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Mergers & Amalgamations

               Prasanna A. Naganur
               Company Secretary
               +91 9611805806

1. INTRODUCTION .............................................................................. 3

2. MERGERS AND AMALGAMATIONS ........................................................ 3

3. TYPES OF MERGERS ........................................................................ 4

4. DOMESTIC MERGERS ....................................................................... 4

5. GLOBAL/ CROSS BORDER MERGERS. .................................................... 5

6. LAW RELATING TO MERGERS & AMALGAMATIONS ..................................... 5


8. TAXATION ASPECTS ....................................................................... 13

9. APPLICABILITY OF DTA’S ................................................................. 15

10. STAMP DUTY ON TRANSFER OF ASSETS ............................................... 15

11. COMPETITION ACT, 2002 ................................................................. 15

12. APPLICABLE LAWS OF THE FOREIGN COUNTRY ...................................... 17


14. JUDICIAL PRECEDENTS .................................................................. 18

15. CONCLUSION .............................................................................. 20


  n the present dynamic economy mergers and amalgamations are playing significant role. The
  rationale behind the mergers is to acquire the market leadership, financial benefits, new product or
  brand, diversifying the portfolio and as a tax planning and finally to increase the stakeholder’s
wealth. As it is a well known proverb unity is strength the corporates even they are into different
business are merging and doing business together to enhance the profitability. The process of merger
generally takes a long period, as it involves the taking of approval of shareholders, creditors, and other
government authorities and the High Court.

As the Mergers and Amalgamations involve pooling of resources of one company with the other
companies need professional guidance to accomplish the process. As it involves drafting of scheme of
amalgamation, planning of tax issues and treatment of human resources, professional’s guidance by
Company Secretaries, Lawyers and chartered accountants is essential.


“Merger means a process of getting mixed with another company or a process of forming a new
company by using the resources of merging companies by following the procedure laid down under the
Companies Act, 1956, Accounting Standards, and the Income Tax Act, 1961 and the competition Act,

Technically there is no difference between the terms merger and amalgamation. But merger is used
when the merging company loses its corporate status and the word amalgamation is used when the
both companies merge and form a new entity.

Companies Act, 1956 contains the provisions with regard to effecting a merger or to start the merger, it
empowers the companies to merge by taking necessary approvals. Accounting Standards issued by
the Institute of Chartered Accountants of India read with the provisions of section 211 of the
Companies Act provides for accounting treatment for the merger. Income Tax Act, 1961 provides for
the taxation aspects of the transfer of assets to the transferee company. Stamp Acts of the various
states provide for the stamp duty on the court order. These are the Laws in India govern the Mergers
and Amalgamations. Competition Act, 2002 also governs the mergers and amalgamations.

The business has crossed the country limits and by virtue of which the cross border mergers and
amalgamations are huge in number. Cross border mergers takes a long time as the laws of two
countries are required to be complied.

Mergers and amalgamations may achieved by scheme of arrangement between creditors or members,
merger by purchase of shares, merger by holding companies, merger by scheme of winding up or
merger by exchange of shares followed by winding up.


Horizontal merger:

Merger happens between the companies which are into the same business. The merging companies
will be manufacturing the same goods or services. The purpose of this kind of mergers is to avoid
competition in the market. The threat in this kind of mergers is existence of monopoly in the market and
adverse affect on the economy.

Vertical Merger:

In this type of merger companies which are in the different business will merge each other. The
purpose of this merger is to enter into new line of business and to expand their brand name. This will
generally help to reduce the cost of production as the merger take the place between the
manufacturers and the suppliers.

Conglomerate Merger:

In this kind of merger companies which are totally unrelated will merge with each other. It is a merger
which is neither horizontal nor vertical.

Apart from the above types mergers are further classified as cash merger, defacto merger,
downstream merger, upstream merger, short stream merger, Triangular Merger.


Domestic mergers are the mergers which take place within the country. In domestic mergers, mergers
may take place between the

       Companies where the registered office of the Companies is situated in the same district
       Companies registered office is situated in the different districts but within the state

           Companies registered office is situated in different states but within India.

The process in the above two cases remains same as the jurisdiction of the High Court remains same.
Whereas in third case the approval of the two high courts is required as the registered office of the
merging companies is in different states approval of the high court of each state is required.

