NCLT-2

b) An affidavit in form no. NCLT-6
c) A copy of Scheme of C&A
d) A disclosure in form of affidavit including following points Section 230(2)

All material facts relating to the company, such as

i. the latest financial position of the company,
ii. the latest auditor’s report on the accounts of the company and
iii. the pendency of any investigation or proceedings against the company
– Reduction of share capital of the company, if any, included in the
compromise orarrangement

e) Any scheme of Corporate Debt Restructuring consented to by not less than

seventy fiveper cent of the secured creditors in value, including
i. A Creditor’s Responsibilitystatement in the form No. CAA-1.
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 debtrestructuring as approved shall conform to the liquidity test
based upon the estimatesprovided to them by the Board;

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iv. where the company proposes to adopt the corporate debt restructuring
guidelinesspecified 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 andintangible, movable and immovable, of the company by a
registered valuer.

f) The applicant shall also disclose to the Tribunal in the application, the basis
on which eachclass of members or creditors has been identified for the
purposes of approval of thescheme.

4. Calling of Meeting by Tribunal:

Upon hearing of the application Tribunal shall, unless it thinks fit for any
reason to dismissthe application, give such directions / order as it may think
necessary in respect meeting ofthe creditors or class of creditors, or of the
members or class of members, as the case maybe, to be called, held and
conducted in such manner as prescribed in rule 5 of CAA Rules,2016 as follow:

i. Fixing the time and place of the meeting or meetings;

ii. 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
includingremuneration;
iii.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 throughelectronic means;
iv.Determining the values of the creditors or the members, or the creditors
ormembers of any class, as the case may be, whose meetings have to be
held;
v. Notice to be given of the meeting or meetings and the advertisement of
suchnotice;
vi.Notice to be given to sectoral regulators or authorities as required under
subsection(5) of section 230;
vii.The time within which the chairperson of the meeting is required to report
theresult of the meeting to the Tribunal; and
viii.Such other matters as the Tribunal may deem necessary.

5. Notice of Meeting:
The Notice of the meeting pursuant to the order of tribunal to be givein Form
No. CAA-2.

Person entitled to receive the notice

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The notice shall be sent individually to each of theCreditors or Members and
the debenture-holders at the address registered with thecompany.

Person authorized to send the notice:

Chairman of the Company, or
If tribunal so direct- by the Company or its liquidator or by any other
person

Modes of Sending of notice:

By Registered post, or by Speed post, or by courier, or
By e-mail, or by hand delivery, or by any other mode as directed by the
tribunal

Documents to be send along with notice:

The notice of meeting send with (i) Copy ofScheme of C&A and (ii) Following
below mentioned details of C&A if not included in the saidscheme:

a. Details of the order of the Tribunal directing the calling, convening and
conducting of themeeting:-
Date of the Order;
Date, time and venue of the meeting.

b. Details of the company including:

Corporate Identification Number (CIN) or Global Location Number (GLN)
of the company;
Permanent Account Number (PAN);
Name of the company;
Date of incorporation;
Type of the company (whether public or private or one person company);
Registered office address and e-mail address;
Summary of main object as per the memorandum of association; and
main business carriedon by the company;
Details of change of name, registered office and objects of the company
during the last fiveyears;
Name of the stock exchange (s) where securities of the company are
listed, if applicable;
Details of the capital structure of the company including authorised,
issued, subscribed andpaid up share capital; and
Names of the promoters and directors along with their addresses

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c. Relationship in case of Combined Application:
if the scheme of compromise orarrangement relates to more than one
company, then the fact and details of any relationshipsubsisting between such
companies who are parties to such scheme of compromise orarrangement,
including holding, subsidiary or of associate companies.

d. Disclosure about effect of C&A on material interests of directors, Key

ManagerialPersonnel (KMP) and debenture trustee

e. Details of Board Meeting:

The name of the directors who did not vote or participate on such
resolution
The name of the directors who voted against the resolution and
The name of the directors who voted in favour of the resolution,
The date of the board meeting at which the scheme was approved by the
board of directors

f. Explanatory Statementdisclosing details of the scheme of compromise or

arrangementincluding:

parties involved in such compromise or arrangement;

in case of amalgamation or merger, appointed date, effective date, share
exchange ratio (ifapplicable) and other considerations, if any;
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;
details of capital or debt restructuring, if any;
rationale for the compromise or arrangement;
benefits of the compromise or arrangement as perceived by the Board of
directors to the
company, members, creditors and others (as applicable);
Amount due to unsecured creditors.

g. Disclosure about the effect of the compromise or arrangement

on:Section 230(3)
o Key Managerial Personnel;
o Directors;
o Promoters;

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 o Non-Promoter Members;
o Depositors;
o Creditors;
o Debenture holders;
o Deposit trustee and debenture trustee;
o Employees of the company:

h. Below Mentioned Details:

Investigation or proceedings, if any, pending against the company under

the Act.
details of approvals, sanctions or no-objection(s), if any, from regulatory
or any othergovernmental authorities required, received or pending for
the proposed scheme ofcompromise or arrangement
a statement to the effect that the persons to whom the notice is sent may
vote in the meetingeither in person or by proxies, or where applicable, by
voting through electronic means
A copy of the valuation report, if any.

i. Details of availability of documents:

Details of the availability of the following documents forobtaining extract from

or for making or obtaining copies of or for inspection by the membersand
creditors, namely

Latest audited financial statements of the company including

consolidated financialstatements;
Copy of the order of Tribunal in pursuance of which the meeting is to be
convened or hasbeen dispensed with;
copy of scheme of compromise or arrangement;
Contracts or agreements material to the compromise or arrangement;
The certificate issued by Auditor of the company to the effect that the
accounting treatment,if any, proposed in the scheme of compromise or
arrangement is in conformity with theAccounting Standards prescribed
under Section 133 of the Companies Act, 2013; and
Such other information or documents as the Board or Management
believes necessary andrelevant for making decision for or against the
scheme;

6. Advertisement of Notice of Meeting:

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The Notice of the meeting shall be advertisedin form No. CAA-2 at least in one
English Newspaper and in at least one vernacular language newspaper. It shall
indicate the time within which copies of the compromise orarrangement shall
be made available to the concerned persons free of charge from theregistered
office of the company

Such Newspaper shall be published on the website of the company at

least 30 days beforethe date fixed for meeting, as directed by tribunal.
Section 230(3)
In case of Listed Company, such notice and other documents shall also
be published on thewebsite of SEBI and stock exchange, where securities
of the Company are listed.

