A reconstruction and amalgamation of companies may take place as a longterm
strategy to exploit business potentials or to overcome business constraints
or to take over a company or to trim a sick unit or as a tax planning measure.
The decision to reconstruct or amalgamate a company with another is purely
a management strategy and depends on business exigencies of opportunities.
According to section 376 of the Act any condition prohibiting reconstruction or
amalgamation of a company with another in its memorandum or articles or any
resolution of the Board of Directors or of the general meeting in any way is void.
It is essential that an amalgamation should satisfy the definition given in section
2(1B) of the Income-tax Act, 1961 to avoid loss of tax benefits under that Act.
The provisions of section 72A of the Income-tax Act, 1961 should be satisfied so
that tax benefits related to carry forward and set-off of accumulated losses is
not denied to the amalgamated company.
295.2 Authority
The memorandum of association of the company shall authorise the reconstruction
or amalgamation. In the absence of such a provision, the memorandum
of association shall be altered suitably by passing a special resolution to
this effect by complying with the formalities in this regard1. Both the transferor
and transferee companies should take simultaneous action for amalgamation.
Where the amalgamation is permitted only under the ¡§Other objects¡¨ clause of
the memorandum a special resolution shall be passed for authorising the
amalgamation and a return in eForm 23 (Annex 171.1) and eForm 20A (Annex
11.6) should be filed with the Registrar within thirty days of passing such
special resolution.
*RELEVANT PROVISIONS :
ƒåƒnCompanies Act, 1956 : Sections 376, 394 to 396A.
ƒåƒnCompanies (Court) Rules, 1959.
ƒåƒnStandard Listing Agreement.
ƒåƒnCompanies (Central Government¡¦s) General Rules and Forms, 1956.
APPLICABILITY : ALL COMPANIES.
1. Section 376 declares that any provision against amalgamation is void.
295.3 Board resolution
A Board Resolution (Annex 295.1) should be passed for considering the draft
amalgamation scheme and for authorising the application to the Court1 for its
directions regarding convening of a general meeting of the company.
295.4 Submission of application to convene creditor¡¦s meeting
An application should be submitted to the Court for an order for convening a
meeting of creditors and/or members or any class of them by a Judge¡¦s
summons in Form 33 of Court Rules (Annex 295.2) enclosing the following :
ƒåƒnA copy of the amalgamation scheme (marked as an exhibit and annexed
to the affidavit).
ƒåƒnA certified copy of the memorandum of association and articles of
association of the transferee company.
ƒåƒnA certified copy of the memorandum of association and articles of
association of the transferor company.
ƒåƒnA certified copy of the latest balance sheet and profit and loss account.
ƒåƒnAffidavit in Form 34 of Court Rules (Annex 295.3).
295.4-1 Jurisdiction of Court in case registered office are in different States
In case both the transferor and transferee companies are incorporated in two
different States, each company should move to the respective High Court for
its directions as per Court Order.
295.4-2 Jurisdiction of Court in case registered office are in the same State
In case both the companies are situated in the same State and only one company
moves the Court under section 391, it shall make the other company a party to
the petition as there is identity of interests between the two companies ¡X DCA¡¦s
Circular No. 14 of 1973, dated 5th June, 1973.
295.5 Notice by Court to Regional Director
The Court shall give notice of the application to the Regional Director, Ministry
of Company Affairs and shall take into consideration the representations, if any,
made to it by the Regional Director.
295.6 Application in eform 61 to the Registrar of Companies
Simultaneous with the filing of petititon to the Court, an application should be
submitted in eform 61 (Annex 295.4) to the Registrar of Companies through
MCA portal www.mca.gov.in complying with the following guidelines. This
form is required to enable the Registrar to send his report to the High Court
through the Regional Director.
1. The powers of Court in this regard shall stand transferred to National Company Law Tribunal
when Companies (Second Amendment) Act, 2002 is brought into force and the Tribunal is
constituted.
295.6-1 Who can file?
The eform 61 shall be filed by the managing director or director or manager or
secretary duly authorised by the Board . The signatory must hold a valid digital
signature certificate. (Refer Chapter 360 for Digital Signature Certificates).
Both the transferor and transferee company must file this form.
295.6-2 Attachments
The following documents should be attached :
ƒåƒnA copy of the Board Resolution
ƒåƒnCopy of the scheme of amalgamation
ƒåƒnCopy of the petition filed with the High Court with all enclosures.
295.6-3 How to attach documents?
Documents should be converted into PDF using scanner (for physical document)
and converter (for soft copies) and attached.
