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CA Garima Mittal

CA Garima MittalIn this article, author attempts to deliver the overview of merger and amalgamation in light of various provisions under various Acts. For queries, author can be reached at email id:

Merger and amalgamation (‘M&A’) deals are increasing in India. Increase in competition has made organizations merger themselves to reap the benefits of a large-sized company. To understand this article, first one need to know the terms – merger, amalgamation, transferor company and transferee company. The term merger and amalgamation has not been defined under the Act. M&A is often known to be a single terminology. However, there is a thin difference between the two. According to dictionary meaning, ‘Merger’ is the fusion of two or more enterprises, whereby the identity of one or more is lost resulting in a single enterprise whereas ‘Amalgamation’ signifies the blending of two or more undertaking into one undertaking, blending enterprises loses its identity forming themselves into a separate legal identity. There may be amalgamation by the transfer of two or more undertaking to a new or existing company. ‘Transferor company’ means the company which is merging also known as amalgamating company in case of amalgamation and ‘transferee company’ is the company which is formed after merger or amalgamation also known as amalgamated company in case of amalgamation.

Now-a-days, organizations seeking for M&A outsource this complex task to consultants which have build dedicated team of experienced professionals to provide valuable insights and innovative solutions for clients to maximize their business and investment value enabling the organization to focus on business as usual.

There are numerous motives behind M&A of the company like for economies of scale, increasing the market share or for availing tax benefits.

The some of the recent M&A deals that are happening or happened in market are enumerated below:

Microsoft announced in September 2013 to acquire Nokia’s phone business for $ 7.2 billion.

Tech Mahindra finally acquired & absorbed Satyam Mahindra in 2013 and now set its sights on becoming $5 billion company by 2015.

Tata Metaliks to amalgamate with Tata Steel as per business line news on 11 April, 2013. Board of directors of both the companies had approved amalgamation w.e.f April 1, 2013.

Several provisions in various Acts deals with M&A. The same are enumerated as follows:

Companies Act, 2013

Companies Bill, 2013 has received presidential assent on 30 August, 2013. With this move, India has got a new company law i.e. Companies Act, 2013 that has replaced the erstwhile Companies Act, 1956.

The new Act has different provisions in relation to different types of restructuring processes as follow:

  • Compromise or Arrangements under Section 230 & 231 of the Act.
  • Amalgamation including demergers falls within section 232 of the Act.
  • Amalgamation of small companies within section 233 of the Act.
  • Amalgamation of foreign companies under section 234 of the Act.

Generally, memorandum of association of both the companies should be examined to check about the availability of companies power to amalgamate clause. Then, stock exchanges of both merging and merged company should be informed about the merger proposal. Draft merger proposal to be approved by board of directors, once the same is approved by respective boards, each company shall make an application to the high court of the state in which registered office is situated in Form No. 36 so that companies can follow the further procedure as per section 230 to 234 of the Companies Act, 2013 (earlier section 390 to section 396A of the Companies Act, 1956).

Some of key highlights of Companies Act, 2013 impacting on merger and amalgamation are as follows:

  • Creation of treasury shares i.e. holding the share in its own name or in the name of the trust, whether on its own behalf or on behalf of any of its subsidiary or associated company no longer permissible.
  • Objections to the scheme can be raised only by shareholders holding at least 10% stake or creditors holding at least 5% of total outstanding debts as per the latest audited financial statements thereby avoiding unnecessary delays.
  • Regulators to make representation within 30 days regarding scheme, else deemed ‘no objections’.
  • No approval of Tribunal is required in case of merger between holding company and its 100% subsidiary or merger between small companies (based on prescribed capital/turnover).
  • Merger of Indian company into foreign company located in certain jurisdictions allowed.
  • Shareholders would have an option to vote for the scheme through postal ballot, in addition to voting physically at a meeting.

Accounting standard (‘AS’)-14

AS-14 issued by ICAI deals with two types of amalgamation-amalgamation in the nature of merger and amalgamation in the name of purchase.

Amalgamation in the nature of merger: The scheme will be considered as case of merger if all of the following conditions are satisfied:

1)  At least 90% of the equity shareholders of transferor company should agree to become equity shareholder of transferee company.

2)  All assets and liabilities of transferor company should become assets and liabilities of transferee company which should be recorded at the same book value as in the case of transferee company.

3)  Book value can be altered at the time of recording assets and liabilities in the transferee company to confirm the same accounting policies as followed by the transferee company.

4)  Transferee company should continue with the same old business that of transferor company.

Amalgamation in nature of purchase:

Amalgamation in nature of purchase means amalgamation which does not satisfy any one or more of the conditions mentioned in case of merger.

Income Tax Act, 1961 does not recognize amalgamation in nature of purchase for tax purpose.

As far as disclosure requirements are concerned, name of amalgamated company, effective amalgamation date, consideration and treatment of difference, if any, between considerations received and value of net assets received need to be disclosed.

Income Tax Act, 1961

According to section 2(1B) of the Act, amalgamation means merger of one or more companies with another company or merger of two or more companies to form one company in such manner that

  • All the property of the amalgamating company immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation.
  • All the liabilities of the amalgamating company immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation.
  • Shareholders holding not less than ¾ in value of shares in the amalgamating company or companies (other than shares already held therein immediately before amalgamation by or by a nominee for, the amalgamated company or its subsidiary) becomes shareholders of the amalgamated company by virtue of the amalgamation.

Under section 47(vi) of the Act, transfer of capital asset by the amalgamating company to the Indian amalgamated company shall not be regarded as transfer for the purpose of capital gain.

As per section 47(via) of the Act, in case of amalgamation of foreign companies, transfer of shares held in an Indian company by amalgamating foreign company to the amalgamated foreign company is exempt from tax if all of the following conditions are satisfied:

  • Al least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company.
  • Such transfer does not attract tax on capital gains in the country in which the amalgamating foreign company is incorporated.

