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CS Divesh Goyal

The Companies Act, 2013 (2013 Act) has seen the light of day and replaced the 1956 Act with some sweeping changes including those in relation to mergers and acquisitions (M&A).

The new Act has been lauded by corporate organizations for its business-friendly corporate regulations, enhanced disclosure norms and providing protection to investors and minorities, among other factors, thereby making M&A smooth and efficient. Its recognition of interse shareholder rights takes the law one step forward to an investor-friendly regime. The 2013 Act seeks to simplify the overall process of acquisitions, mergers and restructuring, facilitate domestic and cross-border mergers and acquisitions, and thereby, make Indian firms relatively more attractive to PE investors.

The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and under Income Tax Act, 1961 (“ITA”). However, the Companies Act, 2013 (“CA 2013”) without strictly defining the term explains the concept. A ‘merger’ is a combination of two or more entities into one; the desired effect being not just the accumulation of assets and liabilities of the distinct entities, but organization of such entity into one business.

On 7th November, 2016 Central Government issued a notification for enforcement of section 230-233, 235-240, 270-288 etc w.e.f. 15th December, 2016. But still rules were not available till date for CAA.

company law

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

Where a compromise or arrangement is proposed for the purposes of or in connection with scheme for the reconstruction of any company or companies, or for the amalgamation of any two or more companies, the petition shall pray for appropriate orders and directions under section 230 read with section 232 of the Act.

Section relating to Merger & Amalgamation Section 230 & 232.

In this article COMPROMISE & ARRANGEMENT (C&A) will be read in relation to Merger & Amalgamation only.

In Case of application filing u/s 230 for Compromise & Arrangement in relation to reconstruction of the Company or companies involving merger or the amalgamation of any two or more companies should specify the purpose of the scheme.

·        Expansion and Diversification·        Optimum Economic Benefit

·        De-risking Strategy

·        Scaling up of operation for competitive advantages

·        Increase the Market capitalization

·        Cost reduction by reducing overheads

·        Increasing the efficiencies of operations

·        Tax benefits

·        Access foreign markets


Amalgamation – means combination of two or more independent business corporations into a single enterprise

Demerger– means transfer and vesting of an undertaking of a company into another company

Reconstruction- means re-organization of share capital in any manner; varying the rights of shareholders and/or creditors

Arrangement- All modes of reorganizing the share capital, including interference with preferential and other special rights attached to shares

Who can file the application for Merger & Amalgamation  propose: Section 230(1)

[1]An application for Merger & Amalgamation can be file with Tribunal (NCLT). Both the transferor and the transferee company shall make an application in the form of petition to the Tribunal under section 230-232 of the Companies Act, 2013 for the puspose of sanctioning the scheme of amalgamation.

Joint Application: Rule 3(2)

Where more than one company is involved in a scheme, such application may, at the discretion of such companies, be filed as a joint-application.

[2]However, where the registered office of the Companies are in different states, there will be two Tribunals having the jurisdiction over those, companies, hence separate petition will have to be filed.


  • It must be ensure that the companies under amalgamation should have the power in the object clause of their Memorandum of Association to undergo amalgamation though the absence may not be an impediment, but this will make matters smooth.
  • A draft scheme of amalgamation shall be prepared for getting it approved in Board meeting of each company.

1. Format of Application

Application to the tribunal for Merger & Amalgamation will be submitted in form no. NCLT-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 (Merger & Amalgmation)

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 or   arrangement

e) Any scheme of [3]Corporate Debt Restructuring consented to by not less than seventy five per cent. of the secured creditors in value, including

i. A Creditor’s Responsibility statement in the 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 debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board;

iv. where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and

v. a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer.

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

2. Calling of Meeting by Tribunal:

Upon hearing of the application Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions / order as it may think necessary in respect meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as 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 including remuneration;

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 through electronic means;

iv. Determining the values of the creditors or the members, or the creditors or members 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 such notice.

vi. Notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230;

vii. The time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; and

viii. Such other matters as the Tribunal may deem necessary.

3. Notice of Meeting: The Notice of the meeting pursuant to the order of tribunal to be give in Form No. CAA-2. Rule 6

Person entitled to receive the notice The notice shall be sent individually to each of the Creditors or Members and the debenture-holders at the address registered with the company. Section 230(3)

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 [4]Registered post, or by Speed post, orby 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 of Scheme of C&A and (ii) Following below mentioned details of C&A if not included in the said scheme:

a. 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.

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 carried on by the company;
  • Details of change of name, registered office and objects of the company during the last five years;
  • 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 and paid up share capital; and
  • Names of the promoters and directors along with their addresses.

