NOTES BY : Mr. RAVI PRAKASH SRIVASTAVA
www.corporateexperts.in
Amalgamation
Amalgamation in relation to companies, means the merger of one or more
Section
companies with another company in such a manner that2(1B) of
i)all the property of the amalgamating companies, immediately before the
Income
amalgamation, becomes the property of the amalgamated company by virtue of
Tax Act,
the amalgamation;
1961
ii)all the liabilities of the amalgamating companies, immediately before the
amalgamation, becomes the liabilities of the amalgamated company by virtue of
the amalgamation;
iii)shareholders holding not less than three-fourth in value of shares in the
amalgamating companies become shareholders of the amalgamated company by
virtue of amalgamation;
a)Amalgamation in the
i)All the assets & liabilities of the transferor company become, after amalgamation,
AS-14
nature of merger,
the asset & liabilities of the transferee company.
ii)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.
iii)The consideration for the amalgamation receivable 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.
iV)The business of the transferor company is intended to be carried on, after the
amalgamation, by transferee company.
V)No adjustment is intended to be made to the book values of the assets and
b)Amalgamation in the
liabilities of the transferor company when they are incorporated in the financial
nature of purchase,
statements of the transferee company except to ensure uniformity of accounting
policies.
When any one or more of the conditions specified above is not satisfied.
Categories i)Conglomerate Merger Between unrelated businesses.
ii)Cogeneric Merger
a)Horizontal Merger - Between competitors who are manufacturers or distributors
of
of the same type of products or rendering same or similar services or their products
Mergers
& services directly competing in the market with other.
b)Vertical Merger – Between firms which are complementary to each other.
Cash Merger
A merger in which certain shareholders are required to accept cash for their shares
while other shareholders receive shares in the continuing enterprise.
Defacto Merger
Defacto merger has been defined as a transaction that has the economic effect of a
statutory merger but is cast in the form of an acquisition of assets.
Down Stream Merger
The merger of parent company into its subsidiary.
Up Stream Merger
The merger of subsidiary company into its parent company.
Short – form Merger
Reverse Merger
Where the parent owns substantially all of the shares of the subsidiary. Generally
effected by adoption of a resolution of merger by the parent company and mailing
a copy to all shareholders of subsidiary company and filing the executed documents
with prescribed authority.
Amalgamation of two companies by which the disappearing company is merged
into subsidiary of surviving company and shareholders of the disappearing
company receive shares of the surviving company.
When a healthy company amalgamates with a financially weak company.
“Company”
Any company liable to be wound up under this Act.
Bombay Gas Co. Pvt.
Sec. 390(a) is applicable to a company incorporated outside India. If court has
Triangular Merger
Section
390(a)
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NOTES BY : Mr. RAVI PRAKASH SRIVASTAVA
www.corporateexperts.in
Ltd. V. Regional Director jurisdiction to wind up such a company on any of the grounds specified in the Act,
(Bom.)
court has jurisdiction to sanction scheme of amalgamation if a company
incorporated outside India is a transferor company.
Re: Apco Industries
Trere is no bar to a company amalgamating with a fifteen-day old company having
Ltd.(Guj.)
no assets & business.
Re: Bank of India (Cal.)
No company involved in amalgamation need be financially unsound or under
winding up. Sec.390(a) does not debar amalgamation of financially sound
companies.
Re: Sir Mathurdas
Amalgamation of a company licensed u/s 25 with a commercial, trading or
Vissanji Foundation
manufacturing company could be sanctioned u/s 391/394.
(Bom.)
Re: EITA India Ltd. (Cal.)
Section
390(b)
Section
390 (c)
Section
391 (1)
Section
391 (2)
There is nothing in law to prevent a company carrying on business in shares from
amalgamating with one engaged in transport.
“Arrangement”
Includes a reorganization of the share capital of the company by the
consolidation of different classes, or by the division of shares into shares of
different classes or, by both those methods;
Re: Larsen & Toubro Ltd. A composite scheme Could be made involving de-merger, of one of the
(Bom)
undertakings of the transferor company, for the transfer of the demerged
undertaking of a subsidiary company and for the reduction in the capital of the
transferor company.
“Unsecured Creditors”
Who may have filed suits or obtained decrees shall be deemed to be of the same
class as other unsecured creditors.
Hindustan Development A subsidiary company being a creditor cannot be included along with other
Corporation Ltd. V.
unsecured creditors, their interest in supporting a scheme proposed by the holding
Shaw Wallace & Co. Ltd.
company would not be the same.