7. Notice to Statutory Authorities: Section 230(5) and Rule 8

A notice in Form No CAA-3 along with Copy of Scheme of C&A, the
explanatory statementand Disclosures mentioned in point No.5 above, shall
also be sent to followings:

The Central Government, The Registrar of Companies and The income-

tax authorities, in allcases
The Reserve Bank of India, the Securities and Exchange Board of India,
the CompetitionCommission of India, and the stock exchanges, as may
be applicable.
Other Sectoral Regulators or authorities, as required by Tribunal.

Notice shall be sent to the office of the authority after sending of notice to
members orcreditors of the Company by Registered post, or by Speed post, or
by courier, or by handdelivery.

Representation by authority:
The authority desire to make any representation then shall sent to the
tribunal within a periodof 30 days from the date of receipt of such notice.
Copy of such representation shall simultaneously be sent to the
concerned companies
In case of no representation within the 30 days then presumed that
authority doesn’t haveany representation.

8. Voting:

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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 orarrangement within one month from the date of receipt of such
notice. Section 230(4) Rule 9

Right of Objections: Section 230(4)

Any objection to the compromise or arrangement shall be made only by
Persons holding not less than 10% (Ten Percent) of the shareholding or
Having outstanding debt amounting to not less than five per cent of the
total outstandingdebt as per the latest audited financial statement

Other Conditions for C&A:

I. Copy of Compromise or arrangement to be furnished by the company:

The Company on the requisition of the creditors or members entitled to attend
meeting shallfurnish a copy of scheme of C&A and copy of statement required
to furnish in section230(2)(c) with in one day of requisition.

II. Affidavit of Service:

Liability to Service: The Chairperson appointed for the meeting of the
company or otherperson directed to issue the advertisement and the notices of
the meeting.
Above mentioned shall file an affidavit before the Tribunal at least seven days
before thedate fixed for the meeting or the date of the first of the meetings, as
the case may be, statingthat the directions regarding the issue of notices and
the advertisement have been dulycomplied with.

SECOND STEP- Result of Meeting

III. Copy of Compromise or arrangement to be furnished by the

company:Method of Voting:
The voting at the meeting or meetings held in pursuance of thedirections of the
Tribunal on all resolutions shall take place by poll or by voting
throughelectronic means.

The report of the result of the meeting shall be in Form No. CAA.4 and shall
state accurately
The number of creditors or class of creditors or
The number of members or class of members, as the case may be,
o who were present and

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 o who voted at the meeting either in person or by proxy, and
o Where applicable, who voted through electronic means, their
individual values and the waythey voted.

IV. Report of the result of the meeting by Chairperson: – [10]

The Chairperson of themeeting shall, within the time fixed by the Tribunal, or
where no time has been fixed, within 3(Three) days after the conclusion of the
meeting, submit a report to the Tribunal on the resultof the meeting in Form
No. CAA.4.

V. Binding of approval: Section 230(6)

Where, at a meeting majority of persons representing three-fourths in value of
the creditors,or class of creditors or members or class of members, as the case
may be, voting in personor by proxy or by postal ballot, agree to any
compromise or arrangement AND if suchcompromise 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 ormembers or class of members, as the case may be, or, in case of a
company being woundup, on the liquidator and the contributories of the
company.

THIRD STEP- Order of Tribunal

After completion of the Voting and report of result of the meeting by the
chairman to thetribunal next step will be confirmation of C&A form the
Tribunal (NCLT).

VI. Petition for confirming compromise or arrangement Rule 15

The Company shall, within 7 (seven) days of the filing of the report by the
Chairperson,present a petition to the Tribunal in Form No. CAA.5 for sanction
of the scheme ofcompromise or arrangement. The petitioner will pray for the
appropriate orders anddirections from the Tribunal.

Right of Creditor to file the petition: Where the company fails to present the
petition forconfirmation of the compromise or arrangement as aforesaid, it shall
be open to any creditoror member as the case may be, with the leave of the
Tribunal, to present the petition and thecompany shall be liable for the cost
thereof.

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VII. Notice of Hearing by Tribunal Rule 16;
The Tribunal shall fix a date for the hearing of thepetition.

Legal Responsibility of the Tribunal: The notice of the hearing of the petition
shall also beserved by the Tribunal ;
To the Objectors or
To Their Representatives under sub-section (4) of section 230 of the Act
and
To the Central Government and
Other Authorities who have made representation under rule 8 and have
desired to be heardin their representation.

Publication of the Notice:

The notice of the hearing shall be advertised in the same newspaper in which
the notice ofthe meeting was advertised or in such other newspaper as the
Tribunal may direct, at leastten days before the date fixed for the hearing.

VIII.Order by Tribunal Rule 17;

Where the Tribunal sanctions the compromise or arrangement, the order shall
be in FormNo. CAA. 6. The order shall include such directions in regard to any
matter or suchmodifications in the compromise or arrangement as the Tribunal
may think fit to make for theproper working of the compromise or
arrangement.

Filing of Order of Tribunal: Section 230(8) Rule 17(2)

The order of the Tribunal shall be filed with the Registrar by the company
within a period ofthirty days of the receipt of the copy of order, or such other
time as may be fixed by theTribunal.

Power of Tribunal
If the Tribunal is satisfied that the compromise or arrangement sanctioned
under section 230cannot be implemented satisfactorily with or without
modifications, and the company isunable to pay its debts as per the scheme, it
may make an order for winding up the companyand such an order shall be
deemed to be an order made under section 273.

MERGER AND AMALGAMATION OF COMPANIES

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 Section 232 – Merger and amalgamation of companies

Sub-section (1):
Tribunal’s power tocall meeting of creditors or members, with respect to
merger or amalgamation of companies.
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.

Sub-section (2)
Circulation of documents for members/creditors meeting.
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;

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(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) the report of the expert with regard to valuation, if any;

(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.

