The companies act 20 passed by the parliament received the assent of the president of india on 29th august 20. The new act testifies the fact that it is a recodification in the real sense. Parties to a merger lose their individual identities because a merger gives rise to a new entity. The merger is a combination of two or more entities into one, it is not just the accumulation of assets and liabilities of the distinct entities. Merger between holding and its wholly owned subsidiary wos company defined above. Merger and amalgamation under companies act, 20 taxguru. Legal aspect of mergeramalgamation companies act, 1956 has provided for a set of provisions specially dealing with amalgamation of companies, to facilitate the transactions. Rule 25a merger or amalgamation of a foreign company with a company and vice versa. Provisions relating to merger, amalgamation and windingup, etc. Mergers and amalgamations are regulated under the provisions of the companies act, 1956 whereas takeovers are regulated under the sebi substantial acquisition of shares and takeovers regulations. The companies act, 20 rules on the companies act, 20 this feature allows you to view the companies act, 20 sectionwise or chapterwise.
However, from the standpoint of business as well as accounting, there are several important differences between these two terms. Section 232 of companies act, 20 merger and amalgamation. Government makes rules relating to merger or amalgamation. Section relating to merger and amalgamation under companies act, 20 are 230 and 232. For the purpose of this act the terms merger and amalgamation are synonymous. The tribunal, merger, amalgamation or demerger is proposed in the application of compromise and arrangement under section 230 i of the company, or ii of the creditors, or iii of the members of the company iv of the liquidator of company under liquidation, may order the meeting. Companies act 20 complete act citation 63265 bare act. Section 230 to 232 provides for compromises, arrangements and amalgamations under the companies act, 20, subject to obtaining the approval from national company law. The merger and amalgamation of corporate constitutes a subject matter of the companies act, the courts and law and there are well laid down procedures for valuation of shares and rights of investors.
The provision of this chapter shall also apply to the scheme of mergers and amalgamations between companies registered under the companies act, 20 and companies incorporated in the jurisdictions of such countries as may be notified. Thus it may be concluded that the procedure for amalgamation under the companies act 20 is on the same lines as the one prescribed under the companies act 1956 except for a few changes. The companies act, 20, new act in its new avatar, mirrors several changes when compared to the law contemplated under the companies act, 1956 old act. The provisions relating to merger and amalgamation are contained in sections 390 to 396a in chapter v of part vi of the companies act, 1956. Dec 24, 20 this is a merger and amalgamation other than under scheme of merger and amalgamation. You can view a specific section, or view all sections grouped by chapters. The companies act, 20 has provided for fast track mergers, wherein certain classes of companies can merger as per the provisions laid down under section 233 of the companies act, 20. Aug 31, 2015 procedure for merger and amalgamation is different from takeover. The 20 act requires that mergers and amalgamations between two or more small companies or between holding companies and its whollyowned subsidiary or between such companies as may be prescribed does not require court approval. Rule 21 statement of compliance in mergers and amalgamations. Rule 18 application for directions under section 232 of the act. Difference between merger and amalgamation difference.
Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger without due diligence is like entering a tunnel with darkness growing with each step. Section 231 explains the power of tribunal to enforce compromise or arrangement. The act consolidates and amends the law relating to companies. This process can be extended, under the rules, to class of companies. Merger and amalgamation merger is a combination of two or more companies into a single company where one survives and the others lose their corporate existence. Merger, amalgamation and reconstruction concept of merger in. Mca further notified certain provisions of the 20 act, thereby making the functioning of nclt and nclat operative from june 1, 2016. Chapter xvi prevention of oppression and mismanagement. Jun 14, 2015 merger of two private limited companies. The merger is a combination of two or more entities into one, it is not just the accumulation of assets and liabilities of the distinct entities, but the organization of the entity into one business. Section 233 of the companies act, 20 notifies a fast track way business reorganization for a prescribed class of companies namely. Under the erstwhile act, companies which have reached a consensus to merge must prepare a scheme of amalgamation merger scheme. May 12, 2014 the companies act 20 passed by the parliament received the assent of the president of india on 29th august 20. As per companies act, 20 shareholders enjoy certain rights in a company.