295.6-4 Digital Signature
The eform should be digitally signed by the managing director or director or
manager or secretary duly authorised by the Board. The signatory must hold
a valid digital signature certificate. (Refer Chapter 360 for Digital Signature
Certificates)
295.6-5 Filing fee
No filing fee is payable.
295.6-6 Filing instruction
Refer Chapter 358 for detailed instructions for filing e-forms.
295.7 Direction by Court regarding creditors¡¦ meeting
Upon the hearing of the summons or any adjourned hearing, the judge shall,
unless he thinks fit for any reason to dismiss the summons, give such direction
in Form No. 35 of Court Rules (Annex 295.5) in respect of the following matters :
ƒåƒnDetermining the class or classes of creditors and/or of members whose
meeting has to be held for considering the proposal
ƒåƒnFixing the time and place of such meeting
ƒåƒnAppointing a chairman for meeting
ƒåƒnFixing the quorum and procedure to be followed at the meeting, including
voting by proxy
ƒåƒnDetermining the values of the creditors and/or the members or the
creditors or members of any class, whose meetings have to be held
ƒåƒnNotice to be given of the meeting and the advertisement of such notice
ƒåƒnTime within which the chairman is to report to the Court the result of the
meeting
ƒåƒnOther matters, as deemed necessary by the Court.
295.8 Issue of notice of meeting
The notice of the meeting to be given to the creditors and/or members shall be
in Form No. 36 of Court Rules (Annex 295.6) and shall be sent to them
individually by the chairman appointed for the meeting or, if the Court so
directs, by the company or any other person as the Court may direct by post
under certificate of posting to their last known address not less than twenty one
clear days before the date fixed for the meeting, enclosing the following :
ƒåƒnA copy of the amalgamation scheme
ƒåƒnA form of proxy in the Form No. 37 of Court Rules (Annex 295.7)
ƒåƒnNotice of special resolution for authorising issue of shares to persons
other than the existing shareholders
ƒåƒnStatement setting forth the terms of the amalgamation and explaining its
effect, and in particular, stating any material interests of the directors,
managing director or manager of the company, whether in their capacity
as such or as member or creditors of the company or otherwise, and the
effect of those interests, of the amalgamation, if, and so far as, it is
different from the effect on the like interests of other persons.
295.9 Advertisement of notice
Not less than 21 clear days before the date fixed for the meeting, the notice of
the meeting in the Form No. 38 of Court Rules (Annex 295.8) should be
advertised in such newspapers and in such manner as may be directed by the
Judge.
295.9-1 Contents of notice
The notice should include either such a statement as aforesaid or notification
of the place at which and the manner in which creditors or members entitled
to attend the meeting may obtain copies of such a statement.
295.9-2 Inspection by members/creditors
Every creditor or member so entitled shall, on making an application in the
manner indicated by the notice be furnished by the company, free of charge,
with a copy of the statement, unless the same had been already furnished to
such member or creditor.
295.10 Filing of an affidavit
Not less than seven before the date fixed for the meeting, the chairman
appointed for the meeting of the company or the person directed to issue the
advertisement and notices of the meeting should file an affidavit showing that
the directions regarding the issue of notices and the advertisement have been
duly complied with. In default thereof, the summons shall be posted before the
Judge for such orders as he may think fit to make.
295.11 General Meeting resolution
The general meeting should accordingly be held and the following resolutions
(Annex 295.9) should be duly passed :
ƒåƒnapproving the amalgamation scheme by a majority in number representing
three-fourths in value of the members voting either in person or by
proxy, subject to the approval by the Court ;
ƒåƒnauthorising allotment of shares to persons other than existing shareholders;
(special resolution/ordinary resolution with the approval of the
Central Government) ;
ƒåƒnempower the directors to dispose of at their discretion the shares not
taken up by the dissenting shareholders ;
ƒåƒnwhere the authorised share capital of the company is likely to be
exceeded because of the proposed issue of shares, an ordinary resolution
shall be passed authorising the increase in share capital. (Refer Chapter
25 for procedures applicable)
295.12 Report of the result of the meeting
The chairman of the meeting should within the time fixed by the Judge or where
no time has been fixed, within seven days after the conclusion of the meeting
report the result thereof to the Court in Form No. 39 of Court Rules (Annex
295.10). The report shall state accurately the number of creditors of members
who were present and who voted at the meeting either in person or by proxy
their individual values and the way they voted.