As per the provisions of section 391 requires every company to take the approval of the High court.
Where the merging companies are situated in the same state then a combined application can be
made by the companies.1


Cross border merger means the merger between the companies situated in different countries. In this
process the companies are required to comply with the laws of the host country. If an Indian Company
wants to acquire the company in United Kingdom (UK) the laws of the UK are required to be complied
with by the Indian Company. Similarly the laws of India are required to be complied with by the UK
Company or any foreign company if it wants to acquire an Indian company.

In other words a foreign company merges with an Indian Company. The provisions of Section 390
provides of the interpretation of the term “Company” for the purpose of section 391 to 394. As per
Section 390 (a) Company means any company liable to be wound up under this Act. Courts have
made an attempt to explain what exactly “Company liable to wound up means”. The Bombay High
Court ruled that any company liable to wound up means a company to which the provisions relating to
winding up apply.2



Companies Act Provides in Chapter V contains section 390 to 396A for Arbitration, Compromises,
Arrangements and Reconstructions. Section 390 provides for the interpretation of the terms like
Company, Arrangements and Unsecured creditors. To understand the concept of these terms an
analysis of the provisions and various cases decided is required.

Analysis of the term “company”

    Mohan Exports Ltd V. Tarun Overseas P. Ltd. (1994)14 CLA 279 (Del)
    Khandelwal Udyog Ltd. and Acme Manufacturing Limited in Re (1977) 47 Comp Cas ( Bom)

Section 390(a) provides company means a company liable to be wound up under this act. It means any
company which is incorporated and liable to wound up under the provisions of the Companies Act,
1956 are the companies as per this section. This section has a very wide scope it includes the
companies unregistered also3.The term also includes a foreign company having place of business in
India as per the provisions of section 591 of the Act.4 Any company liable to wound up does not mean
that the company has started its winding up process.5

The term foreign company is not defined in the companies Act, 1956. Foreign Company means a
company which is registered under the laws of a foreign country; such companies are outside the
scope of the Companies Act, 1956 unless they have established a place of business in India. However,
section 592 to 602 of the Companies Act deals with the foreign companies having place of business in
India. A company which is registered in India may also be called as foreign company if the entire
shareholding of that company is held by foreign nationals.

Analysis of the term “arrangement”

Section 390 (b) provides arrangement includes a re organization of the share capital of the company by
consolidation of shares of different classes, or by division of shares into shares of different classes, or
by both those methods. Shares of different classes’ mean shares carrying different rights either in
dividend or in voting. Any arrangement of shares as provided in the above section needs the approval
of Court.

The provisions of section 94 regarding the alteration of share capital are not hit by the provisions of
section 391 to 394.

Section 394:

This section provides for reconstruction and amalgamation of companies. Where any application
presented before the Court and it is shown to the court that the compromise or arrangement has been
proposed for the purposes of, or in connection with a scheme of for reconstruction of any company or
Companies or the amalgamation of any two or more companies; and that under the scheme the whole
or any part of the undertaking, property, or liabilities of any company concerned in the scheme is to be
transferred to another company.

The court may either by the order sanctioning the compromise or arrangement or by subsequent order,
make provisions for all or any of the following matters:

         The transfer to the transferee company of the whole or any part of the undertaking, property or
         liabilities of any transferor company

  Malayalam Plantation India Limited & Harrisons & Crossfields India Limited
  Khandelwal Udyog Ltd. and Acme Manufacturing Limited in Re (1977) 47 Comp Cas ( Bom
  Bank of India Ltd. V/s. Ahmadabad Manufacturing Company

        The allotment or appropriation by the transferee company of any shares, debentures, policies,
        or other like interest in that company which under the compromise or arrangement are to be
        allotted or appropriated by that company to or for any person;
        The continuation by or against the transferee company of any legal proceedings pending by or
        against any transferor company
        The dissolution, without winding up, of any transferor company
        The provision to be made for any persons who, within such time and in such manner as the
        court directs, dissent from the compromise or arrangement; and
        Such incidental or consequential and supplemental matters as are necessary to secure that the
        reconstruction or amalgamation shall be fully and effectively carried out.

Amalgamation of Foreign Company:

Section 394 (4) (b) Provides that transferor company includes any bodycorporate, whether a company
within the meaning of this Act or not. Hence a company incorporated outside India can amalgamate
with an Indian Company. However, the same section clarifies that the transferee does not include

a company which is not a company within the meaning of the Companies Act, 1956 hence an Indian
Company cannot amalgamate with a foreign company.