The background of companies act, 20 the companies act, 1956 is all set to be replaced by the companies act 20 which was passed by the lok sabha on 18th december 2012 and passed by the rajya sabha on 8th august 20. This scheme is known as single window clearance scheme. The indian companies act 20 replaced the indian companies act, 1956. In commercial parlance, merger essentially means an arrangement. For most people, mergers and amalgamations are one and the same. The power of the central government to order a merger or amalgamation in the interest of the nation is untouched and is placed in section 237. The notification of the above mentioned sections of the companies act, 20 act will help in reducing shareholders\ litigation and make corporate restructuring process smooth and efficient. This is a welcome step which broadens the idea of globalization.
Key highlights of new indian companies act 20 advisorkhoj. It is a legal process by which two or more companies are joined together to form a new entity or one or more companies are absorbed by another company and as a consequence the. The statutory provisions relating to merger and amalgamation are contained in. The companies act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements and reconstructions, however other provisions of the companies act get attracted at different times and in each case of merger and acquisition and the procedure remains far from simple. Prahlada rao t he provisions relating to offences, penalties and prosecution contained in the companies act, 20 are refreshingly different from the provisions of the existing act structurally and otherwise also. Government makes rules relating to merger or amalgamation of. The erstwhile act does not prohibit companies from creating treasury shares under a scheme of amalgamation. The companies act, 20 deals with the provisions of merger, compromises, arrangements and amalgamations under chapter xv of the act. Demystifying corporate restructuring under companies act. The companies act, 20 ministry of corporate affairs.
In practice, sections 166 to 167 are rarely used given the. Companies act, 20 fresh thinking for a new start 35 highlights of the revised process are as under. Part arrangements, amalgamation, and compulsory share acquisition in takeover and. Panis bread a company can be defined as an artificial person, invisible, intangible, created under law, with a discrete legal entity, perpetual succession and a common seal.
Merger and amalgamation is a restructuring tool available to indian conglomerates aiming to expand and diversify their businesses for various reasons whether it is to gain competitive advantage, reduce costs or availing of tax benefits. Liability of officers in respect of offences committed prior to merger, amalgamation, etc. The companies act 20 was notified in the official gazette on 30th august 20. The notified sections will be effective from 15 december, 2016, and are likely to bring a. Section 233 of companies act, 20 merger or amalgamation. Ministry of corporate affairs mergers and acquisitions. Direct tax aspects of mergers and acquisitions fastrack. A merger is where two or more business entities combine to create a new entity or company. The merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly owned subsidiary company or such other class or classes of companies subject to the following, namely. Mar, 2017 thus it may be concluded that the procedure for amalgamation under the companies act 20 is on the same lines as the one prescribed under the companies act 1956 except for a few changes. For example, the acceptance of a scheme or merger or amalgamation by threefourths of the shareholders, like in section 3912 of the old act, is still a precondition to a merger or amalgamation. The 1956 act has been in need of a substantial revamp for quite some time now, to make it more contemporary and relevant to corporates, regulators and other stakeholders in india.
The companies act 20 makes comprehensive provisions to govern all listed and unlisted companies in the country. Chapter xv of the 20 act, sections 230 to 240 deal with compromises, arrangements and amalgamations. Merger of a listed company into an unlisted company and viceversa. So far, the mergers of companies in india are being governed by section 3996a of the companies act, 1956. The 20 act features some new provisions in the area of mergers and acquisitions, apart from making certain changes from the existing provisions. Both the transferor and the transferee company shall make an application in the form of petition to the tribunal under section 230232 of the companies act, 20 for the puspose of sanctioning the scheme of amalgamation. While the changes are aimed at simplifying and rationalising the procedures involved, the new provisions are also aimed at ensuring higher accountability for the company and majority shareholders and increasing flexibility for. Merger by absorption and merger by formation of a new company.
In this chapter, the act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations. Companies act, 20 allows both inbound and outbound crossborder mergers and amalgamations between indian and foreign companies. Merger regime under the companies act, 20 introduction merger is a restructuring tool available to indian conglomerates aiming to expand and diversify their businesses for various reasons whether it is to gain competitive advantage, reduce costs or unlock values. General procedure for amalgamation under companies act 20. This is a landmark legislation with farreaching consequences on all. Liability under sections 339 and 340 to extend to partners or directors in firms or companies. However, the similar concept of present and voting has not been included in the 20 act, and there is no clarity is required from the ministry. However it deals with schemes of merger acquisition which are stipulated under section 391 to 394. The index contains the latest amendments, list of all sections including sections which has not yet been notified, schedules, and rules made under the companies act, 20. Preservation of books and papers of amalgamated companies. Section 230 deals with the power to make compromise and arrangement of companies. Merger and amalgamation of companies effective from 15th december, 2016 1 where an application is made to the 2tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the 2tribunal a. Merger and amalgamation under companies act, 20 by national company law tribunal nclt. May 25, 2017 mergers and amalgamations under companies act, 20.
