SECTION 232 MERGER AND AMALGAMATION OF COMPANIES
Updated: Oct 7, 2022
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01. Where an application (Refer to Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, rules 18 and 19) is made to the Tribunal (National Company Law NCLT- NCLT[1] is a quasi-judicial[2] body which is authorised for dealing with the corporate disputes which are civil and arising under the Companies Act) under section 230[3] for the sanctioning of a compromise or an arrangement proposed between a company (denotes a business that was founded by this Act or previous company legislation)[4] and any such persons as are mentioned in that section, and it is shown to the NCLT
That the compromise or arrangement has been proposed for, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and
That the entire undertaking, property, or liabilities of any company (hereinafter referred to as the transferor company) must be transferred to another company (hereinafter referred to as the transferee company), or are proposed to be divided among and transferred to two or more companies, the NCLT may, upon application, order a meeting of the creditors or class of creditors or the members (meaning the person who signed the company's memorandum, who will be considered to have consented to join the business and who, upon the company's registration, will be listed as a member in its register of members; every other individual whose name is listed in the company's register of members and who formally accepts membership in writing; every shareholder listed as a beneficial owner in a depository's records who also holds shares of the company)[5]or class of members, as the case may be.
02. That the NCLT has issued an order (The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, rule 20 should be consulted) under subsection (1), the merging companies or the firms concerning whom a proposed division is made must also be obliged to circulate the following for the NCLT's meeting, namely:
The proposed conditions of the scheme as drafted and approved by the merging company's board;
Confirmation that the Registrar (implies a Registrar, Additional Registrar, Joint Registrar, Deputy Registrar, or Assistant Registrar who is responsible for carrying out the Act's many duties, including the registration of corporations)[6] has received a copy of the draught scheme;
A report adopted by the directors of the merging firms outlining, in particular, the share (signifies a share in a company's share capital, which also includes stock)[7] exchange ratio and outlining any unique valuation challenges, explaining the impact of compromise on each class of shareholders, key managerial persons (the Chief Executive Officer, the Managing Director, or the Manager; the Company Secretary; the Full-Time Director; the Chief Financial Officer; any other officer designated by the Board as Key Management Personnel who is not more than one level below the Directors and who is employed Full-Time; and any other officer as may be prescribed)[8], promoters, and non-promoter shareholders;
The expert's valuation report, if one was provided;
A supplemental accounting statement if any merging company's most recent annual accounts relate to a financial year (when referring to any corporation or body corporate, the period that makes up its financial statements is that which ends on the 31st of March each year, or, if it was formed on the period first day of January of a year, the time period that ends on the 31st of March of the following year)[9] that ended more than six months before the company's first meeting called to consider the scheme.
03. After concluding that the procedure outlined in subsections (1) and (2) has been followed, the NCLT may approve the compromise or arrangement by order or by a future order by making the following provisions:
Unless the NCLT determines otherwise for reasons it will record in writing, the entire undertaking, property, or liabilities of the transferor company will be transferred to the transferee company as of a date to be decided by the parties;
Any shares, debentures (comprises bonds, stocks, debentures, and any other debt-evidencing instrument of a firm, whether or not it places a charge on the company's assets. However, provided that the instruments listed in Chapter III-D of the Reserve Bank of India Act, 1934; and any other document issued by a firm that the Central Government, in consultation with the Reserve Bank of India, may regulate not be regarded as a debenture)[10], insurance or other similar instruments in the company that, under the compromise or agreement, is to be allocated or appropriated by that company to or for any person are allotted or appropriated by the transferee firm:
With the caveat that a transferee company cannot hold any shares in its own name or in the name of any trust whether on its own behalf or on behalf of any of its subsidiary companies or associate companies and any such shares must be cancelled or extinguished as a result of the compromise or arrangement;
Any ongoing legal actions by or against any transferor firm on the transfer date are continued by or against the transferee company;
The liquidation of any transferor corporation without its winding up;
The provision that must be made for any individuals who, within the timeframe and in the manner specified by the NCLT, object to the compromise or arrangement;
When a non-resident shareholder has share capital in accordance with any law currently in effect, the Central Government's foreign direct investment standards or guidelines, or both, the transferee company's shares must be allocated to that shareholder in the manner indicated in the order;
The personnel of the transferor company are transferred to the transferee company;
In the event that the transferor firm is a publicly traded company and the transferee company is not,—
Until it becomes a listed company, the transferee firm must remain unlisted;
If shareholders of the transferor company choose to withdraw from the transferee company, arrangements must be made for payment of the value of the shares they own and other benefits in accordance with a predetermined price formula or following a valuation. The NCLT may make the arrangements required by this clause.