Process of merger/amalgamation:

Section 391 empowers company, creditor and members or any class of them to present a scheme of
arrangement. An application/petition is required to be made to the court having the jurisdiction over the
company as per the Rule 67 of the Companies (Court) Rules and such application is to be made in
Form No. 33 along with an affidavit in Form 34. Companies merging if situated in the same state may
go for a combined application, otherwise a separate application/ petition is required to be made.

After the application is made the court may order for holding the meeting of the creditors and members.
As the scheme requires the approval of the members or creditors the scheme has to be placed before
the members and creditors.

Convening the meeting of the Creditors or members:

Meeting has to be convened after publishing the notice and explanatory statement as provided under
section 393 of the Act. The notice convening the meeting has to be given to the members and creditors
in Form 36 of the Companies (Court) Rules, 1959 and shall be sent individually not less than 21 clear
days before the date fixed for the meeting. The notice should accompany the scheme of arrangement
and also a form of proxy in Form No. 37 of the Companies (Court) Rules, 1959. The notice of the
meeting has to be advertised in such a manner as the judge may direct the advertisement shall be
made not less than 21 days before the meeting and such advertisement has to be made in Form No.
38 of the Companies (Court) Rules, 1959.

Once the meeting is through the result of the meeting is required to be sent to the court within the time
specified by the judge if no time is prescribed within 7 days from the conclusion of the meeting. The
report of the chairman of the meeting has to be made in Form no. 39.

The company after the expiry of seven days from the date of filing the Chairman’s Report has to make
a petition to the court for the approval of the scheme of arrangement. Where the company does not
make the petition any creditor or members may make an application for approval of the scheme.

Approval of scheme – at Court Discretion

Every scheme of arrangement after getting approval from the majority creditors or members is required
the approval of the High court having the jurisdiction. The Court while approving the scheme has to
consider in three broad angles 1) Whether the statutory provisions have been complied with 2)
Whether the class of the shareholders was fairly represented and 3) Whether the arrangement is such
as a man of business would reasonably approve6.

The court will not give its approval only because the scheme is approved by the members; it is the duty
of the company to disclose all material information to the Court by attaching an audited Balance sheet
with the petition. If the petition is made between the financial years but after approval of the accounts in
the Annual general meeting, such financial statement are required to be attached to the petition.

Once the Court approves the scheme of arrangement the order of the court is required to be filed with
the Registrar of companies within the time prescribed in the Court Order in e-form 21.The form is
required to be filed both by the transferor company and the transferee as well. The Court is required to
be stamped if the order authorizes the transfer of properties worth Rs. 100 or more. Some of the states
Stamp Acts do not levy the stamp duty on the Court Order.

The Court may refuse to sanction the Scheme on one or more of the following grounds:

        The proposed scheme is not practical and feasible.

        That all material facts relating to the Company have not been placed before it pursuant to the
        proviso to Section 391(2).

        Where the Court feels that the transferee Company is a dummy Company and there is a
        genuine evasion of Stamp duty, registration fees etc.

        Where the Court is not satisfied about the completeness and the workability of the scheme.

        Where the substratum of the Company is no more in existence and the Company is
        commercially insolvent.

 Ahmadabad Manufacturing & Calico Printing Co. Ltd V. Bank of India Ltd (1972) 42 Comp Cas
In case of a Company in winding-up, an application can be made by a creditor or a member and also
by the Official Liquidator. In such cases, the court shall have powers to choose the correct proposal.

Section 392 of the Companies Act,1956, also gives the Court the power to supervise the carrying out of
the scheme of compromise and give such directions in this regard or make any modifications in the
compromise or arrangement as it may consider necessary for the proper working of the compromise or
arrangement. Section 392(1)(b) vests an equitable power in the Court to be exercised appropriately
depending upon the circumstances.

The powers under Section 392 are not unlimited. It can be invoked only when the circumstances
necessitate the Court to do so. This power can be exercised not only at the time of the sanctioning of
the scheme but also at any time after the implementation of the scheme. Modification shall be
considered for the proper working of the scheme.

Section 392 also empowers the court to order winding -up. The power of the Court to order winding-up
is exercisable only when the compromise or arrangement cannot be worked up satisfactorily with or
without modifications.