295.13 Submission of petition to Court
Within 7 days of filing the report by the chairman, a petition should be presented
in Form No. 40 of Court Rules (Annex 295.11) to the Court. The petition shall
pray for appropriate orders and directions regarding all or any of the following
matters, as may be applicable :
ƒåƒnTransfer to the transferee company of the whole or any part of the
undertaking, property or liabilities of any transferor company
ƒåƒnAllotment or appropriation by the transferee company of any shares,
debentures, policies, or other like interests in that company which are to
be allotted or appropriated by that company to or for any person
ƒåƒnContinuation by or against the transferee company of any legal proceedings
pending by or against any transferor company
ƒåƒnDissolution, without winding-up, of any transferor company
ƒåƒnProvision to be made for any persons who dissent from the amalgamation
scheme
ƒåƒnSuch incidental, consequential and supplemental matters are necessary
to secure that the amalgamation shall be fully and effectively carried out.
295.14 Obtaining report from Official Liquidator, Regional Director
and Registrar in case of companies under winding up
In case the compromise or arrangement proposed for the purposes of, or in
connection with, a scheme for the amalgamation of a company, which is being
wound up, with any other company or companies, the scheme shall not be
sanctioned by the Court unless the Court has received a report from the
Registrar that the affairs of the company have not been conducted in a manner
prejudicial to the interests of its members or to public interest. Further, no order
for the dissolution of any transferor company shall be made by the Court unless
the Official Liquidator has, on scrutiny of the books and papers of the company,
made a report to Court that the affairs of the company have not been conducted
in a manner prejudicial to the interests of its members or to public interest.
295.15 Filing of eForm No. 23 with the Registrar of Companies
Within 30 days of passing the special resolution a return in eForm No. 23 (Annex
171.1) should be filed with the Registrar of Companies through MCA Portal
www.mca.gov.in. Refer Chapter 171 for guidelines to fill and file eform 23.
295.16 Fixing date of hearing of petition
The court should fix a date for the hearing of the petition.
295.17 Advertisement of notice of hearing
Not less than 10 days before the date fixed for the hearing, the notice of the
hearing should be advertised in the same newspapers in which the notice of the
meeting was advertised, or in such other papers as the Court may direct.
295.18 Notice to Central Government by Court
The Court shall give notice of every application made to it to the Government
i.e., Regional Director, and shall take into consideration the representations, if
any, made to it by the Government (the Regional Director) before passing any
order.
295.19 Notice to Central Government by Court
The Court shall give notice of every application made to it to the Government,
and shall take into consideration the representations, if any, made to it by the
Government (the Regional Director) before passing any order.
295.20 Order by Court
On being satisfied about the scheme, the Court shall pass an order in Form No.
41 of Court Rules (Annex 295.12) sanctioning the scheme for reconstruction/
amalgamation. Where an order provides for the transfer of any property or
liabilities, then by virtue of the order, that property shall be transferred to and
vest in, and those liabilities shall be transferred to and become the liabilities of,
the transferee company, and in the case of any property, if the order so directs,
free from any charge which is, by virtue of the compromise or arrangement, to
cease to have effect.
295.21 Order by Court in case of amalgamation of two or more
companies
Where the arrangement is for the purposes of or in connection with the
amalgamation of two or more companies and the matters involved cannot be
dealt with or dealt with adequately on the petition for sanction of the arrangement,
the following procedures should be followed :
295.21-1 Application to Court
An application should be made to the Court by a summons supported by
affidavit for the directions of the Court to the proceedings to be taken.
295.21-2 Notice of summons
Notice of the summons should be given in such manner and to such persons as
the Court may direct.
295.21.3 Order by Court
Upon hearing of the summons or upon any adjourned hearing thereof, the
Court may make such order or give such directions as it may think fit, as to the
proceedings to be taken for the purpose of amalgamation, including where
necessary, an inquiry as to the creditors of the transferor company and the
securing of the debts and claims of any of the dissenting creditors in such
manner as to the Court may deem just.
295.21-4 Form of Court Order
The order of the Court sanctioning the amalgamation scheme should be in
Form No. 42 of Court Rules (Annex 295.13).
295.22 Filing of eForm No. 21 with the Registrar of Companies
Within 30 days of the order of the Court, a return in eForm No. 21 (Annex 86.7)
should be filed with the Registrar of Companies through MCA portal
www.mca.gov.in together with an authenticated copy of the Court order. Refer
Para 86.10 for guidelines to fill and file eform 21. The Court¡¦s order shall not
have any effect unless the certified copy of the order is filed with the Registrar
of Companies.
295.23 Annexing copy of the order to memorandum of association
A copy of the Court order shall be annexed to every copy of the memorandum
of association of the company. In case of a company not having any memorandum,
it should be annexed to every copy of the instrument constituting or
defining the constitution of the company.
295.24 Implementation of scheme of amalgamation
The scheme of amalgamation as approved by the Court should be implemented
by complying with the necessary formalities in this regard.