Sub-section (3):
Sanctioning of scheme by tribunal
The Tribunal, after satisfying itself that the procedure specified in sub-sections
(1) and (2) has been complied with, may, by order, sanction the compromise or
arrangement or by a subsequent order, make provision for the following
matters, namely:—

(a) the transfer to the transferee company of the whole or any part of the
undertaking, property or liabilities of the transferor company from a date to be
determined by the parties unless the Tribunal, for reasons to be recorded by it
in writing, decides otherwise;

(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 a transferee company shall not, as a result of the compromise or

arrangement, hold any shares in its own 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) the continuation by or against the transferee company of any legal

proceedings pending by or against any transferor company on the date of
transfer;

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(d) dissolution, without winding-up, of any transferor company;

(e) the provision to be made for any persons who, within such time and in such
manner as the Tribunal directs, dissent from the compromise or arrangement;

(f) where share capital is held by any non-resident shareholder under the
foreign direct investment norms or guidelines specified by the Central
Government or in accordance with any law for the time being in force, the
allotment of shares of the transferee company to such shareholder shall be in
the manner specified in the order;

(g) the transfer of the employees of the transferor company to the transferee
company;

(h) where the transferor company is a listed company and the transferee
company is an unlisted company,—

(A) the transferee company shall remain an unlisted company until it becomes
a listed company;

(B) if shareholders of the transferor company decide to opt out of the transferee
company, provision shall be made for payment of the value of shares held by
them and other benefits in accordance with a pre-determined price formula or
after a valuation is made, and the arrangements under this provision may be
made by the Tribunal:

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;

(i) 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

(j) such incidental, consequential and supplemental matters as are deemed

necessary to secure that the merger or amalgamation is fully and effectively
carried out:

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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
thescheme of compromise or arrangement is in conformity with the accounting
standards prescribed under section 133.

Sub-section (4)
Transfer of property or liabilities
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.

Sub-section (5):
Certified copy of the order to be filed with the registrar
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.

Sub Section (6):

Effective date of the scheme.
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.

Sub-section (7):
Annual statement certified by CA/CS/CWA to be filed with registrar
everyyear until the completion of the scheme.
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.

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Sub-section (8):
Punishment
If a company fails to comply with sub-section (5), the company and every officer
of the company who is in default shall be liable to a penalty of twenty thousand
rupees, and where the failure is a continuing one, with a further penalty of one
thousand rupees for each day after the first during which such failure
continues, subject to a maximum of three lakh rupees.]

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.

Exception\Modification\Adaptation

1.In case of Government Company - In section 232 for the word "Tribunal" the
words "Central Government" shall be substituted.

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 Section 237: Power of Central Government to provide for
amalgamation of companies in publicinterest

Sub-section (1):
Power of Central Government to provide for amalgamation ofCompanies
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.

Sub-section (2):
Continuation of legal proceedings.
The order under sub-section (1) may also provide for the continuation by or
against the transferee company of any legal proceedings pending by or against
any transferor company and such consequential, incidental and supplemental
provisions as may, in the opinion of the Central Government, be necessary to
give effect to the amalgamation.

Sub-section (3):
Interest or rights of members, creditors, debenture holders not to be
affected.
Every member or creditor, including a debenture holder, of each of the
transferor companies before the amalgamation shall have, as nearly as may be,
the same interest in or rights against the transferee company as he had in the
company of which he was originally a member or creditor, and in case the
interest or rights of such member or creditor in or against the transferee
company are less than his interest in or rights against the original company, he
shall be entitled to compensation to that extent, which shall be assessed by
such authority as may be prescribed and every such assessment shall be
published in the Official Gazette, and the compensation so assessed shall be
paid to the member or creditor concerned by the transferee company.

Sub-section (4):
Appeal to tribunal
Any person aggrieved by any assessment of compensation made by the
prescribed authority under sub-section (3) may, within a period of thirty days

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from the date of publication of such assessment in the Official Gazette, prefer
an appeal to the Tribunal and thereupon the assessment of the compensation
shall be made by the Tribunal.

Sub-section (5):
Conditions for order
No order shall be made under this section unless—

(a) a copy of the proposed order has been sent in draft to each of the companies
concerned;

(b) the time for preferring an appeal under sub-section (4) has expired, or
where any such appeal has been preferred, the appeal has been finally
disposed off; and

(c) the Central Government has considered, and made such modifications, if
any, in the draft order as it may deem fit in the light of suggestions and
objections which may be received by it from any such company within such
period as the Central Government may fix in that behalf, not being less than
two months from the date on which the copy aforesaid is received by that
company, or from any class of shareholders therein, or from any creditors or
any class of creditors thereof.

Sub-section 6:
The copies of every order made under this section shall, as soon as may be
after it has been made, be laid before each House of Parliament.

Section 233 : Fast Track Merger

{Rule 25 of Companies (Compromises, Arrangements and

Amalgamations) Rules,2016}

Fast Track Merger (FTM) is a new concept introduced under the Companies
Act, 2013. It isunique concept because High Court approval is not required in
this Merger, only RegionalDirectors (Powers of Central Government delegated to
Regional Director vide NotificationNo. S.O. 4090(E) dated 19th December,
2016), Registrar of Companies and OfficialLiquidator are the authorities whose
approval is required.

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This mechanism offers the following benefits to the merger process among
various others:

Removal of a provision that mandates the approval of NCLT

Non-requirement of issuing public advertisement
Removal of Court Convened Meeting
Lesser administrative burden
Provision for the avoidance of Series of Hearing
Lower merger costs

In Fast Track Merger, a scheme of merger or amalgamation may be entered into

between:
i. two or more small companies, or
ii. a holding company and its wholly-owned subsidiary company, or
iii. Such other class or classes of companies as may be prescribed.

Under sub-rule 1A of Rule 25 of Companies (Compromises, Arrangements and

Amalgamations) Rules, 2016, a scheme of merger or amalgamation under
Section 233 of the Act may be entered into between any of the following class of
companies, namely:

(i) two or more start-up companies: or

(ii) one or more start-up companies with one or more small company.

Explanation.- For the purposes of this sub-rule, “start-up company” means a

private company incorporated under the Companies Act, 2013 or Companies
Act, 1956 and recognised as such in accordance with notification number
G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for
Promotion of Industry and Internal Trade.

STEPS FOR THE FAST TRACK MERGER (FTM):

1. Check the Articles of Association of the respective companies involved in the
merger,whether there is clause to merge the business of the Companies with
the othercompanies, if not then, first of all, alter the AOA of the Companies.

2. Call the Board Meeting and Prepare the Draft Scheme of Amalgamation or
Merger.

3. Conduct Board Meeting and do the followings:

a) Get the Draft scheme approved

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 b) Authorized any director or Company Secretary or any other person to
dosuch acts in this regard.
c) Prepare the Statement of Assets and Liabilities of the Companies
whichreveals the current position of the Companies and receive the
Auditor’sReport on the Statement.