Powers Of The Central Government:

Section 394A of the Companies Act 1956 provides that, the Court shall give notice of every application
made to it under Section 391 to 394 to the Central Government and shall take into consideration the
representations made by the Central Government before passing the order under any of these

The powers of the Central Government have been delegated to the Regional Director. The role of the
Central Government is secondary, sub-ordinate and supplementary. The role is to be performed only
by means of assisting the High Court to weigh the various issues before sanctioning the scheme. The
Central Government acts as an Ombudsman, who observes the scheme in public interest.

The Regional Director before making any representations shall consider the following :

       Reduction of costs, transfer of assets and absorption of losses.

       Approval by shareholders.

       Power to amalgamate.

       Power to do the Business of the transferor Company in the object clause of the transferee

       Authorised share capital of the transferee Company to be large enough.

       Majority of the shareholders of the transferor Company would also be the shareholders of the
       transferee Company.

       A prayer of dissolution of the transferor Company without winding-up.

       The exchange ration to be fair and reasonable.


Mergers may involve listed Company being the transferor Company or an unlisted Company as a
transferor Company. Where an unlisted Company is merged with a listed Company, the merger does
not affect the listing agreement between the transferee Company and the stock exchange. The
transferor Company shareholders get shares of a listed Company in lieu of the shares held in an
unlisted Company. The shares so issued by the transferee Company shall also be listed by the stock

Where the transferor Company is a listed Company but the transferee Company is an unlisted
Company, the listing of the shares from the newly amalgamated Company does not take place
automatically. The earlier listing agreement between the exchange and the transferor (listed) Company
does not seem to continue. The transferee Company should approach the stock exchange to enter into
a listing agreement de-novo only as a matter of procedural requirement if referred to as such in the

Sometimes a scheme may involve in such a way that the shares may be delisted. This cannot be given
effect to unless the members who are entitled to vote have been given information to that effect in
addition to including the matter as part of a scheme. No Company can unilaterally declare that its
shares have been delisted consequent to a scheme unless the Company has complied with the due


If the transferor company involves any shareholder from outside the country such person will be
allotted the shares of the transferee company in accordance with the Foreign Exchange Management
(Transfer or issue of shares by persons resident outside India) Regulations, 2000


As per the Accounting Standard 14 amalgamations is of two types

    • An Amalgamation in the nature of merger
    • An Amalgamation in the nature of Purchase(Acquisition)

Amalgamation in the nature of merger:

This method is also called as pooling of interest method. Under this method the assets and liabilities
and reserves of the transferor company are recorded by the transferee company at their existing
carrying values. If the companies having the different policies of accounting a uniform set of accounting
policies is adopted following the amalgamation. The effects on the financial statements of any changes
in accounting policies are reported in accordance with AS 5.

Amalgamation in the nature of merger’ is the one which satisfies all the following conditions:-

1. All assets and liabilities of the transferor Company become the assets and liabilities of the
transferee Company .

2. Shareholders holding not less than 90% of the face value of the equity shares of the transferor
Company become equity shareholders of the transferee Company by virtue of amalgamation.

3. The consideration receivable for the amalgamation by those equity shareholders of the transferor
Company who agree to become equity shareholders of the transferee Company is discharged by the
transferee Company wholly by the issue of equity shares in the transferee Company, except that cash
may be paid in respect of any fractional shares.

4. The business of the transferor Company is intended to be carried on, after the amalgamation, by the
transferee Company.

5. No adjustment is intended to be made to the book value of the assets and liabilities of the transferor
Company when they are incorporated in the financial statements of the transferee except to ensure
uniformity in the accounting policies.

Treatment of reserves of Transferor Company:

The identity of the reserves of the transferor company is preserved in the books of the transferee
company. For instance the General Reserve of the transferor company becomes the reserve of the
transferee company. The amount available for distribution of dividend will be available to the transferee

Amalgamation in the nature of Purchase:

This method is applicable the amalgamation other than the amalgamation in the nature of merger.
Under this method the assets and liabilities of the transferor company are recorded either at the book
value or by discharging separate consideration for identifiable assets and liabilities. The identifiable
assets and liabilities also include the assets and liabilities which are not recorded in the books of the
transferor company

Determination of the purchase consideration:

The consideration for the purchase of assets may be discharged either by way of issue of securities of
the transferor company or by way of cash. Amount of consideration will be determined after computing
the fair value of the assets. The Fair value of the assets is required to be computed as per the
guidelines issued by the Controller of Capital issues of India.

Valuation Of Shares:

The Company may adopt any of the methods mentioned below for the valuation of the shares:

1)      Market value of Shares.

