CORPORATE LAW 2 2019

Dr. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

TITLE FOR PROJECT

[MERGER AND ACQUISITION IN THE NEW ERA OF COMPANIES ACT]

For

COURSE ON ‘LAW OF CORPORATE LAW – II’

Submitted by
[DEVANSH PANDEY]

[164140019]

Under the Guidance of

Mr. Shail Shakya

Asst. Prof. in Law & Faculty for CORPORATE LAW-II
Faculty of Law
Dr. Shakuntala Misra National Rehabilitation University

1|Page
 CORPORATE LAW 2 2019

ACKNOWLEDGEMENT
The completion of this Assignment could not have been possible without the participation and
assistance of so many people whose names may not all the be enumerated. Their contribution is
sincerely appreciated and gratefully acknowledged. However, I would like to express my deep
appreciation and indebtedness particularly to the following.
Assistant Prof. Mr. Shail Shakya for his endless support, kind and understanding spirit during
making of this assignment. To all relatives, friends and others who in one way or another shared
their support, either morally, financially and physically, thank you.
Above all, to the Great Almighty God, the author of knowledge and wisdom, for his countless love.
I thank you all.
Devansh Pandey
3rd year Student
B.Com. LL.B(Hons.)

2|Page
 CORPORATE LAW 2 2019

Table of contents

Page.no

1. Introduction …………………………………………………… ……..............................4

2. Meaning of Mergers and Acquisitions…………………………………………………...5
3. Merger acquisition companies act 1956…………………………………………………5
4. Relevant provisions for merger & amalgamation………………………………………..6
5. Disclosures in connection with merger & amalgamation………………………………..6
6. Cross border merger & amalgamation…………………………………………………...8
7. Fast track merger………………………………………………………………………...9
8. Merger of a listed company into unlisted company……………………………………..9
9. Body of approving merger………………………………………………………………9
10. Valuation report………………………………………………………………………..10
11. Conclusion……………………………………………………………………………..10

3|Page
 CORPORATE LAW 2 2019

Introduction

All over the world, Economies are becoming more and more powerful with the help of
corporate restructuring strategies like mergers and acquisitions in order to face challenges
modelled by the new pattern of globalisation, which has led to the greater integration of national
and international markets 1. As all economy India revamp his companies’ act 1956 to make it
more contemporary and relevant to corporate, regulators and other stakeholders in India. While
several unsuccessful attempts have been made in the past to revise the existing 1956 Act, there
have been quite a few changes in the administrative portion and it include revamps in Merger
and Acquisition of the 1956 Act. After revamps the number of M&A deals has taken place to
a record level in terms of growth and value, among them Indian Corporate has played one of
dominant role. Cross-Border M&A deals has become one of the best choices of Indian firms
in order to expand their business domestically as well as internationally due to need of advance
technologies and cheaper finance. In this way a systematic, fast and liberal law is required to
boost M&A deals in Indian corporate word, so 60-year-old Companies Act, 1956 (‘1956 Act’)
was replaced by new Companies Act, 2013. The new Companies Act (2013) provides an
opportunity to catch up and make our corporate regulations more contemporary, as also
potentially to make our corporate regulatory framework a model to emulate for other
economies with similar characteristics and practices. It is stated further in the assignment about
the overall concept and changes in the procedure of Merger and Acquisitions, by elaborating
some provisions of new Companies Act, 2013”. The changes in the 2013 Act have far-reaching
implications that are set to significantly change the manner in which corporate operate in India.
In this publication, we have encapsulated the major changes as compared to the 1956 Act and
the potential implications of these changes. We have also included, where relevant, the
provisions of the draft rules, which have been issued by the Ministry of Corporate Affairs (the
MCA) till date for public comments. Such inclusions have been highlighted with an asterix at
the end of the sentence (*). However, please note that these are only draft rules and will undergo
changes before being notified 2The 2013 Act has introduced several new concepts and has also
tried to streamline many of the requirements by introducing new definitions. The assignment
covers some of these new concepts and definitions. A few of these significant aspects have
been discussed in detail3.

1 http://unijournal.in/wp-content/uploads/2016/02/Merger-Acquisition.pdf
2 https://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-analysis.pdf
3 https://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-analysis.pdf

4|Page
 CORPORATE LAW 2 2019

Meaning of Mergers and Acquisitions

The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and under
Income Tax Act, 1961 (“ITA”). However, the Companies Act, 2013 (“CA 2013”) without
strictly defining the term explains the concept 4.

The term merger includes consolidation, amalgamation and absorption. It refers to a situation
when two or more existing companies combine together and form a new company. Mergers or
amalgamation, result in the combination of two or more companies into one, wherein the
merging entities lose their identities, no fresh investment is made through this process.
However, an exchange of shares takes place between the entities involved in such a process.
Generally, the company that survives is the Purchasing or Transferee Company which acquires
the business of other company called as Vendor or Transferor Company i.e. the company
whose identity will be lost.