4. Send a notice in Form CAA-9 of the proposed scheme inviting objections

orsuggestions, if any, within 30 days of issuing the notice from the Registrar
andOfficial Liquidators where registered office of the respective companies are
situatedor persons affected by the scheme with the attachments are given
below:

a) Scheme of Merger or Amalgamation

b) Pre and post Merger Shareholding of the Transferee Company
c) Last 3 years Audited financial statements with Auditors report thereon
filedto ROC
d) MOA and AOA
e) Board Resolution
f) Valuations report for Share Exchange ratio from the registered Valuer,
incase of Wholly Owned Subsidiary Company, no need of Valuation report.
Note: The notice inviting objections from ROCs in the form CAA 9 is to be
filed in form GNL-1.

5. The objection or suggestions shall be given by ROC, OL or Person affected by

theScheme within 30 days of serving notice to the RD and authorized
representative ofTransferor Company.

6. Each of the companies involved in the merger files a declaration of solvency

in theForm CAA-10 with the ROC of the place where the registered office of the
companyis situated along with the fee as provided in the Companies
(Registration offices andfees) Rules, 2014 before convening the meeting of
members and Creditors forapproval of the Scheme. The attachments are:
a) Board Resolution
b) Statement of Assets and liabilities
c) Auditors report on the statement of Assets and Liabilities
Note: Currently, thisform is not available as e-form, so it may be filed in
GNL-2 or may be filed at thetime of submission of File as an annexure of the
Scheme of merger oramalgamation.

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7. After getting objections or suggestions call a Board meeting and amend the
DraftScheme and consider the Day, Date, Time and Place for General Meeting
andCreditors Meeting. If no such objections or suggestion received, then get the
schemeapproved without alteration and do the further proceeding for the
Meeting ofMembers and Creditors.

8. Send the notice of the meeting to the members and creditors shall be
accompaniedby-
a) a statement, as far as applicable, referred to in sub-section (3) of section
230of the Act read with sub-rule (3) of rule 6 hereof;
b)the declaration of solvency filed inForm CAA-10
c)a copy of the scheme.

9. Conduct General Meeting and get the scheme approved by the respective
membersor class of members at a general meeting holding at least 90 per cent
of the totalnumber of shares.
(Note: The meeting should be conducted after 30 days of thesending Notice in
CAA-9, so that the objections or suggestions shall be considered).

10. Conduct Creditors Meeting by giving a notice of 21 days along with the
aboveattachments (point no. 6) and get the scheme approved by majority
representing ninetenths in value of the creditors or class of creditors of
respective companies orotherwise approved in writing.

11. The Transferee company shall, within seven days after the conclusion of
the meetingof members or class of members or creditors or class of creditors,
file a copy of thescheme as agreed to by the members and creditors, along with
a report of the resultof each of the meetings in Form No. CAA.11 with the
following:

a) Regional Directors along with the fees as provided under the

Companies(Registration Offices and Fees) Rules, 2014. (file shall be
submitted via handdelivery along with payment challan)
b) Copy of the scheme shall also be filed, along with Form No. CAA. 11 with
theRegistrar of Companies in Form No. GNL-1 along with fees provided
underthe Companies (Registration Offices and Fees) Rules, 2014; and
c) the Official Liquidator through hand delivery or by registered post or
speedpost.

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12. The objections or suggestions shall be given by ROC and OL to the RD
within 30days of the filing the Form CAA-11.

13. Where no objection or suggestion is received to the scheme from the

Registrar ofCompanies and Official Liquidator or where the objection or
suggestion of Registrarand Official Liquidator is deemed to be not sustainable
and the Regional Directors isof the opinion that the scheme is in the public
interest or in the interest of creditors,the Regional Directors shall issue a
confirmation order of such scheme of merger oramalgamation in Form No.
CAA.12.
Note: If no such communication is made, it shall be presumed that he has
noobjection to the scheme.

14. Where objections or suggestions are received from the ROC and OL and
theRegional Directors is of the opinion, whether on the basis of such objections
orsuggestions or otherwise, that such a scheme is not in public interest or in
theinterest of the creditors, it may file an application before the Tribunal in
form CAA-13within a period of 60 days of the receipt of the scheme stating its
objections oropinion and requesting that the Tribunal may consider the scheme
under section 232of the Companies Act, 2013.

15. On receipt of an application from the Regional Directors or from any

person, if theTribunal, for reasons to be recorded in writing, is of the opinion
that the scheme should be considered as per the procedure laid down in
section 232, the Tribunal may direct accordingly or it may confirm the scheme
by passing such order as itdeems fit.
Note: If the Regional Directors do not have any objection to the scheme orit
does not file any application under this section before the Tribunal, it shall
bedeemed that it has no objection to the scheme.

16. The confirmation order of the scheme issued by the Regional Directors or
Tribunalshall be filed, within 30 days of the receipt of the order of confirmation,
in Form INC-28 along with the fees as provided under Companies (Registration
Offices and Fees)Rules, 2014 with the Registrar of Companies having
jurisdiction over the transfereeand transferor companies respectively.

17. It is clarified that with respect to schemes of Merger or Amalgamation

falling withinthe purview of section 233 of the Act, the concerned companies
may, at their discretion, opt to undertake such schemes under sections 230 to

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232 of the Companies Act, 2013, including where the condition prescribed in
clause (d) of subsection(1) of section 233 of the Act has not been met.

MINORITY SQUEEZE OUT

A strong new provision under section 236 of the CompaniesAct, 2013.
Although the concept of squeezing out the minority shareholders has
alwaysbeen practicallypresent in the corporate sector around the globe, there
was absence of a backing statuteunder the Companies Act, 1956 (‘Erstwhile
Act’). However, such concept has been explicitlyintroduced under the
provisions of the Companies Act, 2013 (‘Act’) which has been enforcedvide
Ministry of Corporate Affairs notification dated 7th December, 2016 .

The skeptic situation of the dominance of majority rule and at the same time
protecting therights and interest of the minority has always been the area of
controversy and discord. It isimperative for the statute to ensure that the
powers of the majority are within reasonablebounds, hence not resulting in
oppression of the minority. But the practical implication ofprotecting minority
interests while taking strategic business decisions often create obstacleswhich
lead to prolonged legal battle.

Prevalent practices for squeezing out of the minority shareholding from entity
companyaround the globe has generally been:

1. Takeovers;

2. Arrangements;

3. Mergers;

4. Conversion of securities to Equity; and

5. Capital Reduction.

“Squeeze out” in context of acquisition and takeover means a situation where

the minorityshareholders are squeezed or dragged out of their shareholding in
the transferor companyby the majority shareholders by purchasing their stake
inspite of disagreement by the former.

