The terms merger and amalgamation have not been defined in the Companies Act, 1956 (hereinafter referred to as the Act) though this voluminous piece of legislation contains 69 definitions in Section 2.
The terms merger and amalgamation are synonyms and the term ‘amalgamation’, as per Concise Oxford Dictionary, Tenth Edition, means, ‘to combine or unite to form one organization or structure’.
The provisions relating to merger and amalgamation are contained in sections 390 to 396A in Chapter V of Part VI of the Companies Act, 1956. Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger without due diligence is like entering a tunnel with darkness growing with each step. The due diligence process makes the journey see the light at the end of the tunnel – the light of wisdom to amalgamate or not. Presently, the High Court enjoys powers of sanctioning amalgamation matters under section 394 of the Act though it is a matter of time when this power will be exercised by National Company Law Tribunal, a forum where Chartered Accountants shall be authorized to appear.
Mergers ——— M ——— Marriages
De-mergers —–D ——— Divorces
The beginning to amalgamation may be made through common agreements between the transferor and the transferee but mere agreement does not provide a legal cover to the transaction unless it carries the sanction of High court for which the procedure laid down under section 391 of the Companies Act should be followed for giving effect to amalgamation through the statutory instrument.
Merger Means: Merger of two or more companies in such a manner that all assets and liabilities of the amalgamating company immediately before the amalgamation, become the assets and liabilities of the amalgamated company
Shareholders holding not less than 3/4th in value of the shares in the amalgamating company become shareholders of the amalgamated company by virtue of the amalgamation.
Procedure for merger and amalgamation is different from takeover. Mergers and amalgamations are regulated under the provisions of the Companies Act, 1956 whereas takeovers are regulated under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.
Applicable Indian Laws
Who can apply:
Approvals and sanctions required from:
STEPS for Merger & Amalgamation:
♠ To prepare the draft scheme of amalgamation/arrangement.
♠ To get the valuation report for the purposes of Shares Exchange Ratio
♠ To hold Board Meeting for
♠ Filing of application before the Hon’ble High Court under section 391 of the Act for convening/dispensing with the meetings of shareholders and creditors of the applicant companies.
♠ Order of the High Court for convening of the meetings of the shareholders/creditors and appointment of Chairman. The Judge gives directions (Form No. 35) in respect of the following matters:-
♠ To finalize the draft notice of meetings of the creditors/shareholders (Form No 36).
♠ To get the notice of the meeting & Explanatory Statement approved from the Chairman appointed by the Court & Registrar of the High Court
♠ To send the notice (Form 36) individually to the shareholders / creditors along with copy of the Scheme, Explanation Statement, Form of Proxy (Form No. 37) at least 21 clear days before the date fixed for the meeting.
♠ To give advertisement in the newspaper at least 21 clear days before the date of the meeting (Form No 38)
♠ Chairman to file affidavit stating that the directions regarding the issue of notice of advertisement & dispatch of notices have been complied with (at least 7 days before the date of the meeting).
♠ To convene meetings of the shareholders/creditors – Pass the Resolution with requisite majority
♠ File Form MGT-14 with ROC within 30 days of passing of resolution.
♠ The chairman of the meeting(s) shall submission its Report within 7 days after the conclusion of the meeting to the Court in after the conclusion of the meeting to the Court in Form No 39.
♠ To file petition for obtaining sanction of the Court for the scheme along with all Annexure at the High Court for confirming compromise/arrangement Form No. 40 within 7 days of filing the Chairman’s Report.
♠ Notice of the hearing shall be advertised in the same papers in which the notice of the meeting was advertised, or in such other papers as the Court may direct, not less than 10 days before the date fixed for the hearing.
♠ To follow up with the RD, ROC and OL for submitting their reports that affairs of the Transferor Company and Transferee Company are not prejudicial to the interest of the members or to public interest
♠ To ensure that RD and OL submit the report with the High Court before the final date of hearing (Guidelines by MCA in next slide).
♠ To file certified true copy of the order within 30 days with the Registrar of Companies (e-form- INC-28).
♠ To annex copy of the order of every copy of the Memorandum of the transferee company.
The Post Merger Secretarial Obligations
There are various formalities to be complied with after amalgamation of the
Companies is given effect to and allotment of shares to the shareholders of the
Transferor Company is over. These formalities include filing of the returns with Registrar of Companies, transfer of investments of transferor company in; the Name of the transferee, intimating banks and financial institutions, creditors and debtors about the transfer of the transferor company’s assets and liabilities in the name of the transferee company, transfer of employees, gratuity, PF and Pension funds etc.
STEPS FOR MERGER & AMALGAMATION: As given below
THESE RULES SHALL BE CITED AS THE COMPANIES (COURT) RULES, 1959, AND SHALL COME INTO FORCE ON THE 1ST DAY OF OCTOBER, 1959:
CONTENTS OF THE SCHEME
ADDITIONAL REQUIREMENTS FOR LISTED COMPANIES- CLAUSE 24