A ‘Merger’ is a combination of two or more entities into one; merger essentially means an arrangement whereby one or more existing companies merge their identity into another to form a new and different entity which may or may not be one of those existing entities. It is a corporate strategy of combining different companies into a single company in order to enhance the financial and operational strengths of both organizations. Mergers and acquisitions are used as instruments of momentous growth and are increasingly getting accepted by Indian businesses as critical tool of business strategy.

All compromises, arrangements and mergers have been carried out in accordance with the Companies Act 2013 (essentially Sections 230, 231 and 232) and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 issued vide notification dated 14th December 2016 by Ministry of Corporate Affairs, Government of India. These rules came into effect from 15th December, 2016.

Relevant provision:

Section 230(1) of the Companies Act, 2013 1. Where a compromise or arrangement is proposed—

a) between a company and its creditors or any class of them; or

b) between a company and its members or any class of them,

the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, order a 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 the Tribunal directs.

Rule 3 of Compromise, Arrangements and Amalgamations, 2016

Application for order of meeting

1. An application under sub-section (1) of section 230 of the Act may be submitted in form no. NCLT-1 along with:-

I. A notice of admission in Form No. NCLT-2

II. An affidavit in Form No. NCLT-6 (Verifying of Petition)

III. A copy of scheme of compromise or arrangement, which should include the following disclosures as per Section 230(2) (Annexure A):

a) All material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;

b)  Reduction of share capital of the company, if any, included in the amalgamation;

c) Any scheme of 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 Form No. CAA. 1;(As per rule 4 (Disclosures in application made to the Tribunal for compromise or arrangement) of Compromise, Arrangements and Amalgamations, 2016

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.

IV. Fee as prescribed in the Schedule of Fees

2. Where more than one company is involved in a scheme in relation to which an application under sub-rule (1) is being filed, such application may, at the discretion of such companies, be filed as joint-application.

3. Where the company is not the applicant, a copy of the notice of admission and of the affidavit shall be served on the company, or, where the company is being wound up, on its liquidator, not less than fourteen days before the date fixed for the hearing of the notice of admission.

4. The applicant shall also disclose to the Tribunal in the application under sub-rule (1), the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme.

5. A member of the company shall make an application for arrangement, for the purpose of takeover offer in terms of sub-section (11) of section 230, when such member along with any other member holds not less than three-fourths of the shares in the company, and such application has been filed for acquiring any part of the remaining shares of the company.

Rule 5 (Annexure B) of Compromise, Arrangements and Amalgamations, 2016

Directions at hearing of the application

After hearing the application, The Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters:-

a) Determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement;

b) Fixing the time and place of the meeting or meetings;

c) 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;

d) 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;

e) 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;

f) Notice to be given of the meeting or meetings and the advertisement of such notice;

g) notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230;

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

i) Such other matters as the Tribunal may deem necessary.

Rule 6 (Annexure C) of Compromise, Arrangements and Amalgamations, 2016

Notice of Meeting

1. Where a meeting of any class or classes of creditors or members has been directed or to be convened, the notice of the meeting pursuant to the order of the Tribunal to be given in the manner provided in sub-section (3) of section 230 of the Act shall be in Form No. CAA.2 and shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company.

2. The notice shall be sent by the chairperson appointed for the meeting, or, if the Tribunal so directs, by the company (or its liquidator), or any other person as the Tribunal may direct, by registered post or speed post or by courier or by e-mail or by hand delivery or any other mode as directed by the Tribunal to their last known address at least one month before the date fixed for the meeting.

