Legal Procedure in the case of a Merger

Relevant legal provisions:

1. Section 230, 231, 232 of the Companies Act, 2013.

2. Rules 3, 5, 6, 7, 8, 12, 13, 14, 15, 16, and 17 of Companies (Compromises,

Arrangements and Amalgamations) Rules, 2016.

3. Regulation 11, 37, 94 of SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2015 (in case of a listed entity).

Steps involved:

1. Authorization by the Articles of Association

The transferor and the transferee Company shall be authorized by their respective

AOAs for the merger. If the AOAs do not permit them to conduct the merger, then

their respective AOAs shall be altered.

2. Drafting of the Merger Scheme

3. Calling of Board Meeting

According to Section 173 (3) of the Companies Act, 2013 a meeting of the Board

shall be called by giving a notice at least 7 days prior in writing to every director.

Both the Transferor and Transferee companies are required to pass resolution to

amalgamate with another company in the Board Meeting. The Draft of Merger

Scheme shall also be considered.

4. Application to NCLT (First Motion):

A. The Transferor and the Transferee shall file an application to NCLT in Form

NCLT-01 along with:

i. Copy of Scheme with disclosures u/s 230(2) of the CA, 2013 by way of

affidavit, which are as follows:

a. All material facts relating to the company including latest financial

position of the company, the latest auditor’s report on the accounts of

the company and any legal proceeding against the company.

b. Reduction of share capital of the company, if any, included in the

compromise or arrangement

c. Any scheme of corporate debt restructuring consented to by not less

than 75% of the secured creditors in value.

ii. A Notice of Admission in Form No. NCLT-02

iii. Affidavit in Form No. NCLT-06

iv. NOCs from both creditors and shareholders (seeking dispensation of

meeting of shareholders and creditors, by way of affidavit).

v. A certificate from the Auditors of the Company to the effect that the

accounting treatment in the scheme of the compromise or arrangement is

in conformity with the accounting standards prescribed u/s 133.

vi. The Fee prescribed.

B. Upon the application, NCLT may direct a meeting of the creditors or class of

creditors or the members or class of members and debenture holders to consider

the scheme of merger/ amalgamation as per Section S.232 (1)(a) & (b), S.230(3)–

(6) read with Rule 5. Meeting of creditors can be dispensed with if 90% of the
 value of creditors give their consent under Section 230 (9). After hearing the

application, NCLT shall, unless it thinks fit for any reason to dismiss the

application, give such directions as per Rule 5.

C. The Transferor and the Transferee companies shall send notice of the meeting to

the members/ creditors in compliance of the order of the NCLT in Form CAA-02,

30 days prior to the date fixed for meeting. (Section 230 (3)- (6) read with Rule6).

It shall be accompanied by a copy of the draft scheme, explanatory statement,

confirmation of drafting of the scheme with the ROC, report by Directors,

supplementary accounting statement.

D. The notice of the meeting shall be published in one English and one vernacular

newspaper as may be directed by the NCLT (Rule 7) and send notice to other

authorities including CG, IT Authorities, ROC as the case may be (Section 230(5)

r/w Rule8) in Form CAA-3.

E. The transferor & the transferee Companies shall file an affidavit of service

(Section 232 read with rule -12) to NCLT at least 7 days prior the meeting, along

with Statement that the directions regarding the issue of notices and the

advertisement have been duly complied with in the affidavit itself. Subsequently,

the meeting shall convene at the earliest.

F. Chairpersons of the meeting of both the companies shall submit result of the

creditors/ members meeting in Form CAA-4 within 3 days of conclusion of the

meeting. (Section – 230 (6) read with rule 14).

5. Application to NCLT (Second Motion):

A. Both the Companies shall file the Petition to the NCLT in Form CAA-5 along

with an Affidavit in Form NCLT-6 in support of the petition and verifying any

matter(s) not provided in any prior affidavit within 7 days of filing of report by

chairman (Section 232 read with rule 15).

B. Fixing the date of hearing for the Petition by the NCLT (Section 232 read with

rule 16(1).

C. Sending of notice of hearing by the NCLT to the objectors or to their

representatives u/s 230(4) and to the CG, IT authorities, ROC as the case may be

under Section 232 read with rule 16 (2). The Transferor/Transferee Company shall

publish advertisement in the same newspaper in which the notice of meeting was

published before 10 days the date fixed for hearing (Section -232 read with rule

16(1).

D. The NCLT shall conduct a final hearing and order for amalgamation in Form

CAA-7. (Section 232 read with Rule 19 and 20).

E. The transferee company shall file the order of the Tribunal to the ROC within 30

days of receipt of order in Form CAA-6. (Section 232 read with rule-17.

F. Both the Company shall file statement of compliance until the scheme is fully

implemented to ROC in Form CAA 8 duly certified by CA/CMA/CS in practice

within 210 days of the end of each financial year (Section 232 (7) read with rule-

21).
6. Other Provisions for a listed entity:

i. Regulation 11 Of SEBI (LODR) Regulations, 2015: The listed entity shall

ensure that the amalgamation scheme does not violate the provisions of Stock

Exchanges.

ii. The listed entity shall file a draft scheme with the Stock Exchange(s) for

obtaining Observation Letter or NOC before filing such scheme with the

NCLT. (Regulation 37)

iii. The Stock Exchange shall then submit to the SEBI its NOC on the draft

scheme, subject to ascertainment the conformity of the scheme with securities

laws within 30 days of receipt of the draft.

iv. The Stock Exchange shall issue the Observation Letter or the NOC to the

listed entity.