Merger acquisition companies act 1956

The Act lays down the legal procedures for mergers or acquisitions :-

• Permission for merger:-

Two or more companies can amalgamate only when the amalgamation is permitted under their
memorandum of association. Also, the acquiring company should have the permission in its
object clause to carry on the business of the acquired company. In the absence of these
provisions in the memorandum of association, it is necessary to seek the permission of the
shareholders, board of directors and the Company Law Board before affecting the merger.

• Information to the stock exchange:-

The acquiring and the acquired companies should inform the stock exchanges (where they are
listed) about the merger.

• Approval of board of directors:-

4http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acquisitions_in_I

ndia.pdf

5|Page
 CORPORATE LAW 2 2019
The board of directors of the individual companies should approve the draft proposal for
amalgamation and authorise the managements of the companies to further pursue the proposal.

• Application in the High Court:-

An application for approving the draft amalgamation proposal duly approved by the board of
directors of the individual companies should be made to the High Court.

• Shareholders' and creators' meetings:-

The individual companies should hold separate meetings of their shareholders and creditors for
approving the amalgamation scheme. At least, 75 percent of shareholders and creditors in
separate meeting, voting in person or by proxy, must accord their approval to the scheme.

• Sanction by the High Court:-

After the approval of the shareholders and creditors, on the petitions of the companies, the High
Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the
scheme is fair and reasonable. The date of the court's hearing will be published in two
newspapers, and also, the regional director of the Company Law Board will be intimated.

• Filing of the Court order:-

After the Court order, its certified true copies will be filed with the Registrar of Companies.

• Transfer of assets and liabilities:-

The assets and liabilities of the acquired company will be transferred to the acquiring company
in accordance with the approved scheme, with effect from the specified date.

Relevant provisions for merger & amalgamation

• Under Companies Act, 1956 – Section 390-396A.

• Under Companies Act, 2013- Section 230-2401

Merger is generally a scheme of arrangement or Compromise between a Company, Shareholders and

Creditors, whereas, A Merger of one or more Companies with another Company or Merger of two or
more Companies to form a new Company.

Disclosures in connection with merger & amalgamation

6|Page
 CORPORATE LAW 2 2019
• Under Companies Act, 1956

Tribunal had Power to sanction any compromise or arrangements with creditors and members
if satisfied that company or any other person by whom an application has been made (by way
of first motion Petition) has disclosed all material facts relating to company with an affidavit
such as latest financial position of the Company, accounts of the company, latest auditor's
report etc. For the compliance part, the notice of meeting was required to be sent along with
statement setting forth the terms of the compromise or arrangement and explaining its affect in
particular, the statement must state all material interest of directors of the company, whether in
their capacity as such or as member or creditors of company or otherwise. The tribunal should
also give notice to Central Government (Regional Director and Registrar of Companies) and
shall take into consideration the representations, if any, made to it by that government before
passing any order. Also, during the same period there was a requirement of newspaper
publication and any objections by any of the shareholders, creditors if any, be raised before the
Court during the hearing of the second motion Petition. All disclosure provision under 1956
Companies Act has been stated.5

• Under Companies Act, 2013

The provisions of section 230 of the Companies Act, 2013 provide the additional disclosure if
the proposed scheme involves; Reduction of Share Capital or the scheme is of Corporate Debt
restructuring; consented not less than 75% in value of secured creditors, Every notice of
meeting about scheme to disclose valuation report explaining affection various shareholders.
Further, no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate
by the company's auditor has been filed with the Tribunal to the effect that the accounting
treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with
the accounting standards prescribed under section 133 of the Companies Act, 2013.

As per the provisions of Companies Act, 2013 dealing with the Arrangements; notice of
meeting to consider Compromise or arrangement to be given to Central Government, Income
Tax Authorities, Reserve Bank, Securities Exchange Board of India, Registrar of Companies,
respective Stock Exchange, Official Liquidator, Competition Commission of India and other
Authorities likely to be affected by the same.

5 Section 391, 393 and 394 A of Companies Act, 1956

7|Page
 CORPORATE LAW 2 2019
These Authorities can voice their concern within 30 days of receipt of notice, failing which it
will be presumed that they have no objection to the scheme 6.

Cross border merger & amalgamation

• Under Companies Act, 1956

As per section 394, Court can sanction arrangement between two or more Companies where
whole or part of undertaking, property or liability of any company referred to as transferor
Company is to be transferred to another company referred as transferee company. According
to the provisions of Companies Act, 1956, Inbound merger (Foreign Company merges into an
Indian Company) was permissible however, outbound merger (Indian company cannot merge
with foreign Company) was not allowed. According to this section only inbound merger is
allowed where transferor/target company means any body corporate whether or not registered
under 1956 Act, that a foreign company could be transferor or target company. Transferee
Company means an Indian Company. Cross Border merger allowed under 1956 Act as long as
the Acquirer/transferee is Indian Company.

