Summary: Section 232 of the Companies Act, 2013 outlines the process for mergers and amalgamations between companies. It mandates the involvement of the Tribunal, which oversees the procedure, including meetings of creditors and members, circulation of the merger scheme, and reports on the impact on stakeholders. Once the Tribunal sanctions the scheme, it ensures the transfer of assets and liabilities, share allotment, and protection of dissenting shareholders. The section also addresses cross-border regulations, employee transfers, and compliance with SEBI guidelines for listed and unlisted companies. Non-compliance leads to penalties. This section provides a comprehensive legal structure for corporate restructuring in India.
Introduction
Section 232 of the Companies Act, 2013 provides a legal framework for the merger and amalgamation of companies in India. This provision outlines the process and requirements for the amalgamation and arrangement of companies, aiming to ensure that such corporate restructuring is conducted transparently and fairly. By setting out the procedural guidelines and safeguards, Section 232 facilitates smooth corporate transitions while protecting the interests of shareholders, creditors, and other stakeholders. This section plays a crucial role in enabling companies to consolidate resources, streamline operations, and achieve strategic growth objectives within a regulated environment.
Provisions
1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal: –
a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or transaction involving merger or the amalgamation of any two or more companies; and
b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies,
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 and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis.
2) Where an order has been made by the Tribunal under sub-section (1), merging companies or the companies in respect of which a division is proposed, Companies also be required to circulate the following for the meeting so ordered by the Tribunal, namely: –
a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company
b) confirmation that a copy of the draft scheme has been filed with the Registrar
c) 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
d) the report of the expert with regard to valuation,
e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.
3) The Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2) has been complied with, the tribunal by order sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely:
a) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of the transferor company from a date to be determined by the parties unless the Tribunal decided for reasons to be recorded by it in writing.
b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated by that company.
Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies and any such shares shall be cancelled or extinguished.
c) the continuation of any legal proceedings pending by or against any transferor company on the date of transfer, by or against the transferee company
d) dissolution, without winding-up, of any transferor company
e) the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement/
f) where share capital is held by any non-resident shareholder under the foreign direct investment norms or guidelines specified by the Central Government or in accordance with any law for the time being in force, the allotment of shares of the transferee company to such shareholder shall be in the manner specified in the order
g) the transfer of the employees of the transferor company to the transferee company
h) where the transferor company is a listed company and the transferee company is an unlisted company
I. the transferee company shall remain an unlisted company until it becomes a listed company;
II. if shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made, and the arrangements under this provision may be made by the Tribunal.
Provided that the amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board;
i) where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation; and
j) such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out:
Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting treatment proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.
4) Where an order under this section provides for the transfer of any property or liabilities, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect.
5) Every company in relation to which the order is made shall have to filed a certified copy of the order with the Registrar for registration within thirty days of the receipt of certified copy of the order
6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.
7) Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not.
8) If a company fails to comply with sub-section (5), the company and every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees, and where the failure is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.
EXPLANATION
I. in a scheme involving a merger, where the undertaking, property and liabilities of one or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to another existing company, it is a merger by absorption, or where the undertaking, property and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to a new company, whether or not a public company, it is a merger by formation of a new company
II. references to merging companies are in relation to a merger by absorption, to the transferor and transferee companies, and, in relation to a merger by formation of a new company, to the transferor companies;
III. a scheme involves a division, where the undertaking, property and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies each of which is either an existing company or a new company; and
IV. property includes assets, rights and interests of every description and liabilities include debts and obligations of every description.
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