295.25 Acquisition of shares of dissenting shareholders
The procedure to be following for acquiring shares of dissenting shareholders
is given below :
295.25-1 Offer to purchase shares
The transferor company should send an offer for purchase of equity shares
arising out of the scheme of amalgamation to all the shareholders.
295.25-2 Approval of offer to purchase shares
The offer should be approved by the holders (other than the shares held at the
date of offer by, or by a nominee for, the transferee company or its subsidiary
company) of not less than nine-tenth of the value of shares of the transferee
company within four months of the offer.
295.25-3 Notice to dissenting shareholders
Within two months of the expiry of the four months period, the transferee
company should give a notice to the dissenting shareholders in Form No. 35 of
General Rules & Forms (Annex 295.14) together with the information in eForm
No. 35A (Annex 295.15) that it desires to acquire his shares.
The eform 35A of General Rules & Forms should be filed through MCA portal
www.mca.gov.in complying with the guidelines given below :
295.25-4 Contents of notice of offer
The offer shall contain a statement by or on behalf of the transferee company
disclosing the steps it has taken to ensure that necessary cash will be available.
Every such circular containing or recommending acceptance of such offer
should be presented to the Registrar for registration and can be issued only
after such registration.
295.25-5 Rights of dissenting shareholders
When such a notice is given, the dissenting shareholders may apply to the Court
against such acquisition within one month of the receipt of such notice.
Otherwise, the transferee company is entitled to and bound to acquire the
shares as per the terms of contract for transfer of shares from the transferee
company to the transferor company.
295.25-6 Transmission of instrument of transfer by the transferee company
For the transferee company shall, within one month of the issue of notice or
disposal of application by the Court, transmit a copy of the notice to the
transferor company together with the instrument of transfer executed by an
authorised person on behalf of the shareholders and on its own by the
transferee company. It should also pay or transfer to the transferor company
the amount or consideration representing the price payable by the transferee
company for the shares which the company is entitled to acquire.
295.25-7 Escrow account
Any sum received by the transferor company should be kept in a separate bank
account and held in trust for the several persons entitled to those shares.
295.25-8 Registration of transferee company as member
The transferor company shall thereupon register the transferee company as
shareholder and within one month of such registration inform the dissenting
shareholders accordingly.
295.25-9 Non-applicability
Where shares of the same class of the transferor company are already held to
a value greater than one-tenth of the aggregate value of all the shares in the
company of such class, the above provisions shall not apply unless ¡X
ƒåƒnthe transferee company offers the same terms to all the holders of the
shares of that class whose transfer is involved ; and
ƒåƒnthe holders consenting to the scheme should besides holding nine-tenth
value of the shares whose transfer is involved, are not less than threefourth
in number of the holders of that class.
295.26 Procedure where transferee company holds more than
ninety per cent of the value of shares of transferor company
Where in pursuance of a scheme or contract for transfer of shares, shares in a
company are transferred to another company or its nominee and after such
transfer the shares held by the transferee company or its nominee exceeds
nine-tenth of the value of shares in the transferor company, the transferee
company should give notice to other dissenting shareholders within one month
of the transfer. In such case, the dissenting shareholder, may within three
months thereof, shall require the transferee company to acquire the shares. In
such a case, the transferee company is entitled to and bound to acquire such
shares as per the agreed terms or ordered by Court (on application by the
transferee company or shareholder).
295.27 Preservation of the books and papers of an amalgamated
company
The books and papers of a company which have been amalgamated with or
whose shares are acquired by another company, should not be disposed
of without the prior permission of the Central Government. Before granting
permission, the Central Government, shall appoint a person to examine the
books and papers to find whether any offence has taken place in connection
with formation or promotion or management of the affairs of the company or
its amalgamation or acquisition of shares.
295.28 Special provisions relating to listed company
A listed public company should comply with the following additional requirements
:
295.28-1 Forwarding of notice of meetings to stock exchange(s)
Three copies of the notice of the meeting should be sent to each of the stock
exchanges in which the securities of the company are enlisted.
295.28.2 Forwarding of advertisement to stock exchange(s)
Three copies of the press advertisement should be sent to each of the stock
exchanges in which the securities of the company are enlisted.
295.28-3 Passing of resolution by postal ballot
The decisions of the general meeting on all resolutions shall be ascertained only
by taking a poll.
295.28-4 Forwarding of minutes to stock exchange(s)
A copy of the proceedings of the meeting should be sent to each of the stock
exchanges in which the securities of the company are enlisted.
295.28-5 Intimation to stock exchange(s)
Intimation regarding amalgamation should be sent to each of the stock
exchanges in which the securities of the company are enlisted.
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