3. The notice of the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or arrangement, if such details are not already included in the said scheme:-

i. Details of the order of the Tribunal directing the calling, convening and conducting of the meeting;

a) Date of the Order

b) Date, Time and Venue of the Meeting

ii. details of the company including:

a) Corporate Identification Number (CIN) or Global Location Number (GLN) of the company;

b) Permanent Account Number (PAN)

c) name of the company;

d) date of incorporation;

e) type of the company (whether public or private or one-person company);

f) registered office address and e-mail address;

g) summary of main object as per the memorandum of association; and main business carried on by the company;

h) details of change of name, registered office and objects of the company during the last five years;

i)  name of the stock exchange (s) where securities of the company are listed, if applicable;

j) details of the capital structure of the company including authorized, issued, subscribed and paid up share capital; and

k) name of the promoters and directors along with their addresses.

iii.  if the scheme of compromise or arrangement relates to more than one company, 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.

iv. the date of the Board meeting at which the scheme was approved by the Board of directors including the name of the directors who voted in favour of the resolution, who voted against the resolution and who did not vote/ participate on such resolution;

v. explanatory statement disclosing details of the scheme of compromise or arrangement including:

a) parties involved in such compromise or arrangement;

b) in case of amalgamation or merger, appointed date, effective date, share exchange ratio (if applicable) and other considerations, if any;

c) 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 reports is available for inspection at the registered office of the company;

d) details of capital/debt restructuring, if any;

e) rationale for the compromise or arrangement;

f) benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors and others (as applicable);

g) amount due to unsecured creditors.

vi. disclosure about the effect of the compromise or arrangement on:

a) key managerial personnel;

b) directors;

c) promoters;

d) non-promoter members;

e) depositors;

f) creditors;

g) debenture holders;

h) deposit trustee and debenture trustee;

i) employee of the company

vii. Disclosure about effect of compromise or arrangement on material interests or directors, Key Managerial Personnel (KMP) and debenture trustee.

viii. investigation or proceedings, if any, pending against the company under the Act.

ix. details of the availability of the following documents for obtaining extract from or for making/obtaining copies of or for inspection by the members and creditors, namely:

a) latest audited financial statements of the company including consolidated financial statements;

b) copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been dispensed with;

c) copy of scheme of compromise or arrangement;

d) contracts or agreements material to the compromise or arrangement;

e) 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 the Accounting standards prescribed under section 133 of the Companies Act, 2013 and

f) such other information or documents as the Board or Management believes necessary and relevant for making decision for or against the scheme;

x. details of approvals, sanctions or no-objection(s), if any, form regulatory or any other government authorities required, received or pending for the purpose scheme of compromise or arrangement.

xi. 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 electronics means.

Rule 7 of Compromise, Arrangements and Amalgamations, 2016

Advertisement of the notice of the meeting

The notice of the meeting under sub-section (3) of section 230 of the Act shall be advertised in Form No. CAA.2 in at least one English newspaper and in at least one vernacular s having wide circulation in the state in which the registered office of the company is situated, or such newspaper as may be directed by the Tribunal and shall also be placed, not less than thirty days before the date fixed for the meeting, on the website of the company of the SEBI and the recognized stock exchange where the securities of the company are listed:

Provide that where separate meetings of classes of creditors or members are to be held, a joint advertisement for such meetings may be given.

Rule 8 (Annexure E) of Compromise, Arrangements and Amalgamations, 2016

Notice to Statutory Authorities

1.  For the purpose of sub-section (5) of section 230 of the Act, the notice shall be in Form No. CAA.3, and shall be accompanied with a copy of the scheme of compromise or arrangement, the explanatory statement and the disclosures mentioned under rule 6, and shall be sent to.-

i. the Central Government, the Registrar of Companies, the Income-tax authorities, in all cases;

ii. the Reserve Bank of India, the Securities and Exchange Board of India, the competition commission of India, and the stock exchanges, as may be applicable;

iii. other sectoral regulators or authorities, as required by Tribunal.

2. The notice of the authorities mentioned in sub-rule (1) shall be sent forthwith, after the notice is sent to the members or creditors of the company, by registered post or by speed post or by courier or by hand delivery at the office of the authority.

