03 December 2013
MERGER OR AMALGAMATION UNDER THE COMPANIES ACT The Scheme of compromise and arrangement under section 391 of the Companies Act, 1956 is a complete code in itself. The section provides for all matters which the High Court [Powers vested with the Tribunal vide the Companies (Second Amendment) Act, 2002. However, notification in respect of it is yet to be issued by the Department] has or has not to consider and the types and conditions under which it has to exercise its powers. The scheme can be approved and implemented under section 391 without recourse to other provisions of the Act. The object of section 391 of the Act is to enable financially weak companies, which are liable to be wound up under the Act, to reach compromise and arrangement between the creditors and members, to revive business and become financially viable. The amended sections 390 to 394 provide set of provisions, which specially deals with the amalgamation of companies and provide procedures through which the proposals of amalgamation, merger, reconstruction, compromise and arrangement may be placed before the Tribunal for sanction.
Meaning of expression 'company liable to be wound up under this Act', provisions u/s 390(a) of the Act is wider than "company" and includes even unregistered company u/s 582 of the Act. [Malayalam Plantations India Limited & Harrison & Crossfields India Limited (1985) 2 Comp LJ 409 (Ker)] For example, it includes companies incorporated outside India, having business operations in India under section 591 of the Act. Simply stated, the words 'liable to be wound up' means a company, which on appropriate grounds, may be wound up [Khandelwal Udyog Ltd. and Acme Manufacturing Limited (1977) 47 Comp Cas 503 (Bom)]. The provisions in section 391 can be availed of even to revive a company, which is already in the process of winding-up. [Rajdhani Grains and Jaggery Exchange Ltd. (1983) 54 Comp Cas. 166 (Del)] The salient features of sections 391 and 394 are:— (a) There should be a scheme of compromise or arrangement for restructuring or amalgamation. (b) An application must be made to the High Court/Tribunal for direction to hold meetings of shareholders/creditors. (c) The High Court/Tribunal may order a meeting of shareholders/creditors. (d) Holding of meeting of shareholders/creditors as per the High Court/Tribunal's order. (e) Scheme of compromise or arrangement must be approved by 3/4th in value of creditors, class of creditors, members, class of members. (f) Another application must be made to the High Court/Tribunal sanctioning the scheme of compromise or arrangement. (g) An approved scheme duly sanctioned by the High Court/Tribunal is binding on all the shareholders/creditors/company(ies). (h) The High Court/Tribunal may stay the commencement or continuation of any suit or proceeding against the company after application have been moved in the Court/Tribunal. (i) The Court/Tribunal's order is appealable to the Court/Appellate Tribunal empowered to hear appeals from the decision of that Court/Tribunal. Therefore, amalgamation can be effected by any one of the following ways:— (a) Transfer of undertaking by the order of the Court/Tribunal. [Section 394] (b) Purchasing of shares of one company by another company — section 395 of the Companies Act, Compliance of section 372A and SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. (c) Amalgamation of companies in the national interest. [Section 396] (d) Amalgamation of companies under section 494.
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