Compromise, Arrangement

and Amalgamation
 OVERVIEW

 Corporate Restructuring
 Benefits of Merger and Amalgamation
 Types of Merger
 Legal Aspect (Section 230 – Section 234)
 Single Window Clearance
 Foreign Exchange Management (Cross Border Merger) Regulation, 2018
 Stamp Duty Aspect
 Competition Act Aspect - Combination
 Corporate
Restructuring

Transfer of assets and Transfer of assets and

liabilities involved liabilities not involved

External Internal
restructuring Restructuring

Sacrifice by
Demerger
shareholders

Merger &
Sacrifice by
Amalgamatio
creditors
n
 BENEFITS OF M & A

• Economies of Scale
• Diversification
• Elimination of Competition
• Utilisation of Tax Shields
• Better Financial Planning
• Economic Necessity
• Synergy Gain
 o re
o r m are
t wo hich e B
com etwee
een s w th Horizontal p n
tw e m simi anies s
Be iness ng fro stry Merger l e
s dire ar prod lling
bu longi indu rent ct c
be ame diffe e omp ucts+
s g t li n etiti
i n on
v
ha roduc
p

TYPES
Congeneri OF Vertical
c Merger MERGER Merger

n t he t
tw ee ies in , bu
n tw o Be pan ustry ges
Betwee s that have Conglomerate com e ind nt st
a
ie
compan n business Merger sam iffere tion
mo d c
no com at rodu
areas. p
of cess
pro
 SECTION 230 :

Power to Compromise or Make

Arrangements with Creditors and Members
 Application for C & A
Order meeting
between Co & M or Co &
of Cr or M
Cr Within
OR
NCL Co RO
Shall disclose by Affidavit – T . C
1) All Material Facts Binding Order 30 days
2) Reduction of Share Capital
3) Corporate Debt Restructuring

Notice

Cr, Advertisement Sectoral

DH, M of Notice Regulators

Company’s Stock Newspape

Objections Approval Exchange Seeking
Website rs
& SEBI Representatio
Website n within 30
At least 10% At least Days
At least 5% O At least
of total 50%
of total o/s 3/4th in
R share majorit &
debt value
holding y
 Landmark Cases u/s 230:
1) Re. Vasant Investment Corporation Ltd. (1982) : An arrangement under this
section can also take a company out of winding up.

2) Rajdhani Grains and Jaggery Exchange Ltd. (1983) : Even though a winding up
order has been made, every member has a right to file an application u/s 391 (presently
s. 230) for the revival of company.

3) Laurel Aromatics Pvt. Ltd. In, Re. (2011) : High Court can sanction the scheme of
arrangement/ amalgamation of one company with another company, even though there
is no such enabling provision in the MOA of the transferor or the transferee company.
The power of amalgamation/ arrangement by way of scheme is statutorily available.

4) Kirloskar Electric co. Ltd. Re. (2003) : The majority of the 3/4th value must be of the
persons who are present and have taken part in the voting. Thus, mere presence would
not be enough.
 SECTION 231 :

Power of Tribunal to enforce Compromise

or Arrangement
 If NCLT thinks that -

Supervise the The order passed u/s 230

implementation of the can’t be implemented by
NCLT Scheme as per the the company
Order passed u/s sec. order satisfactorily
230 + +
Give such directions as The company is unable to
it may consider pay the debts to the
necessary for proper creditors then -
implementation.

Such winding up order shall

have the same effect as
Order of Winding Up may
compulsorily winding up of the
be given by NCLT
company u/s. 273
Landmark Case u/s 231:
1) S. K. Gupta v/s K. C.Jain (1979) :
 If the scheme is workable with or without modification, the court has no power to
pass a winding up order u/s 392 of 1956 Act.
 The court must attempt to find out what modifications if any, are necessary to make
scheme workable, and if necessary, may proceed suo-motu in this regard.
 SECTION 232 :