Application to the Court Where a compromise or arrangement is proposeda)Between a company & its creditors or any class of them; or
b)Between a company & its members or any class of them;
the court may, on the application of the company or of any creditor or member of
the company, or, in the case of a company which being wound up, of the liquidator,
order a meeting of the creditors or class of creditors, or the members or class of
members, as the case may be, to be called, held and concluded in such manner as
the court directs.
 Members’ & Creditors’ approval to the scheme of amalgamation is sine qua
non (something essential) for Court’s sanction.
 Members’ meeting may be dispensed with if all the members’ individual
consent is obtained.
Re: Feedback Reach
Where the written consent to the proposed scheme is granted by all the members
Consultancy Services (P) and secured & unsecured creditors, separate meeting of members and secured &
Ltd. (Del.)
unsecured creditors can be dispensed with.
Approval of scheme by
If a majority in number representing three-fourths in value of the creditors, or class
special majority
of creditors, or members or class of members, as the case may be, present and
voting either in person or, where proxies are allowed, by proxy, at the meeting,
agree to any compromise or arrangement, the compromise or arrangement shall, if
sanction by the court, be binding on all the creditors, all the creditors of the class,
all the members, all the members of the class, as the case may be, and also on the
company, or in the case of a company which is being wound up, on the liquidator &
contributories of the company.
 Court can’t sanction the scheme unless it is satisfied that the applicant has
made sufficient disclosure about the following particulars:
 All material facts relating to the company;
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NOTES BY : Mr. RAVI PRAKASH SRIVASTAVA
www.corporateexperts.in
 Latest financial position of the company;
 Latest auditor’s report on the accounts of the company;
 Information about pendency of any investigation proceeding in
relation to the company u/s 235 to 251 and the like.
Re: Hind Lever
The language of sec. 391(2) is totally unambiguous and a plan reading of this
Chemicals Ltd. &
provision clearly shows that the majority in number by which a compromise or
Another (full bench of
arrangement is approved should represent three-fourth in value of the
the Punj. & Har.)
creditors/shareholders who are ‘present & voting’ and not of the total value of the
shareholders or creditors of the company.
This resolution is neither an ordinary nor a special within the purview of sec. 189.
This is an extraordinary resolution and a copy of this resolution need not be filed
with the Registrar Of Companies U/S 192.
Re: Hindustan General
In determining whether a resolution has been passed by the requisite majority or
Electric Corporation Ltd. not, the members remaining neutral or not participating in voting are to be
(Cal.)
ignored.
Re: Kirloskar Electric
Casting an invalid votes is no voting in the eyes of law.
Company Ltd. (Kar.)
Re: SM Holdings Finance
Pvt. Ltd. (Kar.)
Milind Holdings (P) Ltd.
& Darshan Holdings (P)
Ltd. V. Mihir Engineers
Ltd. (Bom.)
Smt. Promila V. DCM
Financial Services Ltd.
(Del.)
Section
391 (3)
Filing of Court’s Order
with ROC
Section
394 (3)
Time Limit
Section
391 (4)
Annex copy of Court’s
Order to MOA & AOA
Section
391 (5)
Penalty
Penalty
Where a scheme is not approved at a meeting, by the requisite majority, but is
subsequently approved by individual affidavits, the court may sanction the
Scheme as sec. 391(2) is not mandatory but is merely directory and there should be
substantial compliance thereof.
Sanction of the Court is necessary even where the petitioner company had no
secured creditors and all unsecured creditors had accorded their approval to the
proposed scheme along with the shareholders of the both the companies and their
Official liquidator also did not raise any objection to the scheme.
Sanctioned Scheme will be binding on all the creditors. Till the time sanction is not
granted to the Court to the Scheme, it cannot be said that the Scheme is binding on
all creditors or that the creditors are not entitled to file the individual application.
An order made by the Court u/ss(2) shall have no effect until a certified copy of the
order has been filed with the ROC.
 No requirement to register it.
Time limit for such filling is 30 days after making of the order.
 Condone of delay is available under Companies Court Rules 1959.
The Company & every officer in default, shall be punishable with fine which may
extend to five hundred rupees.
A copy of every such order shall be annexed to every copy of the Memorandum of
the Company issued after the certified copy of the order has been filed as
aforesaid, or in case of a company not having a Memorandum, to every copy so
issued of the instrument constituting or defining the constitution of the company.
If default is made in complying with sub-section(4), The Company & every officer in
default, shall be punishable with fine which may extend to one hundred rupees for
each copy in respect of which default is made.
Power to stay or
continuation
The Court may, at any time after an application has been made to it under this
section, stay the commencement or continuation of any suit or proceeding against
the company on such terms as the Court thinks fit, until the application is finally
disposed of.
NOTES BY : Mr. RAVI PRAKASH SRIVASTAVA
www.corporateexperts.in
Section
391 (6)
3