July-2012

MERGER &

AMALGAMATIONCONCEPT & ISSUES

Rel- Integral

Presented by:

Rupendra Porwal

Directorrupendra.porwal@relintegral.com

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MERGER &

AMALGAMATIONCONCEPT & ISSUES

DEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATION

A legal process by which two or more companiesjoined together to form a new entity or onecompanies are absorbed or blended with another

Under the Companies Act, 1956, the mergeramalgamation are synonymous.

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The properties, assets and liabilities of amalgamatingcompany(s) are absorbed or blended by/in an existingnew amalgamated company.

Shareholders of amalgamating company areshares in amalgamated company in exchange ofheld in former.

Amalgamating company losses its existence

dissolved without process of winding up.

DEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATIONDEFINITION OF MERGER & AMALGAMATION

companies areone or more

another company.

merger and

COMPANY“X”

COMPANY

“Z”

COMPANY

“Y”

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amalgamatingexisting or a

are allottedof the shares

existence and gets

Company “Y” and “Z” merge with a

new Company “X”

COMPANY“X”

COMPANY

“Y”

Company “Y” merges with Company “X”

.

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KINDS OF MERGER/ KINDS OF MERGER/ KINDS OF MERGER/ KINDS OF MERGER/

AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

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KINDS OF MERGER/ KINDS OF MERGER/ KINDS OF MERGER/ KINDS OF MERGER/

AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

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CONGENERIC

MERGER1. HORIZONTAL MERGER

2.2.2.2. VERTICAL MERGER

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CONGLOMERATE

MERGER

1. CASH MERGER

2. DEFACTO MERGER

3. DOWNSTREAM MEGER

4. UPSTREAM MERGER

5. SHORT FORM MERGER

6. TRIANGULAR MERGER

7. REVERSE MERGER

HORIZONTAL MERGER

VERTICAL MERGER

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CASH MERGER

DEFACTO MERGER

DOWNSTREAM MEGER

UPSTREAM MERGER

SHORT FORM MERGER

TRIANGULAR MERGER

REVERSE MERGER4

DIFFERENCE BETWEEN MERGER AND AMALGAMATION

• Often merger and amalgamation are

other and used interchangeably.

• However in strict sense merger is

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• However in strict sense merger is

achieve expansion, diversification,

acquisition of new technology and

• Whereas amalgamation is commonly

companies under the control and superintendence

may be existing company or a new company

•

DIFFERENCE BETWEEN MERGER AND AMALGAMATION

are considered as synonyms for each

normally used as a strategic vehicle to

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normally used as a strategic vehicle to

diversification, entry into the new market and

resources.

commonly adopted to bringing assets of two

superintendence of one company, which

company.

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ADVANTAGES OF ADVANTAGES OF ADVANTAGES OF ADVANTAGES OF

AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

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AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

ADVANTAGES OF ADVANTAGES OF ADVANTAGES OF ADVANTAGES OF

MERGER / MERGER / MERGER / MERGER /

AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

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AMALGAMATIONAMALGAMATIONAMALGAMATIONAMALGAMATION

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STRATEGIC

1. To

2. For

3. For

4. To

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STRATEGIC

SYNERGIES

4. To

5. To

6. To achieve technology integration;

7. To

8. To

achieve globalization;

For growth of market share;

For diversification of business;

consolidate the businesses;

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consolidate the businesses;

widen the product range;

To achieve technology integration;

penetrate in new market; and

develop focused brand image.

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KINDS OF

MERGERS & FINANCIAL

1. To reduce operating cost by merging the entities;

2. To unlock the

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MERGERS &

AMALGAMATION

FINANCIAL

SYNERGIES

2. To unlock the

3. To avail tax efficiency; and

4. To take advantage of financial structuring.

KINDS OF

MERGERS &

To reduce operating cost by merging the entities;

To unlock the value of entities;

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MERGERS &

AMALGAMATION

To unlock the value of entities;

To avail tax efficiency; and

To take advantage of financial structuring.

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LEGAL & REGULATORY LEGAL & REGULATORY LEGAL & REGULATORY LEGAL & REGULATORY

FRAMEWORK OF FRAMEWORK OF FRAMEWORK OF FRAMEWORK OF

MERGER / AMALGAMATIONMERGER / AMALGAMATIONMERGER / AMALGAMATIONMERGER / AMALGAMATION

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LEGAL & REGULATORY LEGAL & REGULATORY LEGAL & REGULATORY LEGAL & REGULATORY

FRAMEWORK OF FRAMEWORK OF FRAMEWORK OF FRAMEWORK OF

MERGER / AMALGAMATIONMERGER / AMALGAMATIONMERGER / AMALGAMATIONMERGER / AMALGAMATION

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THE COMPANIES

ACT, 1956

COMPETITION ACT,2002

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LISTING AGREEMENT

THE INDIAN STAMP ACT, 1899

THE COMPANIES

ACT, 1956

COMPANIES COURT RULES,

1959

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1959

INCOME TAX ACT, 1961

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COMPANIES ACT,

1956Section 390 to

contains provisions for merger

of companies.

