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Scheme of Amalgamation: Principle of Single Window Clearance

Rasesh 
on 06 April 2010

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Scheme of Amalgamation: Analyzing the principle of 'Single Window Clearance'

 

A Scheme of Amalgamation (“Scheme”) is a basically a Scheme in the nature of Arrangement under Sections 391 and 394 of the Companies Act, 1956 between members and/or creditors of two Companies. In any amalgamation process, the Scheme is the basic document which lays down the terms and conditions governing the amalgamation.

 

The principle of 'Single Window Clearance'

 

One of the most beautiful things about the amalgamation process is that the Companies undergoing the process have been provided with a lot of flexibility and room for making changes in structure of the company without necessarily following the individual procedures.

 

The above is substantiated by the following example:

 

A Company is in the process of business restructuring wherein it is taking over one company through the amalgamation process. Now, the Company has the following objectives:

 

1)      The Company wants to change the name so as to show that it is a merged entity.

2)      It would also like to expand the scope of its Object Clause so as to include the provisions for carrying out the activities of the Transferor Company.

3)      The Amalgamated Company might be required to make certain changes in the Articles of Association in accordance with the understanding with the promoters of the Transferor Company.

4)      Post Amalgamation, the Transferee Company would be required to issue shares to the Shareholders of the Transferor Company in accordance with the Share Exchange Ratio.

5)      The Transferor Company must have not created Authorized capital free of cost. The Transferor Company must have incurred a huge expense in form of Stamp Duty and Registration Fees for the Authorized Capital. When two Companies are amalgamated, the Assets and Liabilities are merged in the balance sheet. Authorized capital is not a liability per se and hence would not be added directly. The Transferee Company should by virtue of the High Court Order obtain permission for clubbing of the Authorized Capital as well thereby saving on the expense that would be required for increasing the Authorized Capital.

 

In a normal course, the following activities are to be performed:

 

1)      Change in Name of the Company: A normal Change of Name procedure would require approval from the members of the Company and then from the Registrar of Companies (ROC).

2)      Change in Object Clause: Would require separate approval from the members of the Company.

3)      Change in Articles of Association: Would require separate approval from the members of the Company.

4)      Issuing shares to persons other than existing shareholders: Would require separate approval from the members of the Company under Section 81(1A).

5)      Clubbing of authorized capital. This is not possible in normal course. Increase in the Authorized Capital of the Transferor Company would however, require member’s approval/.

 

In normal course, all the above activities would require separate resolutions to be passed at the members’ meeting and various other compliances at the ROC.

 

If all of the above points are included in the Scheme, then separate approval of members or filing of documents with ROC is not required. The Scheme in any case has to be approved by the members and/or creditors by way of a resolution that is passed by Special Majority. After completion of the entire procedure and obtaining approval from the High Court, the Order of the High Court is to be filed with the ROC in Form No. 21.

 

By virtue of filing of Form No. 21:

 

1)      The merger becomes effective.

2)      The ROC will issue certificate for Change of Name (The Company should have prior to preparing the scheme, obtained name approval). The Company is not required to file any document for obtaining the same.

3)      The Object Clause and Articles get amended automatically. The Company is not required to file any document. (The amended MOA/AOA should be filed simultaneously with the Form 21 for High Court Order)

4)      The Company can issue shares and separate approval under Section 81(1A) is not required.

5)      Form No. 5 is not required to be filed. Only filing of the company master data correction form alongwith a copy of the High Court Order will suffice.

 

The principle of 'Single Window Clearance' is now extensively accepted by various High Courts. On the issue of principle of 'Single Window Clearance', reliance is placed on the following judgments:

  1. PMP Auto Industries Limited
  2. Manekchowk and Ahmedabad Mfg. Co. Ltd.
  3. Rangkala Investment Ltd.
  4. ICICI Bank Limited

 

Under this principle, it has been held that when the scheme envisages various incidental proposals as an integral part of the scheme, the procedures prescribed under the Companies Act, need not be separately undertaken.

 

In the above example, since the amendment in the Capital Clause and the Object Clause of Memorandum of Association, Amendment in Articles of Association and the Change in the Name of Transferee Company are proposed as a part of the Scheme, separate procedure is not required to be followed. The Certified Copy of the Order of the High Court, sanctioning the aforesaid Scheme is, as a matter of course, filed with the ROC which confirms sanction of all the clauses of the sanctioned Scheme. This is to be treated as intimation to the ROC and it has to take note of all the changes proposed and sanctioned under the scheme.

 

I will try to provide a Model Scheme of Amalgamation in some other article.

 

If any member has any query, I shall be glad to clarify.




Category Corporate Law
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