‘Minority shareholding’ has not been specifically defined under the Act,
however, section 236of the Act uses the word Minority shareholding in respect
of registered holders of the issuedequity shares of the company not exceeding
ten percent.

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Squeezing out minority equity shareholders- The Indian
perspective
Section 236 of the Act provides for the purchase of minority shareholding by
the majorityshareholders in accordance with the provisions of the section read
with the Companies(Compromises, Arrangements and Amalgamations) Rules,
2016 (‘CAA Rules, 2016’).

Open ended provision for becoming majority shareholder

The acquirer entity or any person acting in concert with such acquirer can
become a majorityshareholder to the extent of at least 90% of the issued equity
share capital by way of:

(i) anamalgamation,

(ii) share exchange,

(iii) conversion of securities or

(iv) any other reason,

maynotify the company of their intention to buy the remaining equity shares.
The aforesaidprovision has been kept open ended for the majority shareholders
to increase their stake to90% in the transfer company. Besides the options of
amalgamation, share exchange, etc theacquirer can undertake any other
possible mode to increase its stake to a minimum of 90%for going ahead with
the exercise of acquiring minority shareholding.

Determination of Exit Price

Section 236(2) of the Act provides for a pre-determined exit price to be offered
to theminority shareholders to be calculated by a registered valuer in
accordance with Rule 27 ofthe CAA Rules, 2016 which provides for evaluation
criteria for listed companies as well asunlisted companies. To proceed with the
purchase of minority shareholding, the majorityshareholders are required to
deposit an amount equal to the value of shares to be acquiredby them of the
minority shareholders in a separate bank account which shall be operated
bythe transferor company for atleast one year for payment to the minority
shareholders,however, such amount shall be disbursed to the entitled
shareholders within sixty days;

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Such disbursement shall continue to be made to the entitled shareholders for a
period of oneyear, where the entitled minority shareholders have failed to
receive or claim paymentarising out of such disbursement

Suo-moto offer by the minority shareholders

The minority shareholders can suomoto provide offer to the majority

shareholders topurchase their equity shareholding under Section 236 (3) of the
Act at a price arrived inaccordance with the aforesaid CAA Rules, 2016.

Issue of duplicate share certificates in lieu of undelivered minority shares

In case the minority shareholders whose shares are intended to be bought fail
to tender theirshares within the specified time period decided by the transferor
company, such shares shallbe taken as cancelled and the transferor company
shall be authorized to issue shares in lieuof the cancelled shares and complete
the transfer by following the applicable transferprovision and dispatching the
amount paid by the acquirer in advance.

Cases where the minority shareholders are not traceable

When the majority shareholder fails to acquire full purchase of the shares of
the minorityequity shareholders, due to reasons of non-traceability or death of
the shareholders, theprovisions of this section will still apply to make an offer
for sale of minority equityshareholding for a period of three years from the date
of majority acquisition or majorityshareholding

Typical negotiation deal

Section 236 (8) of the Act provides for a typical negotiation deal between the
acquirer andthe minority shareholders. This provision allows the majority
shareholders to share theadditional compensation paid by them for reaching
from a stake of 75% to a stake of 90% inthe transferor company with the
minority shareholders. This seems to be a protectiveprovision for the minority
shareholders.

Continuance of applicability even after delisting

When a shareholder or the majority equity shareholder fails to acquire full

purchase of theshares of the minority equity shareholders, then, the provisions
of this section shall continueto apply to the residual minority equity
shareholders, even though, —

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(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
Securitiesand Exchange Board under the Securities and Exchange Board of
India Act, 1992, hadelapsed.

As there was no corresponding provision in the erstwhile Companies Act, 1956,

section 236of the Companies Act, 2013 brings the Indian corporate
environment in alignment with theglobal corporate world by introducing the
concept of “squeezing out of minorityshareholding”. It can be seen as a
progressive move for growth and avoidance ofcontroversial barriers.

POST MERGER EFFECT

1. The registration of the scheme shall be deemed to have the effect of
dissolution of thetransferor company without process of winding-up.

2. The registration of the scheme shall have the following effects:

a) transfer of property or liabilities of the transferor company to the

transferee companyso that the property becomes the property of the
transferee company and theliabilities become the liabilities of the transferee
company;
b) thecharges, if any, on the property of the transferor company shall be
applicableand enforceable as if the charges were on the property of the
transferee company;
c) legal proceedings by or against the transferor company pending before any
court oflaw shall be continued by or against the transferee company; and
d) where the scheme provides for purchase of shares held by the
dissentingshareholders or settlement of debt due to dissenting creditors,
such amount, to theextent it is unpaid, shall become the liability of the
transferee company.

3. A transferee company shall not on merger or amalgamation, hold any shares

in its ownname or in the name of any trust either on its behalf or on behalf of
any of its subsidiary orassociate company and all such shares shall be
cancelled or extinguished on the mergeror amalgamation.

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4. The transferee company shall file an application with the Registrar along
with the schemeregistered, indicating the revised authorised capital and pay
the prescribed fees due onrevised capital:
Provided that the fee, if any, paid by the transferor company on itsauthorised
capital prior to its merger or amalgamation with the transferee company
shallbe set-off against the fees payable by the transferee company on its
authorised capitalenhanced by the merger or amalgamation.

TAXATION ASPECT OF MERGERS AND

AMALGAMATIONUNDER INCOME TAX ACT, 1961

Section 2(1B) of Income Tax Act defines ‘amalgamation’ as merger of one or

morecompanies with another company or merger of two or more companies to
from one companyin such a manner that:-

1. All the property of the amalgamating company or companies immediately

before theamalgamation becomes the property of the amalgamated company
by virtue of theamalgamation.

2. All the liabilities of the amalgamating company or companies immediately

before theamalgamation becomes the liabilities of the amalgamated company
by virtue of theamalgamation

3. Shareholders holding at least three-fourths (75%) or more in value of the

shares inthe amalgamating company or companies (other than shares
already held thereinimmediately before the amalgamated company or its
nominee) becomes theshareholders of the amalgamated company by virtue of
the amalgamation.

