Amalgamation- companies Act

1. P R E S E N T A T I O N B Y : A B H I S H E K A N A N D
M F C P A R T I
G U I D E D B Y : D R . N I D H I J A I N
AMALGAMATION

2. Definition
 Amalgamation means union of two or more
companies, so as to form a third entity or one
company is absorbed into another company.
 Thus, the formation of a new company is not
absolutely necessary for amalgamation.
 Transferor company means the company which
is amalgamated into another company.
(Amalgamating company)
 Transferee company means the company into
which a transferor company is amalgamated
(amalgamated company).

3. Reasons for Amalgamation
 (i) Synergy in operating economies: When two or more undertakings combine
their resources and efforts they may with combined efforts produce better results
than two separate undertakings because of the savings in operating costs viz.
Combined sales offices, staff, staff facilities, plant management etc. Synergy is also
possible in areas of production, finance, technology etc.
 (ii) Taxation advantages: Mergers take place to have benefits of tax laws and
company having accumulated losses may merge with profit earning company that
will shield the income from taxation. Section 72A of the Income Tax Act provides
this incentive.
 (iii) Other advantages:
 Growth
 Diversification
 Production capacity reduction
 Operating efficiencies
 Procurement of supplies
 Financial Strength (because of larger size of merged assets)

4. Legal Procedures (Section 394 & 395)
 Amalgamation can be carried out as per sections 394
and 395 of the Indian companies Act, 1956.
 Section 394 lays down that, where, on an application
under section 391, it is shown to the court that the
scheme of Arrangement or Compromise has been
proposed for the purpose of Amalgamation of two or
more companies, and the whole or part of the
undertaking, property or liabilities of one company is to
be transferred to another company, the Court may, either
by the order sanctioning the compromise or
Arrangement or by a subsequent order, provided for all
or any of the following matters :
- Transfer of the undertaking, property or liabilities of one
company to another;

5. Section 394 contd..
 The allotment or appropriation by the transferee
company of any shares, debentures, policies or other like
interests in that company;
 The continuation by or against the transferee company of
any legal proceedings pending by or against the
transferor company.
 the dissolution, without winding up, of any transferor
company;
 the provision to be made for any person who, dissents
from the scheme; and
 such incidental, consequential and supplemental matters
are necessary to secure that the reconstruction or
amalgamation shall be fully and effectively carried out.

6. Contd..
 Provided that –
-The Court can not sanction a scheme for Amalgamation of a
company which is being wound up, unless it has received a
report from the Company law board or the Registrar that the
affairs of the company have not been conducted in a manner
prejudicial to the interests of its members or to public interest.
-Similarly, an order for the dissolution of the transferor
company shall not be made by the Court, unless a similar report
has been received from the official liquidator.
-It is obligatory on the part of the Court to give notice to the
Central Govt. of every application made to it under this section
and take into consideration the representation made by the
Govt. before passing its order on the proposed scheme of
Amalgamation. (394A)

7. Contd..
-Where such an order is made, it is the duty of every
company concerned, to file a certified copy thereof
with the Registrar of registration within 30 days after
the making of the order. If the company defaults, it
along with every officer of the company who is in
default, shall be punishable with fine which may
extend to Rs. 500. [section 394(3)]

8. “Take-Over Bid”
 A „take-over‟ bid means an offer to acquire shares of a
company with a view to obtain legal control of the
company. Such offer to purchase shares may be either for
cash or in exchange for the shares of the offeror
company. The transferee company may make an offer to
the transferor company, so that the scheme or contact
may be placed before the shareholders of the transferor
company.
 If the shareholders accept the offer by the transferee
company then there‟s no problem. If there are dissenting
shareholders then the transferee company can proceed to
acquire the shares of dissenting shareholders under
section 395.

9. Section 395
 Section 395 provides for the compulsory acquisition
of the shares of the dissenting minority, by the
transferee company, on the terms on which the
shares of the approving shareholders are to be
transferred to it.
 Thus, this section aims to prevent a small minority
from demanding an unreasonably high price for their
shares.

10. Section 395
 Provisions:
- The offer of the transferee company to acquire the shares
of any class of shares, must be placed before the
shareholders of the transferor company.
- The shareholders have the option to approve the offer
within 4 months. Approval must be accorded by holders
of atleast 90% in value of shares. (other than shares
already held by the transferee company).
- If the scheme is so approved, the transferee company
may, within 2 months, after the expiration of the above 4
months, give notice to the dissenting shareholders.

