Demerger

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Nanda kishore E R (Querist)
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11 January 2014 Can anybody explain what is the company law procedure for demerger? If so what are the e forms to be filed with MCA? Thanks in advance.

CS M Pota

CS M Pota (Expert)
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11 January 2014 Before reply please inform what is meaning of Demerger

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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21 July 2024 In company law, a demerger is a corporate restructuring process where a company transfers one or more of its businesses into another company. This results in the splitting up of the original company into two or more entities, each holding a part of the assets and liabilities of the original business.

### Procedure for Demerger:

1. **Board Approval:**
- The demerger must first be approved by the board of directors of each company involved. They will consider and approve a scheme of demerger outlining the terms and conditions, including the transfer of assets, liabilities, and other relevant details.

2. **Shareholder Approval:**
- Once the board approves the demerger scheme, it must be approved by the shareholders of each company by way of a special resolution. This resolution must be passed by a majority of shareholders as required under company law.

3. **Application to NCLT (National Company Law Tribunal):**
- After obtaining shareholder approval, an application must be filed with the National Company Law Tribunal (NCLT) seeking its approval for the demerger scheme. The NCLT will examine the scheme to ensure it is fair and reasonable to all stakeholders, including shareholders and creditors.

4. **NCLT Approval:**
- If the NCLT is satisfied with the demerger scheme and finds it compliant with all legal requirements, it will issue an order approving the demerger. This approval is crucial as it legitimizes the transaction and binds all stakeholders to the terms of the scheme.

5. **Filing with Registrar of Companies (RoC):**
- After obtaining NCLT approval, the companies must file the approved demerger scheme and related documents with the Registrar of Companies (RoC). This includes the memorandum of association and articles of association of the resulting companies post-demerger.

6. **Compliance with MCA (Ministry of Corporate Affairs):**
- Various e-forms need to be filed with the MCA throughout the demerger process, including:
- **Form INC-28:** For filing the NCLT order approving the demerger.
- **Form MGT-14:** For filing special resolutions and agreements with the RoC.
- **Form INC-20A:** Declaration for commencement of business (if applicable).
- **Form INC-22:** Notice of situation or change of situation of registered office.
- **Form DIR-12:** Changes in directors and key managerial personnel.
- **Form PAS-3:** Return of allotment of shares.

### Conclusion:
Demerger is a complex legal and procedural process that requires meticulous planning and compliance with company law and regulatory authorities like the NCLT and RoC. Each step must be carefully executed to ensure the demerger is legally valid and recognized under Indian corporate law. Consulting with legal and financial experts is advisable to navigate through the complexities involved in a demerger transaction.

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