COMPANIES

COURT RULES, Rule. 67 to

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COURT RULES,

1959

Rule. 67 to

amalgamation

INCOME TAX ACT,

1961

Various sections

provisions for

companies.

Section 390 to 396A of the Companies Act, 1956

contains provisions for merger and amalgamation

of companies.

to 87 deal with merger and or

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to 87 deal with merger and or

amalgamation of the companies.

sections of Income Tax Act contains

for merger and amalgamation of the

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LISTING

AGREEMENTListed company

scheme to

Objection Certificate”

THE INDIAN

STAMP ACT, 1899The stamp act

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STAMP ACT, 1899The stamp act

the duties applicable

COMPETITION ACT,

2002 Provisions relating

complied.

company is required to submit copy of

the stock exchange and obtain “No

Certificate” for the proposed scheme.

act has to be verified on the basis of

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act has to be verified on the basis of

applicable in the respective states.

, relating to the combination are to be

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MAJOR TAX IMPLICATIONS

1. No capital gainamalgamatingcompany. [Section

2. No capital gain

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2. No capital gaincompany by anamalgamated foreign

3. No capital gainamalgamated company

amalgamating company

MAJOR TAX IMPLICATIONS

gain on transfer of capital assets bycompany to an Indian amalgamated

[Section 47(vi)]

on transfer of shares held in an Indian

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on transfer of shares held in an Indianan amalgamating foreign company to anforeign company. [Section 47(via)]

gain on allotment of shares by an Indiancompany to the shareholders of the

company. [Section 47(vii)]

4. Proportionateamalgamatingof number of daysfinancial year. [Fifth

5. Expenditure on

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5. Expenditure ondeductible insuccessive previous

6. Actual cost of assetssame as wouldamalgamated companydepreciation onassets.[Explanation

depreciation shall be allowed toand amalgamated company in relationdays assets are used by them during the[Fifth Proviso to Section32(1)]

on amalgamation is allowed to be

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on amalgamation is allowed to befive equal installments during five

previous years. [Section35DD]

assets to the amalgamated company shall bewould be to amalgamating company. Hence

company shall be in position to availthe basis of written down value of the

[Explanation 7 of Sec.43(1) & Explanation 2 of Sec.43(6)]

7. Cost of shares,of shares held inof acquisition49(2)]

8. Accumulated business

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8. Accumulated businessshall be allowedhands of amalgamatedyears subjectSimilarly, unabsorbedcompany is allowedset off incompany:[Section

allotted by amalgamated company in lieuin amalgamating company, shall be the costin the amalgamating company [Section

business loss of the amalgamating company

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business loss of the amalgamating companyto be carried forward and set off in the

amalgamated company for a fresh period of 8the fulfillment of certain conditions.

unabsorbed depreciation of amalgamatingallowed to be carried forward indefinitely and

the hands of amalgamated[Section72A(1), (2) & (3)]

Properties, assets andare vested with amalgamatedorder of High Court

Vesting of propertywithout any furtherused to be payable.

STAMP

DUTY

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The Bombay StampHigh Court sanctioningunder the term “Conveyance”stamp duty.

Constitutional validityby an order of divisionthe case of Li TakaMaharashtra (1996)

and liabilities of amalgamating companyamalgamated company by virtue of an

Court sanctioning the scheme.

property takes place by operation of lawfurther acts or deeds, hence no stamp duty

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Act, 1958, first time brought order ofsanctioning the scheme of amalgamation“Conveyance” and thus rendered it liable for

validity for levy of stamp duty was uphelddivision bench of Bombay High Court in

Taka Pharmaceuticals Ltd v State of22 CLA 154(BOM). 16

Supreme Court of Indiaof Maharashtra (2004)scheme sanctioned by Highstate legislature has fulltransfer of assets under the

Some of the States haveduty on order of High

STAMP

DUTY

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duty on order of Highamalgamation.

Calcutta High Court in the130 Comp Ca 510 ( Cal)order sanctioning schemestamp duty.