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

d. Disclosure about effect of M&A on material [5]interests of directors, Key Managerial Personnel (KMP) and debenture trustee

e. Details of Board Meeting:

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

f. Explanatory Statement disclosing details of the scheme of compromise or arrangement including:

  • Parties involved in such compromise or arrangement;
  • Appointed date, effective date, share exchange ratio (if applicable) 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 Merger & Amalgamation (C&A) on: Section 230(3)

  • Key Managerial Personnel;
  • Directors;
  • Promoters;
  • Non-Promoter Members;
  • Depositors;
  • Creditors;
  • Debenture holders;
  • Deposit trustee and debenture trustee;
  • Employees of the company:
  • Share holders of the Company

h. 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;

i. Below Mentioned Details: Following 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 other governmental authorities required, received or pending for the proposed scheme of compromise or arrangement
  • A statement to the effect that the persons to whom the notice is sent may vote in the meeting either in person or by proxies, or where applicable, by voting through electronic means
  • A copy of the [6]valuation report, if any Section 230(3)

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

  • Latest audited financial statements of the company including consolidated financial statements;
  • Copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been dispensed with;
  • copy of scheme of Merger & Amalgamation ( C&A);
  • Contracts or agreements material to the Merger & Amalgamation ( C&A);
  • The certificate issued by Auditor of the company to the effect that the accounting treatment, if any,
  • Proposed in the scheme of Merger & Amalgamation ( C&A) is in conformity with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013; and
  • Such other information or documents as the Board or Management believes necessary and relevant for making decision for or against the scheme;

k. Some Other documents: Where an order has been made by the Tribunal under section 232(1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following:

  • The draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
  • Confirmation that a copy of the draft scheme has been filed with the Registrar;
  • The report of the expert with regard to valuation, if any;

[1] In the case of Kirloskar Electricals Co. Ltd., the Court held that various clauses of Section 394(1) of the Companies Act suggest that both the transferor and the transfer company shall make an application to the Court and under section 391-394 of the Companies Act, 1956 for sanction of the scheme of Compromise or arrangement involving amalgamation of the Companies.

[2] In the case of Mohan Exports Ltd. V/s Tarun Overseas Pvt. Ltd., it was held that if both the Companies are under the jurisdiction of the same High Court, Joint petition may be made.

[3] Scheme of Corporate Debt restructuring as referred in section 230(2)(c) means “a scheme that restructures or varies the debt obligation of a company toward its creditors”.

[4] It is hereby clarified that the service of notice of meeting shall be deemed to have been effected in case ofdelivery by post, at the expiration of forty eight hours after the letter containing the same is posted

[5]Explanation – For the purposes of these rules it is clarified that-

(a) the term ‘interest’ extends beyond an interest in the shares of the company, and is with reference to the proposed scheme of compromise or arrangement.

(b) the valuation report shall be made by a registered valuer, and till the registration of persons as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years.

[6] the valuation report shall be made by a registered valuer, and till the registration of persons as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at

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  1. Rupesh Waghe says:

    As a secured creditor of the one of the company who is going into amalgamation, what precautions should be taken and how to protect our right as a secured creditor

  2. Shashi Kant Dubey says:

    when two pvt. ltd. companies have same directors and ONLY DIRECTORS ARE SHARE HOLDERS IN BOTH COMPANIES THEN VALUATION IS MUST?

  3. Shashi Kant Dubey says:


  4. law solvers says:

    Thank you, sir… your article was helpful… Can you please give the article regarding Demerger to be filed before Ministry of Corporate affairs…

    Awaiting for your reply, sir….

  5. Priyanka Jha says:

    Sir, the article was very helpful. I personally really appreciate the doings of yours.
    I have a request to made to you that will you please provide the details structure of Merger of Wholly owned Subsidiary company with Holding company under NCLT Route.

  6. sunita says:

    when two pvt. ltd. companies have same directors and equity holders and want to have merger or acquisition for better operations , do we still have to follow all the NCLT Process?

  7. Chandu says:

    Can you please also provide practical procedure for merger of two Indian private companies for which both the directors and shareholders are same.

  8. satya says:

    Sir… it is very informative.Recently under the scheme of amalgamation board of directors approved amalgamation of HIM Techno forge(transferor company) and Gujarat Automative gears(Transferee company)(listed company).They have mentioned share exchange ratio, share holders holding 13 equity shares of Rs 10/- each fully paid up of HIM techno forge will get 3 equity shares of 2 each fully paid up of Gujarat Automative gears.Since Gujarat Automative gears is a listed company please clarify, whether there will be any change in the no.of outstanding shares after this amalgamation .How the amalgamation process takes place between a listed and a non listed company.Please explain

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May 2024