2)      Intrinsic value or book value Method.

3)      Yield Method.

4)      Earnings per share (EPS) Method.

5)      Earnings (of the Company) Method.

The valuation of the shares shall be done by the Auditors of the Company.

Treatment of Goodwill arising on amalgamation:

If the purchase consideration is paid more than the assets acquired in the transferee company the
result will the emergence of goodwill. The goodwill will be amortized over a period of time generally five
years unless lesser time is prescribed.

The above are the common procedures in every kind of amalgamation or merger. Apart from the above
the financial statements of the transferee company should disclose in its first financial statements after
amalgamation the details as required in the Accounting Standard.


Income Tax Act, 1961 is the Act to determine the tax on the income arising from various sources of
income. Section 45 of the Income tax Act charges tax on the Income arising out of transfer of a capital
asset. In the case of amalgamation also there is a transfer of capital assets by the transferor company
to the transferee company, but section 47 of the Act treats certain transfers as not transfer.

Section 47 (vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating
company to the amalgamated company if the amalgamated company is an Indian company;

        (via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held
in an Indian company, by the amalgamating foreign company to the amalgamated foreign company,

        (a)    at least twenty-five per cent of the shareholders of the amalgamating foreign company
continue to remain shareholders of the amalgamated foreign company, and

      (b)     such transfer does not attract tax on capital gains in the country, in which the
amalgamating company is incorporated;]

          (viaa) any transfer, in a scheme of amalgamation of a banking company with a banking
institution sanctioned and brought into force by the Central Government under sub-section (7) of
section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company
to the banking institution.

Hence transfer of shares by the shareholders of amalgamating company to the amalgamated company
is not considered as transfer. Provided the amalgamation should happen as per the definition of the
amalgamation provided under the Income Tax Act.

Income Tax Act defines amalgamation as “amalgamation”, in relation to companies, means the merger
of one or more companies with another company or the merger of two or more companies to form one
company (the company or companies which so merge being referred to as the amalgamating company
or companies and the company with which they merge or which is formed as a result of the merger, as
the amalgamated company) in such a manner that—

       (i) All the property of the amalgamating company or companies immediately before the
           amalgamation becomes the property of the amalgamated company by virtue of the

       (ii) All the liabilities of the amalgamating company or companies immediately before the
            amalgamation become the liabilities of the amalgamated company by virtue of the
      (iii) Shareholders holding not less than [three-fourths] in value of the shares in the
            amalgamating company or companies (other than shares already held therein immediately
            before the amalgamation by, or by a nominee for, the amalgamated company or its
            subsidiary) become shareholders of the amalgamated company by virtue of the

Otherwise than as a result of the acquisition of the property of one company by another company
pursuant to the purchase of such property by the other company or as a result of the distribution of
such property to the other company after the winding up of the first-mentioned company.

The Expenditure incurred by the transferor company and such company is eligible for the deductions
under various sections of the Income Tax Act, 1961 are also available to the transferee company for
the remaining period of the deduction allowed under the provisions. Under the Following section the
deduction may be continued to transferee company.

1.     Deduction in expenditure incurred in affecting amalgamation under Section 35DD.

2.     Depreciation under Section 32.

3.     Deduction in expenditure on Scientific Research under Section 35(5).

4.     Deduction in expenditure on acquisition of Patent/ Copyright under Section 35A (6).

5.     Deduction in expenditure on Know-how under Section 35AB.

6.    Deduction in expenditure for license to operate telecommunication       services    under Section
35ABB (6).

7.     Deduction in expenditure for prospecting for minerals or development of mines under Section
35E (7A).

8.     Deduction in respect of profits of priority industry or new undertaking under Chapter VIA.

9.     Transferee Company can claim deduction for Bad Debts of the transferor Company.

10.   Taxes deducted at source for amalgamating Company are available for                amalgamated


As we have already seen in taxation aspects, any foreign company which transfers its shareholding in
the Indian company to any other foreign company the resulting transfer will not be a transfer as per the
provisions of section 47 (via). However if the conditions provided in that section are not satisfied the
transaction amounts to transfer and the capital gains tax is levied.

If such capital gains are also taxable in the host country then the provisions of Double Taxation
Avoidance Agreements will be applicable and the amount will be taxed either in the country where the
transaction has taken place or in the country where the capital asset is situated.

