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Mergers And Acquisition

MERGERS AND Acquisition - Mergers and Acquisitions (Section 230 & 232)

    The Companies Act, 2013 has made provisions for a single forum in form of the National Company Law Tribunal ("NCLT"), for all merger and de-merger schemes. The NCLT is still to be established and till it is formed, the power to approve schemes will continue to be with the High Courts.

    An application has to be made to NCLT for calling a meeting of the creditors, or class of creditors or members or class of members as the case may be.

    The application made to NCLT, shall provide the following information by way of affidavit:

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 proceeding against the company.

The scheme of corporate debt restructuring consented to by not less than 75% of the secured creditors in value, including -

  • a creditor's responsibility statement in the prescribed form; safeguards for the protection of other secured and unsecured creditors;
  • 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;
  • where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and
  • 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.

Once the NCLT orders a meeting to be called a notice has to be dispatched to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by:

  • a statement disclosing the details of the compromise or arrangement,
  • a copy of the valuation report, if any,
  • and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and
  • the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed

Further section 230 (5) of the Companies Act, 2013 makes it compulsory to give a notice for a merger or de-merger to the following:

  • Central Government,
  • Income tax authorities,
  • Reserve Bank of India ("RBI")
  • SEBI,
  • Registrar,
  • Stock exchanges
  • CCI,
  • official liquidator, and
  • any other sectoral regulator

Objection to the scheme can be raised shall be made only by persons holding at least 10% of the shareholding or having outstanding debt amounting at least 5% of the total outstanding debt as per the latest audited financial statement.

In the meeting following shall be required to be circulated:

  • the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
  • confirmation that a copy of the draft scheme has been filed with the Registrar;
  • a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel,
  • promotors and non-promoter shareholders laying out in particular the share exchange
  • ratio, specifying any special valuation difficulties;
  • the report of the expert with regard to valuation, if any; 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 purpose of approving the scheme.

In the meeting the Scheme of merger has to be approved by at least a 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.

The auditor of the company has to file a certificate with the NCLT stating that the accounting treatment is in conformity with section 133 of the Companies Act, 2013.

Once approved by in the meeting the NCLT would section 230(6) of the Companies Act, 2013 sanction the scheme vide its order and the scheme would become binding on the company and other stakeholders.

The Order sanctioning the scheme needs to be filed with the Registrar within 30 days from receipt thereof.

The NCLT under section 230(9) of the Companies Act, 2013 has been given the power to dispense with calling of a meeting of creditors or a class of creditors where those creditors or class of creditors, having at least 90% value, agree and confirm, by way of affidavit, to the scheme.

Any aggrieved party may make an application to the NCLT in the event of any grievance regarding takeover offer of a company other than listed companies.

Fast Track mergers (Section 233)

    Section 233 provides for a faster mode of merger in the following cases:

    Mergers between two or more small companies (whose paid-up capital does not exceed Rs. 50 lakhs or as prescribed and turnover as per profit and loss does not exceed more than Rs. 2 crores or as prescribed)

    Mergers between holding company and its wholly-owned subsidiary company.

    Any class or classes of companies as may be prescribed.

The Procedure

A notice of the scheme inviting objections or suggestion from the Registrar and Official Liquidators or persons affected by the scheme within 30 days is issued by the transferor and transferee companies.

The objections/suggestions received are considered by the companies in their respective general meetings and the scheme is approved by the respective members or class of members at the general meeting holding at least 90% of the total number of shares.

Each company would file a declaration of solvency with the respective Registrar.

The scheme is approved by majority representing 9/10th in value of the creditors or class of creditors of the respective companies, indicated in a meeting convened by the company by giving 21 days notice.

The copies of the scheme as approved shall be filed with the Central Government, Registrar and Official Liquidator of the jurisdiction where registered office of the company is situated.

If the Central Government, Registrar and Official Liquidators would raise objections or suggestions on the scheme within 30 days from receipt thereof and if no such objections or suggestions are received in the said time limit than it would be deemed that they have no objections. The central Government would register the scheme and send confirmations to the companies.

The registration of the scheme shall be deemed to have the effect of dissolution of the transferor company.

The transferee company shall have to file an application along with the registered scheme with the Registrar.

Mergers or amalgamation with Foreign Company (section 234)

Indian companies are allowed to merge with foreign companies.

Prior approval of the RBI is required where a foreign company would merge with an Indian Company

Payment of consideration to shareholders of the merging company may be in cash or depository receipts, or partly in cash and partly in depository receipts.