There are contradictorythe applicable stamp act

in the case of Hindustan Lever v State) CLC 166 held that amalgamation

High Court shall be an “ Instrument” andfull competence to impose stamp duty on

the scheme approved by High Court.

amended their stamp laws and imposedHigh Court sanctioning scheme of

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High Court sanctioning scheme of

the case of Madhu Intra v ROC (2006)(DB) held that transfer of assets as per

scheme of merger shall not be liable for

contradictory decisions on this issue, please checkand consult the expert in this aspects

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AMALGAMATION

PROCEDURE

FOR

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FOR

MERGER /

AMALGAMATION

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STEPS BEFORE SCHEME PRESENTED TOTHE HIGH

Check object clause of Memorandum

and Articles of Association (MOA) of

transferee company to ensure that it

covers objects of transferor company.

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Convene a board meeting to consider and

approve the scheme of merger/

amalgamation.

Appoint an expert to determine the

valuation of shares and exchange ratio.

STEPS BEFORE SCHEME IS PRESENTED TOTHE HIGH COURT

Convene board meeting of transferee andtransferor companies and approve thescheme of merger/amalgamation .

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Preparation of valuation report for

transferor and transferee companies.

Prepare a scheme of merger

/amalgamation in consultation with legal

advisors, auditors and company secretary.

PROCEDURE AT HIGH

Filing of application in the high court to

call, hold and conduct meeting of

shareholders / creditors.

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shareholders / creditors.

Printing and dispatching of notice of

meeting along with explanatory

statement

PROCEDURE AT HIGH COURT

Issue of direction by the high court toconvene shareholders/ creditors meeting

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Appointment of chairman of the shareholders/ creditors meeting

Continued to next page---------

Fixation of date of hearing by High Court.

Convening of meeting

passing of resolution

approval of the

merger/amalgamation

Publication of notice of

meeting in two newspapers

Forwarding of

petition to

Director(MCA)

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Consideration of and approval of scheme of merger/amalgamation by the High Court.

Director(MCA)

Note: If two companies are in different states, similar

Publication of notice of such hearing in two newspapers.

Submission of petition to the High

Court within 7 days of submission

of report by the Chairman

meeting and

resolution for

scheme of

merger/amalgamation.

Chairman will submit a report to

the High Court indicating the

results of the meeting within 7

days of conclusion of the meeting.

copy of

Regional

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of report by the Chairman

Consideration of and approval of scheme of merger/amalgamation by the High Court.

similar procedure will be applicable in both the courts.

COMPLIANCES SUBSEQUENT TO APPROVAL OF THE SCHEME

Filing of certified Copy of

High Court order with

Registrar of Companies

(MCA) within 30 days of

receipt of order.

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receipt of order.

Affixing of copy of High

Court order in all copies of

MOA of the transferee

company.

COMPLIANCES SUBSEQUENT TO APPROVAL OF THE SCHEME

Listing of shares at stock

exchanges, if company is

listed.

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Allotment of shares to the

shareholders of the

transferor company.

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IMPORTANT ISSUES

AND

JUDICIAL INTERPRETATIONS

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IMPORTANT ISSUES

AND

JUDICIAL INTERPRETATIONS23

ISSUES & INTERPRETATIONS1. Whether High Court has power

merger, when the MOA of

to amalgamate/ merge with

Held by Calcutta High Court

(1977) 47 Comp Case 802

a scheme of amalgamation

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a scheme of amalgamation

of the Company.

2. Does the authorised share

Company integrate under

no requirement for payment

Allahabad High Court in

134, Comp Case 542 held

transferee company merge

ROC.

ISSUES & INTERPRETATIONSpower to sanction a scheme of amalgamation/

of the Company does not have specific reference

with other company?

Court [ Marybong & Kyel Tea Estate Limited In re

802 (Cal)] that Court has power to grant sanction to

amalgamation despite there is no express power in the MOA

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amalgamation despite there is no express power in the MOA

share capital of the transferor and transferee

under scheme of amalgamation/ merger and there is

payment of fee to the ROC?

in the case of Jaypee Greens Limited , In re (2006)

held that authorised share capital of transferor and

merge and no further fees is required to be paid to

3. Determination of Appointed date

Appointed date is also

date determines the

amalgamating company

company.

Observed by the Supreme

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Observed by the Supreme

Co.(India) Ltd vs. ITO(1977

modify the appointed

appropriate in the facts

If Court does not prescribe

then date specified in the

3. Determination of Appointed date

also referred as transfer date or cut off date. This

date from which all assets and liabilities of

company shall be transferred to the amalgamated

Supreme Court in the case of Marshal Sons &

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Supreme Court in the case of Marshal Sons &

1977) 1 Comp LJ P.1 that it is open to the Court to

appointed date and prescribe such date as it thinks

facts and circumstances of the case.

prescribe any date, but merely sanctions the scheme,

the scheme shall be regarded as appointed date.

