Comprehensive Checklist For Merger/Amalgamation Under Sections 230-232 of Companies Act, 2013
Summary: The merger or amalgamation process under Sections 230-232 of the Companies Act, 2013 involves several critical steps, starting with preliminary preparations. Companies must ensure their Memorandum and Articles of Association authorize the merger and, if necessary, amend these documents. A thorough review of financials, shareholder and creditor lists, and regulatory compliance is vital. Valuation reports by registered valuers determine the share swap ratio, while legal counsel and other professionals must be appointed early. The process formally begins with the First Motion Application, which includes drafting the Scheme of Amalgamation, obtaining board approvals, and filing the required forms with the National Company Law Tribunal (NCLT). Securing no-objection certificates from stakeholders can expedite proceedings. After the NCLT’s First Motion Order, companies proceed to the Second Motion stage, issuing statutory notices and addressing any objections raised by regulatory authorities such as the Registrar of Companies (ROC), Regional Director (RD), and Income Tax Authorities. The final order from NCLT signals approval, but post-merger compliance is equally crucial. This includes filings with the ROC, updates to tax registrations, and financial reporting. The entire process, from documentation to final order compliance, typically spans 9-12 months, though timelines can vary based on court schedules and objections. Regular compliance filings post-merger ensure adherence to the approved scheme.
(A) PRELIMINARY STEPS (BEFORE INITIATING THE MERGER PROCESS)
1. Authorization Check:
a) Ensure that the Memorandum of Association (MoA) and Articles of Association (AoA) authorize the proposed merger.
b) If not included, amend the MoA to include relevant objects before proceeding.
c) Verify that the transferee company’s object clause permits the business activities of all transferor companies. If not, it must be altered.
2. Financial and Document Review:
a) Obtain the following documents:
i Current list of shareholders
ii Current list of secured and unsecured creditors
iii Projected income and expenditure statement for the next 5 financial years
iv Provisional financial statement (current date)
v Audited financials for the last 3 financial years (latest, typically March 31)
vi Copy of MoA, AoA, and Certificate of Incorporation (COI)
vii Current list of directors
viii List of fixed assets (especially if immovable property is involved, as it may attract stamp duty)
3. Valuation and Share Capital:
a) Obtain a valuation report from an independent registered valuer to determine the swap ratio.
b) Address cross-shareholding and potential share capital restructuring if necessary.
4. Legal and Regulatory Considerations:
a) Review pending litigations and regulatory obligations.
b) Confirm compliance with sector-specific regulations (e.g., RBI, SEBI, GST).
c) Check jurisdiction of NCLT for both companies.
5. Professional Appointments:
a) Appoint legal counsel, company secretaries, and registered valuers.
(B) FIRST MOTION (INITIATING THE MERGER WITH NCLT)
1. Drafting the Scheme: Prepare the Scheme of Amalgamation or Arrangement, covering details of share exchange ratio, appointed date, effective date, and accounting treatment.
2. Board Approvals: Hold board meetings for both transferor and transferee companies to:
a) Approve the draft scheme.
b) Authorize directors to sign necessary documents.
c) Authorize professionals to file the First Motion Application.
3. Consents and No Objections:
d) Obtain no-objection affidavits from shareholders and creditors, if possible, to seek dispensation from convening their meetings.
e) Obtain a certificate from the company’s auditor on the accounting treatment of the merger (under Section 133).
4. Filing the First Motion Application: Prepare and file Form NCLT-1, along with supporting documents:
a) Notice of Admission (Form NCLT-2)
b) Scheme of Arrangement
c) Latest financial statements
d) List of directors, shareholders, and creditors
e) Consent affidavits
f) Valuation report
5. Hearing and Compliance:
a) Attend the NCLT hearing for the first motion.
b) Ensure proper service of notices to shareholders and creditors.
c) Publish newspaper advertisements as directed.
(C) SECOND MOTION (CONFIRMATION STAGE)
1. Post-First Motion Compliance: Obtain certified copy of the First Motion Order.
2. Notice to Statutory Authorities: Issue notices to the following statutory authorities as required:
a) Registrar of Companies (ROC)
b) Regional Director (RD)
c) Official Liquidator (OL)
d) Income Tax Authorities
e) Sectoral Regulatory Authorities (e.g., SEBI, RBI, GST) if applicable.
Ensure proper documentation of service and acknowledgment from these authorities.
3. Filing the Second Motion Application: Prepare and file the Second Motion Application, including:
a) Updated scheme documents
b) Audited financials
c) Chairman’s Report (if meetings were held)
d) Affidavits of service
4. Statutory Authorities’ Reports: Obtain and file reports from the following statutory authorities viz. ROC, RD, OL, Income Tax Authorities, Sectoral Regulatory Authorities (if applicable).
5. Respond to any objections raised by these authorities.
6. Final Hearing and Order: Attend final NCLT hearing and respond to objections, if any and Obtain NCLT’s final order.
(D) POST-MERGER COMPLIANCE
1. Filing with ROC and Regulatory Authorities:
a) File certified copy of NCLT order with ROC (Form INC-28) within 30 days.
b) File Form PAS-3 for share allotment, if required
c) Comply with stamp duty regulations.
2. Continuous Compliance: File Form CAA-8 annually within 210 days of the end of each financial year, confirming compliance with the merger scheme.
3. Tax and Financial Reporting:
a) Update financial records and tax registrations.
b) Notify banks and other financial institutions.
(E) TENTATIVE TIMELINE (APPROX. 9-12 MONTHS)
1. Preliminary Documentation and Valuation (15-20 days)
2. First Motion Application and Hearing (60-90 days)
3. Second Motion Application and Final Hearing (60-90 days)
4. Post-Order Compliance (30-45 days)
5. Total Estimated Time: 9-12 months
Note: Timelines may vary based on court schedules, objections, and statutory responses.
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