Acquisition of a society by a company
This query is : Resolved
20 August 2025
Sir
A 100% govt owned company acquire a society registered under society registration Act.
The scheme of acquisition does not mention any consideration to be paid/payable by the Govt Company to the management body of the society.
my query before the experts is:
Is there any compulsion that acquisition must be against consideration?
abhijit
A 100% govt owned company acquire a society registered under society registration Act.
The scheme of acquisition does not mention any consideration to be paid/payable by the Govt Company to the management body of the society.
my query before the experts is:
Is there any compulsion that acquisition must be against consideration?
abhijit
20 August 2025
Many aspect relate the issue/ acquisition terms. In general the society must be having its monetary value/assets. How can it be acquired without any consideration?
21 August 2025
Thanks Sir to raise queries.
Actually the Society(MD) was owned by the State Government. The govt formed it mainly to cater supply of milk at fair price to common people. This was considered as a project initiated by the government.
The Company(BD Ltd) was also formed by the govt whose prime object is to acquire the society(MD).
To comply this object BD Ltd acquired MD.
It is normal that there should be some consideration.
But surprisingly the scheme submitted by the Farm who entrusted to execute the job of acquisition is completely silent.
Hence i raise this query.
Can it legally be possible to acquire without consideration.
Abhijit
Actually the Society(MD) was owned by the State Government. The govt formed it mainly to cater supply of milk at fair price to common people. This was considered as a project initiated by the government.
The Company(BD Ltd) was also formed by the govt whose prime object is to acquire the society(MD).
To comply this object BD Ltd acquired MD.
It is normal that there should be some consideration.
But surprisingly the scheme submitted by the Farm who entrusted to execute the job of acquisition is completely silent.
Hence i raise this query.
Can it legally be possible to acquire without consideration.
Abhijit
21 August 2025
Under the Indian Contract Act, 1872, consideration is an essential element of a valid contract. Typical asset or business transfers, mergers, and acquisitions are expected to have a valid consideration, even if nominal. This is for enforceability and taxation reasons.
If the government decides, as a matter of policy (like via a special notification, enactment, or executive order), to transfer the assets of one government entity (Society MD) to another (BD Ltd), it might be able to do so without consideration, provided the intent & authority are clear. This can be valid if enacted under a statute or government order.
In scenarios involving public sector undertakings, the transfer may be carried out by a government-approved scheme, and sometimes these schemes are silent on consideration. However, in such cases, the authority for the transfer and the absence of consideration should be explicit and justifiable on administrative and public interest grounds.
Tax/Accounting and Regulatory Implications: Even where the government effects a "free" transfer, accounting entries must typically record some value. The absence of consideration could cause questions from taxation or audit authorities, unless a valid exemption or statutory provision applies. In M&A regulation, notification or approval may still be triggered if the transfer qualifies as a "combination" under the Competition Act, 2002, regardless of consideration.
If the government decides, as a matter of policy (like via a special notification, enactment, or executive order), to transfer the assets of one government entity (Society MD) to another (BD Ltd), it might be able to do so without consideration, provided the intent & authority are clear. This can be valid if enacted under a statute or government order.
In scenarios involving public sector undertakings, the transfer may be carried out by a government-approved scheme, and sometimes these schemes are silent on consideration. However, in such cases, the authority for the transfer and the absence of consideration should be explicit and justifiable on administrative and public interest grounds.
Tax/Accounting and Regulatory Implications: Even where the government effects a "free" transfer, accounting entries must typically record some value. The absence of consideration could cause questions from taxation or audit authorities, unless a valid exemption or statutory provision applies. In M&A regulation, notification or approval may still be triggered if the transfer qualifies as a "combination" under the Competition Act, 2002, regardless of consideration.
21 August 2025
In short, When both entities are government bodies and the transfer is by express governmental action (not contract), it may be possible, but should be explicitly documented.
If challenged, such a transfer must be able to justify itself as an act of policy, not a commercial contract, and should be authorized under relevant statutes or schemes.
If challenged, such a transfer must be able to justify itself as an act of policy, not a commercial contract, and should be authorized under relevant statutes or schemes.
21 August 2025
Sir
My sincere thanks for immediate reply. Your reply is excellent. In fact a year before when one (1)Govt Company was merged with another Govt company there was consideration based on allotment of fresh shares by transferee company to transferor Company as a consideration as you stated.
But this is quite exceptional one.
I ask the management to search for some direction wherein it is clearly mention that the acquisition will be without consideration.
Sir again thanks for your excellent reply which immensely help me.
Abhijit
My sincere thanks for immediate reply. Your reply is excellent. In fact a year before when one (1)Govt Company was merged with another Govt company there was consideration based on allotment of fresh shares by transferee company to transferor Company as a consideration as you stated.
But this is quite exceptional one.
I ask the management to search for some direction wherein it is clearly mention that the acquisition will be without consideration.
Sir again thanks for your excellent reply which immensely help me.
Abhijit
21 August 2025
Good luck...
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