In case of any dispute between the Tax authorities and the proposed assessee will be resolved by the
Authority for advance rulings or the Tax authorities.


Stamp duty on transfer of the property of the transferor company to Transferee Company has to be
paid. The stamp duty is paid on the Court Order. The court order is considered as an instrument under
the stamp Acts of various states in India. Hence a stamp duty at the percentage provided in the
relevant state stamp Acts is levied on the Court Order. However, if the property intended to be
transferred is less than Rs. 100 then stamp duty will not be paid.

11.     COMPETITION ACT, 2002

 The competition Act has come into force and the main object of the Act is to establish the fair
 competition in the Indian Economy. As mergers and amalgamations are used as a tool to avoid
 competition in the economy Competition Act, 2002 has made the provisions to protect the competition.
 MRTP was concentrating on the curbing of monopoly while the Competition Act concentrates on the
 promotion of Competition in addition to curbing monopoly. Competition Act, 2002 has brought the
 concept of Combinations under section 6 of the Act. The word combination can be used as substitute
 to the word merger.

 Combination means acquisition of control, voting right or assets of an enterprise by a person who is
 already controlling or owning the assets or exercising the voting rights of an enterprise engaged in the
 same business activities of the enterprise proposed to be acquired and mergers and amalgamations
 will take the shape of combinations when the entities getting merged or amalgamated crosses the

 threshold limits provided under section 6 of the Act. Such provision will be applicable for an acquisition
 by a foreign entity an Indian company or by an Indian company a foreign company.

 Combinations are allowed provided there should not be any Appreciable Adverse Affect (A3) on the
 Indian economy. Any combination which has adverse effect on the Indian economy is void.

 Merging entities, when crosses the threshold limits, have to notify the commission about the merger
 and failure of which may cause huge penalties and the demerger of the merged entities. The
 notification is required to be made within 30 days from the date of approval by the Board of directors
 of the merging entities or of the date of entering into any agreement with each other. The commission
 will hold the approval for a period of 210 days. The combination is deemed to have approved if
 nothing is asked against to the merging entities.

 In exercise of the powers conferred by sub-section (3) of section 1 of the Competition Act, 2002 (12 of
 2003), the Central Government appoints the first day of June, 2011 as the date on which sections 5,
 6, 20, 29, 30 and section 31 of the said Act shall come into force.

 Threshold limits

    1. Combined assets of the enterprises value more than 1,500 crores or combined turnover is
       more than 4,500 crores. In case either or both of the enterprises have assets/turnover outside
       India also, then the combined assets of the enterprises value more than US$ 500 millions,
       including at least 500 crores in India, or turnover is more than US$1500 millions, including at
       least 1,500 crores in India .

    2. Combined assets of the group to which the acquired enterprise would belong being more than
       6,000 crores or such group having a joint turnover more than 18,000 crores after acquisition or
       merger. In case such group has assets/turnover outside India, then the combined assets of the
       group value more than US$ 2 billion, including at least 500 crores in India or turnover is more
       than US$6 billion including at least 1,500 crores in India.

    3. Group is defined in the Act. Two enterprises belong to a “group” if one is in position to
       exercises at least 26% voting rights or appoint at least 50% of the directors or controls the
       management or affairs in the other.

However, In exercise of the powers conferred by clause (a) of section 54 of the Competition Act, 2002
(12 of 2003), the Central Government, in public interest, exempts an enterprise, whose control, shares,
voting rights or assets are being acquired has assets of the value of not more than 250/- crores or
turnover of not more than750/- crores from the provisions of section 5 of the said Act for a period of five

In exercise of the powers conferred by clause (a) of section 54 of the Competition Act, 2002 (12 of
2003), the Central Government, in public interest, hereby exempts the 'Group' exercising less than fifty
per cent of voting rights in other enterprise from the provisions of section 5 of the said Act for a period
of five years.

There are certain exemptions for mandatory notification. When the combination is happening due to
the pre agreements with the financial institutions then it is not required to make the notification.7

    Merging and amalgamating companies have to be aware of the provisions of the competition Act,
    2002 and to comply with the provisions of the Act.


Please refer the conclusion part.