11. Contd..
- The dissenting shareholders can within one month of receipt of
notice, apply to the Court for annulling the scheme.
- If the Court refuses to issue the order annulling the order or if no
application is made to the Court, the transferee company shall be
entitled and bound to acquire the shares of the dissenting
shareholders.
- The transfer of shares pursuant to the notice given by the transferee
company, or after the disposal of the appeal filed by dissenting
shareholders, shall be, by means of an instrument of transfer,
executed on behalf of the shareholders by any person appointed by
the transferee company an don its own behalf by the transferee
company, and pay the amount and other consideration to the
transferor company, who shall thereupon register the transferee
company as the holder of these shares.
- Any sums which are so received by the transferor company must be
paid into a separate bank account and must be held for dissenting
shareholders.

12. Amalgamation in National Interest (Sec.-396)
 Under section 396 of the companies act, the Central Govt. is given
power to order amalgamation of 2 or more companies in public
interest.
- Where the Central Government is satisfied that it is essential in the
public interest that two or more companies should amalgamate,
then, the Central Government may, by order notified in the Official
Gazette, provide for the amalgamation of those companies into a
single company with such constitution, with such property, powers,
rights, interests, authorities and privileges; and with such liabilities,
duties, and obligations; as may be specified in the order.
- The order aforesaid may provide for the continuation by or against
the transferee company of any legal proceedings pending by or
against any transferor company and may also contain such
consequential, incidental and supplemental provisions as may be
necessary to give effect to the amalgamation.

13. Contd..
-Every member or creditor (including a debenture holder) of each of the
companies before the amalgamation continues to have the same interest in
the new company resulting from the amalgamation as he had earlier in one of
the amalgamating company; incase amalgamation affects his interests or
rights adversely, he is entitled to compensation which shall be assessed by
such authority as may be prescribed and every such assessment shall be
published in the Official Gazette. The compensation so assessed shall be paid
to the member or creditor concerned by the new company.
 No order under this section shall be made by the Central Govt. unless:
a) A draft copy of the proposed order has been sent to each of the companies
in order to enable such companies to file their objections and suggestions. The
period of filing objections will be fixed by the Govt. which should not be less
than 2 months from the date of receipt of draft copy;

14. Contd..
b) The time for preferring an appeal to Company law Board
has expired or where any such appeal has been preferred,
the appeal has been finally disposed of; and
c) the Central Government has considered, and made such
modifications, if any, in the draft order as may seem to it
desirable in the light of any suggestions and objections
which may be received by it from any such company, or
from any class of shareholders therein, or from any
creditors or any class of creditors thereof.
 Copies of every order made under this section shall, as
soon as possible, be laid before both Houses of
Parliament.

15. Preservation of Books and Papers of
Amalgamated Companies
The books and papers of a company which has been
amalgamated with, or whose shares have been
acquired by, another company shall not be disposed of
without the prior permission of the Central
Government and before granting such permission, that
Government may appoint a person to examine the
books and papers or any of them for the purpose of
ascertaining whether they contain any evidence of the
commission of an offence in connection with the
promotion or formation, or the management of the
affairs of the company.

16. Changes in the New Companies Bill, 2012
 The Companies Bill has also proposed replacing the High
Court with the National Company Law Tribunal (“NCLT”).
All merger and de-merger schemes would now have to be filed
before the NCLT for approval.
 Clause 230 (5) of the Companies Bill, makes it mandatory that
a notice for a merger or de-merger to be sent to the: Central
Government, Income tax authorities, RBI, SEBI, Registrar,
Stock exchanges, CCI, official liquidator, and any other
sectoral regulator.
 In a “fast-track approval”, companies need not file schemes
with the NCLT. The Central Government has the power to
approve the scheme. Once approved, the scheme may be filed
with the Registrar of Companies within thirty days. On
registration, the scheme will be effective. (Clause 233)

17. Contd..
 Clause 234 of the Companies Bill permits a foreign
company, subject to the prior approval of the RBI, to
merge, or amalgamate into an Indian company
or vice-versa. The Companies Act on the other hand,
only permitted a merger of a foreign company with
an Indian company.