Section 230-232 of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 deals with the Mergers and Amalgamation of the Companies and Section 234 read with rule 25A of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 deals with Merger or Amalgamation of a foreign company with a company and vice-versa.
The following is the prescribed procedure for Mergers and Amalgamations under Companies Act, 2013.
1. Power to undergo amalgamation:
Most importantly, it must be ensured that the companies undergoing the amalgamation have the power in the object clause of their Memorandum of Association to undergo such amalgamation. In the event of no such power is mentioned in the object clause, the Memorandum of Association shall be amended by the companies, for the purpose of amalgamation.
2. Approval of the draft scheme by Board of Directors:
A draft scheme of amalgamation shall be approved in a board meeting of the respective companies. The resolution passed in the board meeting is to be filed with the registrar of companies in form MGT 14.
3. Filing of application:
An application is to be filed with the National Company Law Tribunal (“NCLT”) in Form No.NCLT-1 along with following documents:
- A Notice of Admission in Form No. NCLT-2.
- An Affidavit in Form No. NCLT-6.
- A Copy of Scheme of Amalgamation.
- Fee as prescribed in the Schedule of Fees.
The application shall also disclose to NCLT, the basis on which each class of members or creditors have been identified for purposes of approval of the scheme of amalgamation between the transferor and transferee company.
Note: 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 before NCLT. However, where the registered office of the companies is in different states, there will be two Tribunals having the jurisdiction over those companies, hence separate petition will be required to be filed for the purpose of amalgamation.
4. Notice of Meeting:
A meeting shall be called as per the order of NCLT and the notice of the meeting shall be sent to all the creditors, members and debenture holders, to their respective addresses in Form No. CAA.2. The notice of the meeting sent to the creditors and members shall be accompanied by a copy of the scheme of amalgamation along with the relevant details and documents as mentioned in the section, if not already mentioned in the scheme.
A chairperson is appointed for the meeting of the company or other person who is directed to issue the advertisement and the notices of the meeting shall file an affidavit before the NCLT in 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.
- Mode of sending: The notice shall be sent by the chairperson appointed for the meeting or any other person as the NCLT 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 NCLT to their last known address at least one month before the date fixed for the meeting.
- Website: The notice and other documents shall also be published, in not less than thirty days before the date fixed for the meeting, on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and the respective stock exchanges where the securities of the companies are listed, for publishing on their website.
- Advertisement: The notice of the meeting shall also be advertised, in not less than thirty days before the date fixed for the meeting, in Form No. CAA.2in 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 or such newspaper as may be directed by the NCLT.
Note: Provided that where separate meetings of classes of creditors or members are to be held, a joint advertisement for such meetings may be given.
Dispensation with the calling of a meeting: The NCLT may dispense with the calling of a meeting of creditors or class of creditors where such creditors or class of creditors, having at least ninety per cent value is required, to agree and confirm, by way of affidavit, to the scheme of compromise or arrangement. However, the same has not been clearly mentioned in the section for members or class of members. In our practical experience, where affidavits have been obtained from the members or class of members having at least 90% value, the NCLT has dispensed with the calling of the meeting of members or class of members.
However, in the event, the affidavits have not been obtained from the creditors and the members, the meeting shall be conducted and the scheme is said to be approved by a majority of persons representing 3/4th of creditors or members.
5. Approval of the scheme:
The scheme is to be approved by a majority of persons representing 3/4th in value of the creditors, or class of creditors or members or class of members, as the case may be, either voting in person or by proxy or by way of a postal ballot. The voting at the meeting or meetings shall take place by poll or by voting through electronic means. If 3/4th value of the creditors and members agree to the compromise or arrangement, in accordance with the order of the NCLT, the scheme shall be a company, the creditors and the members of the company.
6. Notice to Regulatory Authorities:
The aforesaid notice of a meeting of creditors and members in Form No. CAA.3 along with a copy of amalgamation shall be sent to the Central Government, the Registrar of Companies, the Income-tax authorities and other sectoral regulators or authorities, as required by NCLT. The notice of the authorities 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. If the authorities desire to make any representation, the same shall be sent to the NCLT within a period of thirty days from the date of receipt of such notice and copy of such representations shall simultaneously be sent to the concerned companies. In case no representation is received within the stated period of thirty days, it shall be presumed that the authorities have no representation to make on the proposed scheme of amalgamation.
7. Report of the result of the meeting:
The chairperson of the meeting shall within the time period fixed by the NCLT or where no time has been fixed, within 3 (three) days after the conclusion of the meeting, give a report to NCLT providing the result of the meeting of the members and creditors in Form No CAA.4 and shall state accurately the number of creditors and members, as the case may be, who were present and who voted at the meeting either in person or by proxy, and where applicable, who voted through electronic means, their individual values and the method of voting adopted by them.
8. Filing of petition for confirming the scheme of amalgamation:
Where the proposed amalgamation is agreed to by the members or creditors or both as the case may be with or without modification, the company, shall, within seven days of the filing of the report by the chairperson, present a petition to the NCLT in Form No.CAA.5 for sanction of the scheme of amalgamation.
Note: 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 NCLT, to present the petition and the company shall be liable for the cost thereof.
9. Date and Notice of Hearing:
The NCLT shall fix a date for the hearing of the petition, and a 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 NCLT may direct, not less than ten days before the date fixed for the hearing. The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives and to the central government and other authorities who have made representation and have desired to be heard in their representation.
10. Order on the Petition:
Where the NCLT sanctions the amalgamation, the order shall include such directions in regard to any matter or such modifications in the scheme as the NCLT may think to fit to make for the proper working of the scheme. 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 the copy of the order, or such other time as may be fixed by the NCLT. The order shall be in Form No. CAA. 7, with such variations as may be necessary.
Note: No scheme of amalgamation shall be sanctioned by the NCLT unless a certificate by the company’s auditor has been filed with the NCLT to the effect that the accounting treatment, if any, proposed in the scheme of amalgamation is in conformity with the accounting standards prescribed under section 133.
11. Filing of Order:
The order of the NCLT shall be filed with the Registrar in Form INC-28 by the company within a period of thirty days of the receipt of the order.
The Companies Act, 2013 has brought many enabling provisions with regard to mergers and amalgamations, especially with respect to time-bound and single-window clearances, enhanced disclosures, disclosures to various regulators, simplified procedures.
This article does not cover the concept of fast track mergers under Section 233 of the Companies Act, 2013 and the concept of fast track merger has been covered by us in https://samistilegal.in/fast-track-merger-procedure-and-practical-aspects/.
Authors: Anita Dugar, Senior Associate; Nisha Jhawar, Associate; Kriti Sanghi, Associate.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. For any queries, the authors can be reached at (i) email@example.com (ii) firstname.lastname@example.org (iii) email@example.com
Updated as on April 04, 2020
Image generation credits: https://www.canva.com/templates/