    Drafting of legal documents is a skilled person’s job and needs to have a clear understanding of the
    laws supporting the document to be drafted. Experts have provided certain principles of drafting of
    legal documents such as flowers five rule of drafting. In the beginning scheme of amalgamation
    contains the clauses particularly about the general information of the transferor and transferee
    company such as the date of incorporation, capital structure and the financial information and the
    situation of Registered Office of said companies. Subsequent clauses such as benefits of
    amalgamation, merger or arrangement have to be drafted with examples so that the benefit should be
    understood by shareholders of the company without much effort. The accounting treatment for the
    amalgamation or merger should be as discussed in the Para VI of this material (i.e. Accounting
    Standard 14 issued by the Institute of Chartered Accountants of India). The tax benefits should be
    clearly listed out so that the regulators can assess that the companies are completely complied with
    the provisions of Income Tax Act, 1961. The human aspects such as protection to the employees of
    the transferor companies should be clearly shown in the scheme. Apart from these important clauses
    the scheme includes the clauses based on the requirements of the companies involved in the merger
    provided the requirements should be permitted by the laws. (Please refer Annexure I for a template of
    the Scheme)

    Section 6(4) of the Competition Act, 2002

    Often the courts have tried to clear certain terms of the companies Act about the matters coming on
    the amalgamation or merger. As the scheme requires the approval of the high court having
    jurisdiction, court before offering its approval seeks the reports from the regional director and the
    regional directors needs the report from the registrar of companies. The duty of the registrar of
    companies in connection with the mergers and amalgamation is to check whether the company’s
    court rules have been complied with or not and also the provisions of section 391 to 394 of the
    companies act, 1956. There are certain important judgments some of which are in favour of the
    companies but some are not. The following are some of the important cases.

    1. Foreign company having substantial assets and business in India under the directions of Reserve
       Bank of India seeking amalgamation of its undertaking in India with Indian company formed for the
       purpose – Scheme sanctioned8

    Section 390 (a) of the Companies Act, 1956 defines the expression company as any company liable
    to wound up under the Act. This expression means any company which is subject to winding up
    provisions contained in the Act. Section 390 (a) of the Act is thus applicable to bodies corporate
    incorporated outside India. If the court has jurisdiction to wind up a company on any of the grounds
    specified in the Act, whether it is and Indian Company or a foreign company, it follows that such a
    company is liable to be wound up under the Act on proof of applicable grounds for winding up and
    such a company is subject to the jurisdiction of the court to sanction the scheme of its amalgamation
    with a company incorporated under the Companies Act, 1956. The company, B, Registered in the
    U.K. in 1862 under the Joint Stock Companies Act, 1862 under the Joint Stock Companies Act, 1856-
    57, and re- registered under the Companies Act, 1948, had its registered office at London and its
    head office in Bombay. It had substantial assets in India and did the business of manufacture,
    distribution and sale of gas in Bombay through a network of pipelines installed for the purpose. Some
    time prior to February 9, 1982, the Reserve Bank of India issued directions to the British company
    under section 29(2) (a) of the Foreign Exchange Regulation Act, 1973 ( Now Foreign Exchange
    Management Act, 1999). On February 9, 1982 , the petitioner company was incorporated with the
    main object of acquiring the Indian undertaking, business and all assets the assets of the British
    company situated in India in terms of the Reserve Bank Directions and a scheme of amalgamation
    was presented. The Scheme provided that with effect from the commencement of the business “on
    January 1, 1982,” called the appointed date and subject to the terms and conditions set out therein,
    the entire business and undertaking in India of the British company including all its business and other
    assets etc., situate in India shall be deemed and stand transferred to and vested in the transferee
    company pursuant to section 394 of the Companies Act, 1956. By clause 20 of the said scheme

    Bombay Gas Co. Pvt. Ltd V. Central Government (1997) 89 Comp Cas 195 (Bom)
although operative from the “appointed date”, shall take effect finally upon and from the date on which
the sanction or and from the date on which the sanction or provision or orders shall be last obtained,
which shall be the effective date for purpose of the said scheme. Clause 1 of the scheme provided
that with a view to effectuate the amalgamation of Indian undertaking of the British company with the
transferee company, the British company shall take such necessary steps as were required under the
applicable laws of the United Kingdom for dissolution of the English company. The Scheme was duly
approved by the shareholders at meetings convened for the purpose. On October 7, 1986, the
Registrar of Companies, U.K., directed that the name of the British company can be struck off the
Register as contemplated under Section 652 of the (British) Companies Act, 1985. Upon petitions by
the companies and after notice to the Central Government, on January 29, 1988, the scheme was
sanctioned by the Bombay High Court.