Merger and Amalgamation of Companies

 Order meeting
M&A of Cr or M Within
Applicatio
Co ROC
n made for Transfer of property, NCLT .
undertaking or Sanctioning Order 30 days
liabilities
1) Transfer whole or any part of
undertaking/assets/liabilities
2) Allotment of Shares/Deb. To SH of Transferor Company
3) Transferor company stands to be dissolved w/o winding up 1) Notice of meeting
process 2) Draft of proposed terms of
4) Employees of transferor co. becomes employees of schemes
transferee co. 3) Confirmation of filing scheme with
5) Continuation of all legal proceeding of transferor company ROC
in the name of transferee company 4) Effect of scheme on KMP, Pr., Non
6) Cancellation of crossholding of shares Pr., SH
 NOTE:
7) Provision of exit price for dissenting SH 5) SWAP Ratio
1) NCLT shall not issue confirmation order unless auditor provides a certificate confirming that the proposed scheme
of C & A is in accordance with accounting standards.
6) Valuation Report
7) by
2) Every company w.r.t NCLT order shall file annual statement duly certified Supplementary
PCA/PCS/PCWAAccounting
to ROC that scheme
SINGLE WINDOW CLEARANCE
• When the scheme envisages various incidental proposals as an integral part
of scheme , the procedures prescribed under the Companies Act, need not
be separately undertaken.

• Landmark Cases :

1) Jaypee Cement Ltd. Re. (2004) : Change of name can be carried out as
a part of scheme.

2) Rangkala Investments Ltd., Re. (1997) : Procedure for change in

object clause need not be separately followed.

3) Stephon Walters & Sons. Ltd. (1926) : The court can sanction
reduction of capital as a part of the scheme.
 SECTION 233 :

Merger and Amalgamation of certain

Companies
FAST TRACK MERGER
 Notice + Copy of Scheme
Explanatory statement
Declaration of solvency

Small companies
ROC OL Persons affected
by scheme
Sec FAST TRACK
. MERGER
Holding co. and its WOS
233

Communicate with CG
within 30 days whether
having any OL Redraft scheme by considering objections
objection/suggestions or and suggestions
not

RO
Follow Sec. C
232
Valid If objection
Approval
objectio received
n
Objection valid Objection
NCLT and scheme is invalid and CG Members Majority
not in public scheme is in holding at creditors
interest public interest lest 90% & holding at
Invalid
of total least 9/10th of
objection
shares value of debt
If no objection Issue confirmation
received order
IS FAST-TRACK MERGER ACTUALLY FAST?

• The answer is NO...!!! Some of its major drawbacks are :

DEFECTS OF FAST TRACK MERGER
Multiple No Scope of
Time Consuming
Clearance Demerger
 SECTION 234 :

Merger and Amalgamation of a Company

with Foreign Company
Foreign Company
Follow rules of CG in
+ AMALGAMATION consultation with Wh y
B ???
Indian Company RBI For ecaus
eign e.. .
E
is in xchan
volv ge
ed
Mandatory Approval of RBI

NO YES

Cancel the scheme Payment of Consideration to SH

Only after getting an approval from RBI, Cash

application has to be made to NCLT u/s 230 or
232, as the case may be. OR
Depository Receipt
OR
If approved by NCLT, Partly Cash & Partly
then FC & IC are Depository Receipt
merged
 Transfer /
Situated
Issue of
Office
Acquisition
Securities
Resultant
of asset or
Company
INBOUN security
D
MERGE
R
V/S
OUTBOU
ND
MERGE
R
 Instrumen Stamp
Execution
t Duty

As per sec. 2(i) of Bombay Stamp Act, 1958, “Instrument” includes every document by which any
right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded
but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy
of insurance, transfer of shares, debentures, proxy and receipt.”

 LANDMARK CASE: Li Taka Pharmaceuticals v. State of Maharashtra

(1996)
 Order of the court = Instrument
 State has jurisdiction to levy stamp duty under entry 44 list III
 Stamp duty would be levied on net assets.
COMBINATION UNDER COMPETITION ACT,
2002
Applicable To Assets Turnover

IN INDIA Individual Rs. 2000 Cr. Rs. 6000 Cr.

Group Rs. 8000 Cr. Rs. 24000 Cr.

Assets Turnover

Applicable To Minimum
Minimum
Indian
IN INDIA Total Indian Total
Component
AND Component
Out of Total
OUTSIDE
Individual
$ 1 Bn. Rs. 1000 Cr. $ 3 Bn. Rs. 3000 Cr.
Parties

Group $ 4 Bn. Rs. 1000 Cr. $ 12 Bn. Rs. 3000 Cr.

 BY
HARSHIL
MATALIA