3. It the authorities referred to under sub-rule (1) desire to make any representation under sub-section (5) of the section 230, the same shall be sent to the Tribunal within a period of thirty days from the date of receipt of such notice and copy of such representation shall simultaneously be sent to the concerned companies and in case of representation is received within the stated period of thirty days by the Tribunal, it shall be presumed that the authorities have no representation to make on the proposed scheme of compromise or arrangement.

Rule 12 of Compromise, Arrangements and Amalgamations, 2016

Affidavit of Service

1. The chairperson appointed for the meeting of the company or other person directed to issue the advertisement and the notices of the meeting shall file an affidavit before the Tribunal not less than seven days before the date fixed for meeting or date of the first of the meetings, as the case may be, stating that the directions regarding the issue of notices and the advertisement have been duly complied with.

2. In case of default under sub rule (1), the application along with copy of the last order issued shall be posted the tribunal for such orders as it may think fit to make.

Rule 13 of Compromise, Arrangements and Amalgamations, 2016

Result of the meeting to be decided by voting

1. The voting at the meeting or meetings held in pursuance of the directions of the tribunal under Rule 5 on all resolutions shall take place by poll or by voting through electronics means.

2. The report of the result of the meeting under sub rule (1) shall be in form no CAA.4 and shall state accurately the number of creditors or class of creditors, as the case maybe, who were present and who voted at the meeting either in person or by proxy, and where  applicable, who voted through electronics means, their individual values and the way they voted.

Rule 14 of Compromise, Arrangements and Amalgamations, 2016

Report of the result of the meeting by chairperson

The chairperson of the meeting (or where there are separate meetings, the chairperson of each meeting) shall, within the time fixed by the tribunal, or where no time has been fixed ,within three days after the conclusion of the meeting submit a report to the Tribunal on the result of the meeting in Form No. CAA.4.
Rule 15 of Compromise, Arrangements and Amalgamations, 2016

Petition for confirming compromise or arrangement

1. Where the proposed compromise or arrangement is agreed to by the members or creditors or both as the case maybe with or without modification, the company (or its liquidator), shall, within 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 of compromise or arrangement.

3. Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid, it shall be open to any creditor or member as the case may be, with the leave of the tribunal, to present the petition and the company shall be liable for the cost thereof.

Rule 16 of Compromise, Arrangements and Amalgamations, 2016

Date and notice of hearing

1. The tribunal shall fix a date for the hearing of petition, and notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised, or in such other newspaper as the Tribunal may direct, not less than ten days before the date fixed for the hearing.

2. The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives under section 230(4) (Annexure D) of the Act:

A notice under sub-section (3)shall provide that 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 or arrangement within one month from the date of receipt of such notice:

Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent. of the shareholding or having outstanding debt amounting to not less than five per cent. of the total outstanding debt as per the latest audited financial statement.

and to the central government and other authorities who have made representation under rule 8 and have desired to be heard in their representation.

Rule 17 of Compromise, Arrangements and Amalgamations, 2016

Order on petition

1. where the tribunal sanctions the compromise or arrangement, the order shall include such directions in regard to any matter or such modifications in the compromise or arrangement as the tribunal may think to fit to make for the proper working of the compromise or arrangement.

2. The order shall direct that a certified copy of the same shall be filed with the registrar of companies within thirty days from the date of the receipt of copy of the order, or such other time as maybe fixed by the tribunal.

3. The order shall be in Form No. CAA. 6, with such variations as may be necessary.

In brief the procedure of merger through nclt as follows:

Authorization by the Articles of Association

First step of this process, the transferor and the transferee Company shall be authorized by their respective Articles of Associations for the merger. If they are not authorized to do so, then their respective AOA’s shall be altered first.

Drafting the Scheme of Merger

Prepare the Draft the Scheme of Merger between Transferor Company and Transferee Company.