The applicants, a shareholder and a person claiming the beneficial ownership of shares in English
company objected to the sanction:

Court held that (i) since the British Company had been restored to register on July 20, 1995, in
pursuance of the Order of the Court dated July 5, 1995; the order of restoration would have its full
effect as provided in law. It had to be conclusively assumed as a matter of law that the British
Company was in existence ob January 29, 1988 and at all times thereafter as well. (ii) That the
appointed date was stipulated in the scheme only for the purpose of Identification and quantification of
assets on a particular date which were sought to be transferred to the transferee company. Clause 20
of the scheme in terms provided that the scheme shall take effect finally upon and from the date on
which the necessary sanction or approval was last obtained. (HCL Hewlett Packard Ltd., In re(1944)
80 Comp Cases 228 (Delhi) followed

(iii) That under section 394 (4) (b) of the Companies Act, the transferor company referred to in the
scheme of amalgamation could be a body corporate incorporated outside India. The Court had the
requisite jurisdiction to sanction a scheme of amalgamation pertaining to the Indian undertaking of a
foreign company with the consent of the Reserve Bank of India, but the transferee company could not
be a foreign company. In this case, the transferor company was a foreign company but the transferee
company was an Indian Company. Section 584 of the Act did not prohibit or restrict the jurisdiction of
the Court to wind up a foreign company or sanction the amalgamation of the Indian undertaking of a
foreign company with an Indian Company as required by the Reserve Bank of India. Khandelwal
Udyog Ltd. and Acme Manufacturing Ltd., In re(1977) 47 Comp Cas 503 (Bom) relied on

(iv) That the petitioner company had stated in affidavit that it did not have adequate knowledge of the
order passed by the Registrar of Companies, U.K. striking off the name of the British company from
the register at the material time and that the petitioner discovered the said fact only in July 1990. The
onus of proving the fraud was on the applicants. The applicants failed to prove the fraud.

    2. Court will sanction the scheme if alteration of the memorandum is by reshuffling of the Objects
       Clause by shifting Other Objects of Main Objects, if Transferee Company has complied with
       provisions of Section 149 (2A).9

    3. Where amalgamation involves reorganization of capital by reduction thereof, the provisions of
       Sections 100 to 102 of the Companies Act need to be complied with vide rule 85 of Companies
       (Court) Rules. However, it has been held that if reduction of capital is a part of scheme of
       amalgamation, those provisions are substantially complied with when the scheme is approved by
       shareholders and court. Therefore no separate compliance is required.10

    4. Post Amalgamation events such as increase of capital or total number of members exceeding fifty
       (in case of Private Company) cannot affect sanction of a scheme.11

15.        CONCLUSION

    The primary reasons, for adopting this route of Amalgamation or Merger, being, Tax sops,
    unambiguous procedures, reduction in costs, more effective utilization of resources, availability of
    expert and professional advice and services, etc.

    A Merger might be undertaken to make two units more efficient by the resulting operating economy.

    Another reason for which Merger may be resorted to is to prevent cyclical phases of a Company.
    Another important advantage of a merger taking place is the freedom available to the management of
    the merged Company to transfer resources of one of the units for the benefit of another unit within the
    merged Company. When the companies merge together and form one combined unit, resources such
    as men, material, machine and money can be freely transferred among all these units.

    Mergers might also result in the better financing of two companies. They can be viewed as a growth a
    strategy and is a means for acquiring resources- physical, technical and managerial.

    However one should be aware that Mergers and Amalgamations are not always successful or they
    may not always be a boon for the merging companies. There can be serious managerial problems
    due to improper Mergers. If two companies with different kinds of management cultures are merged
    together, serious frictions can arise and finally lead to lower productivity and profitability for both the

  [Re: Rangakala Investments Ltd. (1996) 1 Comp LJ 298 (Guj)]
   [Re: Maneckchowk and Ahmedabad Mfg. Co. Ltd. (1970) 40 Comp Cas 819 (Guj)]
   [Re: Winfield Agro Services Pvt. Ltd. (1996) 3- Comp LJ 347 (AP)]
It has been found by the research that a company incorporated outside India cannot directly merge or
amalgamate with an Indian company without incorporating its subsidiary company in India. As the
merger requires the approval of High court having jurisdiction it is not clear as to the jurisdiction of the
foreign court under the Companies Act, 1956 to approve for the scheme of amalgamation with an
Indian Company.



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