(Example: Say, X Ltd merges with Y Ltd in a scheme of amalgamation and

immediatelybefore the amalgamation, Y Ltd held 20% of shares in X Ltd, the
above mentioned conditionwill be satisfied if shareholders holding not less than
75% in the value of remaining 80% ofshares in X Ltd i.e. 60% thereof, become
shareholders in Y Ltd by virtue of amalgamation)

The motive of giving this definition is that the benefits/concession under

Income Tax Act,1961 shall be available to both amalgamating company and

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amalgamated company onlywhen all the conditions, mentioned in the said
section, are satisfied.
‘Amalgamating company’ means company which is merging and ‘amalgamated
company’means the company with which it merges or the company which is
formed after merger.
However, acquisition of property of one company by another is not
‘amalgamation’.

Tax Relief’s and Benefits in case of Amalgamation

If an amalgamation takes place within the meaning of section 2(1B) of the

Income TaxAct, 1961, the following tax reliefs and benefits shall available:-

1. Tax Relief to the Amalgamating Company:

• Exemption from Capital Gains Tax [Sec. 47(vi)]:

Under section 47(vi) of theIncome-tax Act, capital gain arising from the transfer
of assets by the amalgamatingcompanies to the Indian Amalgamated Company
is exempt from tax as such transferwill not be regarded as a transfer for the
purpose of Capital Gain.

• Exemption from Capital Gains Tax in case of International Restructuring

[Sec.47(via)]:
Under Section 47(via), in case of amalgamation of foreign companies,transfer of
shares held in Indian company by amalgamating foreign company
toamalgamated foreign company is exempt from tax, if the following two
conditions aresatisfied:

i. At least twenty-five per cent of the shareholders of the amalgamatingforeign

company continue to remain shareholders of the amalgamatedforeign
company, and
ii. Such transfer does not attract tax on capital gains in the country, in
whichthe amalgamating company is incorporated

2. Tax Relief to the shareholders of an Amalgamating

Company:Exemption from Capital Gains Tax [Sec 47(vii)]:
Under section 47(vii) of the Income-tax Act, capital gains arising from the
transfer ofshares by a shareholder of the amalgamating companies are exempt

32 | P a g e
from tax assuch transactions will not be regarded as a transfer for capital gain
purpose, if:

• The transfer is made in consideration of the allotment to him of shares in the

amalgamated company and Amalgamated company is an Indian company.

3. Tax Relief to the Amalgamated/ Resulting Company:

Carry Forward and Set Off of Accumulated loss and unabsorbed
depreciationof the amalgamating company [Sec. 72A]:
Section 72A of the Income Tax Act,1961 deals with the mergers of the sick
companies with healthy companies and totake advantage of the carry forward
of accumulated losses and unabsorbeddepreciation of the amalgamating
company.
But the benefits under this sectionwith respect to unabsorbed
depreciation and carry forward losses are availableonly if the followings
conditions are fulfilled:-

i. There should be an amalgamation of –

(a) a company owning an industrialundertaking (Note 1) or ship or a hotel
with another company, or
(b) a bankingcompany referred in section 5(c) of the Banking Regulation Act,
1949 with aspecified bank (Note 2), or
(c) one or more public sector company or companiesengaged in the business
of operation of aircraft with one or more public sectorcompany or
companies engaged in similar business.

[Note 1: The term ‘Industrial Undertaking’ shall mean any undertaking

engaged in : (i)the manufacture or processing of goods, or (ii) the manufacture of
computer software,or (iii) the business of generation or distribution of electricity
or any other form ofpower, or (iv) mining, or (v) the construction of ships, aircrafts
or rail systems, or (vi)the business of providing telecommunication services,
whether basic or cellular,including radio paging, domestic satellite service,
network of trunking, broadbandnetwork and internet services.

Note 2: Specified bank means the State Bank of India constituted under the
StateBank of India Act, 1955 or a subsidiary bank as defined in the State Bank
of India(Subsidiary Bank) Act, 1959 or a corresponding new bank constituted
under section 3of the Banking Companies (Acquisition and Transfer of
Undertaking) Act, 1970 orunder section 3 of the Banking Companies (Acquisition
and Transfer of Undertaking)Act, 1980.]

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ii. The amalgamated company should be an Indian Company.

iii. The amalgamating company should be engaged in the business, in which

theaccumulated loss occurred or depreciation remains unabsorbed, for 3
years ormore.

iv. The amalgamating company should held continuously as on the date

ofamalgamation at least three-fourth of the book value of the fixed assets
held by ittwo years prior to the date of amalgamation.

v. The amalgamated company holds continuously for a minimum period of

fiveyears from the date of amalgamation at least three-fourths in the book
value offixed assets of the amalgamating company acquired in a scheme
ofamalgamation.

vi. The amalgamated company continues the business of the

amalgamatingcompany for a minimum period of five years from the date of
amalgamation.

vii.The amalgamated company fulfils such other conditions as may be

prescribed toensure the revival of the business of the amalgamating
company or to ensurethat the amalgamation is for genuine business
purpose.

Expenditure on scientific research [Sec. 35(5)]:

When an amalgamating company transfers any asset represented by
capitalexpenditure on the scientific research to the amalgamated Indian
company in ascheme of amalgamation provisions of section 35 shall be
applicable.

i. Unabsorbed expenditure on scientific research of the amalgamating

companywill be allowed to be carried forward and set off in the hands of
theamalgamated company,
ii. If such asset ceases to be used in the previous year for scientific
researchrelated to the business of amalgamated company and is sold by
theamalgamated company the sale price to the extend of cost of asset shall
betreated as business income and the excess of sale price over the cost
shallbe subject to the provisions of capital gain.

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Amortization of expenditure in case of Amalgamation [Sec. 35DD]:
Under Sec 35DD for expenditure incurred in connection with the amalgamation
theassessee shall be allowed a deduction of an amount equal to one-fifth of
suchexpenditure for each of the five successive previous years beginning with
theprevious year in which the amalgamation takes place.

Treatment of preliminary expenses [Sec. 35D(5)]:

When an amalgamating company merges with an amalgamated company under
ascheme of amalgamation, the amount of preliminary expenses of the
amalgamatingcompany to the extend not yet written off shall be allowed as
deduction to theamalgamated company in the same manner as would have
been allowed to theamalgamating company.

Expenditure for obtaining a license to operate telecommunication

services[Sec. 35ABB(6)]:
Where in a scheme of amalgamation, the amalgamating company sells or
otherwisetransfer its license to the amalgamated company (Being an Indian
Company), theprovisions of Section 35ABB which were applicable to the
amalgamating companyshall become applicable in the same manner to the
amalgamated company,consequently:

i. The expenditure on acquisition on license, not yet written off, shall be

allowedto the amalgamated company in the same number of balance
installments.
ii. Where such license is sold by the amalgamated company, the treatment
ofthe deficiency/surplus will be same as would have been in the case
ofamalgamating company.