Calling of Board Meeting

To send notice not less than 7 days before the date of meeting according to section 173(3) of Companies Act, 2013

Board Meeting

1. Hold a Board Meeting of both the transferor and transferee company

2. To pass resolution to amalgamate with another company

3. To consider Draft of Scheme of Merger

Application to Tribunal in Form No NCLT-1

Attachments with Application: 1. A notice of admission in Form No. NCLT-2

2. An affidavit in Form No. NCLT-6

(Verifying of Petition)

3. A copy of scheme of compromise or arrangement, which should include the following disclosures as per Section 230(2)

4. Fee as prescribed in the Schedule of Fees

Directions at hearing of the application

After hearing the application, The Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as per rule 5 of Compromise, Arrangements and Amalgamations, 2016

[Note: 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.]

Notice of Meeting

Notice of the meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, in Form No. CAA.2 by registered post or speed post or by courier or by email or by hand delivery or any other mode as directed by the Tribunal to their last known address at least one month before the date fixed for the meeting.

[Note: The notice of the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or arrangement and a statement disclosing the following details of the compromise or arrangement, if such details are not already included in the said scheme as per rule 6 of Compromise, Arrangements and Amalgamations, 2016]

Advertisement of the notice of the meeting

The notice of the meeting shall be advertised in Form No CAA-2 in at least one English newspaper and in at least one vernacular newspaper having wide circulation in the State in which the registered office of the company is situated. A copy of the notice shall also be placed, not less than thirty days before the date fixed for the meeting, on the website of the company.

Notice to Statutory Authorities

The aforesaid notice along with a copy of the scheme of compromise or arrangement, the explanatory statement and the aforementioned disclosures, shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Registrar of Companies, the Official Liquidator, the Competition Commission of India and such other sectoral regulators or authorities which are likely to be affected by the amalgamation in form CAA-3.

[Note: If the authorities stated above desire to make any representation, the same shall be sent to the Tribunal within a period of thirty days from the date of receipt of such notice and copy of such representation shall simultaneously be sent to the concerned companies.]

Affidavit of Service

The Chairperson appointed for the meeting of the company or other person directed to issue the advertisement and the notices of the meeting shall file an affidavit before the Tribunal not less than seven days before the date fixed for the meeting or the date of the first of the meetings, as the case may be, stating that the directions regarding the issue of notices and the advertisement have been duly complied with.

↓ 

Convene Meeting

To hold convene a meeting of members, creditors or a class of them to accord sanction to the scheme (As per Tribunal Direction). The scheme is said to be approved in the meeting where 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 person or by proxy or by postal ballot, agree to it.

[Note: The voting at the meeting shall take place by poll or by voting through electronic means.]

Report of the result of the meeting by chairperson

The Chairperson of the meeting shall, within the time fixed by the Tribunal, or where no time has been fixed, within three days after the conclusion of the meeting, submit a report to the Tribunal on the result of the meeting in Form No CAA-4.

Petition for confirming compromise or arrangement

The company (or its liquidator), shall, within 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 of amalgamation.

[Note: In case of the company is  fails to  file the petition, it shall be open to any creditor or member as the case may be, with the leave of the Tribunal, to present the petition and the company shall be liable for the cost thereof.]

Date and notice of hearing

The tribunal shall fix a date for the hearing of petition, and notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised, or in such other newspaper as the Tribunal may direct, not less than ten days before the date fixed for the hearing.

[Note: The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives under section 230(4) of the Act and to the Central Government and other authorities who have made representation under rule 8 and have desired to be heard in their representation.]

Order on petition

Where the tribunal sanctions the compromise or arrangement, the order shall include such directions in regard to any matter or such modifications in the compromise or arrangement as the tribunal may think to fit to make for the proper working of the compromise or arrangement.

The order shall be in Form No CAA-6, with such variations as may be necessary.

Filing of Order with ROC

The order shall direct that a certified copy of the same shall be filed with the Registrar of Companies within thirty days from the date of the receipt of copy of the order, or such other time as maybe fixed by the tribunal.

Benefits of Merger:

♦ to access the market through an established brand;

♦ to get a market share;

♦ to eliminate competition;

♦ to reduce tax liabilities;

♦ to acquire competence;

♦ set off accumulated losses of one entity against the profits of other entity;

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