As long as the payment or valuation amount under this paragraph for any share does not fall below the limits set by the Securities and Exchange Board (the Securities and Exchange Board of India, which was founded in accordance with Section 3 of the Securities and Exchange Board of India Act, 1992)[11] under any regulations it has drafted;
In the event that the transferor company is dissolved, the fee, if any, paid on its authorised capital (means the amount of capital that a company's memorandum has authorised to be its maximum share capital)[12]by the transferor company shall be offset against any fees payable on the authorised capital of the transferee company after the amalgamation.
Any additional, incidental, or supplemental issues that are judged required to ensure that the merger or amalgamation is completed completely and successfully:
As long as the company's auditor has submitted a certificate to the NCLT stating that the accounting treatment, if any, proposed in the compromise or arrangement scheme complies with the accounting standards (means the accounting standards or any addenda to them for the classes of companies or companies mentioned in section 133)[13] outlined in section 133[14], no compromise or arrangement will be approved by the NCLT.
04. Any property or liabilities that are the subject of an order made pursuant to this section shall, by virtue of the order, be transferred to the transferee company, and any liabilities that are the subject of the order shall be transferred to and become the obligations of the transferee company, and any property may, if the order so directs, be released from any charge that, as a result of the compromise or arrangement, cease to have any effect.
05. Within thirty days of receiving the certified copy of the order, each company in regard to which the order is made shall cause a certified copy of the order to be lodged with the Registrar for registration.
06. The scheme created pursuant to this section shall specify the appointed date as of which it shall take effect, and shall be assumed to take effect as of the appointed date and not earlier.
07. Until the completion of the scheme, each company to which the order relates must file an annual statement with the Registrar in the form and within the timeframe specified (please see Rule 21 of the 2016 Companies (Compromises, Arrangements, and Amalgamations) Rules) by the Registrar, duly attested by a chartered accountant (means a chartered accountant who possesses a current certificate of practise under subsection (1) of section 6 of the Chartered Accountants Act, 1949 (38 of 1949), as specified in clause (b) of subsection (1) of section 2 of that Act.)[15], a cost accountant (a cost accountant who meets the criteria set forth in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959, and who is in possession of a current certificate of practise issued under subsection (1) of section 6 of that Act;)[16], or a company secretary who practises (denotes a company secretary who is considered to be in the practise of his or her profession under subsection (2) of section 2 of the Company Secretaries Act of 1980. (56 of 1980))[17], indicating whether the scheme is being followed in accordance with the NCLT's orders or not.
08. If a firm violates subsection (5), the company and each of its officers who are in violation are subject to a fine of 20,000 rupees, as well as an additional fine of 1,000 rupees for each day that follows the first day that the violation persists, up to a maximum fine of three lakh rupees.
The following explanation applies to this section:
In a merger-related scheme, a merger by absorption occurs when the undertaking, property, and liabilities of one or more companies, including the company for which the compromise or arrangement is proposed, are transferred to another existing company under the scheme, or when the undertaking, property, and liabilities of two or more companies, including the company for which the compromise or arrangement is proposed, are transferred to another existing company under the scheme.
References to merging firms refer to the transferor and transferee companies in the case of an absorption merger and only to the transferor companies in the case of a merger through the formation of a new company;
A scheme involves a division. Liabilities include debts and obligations of every description. The undertaking, property, and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies, each of which is either an existing company or a new company.
Rules for such orders-