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What Are The Legal Procedures For Amalgamation Of Companies?

Companies evolve internally and externally to achieve the business objective of the company. Amalgamation is one among such common business moves in the corporate world wherein a company combines with one or more companies and resultantly forms a new company.

An amalgamation can take place in two forms, the first category where two or more companies merge together to form a new company altogether or the second category which is a process of absorption where the prior entity ceases to exist, as the company that absorbs will have taken the assets and liabilities in addition to ownership.

Judicial pronouncements have noted that the process for amalgamation of companies is to be executed in a prudent and bona fide manner, as per a reasonable ‘man of business’ and in compliance with each provision of the statute. The procedure or steps to be taken while undertaking an amalgamation is regulated under the Companies Act of 2013 and Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 of the Companies Act of 2013.

The procedure for Amalgamation Of Company has been given below:

1. Memorandum of Association

Primarily the Memorandum of Association of the Company must allow for the company to amalgamate. If the MOA does not provide for the same, there is a need to amend such before proceeding with any other step.

2. Board Meeting

A Board Meeting shall then be held to decide on the approval of the amalgamation scheme.

3. Application for order of Meeting

Application for the order of meeting to the tribunal shall be made. The application shall be in Form NCLT-1. In addition to this application a notice of admission and affidavit in the prescribed form, copy of the amalgamation scheme with prescribed disclosure must be made. The requisite fee shall also be remitted. Such fee is prescribed in the Schedule under the Rules.

Joint Applications can also be made by companies. The companies are required to disclose to the tribunal the reason for which the creditors are identified for scheme approval. The Tribunal then directs with respect to among whom the meeting shall be held, the place and time of the same, the appointment of a chairman, the quorum of the meeting, determination of the value of the creditors and members, meeting notice and advertisement of the same, notice to appropriate authorities, stipulated time within which the report of such meeting shall be submitted and other matters that may be of importance in this regard.

4. Notice of Meeting

The notice of such meeting shall be served in Form CAA 2 to all the creditors, members and debenture holders. The notice will be sent one month prior the meeting date at their address. In addition to the notice, the scheme of the amalgamation along with appropriate disclosure shall be sent too. They include the direction of tribunal, details of the company, date of the meeting in which such scheme was given approval and by whom, statement containing information about the parties, relevant dates, share ratio, gist of the evaluation report and such other relevant details, disclosure regarding the effect of arrangement on various internal and external stakeholders and details of several other documents as mentioned in Rule 6  (ix).

5. Advertisement of Meeting

Advertisements of the notice of the meeting shall be advertised in an English newspaper and a vernacular newspaper in the state wherein the registered office of the Company exists. Companies are required to put the information of the notice on their websites too.

6. Notice to Statutory Authorities

Notice is also required to be sent to several statutory authorities. These authorities include the Central Government, the income-tax authorities, the Reserve Bank of India, the Registrar of Companies, the Official Liquidator, the Competition Commission of India and any such other appropriate authority. Any authority can make any representation regarding the scheme before the expiry of a month to the tribunal.

7. Affidavit

The Chairman or any other person who has been entitled with the duty of sending the notices to all the people and authorities required and issue the advertisement is require to file an affidavit to the tribunal a week before the meeting stating that all the direction that was issued by the tribunal regarding the meeting complied with respect to the notice and the advertisement.

8. Meeting

Pursuant to all the above steps, the meeting shall take place. The meeting shall decide through voting regarding the approval or disapproval of the scheme.  A majority vote of three-fourths in the meeting shall decide. Such voting may be through meeting in person by polling or through the usage of electronic machines of voting or through postal ballot or through proxy.

9. Report of Meeting

Report of the meeting that was held shall be submitted by the Chairman of such meeting within the stipulated time, if no time had been stipulated, he shall do so by latest three days post conclusion of the meeting. Submission of report shall lay to the Tribunal. The submission shall be in the prescribed form. The report shall contain within itself the decision of the meeting, the members and creditors who were present at the meeting, how many votes were casted in favour or otherwise, the mode of such voting whether it was through the post, electronic machine or through polling, the value of such votes, all the details are to be put in the reported inaccuracy.

10. Petition

If the scheme has received approval by the required majority be it with or without any change in the scheme of amalgamation, the company or the official liquidator of such company within a week after submission of the report of the meeting, submit to the tribunal a petition in the prescribed form for sanctioning the amalgamation. The petition in this regard will have a prayer for the issuance of appropriate directions from the Tribunal. When the company does not present any other person in relation to the scheme can submit such petition for sanction with the permission of the Court.

11. Date of Hearing

On receipt of such notice the Tribunal shall fixate a hearing date in this regard. Such decided date shall be served in the form of notice at least ten days in prior to the decided date to the persons who object or any representatives or to the statutory authorities who had sent representation regarding the amalgamation. Such date shall also be advertised in the newspaper in which it was published before or any such newspaper that the tribunal deems fit.

12. Order on Petition

The order on the petition is then rendered by the Tribunal. The order shall be in prescribed for either sanctioning the scheme of amalgamation or otherwise. The order shall contain within itself directing any changes to be done in the scheme or not in the interest of smooth working of such amalgamation. After the receipt of this order the Company is required to submit a copy of such order which is certified to the Registrar of Companies within a month.

The date from which such amalgamation will be effective is required to be mentioned in the scheme of amalgamation. The amalgamation will be understood to be effective from such decided date. Till the scheme is completely implemented every year the company is required to make a report to the Registrar of Companies certified by a CA or CS that the scheme is under process in compliance and order of the Tribunal.

This concludes the procedure of Amalgamation of the Companies. The old Act that is the Companies Act of 1956 entrusted this responsibility with the High Court. The 2013 Act replaced the High Court with the National Company Law Tribunal and made the process faster and allowed for ease of doing business.

The 1956 Act failed to define “merger” and “amalgamation” and they were used synonymously. Any kind of combination between companies was only allowed in the prior act if it did not violate the interest of the public. Presently the provisions under the Companies Act that is Sections 230, 231 and 232 and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 govern the legal framework of the Amalgamation procedure in India.

The Amalgamation of companies serves to be a wise move when the right time arises, be it for an average company or a company reaping high benefits. The prudent decision not only benefits the company but also enables healthy competition in the market. The Indian legal framework in this regard through its amendments has made sure that the competitive needs of the businesses are duly met through timely revised amendments, rules and regulations.

This article has been written by Dechamma KC, 4th Year BBA LLB (Honours) student at JSS Law College (Autonomous) Mysuru.

Also Read – Winding Up of A Company And Its Consequences

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