According to section 47(viaa) of the Act, in case of amalgamation of banking company with banking institution, capital gain arising from transfer of capital asset by banking company to banking institution is exempt from tax as such transfer will not be regarded as transfer for the purpose of capital gain.

As per section 35DD of the Act, expenditure incurred by Indian company in connection with amalgamation is allowed to be written off in 5 successive years, beginning with previous year in which amalgamation takes place.

Section 72A of the Act deals with carry forward and set off of accumulated losses and unabsorbed depreciation of the amalgamating company.  However, benefits in respect of the same shall be available only if the following conditions are satisfied:

1)  There should be an amalgamation of (a) company owning an industrial undertaking or ship or hotel with another company or (b) banking company referred in section 5(c) of the Banking Regulation Act, 1949 with specified bank or (c) one or more public sector company or companies engaged in the business of operation of aircraft with one or more public sector company or companies engaged in similar business.

2)  The amalgamated company should be an Indian company.

3)  The amalgamating company should be engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed for 3 years or more.

4)  The amalgamating company should held continuously as on the date of amalgamation at least ¾ of the book value of the fixed assets held by it two years prior to the date of amalgamation.

5)  The amalgamated company continues the business of the amalgamating company for a minimum period of 5 years from the date of amalgamation.

6)  The amalgamated company fulfills such other conditions as may be prescribed to ensure the revival of business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.

Section 35AB(3) of the Act states that in case of amalgamation, deduction shall be allowed to amalgamated company in respect of the residual period in the same manner as would have been allowable to the amalgamating company.

Section 35ABB(6) of the Act, where the amalgamating company sells or transfer license to the amalgamated company, the provisions will continue to apply to the amalgamated company as if transfer has not taken place.

Section 35DDA(2) of the Act states that in case of amalgamation of Indian company, deduction shall be allowed to the extent of unexpired period in the same manner as would have been allowable to the amalgamating company.

A per section 33A(5) of the Act, where in the scheme of amalgamation, the amalgamating company sell or otherwise transfers any land on which development allowance has been allowed, the amalgamated company should continue to fulfill the conditions in respect of the reserve created. If any balance of development allowance is outstanding to the amalgamated company, it shall be allowed to the amalgamated company.

In the business of prospecting for mineral oil under section 42(2) of the Act, where in the scheme of amalgamation, the amalgamating company sells or otherwise transfers the business to Indian amalgamated company, the provisions shall apply to the amalgamated company as would have been applied to the amalgamating company if the latter had not transferred the business.

According to section 35A(6) of the Act, where in the scheme of amalgamation, the amalgamating company sells or otherwise transfers the rights to the Indian amalgamated company, the provisions shall apply to the amalgamated company as would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the rights.

As per section 35E (7) of the Act, where an Indian company undertaking entitled to deduction on expenditure on prospecting for certain minerals is transferred in a scheme of amalgamation before the expiry of 10 years, no further deduction shall be allowed to the amalgamating company but the amalgamated company will enjoy the benefits as if the amalgamation had not taken place.

Section 115VY of the Act deals with amalgamation of shipping company.

Subject to the other provisions of this section, in case of amalgamation, provisions relating to tonnage tax scheme shall apply to the qualifying amalgamated company.

If amalgamated company is not a tonnage tax company, it shall exercise an option for tonnage tax scheme under section 115VP(1) within 3 months from the date of approval of the amalgamation scheme.

If amalgamated company is tonnage tax company, provisions of chapter XII-G shall apply to it for the longest unexpired period.

Competition Act, 2002

Section 5 of the Act deals with “combinations” which define combination by reference to assets and turnover. Combination under the Act means acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has direct or indirect control over another enterprise engaged in competing businesses and mergers and amalgamation between or among the enterprises when combining parties exceeds the threshold set in the Act.

In India Applicable to Asset Turnover
Individual INR 1500 Cr INR 4500 Cr.
Group INR 6000 Cr INR 18000 Cr
Asset Turnover
In India & Outside Total MinimumIndianPart Total MinimumIndianPart
Individual US $750 millio-n INR 750 Cr. $2250 million INR 2250 Cr.
Group US$ 3 billion INR 750 Cr. $9 billion INR 2250 Cr.

 Section 6 of the Act states that no person or enterprise shall enter into a combination which causes or likely to cause an appreciable adverse effect on competition within relevant market in India and such combination shall be void.

Other Provisions

FEMA Regulations provide the general guidelines on issuance of shares or securities by an Indian entity to a person residing outside India.

Regulation 11(1) of the SEBI takeover Regulations permit consolidation of shares or voting rights beyond 15% up to 55% provided the acquirer does not acquire more than 5% of the shares or voting rights of the target company in any financial year. However, the acquisition of shares or voting rights beyond 26% would apparently attract notification procedure under the Act.

Stamp duty is also levied in case of amalgamation transactions but it varies from state to state. As per Bombay Stamp Act, conveyance includes an order in respect of amalgamation, by which property is transferred to or vested in any other person. As per this Act, rate of stamp duty is 10%.


Transactions relating to merger and amalgamation are carried out majorly in light of provisions of companies Act, Income Tax Act, Accounting Standard, FEMA, SEBI, Stamp duty. Circulars and notifications are also released from time to time by SEBI and other authorities which is also required to be taken into consideration. Thus, it is essential to go through the implications of all the provisions under various laws before carry out the M&A step.

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  1. Jyoti Dubey says:

    If a private company acquires 100% shares of another private company and in lieu of that issues it’s shares to shareholder of that company then will that transaction be covered under section 2(1B) and u/s 47(vi) of IT Act.

    If not then what will be tax repercussion??

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June 2024