Treatment of capital expenditure on family planning [U/S 36(1)(ix)]:

If Asset representing capital expenditure on family planning is transferred by
theamalgamating company to the amalgamated company under a scheme
ofamalgamation, such expenditure shall be allowed as deduction to the
amalgamatedcompany in the same manner as would have been allowed to the
amalgamatingcompany.

Treatment of bad debts [Sec. 36(1)(vii)]:

When due to amalgamation debts of the amalgamating company has been
takenover by amalgamated company, and subsequently, such debts turn out to
be bad, itshall be allowed as deduction to the amalgamated company.

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Availability of MAT credit post Merger:
All the assets and liabilities of the Transferor companies become properties
ofthe Transferee Company pursuant to merger . As MAT credit forms part of
theassets of the transferor Company and thus the same should get
transferred tothe Transferee Company.

The Act does not specifically provide that the MAT credit should
betransferred on Amalgamation and the literal reading of the MAT
provisionssuggest that MAT credit to be availed off by the persons who paid
MAT.

ACCOUNTING ASPECTS
Accounting Standard (AS)-14 recognizes two types of amalgamation:

(a) Amalgamation in the nature of merger.

(b) Amalgamation in the nature of purchase.

An amalgamation should be considered to be an amalgamation in the

nature of mergerwhen all the following conditions are satisfied:

(i) All the assets and liabilities of the transferor company become, after
amalgamation, the assets and liabilities of the transferee company.

(ii) Shareholders holding not less than 90% of the face value of the equity
shares of the transferor company (other than the equity shares already held
therein, immediately before the amalgamation, by the transferee company or
its subsidiaries or their nominees) become equity shareholders of the
transferee company by virtue of the amalgamation.

(iii) The consideration for the amalgamation receivable by those equity

shareholders of the transferor company who agree to become equity
shareholders of the transferee company is discharged by the transferee
company wholly by the issue of equity shares in the transferee company,
except that cash may be paid in respect of any fractional shares.

(iv) The business of the transferor company is intended to be carried on, after
the amalgamation, by the transferee company.

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(v) No adjustment is intended to be made to the book values of the assets and
liabilities of the transferor company when they are incorporated in the
financial statements of the transferee company except to ensure uniformity
of accounting policies.

An amalgamation should be considered to be an amalgamation in the nature of

purchase, when any one or more of the conditions specified above is not
satisfied. These amalgamations are in effect a mode by which one company
acquires another company and hence, the equity shareholders of the
combining entities do not continue to have a proportionate share in the equity
of the combined entity or the business of the acquired company is not intended
to be continued after amalgamation.

There are two main methods of accounting for amalgamations:

(a) the pooling of interests method; and

(b) the purchase method.

Consideration
The consideration for amalgamation means the aggregate of the shares and
other securities issued and the payment made in the form of cash or other
assets by the transferee company to the shareholders of the transferor
company. In determining the value of the consideration, assessment is made of
the fair value of its various elements.

The consideration for the amalgamation should include any non-cash element
at fair value. The fair value may be determined by a number of methods.

For example, in case of issue of securities, the value fixed by the statutory
authorities may be taken to be the fair value. In case of other assets, the fair
value may be determined by reference to the market value of the assets given
up, and where the market value of the assets given up cannot be reliably
assessed, such assets may be valued at their respective net book values. While
the scheme of amalgamation provides for an adjustment to the consideration
contingent on one or more future events, the amount of the additional payment
should be included in the consideration if payment is probable and a
reasonable estimate of the amount can be made. In all other cases, the
adjustment should be recognised as soon as the amount is determinable.

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Treatment of Reserves on Amalgamation
If the amalgamation is an ‘amalgamation in the nature of merger’

If the amalgamation is an ‘amalgamation in the nature of merger’, the identity

of thereserves is preserved and they appear in the financial statements of the
transfereecompany in the same form in which they appeared in the financial
statements of thetransferor company.

The difference between the amountrecorded as share capital issued (plus any
additional consideration in the form of cash orother assets) and the amount of
share capital of the transferor company is adjusted inreserves in the financial
statements of the transferee company.

If the amalgamation is an ‘amalgamation in the nature of purchase’

If the amalgamation is an ‘amalgamation in the nature of purchase’, the

identity of thereserves, other than the statutory reserves is not preserved, dealt
within the certaincircumstances mentioned below. Certain reserves may have
been created by thetransferor company pursuant to the requirements of, or to
avail of the benefits under, theIncome-tax Act, 1961; for example, Development
Allowance Reserve, or InvestmentAllowance Reserve. The Act requires that the
identity of the reserves should bepreserved for a specified period. Likewise,
certain other reserves may have been createdin the financial statements of the
transferor company in terms of the requirements ofother statutes.

Though, normally, in an amalgamation in the nature of purchase, theidentity of

reserves is not preserved, an exception is made in respect of reserves of
theaforesaid nature (referred to hereinafter as ‘statutory reserves’) and such
reserves retaintheir identity in the financial statements of the transferee
company in the same form inwhich they appeared in the financial statements
of the transferor company, so long astheir identity is required to be maintained
to comply with the relevant statute. Thisexception is made only in those
amalgamations where the requirements of the relevantstatute for recording the
statutory reserves in the books of the transferee company arecomplied with. In
such cases the statutory reserves are recorded in the financialstatements of the
transferee company by a corresponding debit to a suitable accounthead (e.g.,
‘Amalgamation Adjustment Account’) which is disclosed as a part
of‘miscellaneous expenditure’ or other similar category in the balance sheet.
When theidentity of the statutory reserves is no longer required to be
maintained, both thereserves and the aforesaid account are reversed. The
amount of the consideration isdeducted from the value of the net assets of the

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transferor company acquired by thetransferee company. If the result of the
computation is negative, the difference is debitedto goodwill arising on
amalgamation and if the result of the computation is positive, thedifference is
credited to Capital Reserve.

Disclosure Requirements

(a) For amalgamations of every type of the following disclosures should be

madein the first financial statements following the amalgamations:

(i) names and general nature of business of the amalgamating companies;

(ii) effective date of amalgamation for accounting purposes;

(iii) the method accounting used to reflect the amalgamation; and

(iv) particulars of the scheme sanctioned under a statute.