4. Can a joint application be moved

and transferee Company are

In the case of Mohan Export

(Del) , it was held that joint application

5. Whether Court is bound to follow

High Court is not bound to follow

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High Court is not bound to follow

may form its independent opinion

Alloys Ltd (1981) 51 Comp Case

6. Whether order of the High Court

creditors or shareholders despite

shareholders voted in favour

arrangement?

The scheme sanctioned by the

class of creditors and shareholders

moved where registered offices of transferor

are situated in the same State?

Export Ltd vs. Tarun Overseas P. Ltd (1994)14 CLA 279

application can be made.

follow the opinion of Regional Director (MCA) ?

follow the opinion of Regional Director (MCA). It

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follow the opinion of Regional Director (MCA). It

opinion over the matter [ In re Sakamari Steel &

Case 266 (Bom)].

Court shall be binding on all creditors , class of

despite 3/4th of creditors, class of creditors or

favour of the scheme of compromise or

the High Court shall be binding on all creditors,

shareholders.

7. Is there any need to give notice to the Income Tax Department of the

proposed scheme ?

No special notice needs

find out whether there

amalgamation; the general

[ Re Vinay Metal Printers

8. Can High Court sanction the

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8. Can High Court sanction the

transferor company without

No order of dissolution

Official Liquidator has, on

made a report to the Court

conducted detrimental

interest. [ Webb’s Farm

(1966) 7 SCL 81 (Kar- FB)

Is there any need to give notice to the Income Tax Department of the

to be given to the Income Tax Department to

there is a motive of tax evasion in the proposed

general public notice in newspapers is sufficient

Printers Pvt.Ltd (1996) 87 Comp Cas 266 (AP)].

the scheme and order for dissolution of

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the scheme and order for dissolution of

without the report of the official liquidator?

can be passed by the High Court unless the

on scrutiny of books and papers of the company,

Court that affairs of the Company have not been

to the interest of members or to the public

Farm Mechanisation P. Ltd v. Official Liquidator

and Section 394(1) second proviso ]

9. Can shareholder dispute

Shareholder cannot object

unless valuation is grossly

contention[ Hindustan Lever

(1995) 83 Comp Cas 30 (SC)

10. Frivolous objection by minority shareholders

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There have been some

fraction of the shares make

against the scheme

implementation of the

down these frivolous objections

scheme.

dispute the valuation of shares and swap ratio ?

object to the valuation of shares and swap ratio

grossly unfair and court is satisfied with their

Lever Employees’ Union v. Hindustan Lever Ltd.

(SC): (1994) 15 CLA 318 (SC)] .

10. Frivolous objection by minority shareholders

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some instances where shareholders holding a

make some frivolous and untenable objections

with an ulterior objective to defer the

the scheme. Courts on number of occasions turn

objections and proceeded for approval of the

For any further clarifications, please contact: Mr. RUPENDRA K PORWAL (Director), Rel

Corporate Consultants (P) Ltd - rupendra.porwal@relintegral.com

+91- 98385 97775 , 80520 45000

LUCKNOW OFFICE

Mr. Ron Thomas Joseph4th Floor, Premier Car Sales Building

(Opp. St. Francis College)

Shahnajaf Road, Lucknow- 226001

July-2012

JAIPUR OFFICE

Mr. Nitin Sethi

905, Sethi House,

Meer Bakshi Ka Mohalla,

Panno Ks Dariba ,Jaipur - 302002

Email: sethinitin77@hotmail.com

Mob. No. +91 9414078378

For any further clarifications, please contact: Mr. RUPENDRA K PORWAL (Director), Rel- Integral

rupendra.porwal@relintegral.com ; porwal_acs@yahoo.com

PUNE OFFICE

Ms. Archana RathiK3, 24, Gajamukha,

Aditya Nakova Enclave

Sinhagd Road ,Opp. Big Bazar

Pune- 411030

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Pune- 411030

E-MAIL : rathiarchana@yahoo.co.in

Mob. No. +91 9822054190

INTERNATIONAL REPRESENTATIVE OFFICE:

LONDON OFFICE

Mr. Ajay Agrawal13 St Mary Street London,

U.K. SE18 5AN

Email: ajayca@hotmail.com

ajay.agrawal@relintegral.com

Mob. No. +44 (79) 5821 9276

July-2012

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