• Under Companies Act, 2013

In bound and out bond foreign company merger are allowed, which means Foreign Company
merging into Indian Company and Indian Company merging into foreign Company could be
done with RBI approval. Therefore both these options are open under 2013 Act if foreign
companies to be in notified countries, under Exchange Control Regulation, shares can be issued
under Automatic route to non- resident, subject to certain consideration, consideration to
shareholders of merging Company may include cash, depository receipts or combination of
both. This section has widen the scope for Indian Companies as now they have both options of
arrangement7.

Fast track merger

6 Section 230(5) of Companies Act, 2013

7 Section 234 of Companies Act, 2013

8|Page
 CORPORATE LAW 2 2019
Fast Track merger or quick form merger is the new provision which is added in Companies
Act, 2013. Fast track merger is merger between two or more small companies8, holding
company and its wholly own subsidiary and such other company as may be prescribed.

Fast Track merger does not involve Court or Tribunal, approval of National Company Law
Tribunal is also not required. For fast track merger board of directors of both the Companies
would approve the scheme. However, notice has to be issued to ROC and official liquidator
and objections / suggestions has to be placed before the members. The scheme needs to be
approved by members holding at least 90 percent of the total number of shares or by creditors
representing nine-tenths in value of the creditors or class of creditors of respective
companies.9 Once the scheme is approved, notice would have to be given to the Central
Government, ROC and Official Liquidator. NCLT may confirm the scheme or order that
consider as normal merger under section 232 of Companies Act, 2013.

Therefore Fast track merger will be a speedy process as it does not require approval for NCLT
available to certain kind of truncations. It opens the scope for small companies who wanted to
merge and can propose the scheme of Merger or Amalgamation through their Board of
directors. There is also no requirement for sending notices to RBI or income-tax or providing
a valuation report or providing auditor certificate for complying with the accounting standard.

Merger of a listed company into unlisted company10

The Companies Act, 2013 requires that in case of merger between a listed transferor company
and an unlisted transferee company, transferee company would continue to be unlisted until it
becomes listed. Shareholders of listed Company have the option to exit on payment of value
of their shares, as otherwise they will continue as a shareholder of the unlisted company. the
Payment to such shareholders willing to exit shall be made on pre-determined price formula or
after valuation. Whereas; under Companies Act, 1956 there was no such provision. Therefore
reverse merger of listed Company into an unlisted Company does not automatically result in a
listing of surviving entity, which may be the unlisted Company.

Body of approving merger

8 Small companies is defined in section 2(85) of Companies Act, 2013

9Section 233 of Companies Act, 2013
10 Section 232(3)(h) of Companies Act, 2013

9|Page
 CORPORATE LAW 2 2019
Approval of scheme requires an independent body of oversight and fairness. According to 1956
Companies Act , scheme of arrangement was to be approved by respective High Court which
has jurisdiction over Acquirer and Target companies. Whereas under Companies Act, 2013
National Company Law Tribunal will deal with matters related to Merger & Acquisition.
NCLT would be one specified body dealing with cases opposed to multiple High Court in case
of the companies falling under the jurisdiction of different high courts.

Valuation report

The 2013 Act makes it mandatory that notice of meeting to discuss a scheme must be
accompanied by valuation report prepared by an expert whereas, Companies Act,1956 Act is
silent on disclosing the valuation report to the stakeholders, as a matter of transparency and
good corporate governance. Courts also required annexing of the valuation report to the
application submitted before them11.

Conclusion

It seems that Companies Act, 2013 makes merger process more efficient but it also has some
obscurity which need to be modified in order to reduce or avoid any complexity in the process
which can be identified once the corresponding sections are notified. The outbound mergers
now being allowed (when notified) open an opportunity towards globalization.

11http://www.mondaq.com/india/x/411816/Shareholders/Key+Comparison+Between+Companies+Act+1956+

Companies+Act+2013+Merger+Amalgamation+Perspective

10 | P a g e
 CORPORATE LAW 2 2019

Bibliography
1. Primary sources
• Companies Act,2013
• Companies Act, 1956

2. Secondary sources

Books

• Company law, Avtar Singh

• Company law ,G.K Kapoor

3. Internet

• http://unijournal.in/wp-content/uploads/2016/02/Merger-Acquisition.pdf
• https://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-
analysis.pdf
• http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acquisiti
ons_in_India.pdf
• http://www.mondaq.com/india/x/411816/Shareholders/Key+Comparison+Between+Companies+Act
+1956+Companies+Act+2013+Merger+Amalgamation+Perspective

11 | P a g e