(b) In case of amalgamations accounted for under the pooling of interests

method,the following additional disclosures are required to be made in the first
financialstatements following the amalgamation :

(i) description and number of shares issued, together with the percentage of
eachcompany’s equity shares exchanged to effect the amalgamation;

(ii) the amount of any difference between the consideration and the value of
netidentifiable assets acquired, and the treatment thereof.

(c) In case of amalgamations accounted for under the purchase method

thefollowing additional disclosures are required to be made in the first
financialstatements following the amalgamations:

(i) consideration for the amalgamation and a description of the consideration

paid orcontingently payable, and

(ii) the amount of any difference between the consideration and the value of
netidentifiable assets required, and the treatment thereof including the
period ofamortization of any goodwill arising on amalgamation.

Amalgamation after the Balance Sheet Date

While an amalgamation is effected after the balance sheet date but before the
issuanceof the financial statements of either party to the amalgamation,
disclosure should bemade as per the provisions of AS-4, ‘Contingencies and
Events Occurring after theBalance Sheet Date’, but the amalgamation should

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not be incorporated in that financialstatements. In certain circumstances, the
amalgamation may also provide additionalinformation affecting the financial
statements themselves, for instance, by allowing thegoing concern assumption
to be maintained.

ROLE OF A COMPANY SECRETARY IN MERGERS

AND AMALGAMATION
CS plays a vital role between the company and its Board of Directors,
shareholders,government and regulatory authorities and all other stakeholders.

Due Diligence:

The most important process among all. Each company scrutinizes the
othercompany before merger & amalgamation (or takeover). This scrutiny runs
on variousgrounds, from financial to legal and the outcome of this diligence
can affect the ultimate priceand valuation of the merger. The CS is usually
routed in for conducting the legal duediligence, which may include checking
historical data to find shortcomings in compliance,missteps in governance,
mismanagement, while additionally identifying risks (external andinternal) that
may arise due to these factors.

Valuation:

In tandem with the earlier point, the CS can be roped to quantify such risks
asthey negatively affect the deal price.

Literature:

The CS is usually the one (besides expertise from law firms) who draft the
offerdocument.

Deal Structuring:

This process might include different actions that have to be executedtimely. For
instance, incorporation of a new company for the amalgamated entity,
dissolvingthe old company, executing the share transfer, etc.

Post M&A activities:

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Many CS skip the point that the success of a merger is not in itsexecution but
in the strategy followed after the merger. The human resource management
ofboth companies, the internal policies and controls that have to be revamped,
businessnetwork that is to be recast, and on a whole the actual merger of the
business activity andother processes. The CS is aptly trained to handle and
structure such activities andstrategies.

Further to the above, the Merger process can be divided into 3 stages:

Pre-merger
Merger process
Post-merger

Pre-Merger:

Due Diligence process

Each company scrutinizes the other company before merger and

amalgamation. Theoutcome of this diligence can affect the ultimate price and
valuation of the merger.

The CS is usually routed in for conducting the legal due diligence, which
may include checking historical data to find shortcomings in compliance
Missteps in governance, mismanagement
Identifying risks (external and internal) that may arise
Examining and reporting whether the adequate systems and processes are
in place
Ensuring all the statutory and regulatory laws are complied with.
Ensuring all forms, returns and applications are filed with ROC
Finding out any litigation pending in court, Contracts and agreements
entered into bythe company with third party.
Preparation of DD report. (observations and remarks of the DD)

During Merger:

Check MOA whether it authorises merger, if not amend object clause.

Convene preliminary Board Meeting.
Obtain the valuation report and swap ratio from a registered valuer.
Preparation of Scheme of merger or amalgamation.
Convene Board Meeting to approve the scheme, valuation report and swap
ratio.
Apply to tribunal for convening General Meeting in form No. NCLT -1 with
affidavit inform No. NCLT -6.

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 Notice of meeting to creditors/members in form No. CAA.2 atleast 1 month
before theday of meeting
Report the results of the meeting to tribunal in form No. CAA.4.
On confirmation of the scheme by the majority of members/creditors
representing3/4th of the value of the total number of creditors/members
present and vote at themeeting and by those voted by electronic means, the
company shall pray before theTribunal for sanction of the scheme of
compromise or arrangements in Form CAA.5within 7 days of the filing of
report by the Chairperson.
Call Board meeting for adopting merger order and Call an Extra Ordinary
GeneralMeeting and inform details about merger like allotment of shares,
change in objectclause.

Post-Merger:

File INC-28 within 30 days from date of receiving the order.

File E-form (PAS-3) for allotment of share with Roc Within 30days from date
ofAllotment.
Printing of Amalgamation Order and Scheme and attaching to every copy of
MOA
In case Share issued to Foreign National, File FC-GPR with RBI
In case of company shares being listed, Intimation to Stock Exchanges.
General Intimation in newspapers.
Statement of compliance – In relation to the order u/s 232(3) shall until the
fullscheme is implemented file a statement with ROC every year duly
certified by aCA/CMA/CS in practice indicating whether the scheme is
being complied inaccordance with the orders of Tribunal.
If the objects or name of the company is changed, MOA to be altered and
necessaryROC filings to be complied with.

CONCLUSION
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As Dale Carnegie said “Flaming enthusiasm, backed by horse sense and
persistence, is the quality that most frequently makes for success”.

There is little to stop Indian companies that desire to be global names for
playing the merger and amalgamation game globally. With a plethora of
financing options, this aspiration has become a reality for many corporate
houses, who can now boast of having the best in the industry under their
wings. Indian companies have often surpassed their foreign counterparts in
corporate restructuring both within and beyond the national frontiers. Mergers
and acquisitions are powerful indicators of a robust and growing economy. The
legal framework for such corporate restructuring must be easy and facilitative
and not restrictive and mired in bureaucratic and regulatory hurdles. The
biggest obstacle in the way of completing a merger or an amalgamation
remains the often long drawn out court procedure required for the sanction of a
scheme of arrangement. The recommendations of the JJ Irani Report are of
particular significance in this regard. The Report has recommended that legal
recognition to ‘contractual merger’ (i.e., mergers without the intervention of the
court) can go a long way in eliminating the obstructions to mergers in India.
The report also recommended that the right to object to a scheme of merger/
acquisition should only be available to persons holding a substantial stake in
the company.

As George Bernard Shaw is reputed to have said “We are made wise not by the
recollection of our past, but by the responsibility for our future”, and the future of
India is bright indeed.

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