Under the 1956 act, the criterion of present and voting is essential for the conduct of shareholders and creditors meetings. The companies act, 1956 does not define the term merger or amalgamation. The act introduces significant changes in the provisions related to governance, e management, compliance and enforcement, disclosure norms, auditors, mergers. Merger has been used for long as a tool for various purposes such as expansion of the business, to gain competitive advantage, for reduction of cost by economies of scale, to unlock values. Notification of various under the companies act, 20 sections. The terms mergers and amalgamations on the one hand and acquisitions and takeovers on the other are treated here synonymously or interchangeably. We will discuss merger and amalgamation in this post. Apr 26, 2011 the terms merger and amalgamation have not been defined in the companies act, 1956 though this voluminous piece of legislation contains more than 50 definitions in section 2 of the act. Rule 25 merger or amalgamation of certain companies. Changes in provisions related to mergers and amalgamations. A merger or amalgamation is an arrangement whereby the.
Section 234 merger or amalgamation of company with foreign company. A merger or amalgamation is an arrangement whereby the assets of two or more companies become vested in one company which may or may not be one of the original two companies. Ebook on companies act 20 in pdf april 2020 edition. You can also search for keywords within the sections of the act. Changing contours of mergers and acquisitions under. Section 235 power to acquire shares of shareholders dissenting from scheme or contract approved by majority. Government makes rules relating to merger or amalgamation of a foreign company with an indian company and vice versa 17 april 2017 background in a significant development, the government has notified1 the commencement of section 234 of companies act, 20 the act as april 2017. Mar 11, 2015 merger or amalgamation of a company with foreign company section 234. Merger and amalgamation under companies act, 20 by. It was felt that the act needs to provide specifically that delisting through a scheme of merger under section 3994 of the companies act is possible by. It brings in a whole new set of expected and unexpected changes to the existing regime governing indian company law.
A merger or amalgamation is an arrangement whereby the assets of two or more companies become vested in one company which may or. Everything about companies act 20, rules, notification. A brief background to the introduction and status of the companies act 20 is as under. Examine whether a forward merger or a reverse merger is more beneficial. The statutory provisions relating to merger and amalgamation are contained in sections 390 to 396a. Two or more small companies, holding company and its wholly owned subsidiary company or such other class of companies as may be prescribed may enter into a scheme of merger or amalgamation under section 233 of the companies act, 20. This edition also highlights the guidance on two new concepts in the area of financial instruments accounting. Demystifying corporate restructuring under companies act, 20. The companies act 20 implemented many new sections and repealed the relevant corresponding sections of the companies act 1956. Merger or amalgamation of certain companies effective from 15th december, 2016 1 notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its whollyowned subsidiary company or such other class or classes. In case of listed companies, obtain sebis prior permission. It provides a composite code for facilitating mergers and amalgamations which obviates the need for making multiple applications under the act. An amalgamation is where one business entity acquires one or.
The act creates a new regulator, the national law company tribunal hereinafter referred to as the tribunal who will assume jurisdiction of the court for sanctioning mergers. September 20 chartered secretary articles a 325 376 p1022 the companies act, 20 and company secretaries ms. This is a landmark legislation with farreaching consequences on all companies. The key highlights respect to fast track mergers ftm are as. Merger and amalgamation of companies effective from 15th december, 20161 where an application is made to the tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the tribunal a that the compromise or arrangement has been proposed for the. Both the transferor and the transferee company shall make an application in the form of petition to the tribunal under section 230232 of the companies act, 20 for the. The survivor acquires the assets as well as liabilities of the merged company or companies.
The 20 act introduces a new type of entity to the existing list i. Renuka kumar t he companies act, 20 has given due recognition to the profession of company secretaries and under the new regime they will constitute a vital link between the company, board of directors. The table below sets out the procedure for fast track mergers together with the timeline specified. Fasttrack merger under the 1956 act, all mergers and amalgamations require court approval. The committee examined issues relating to the merger of listed company with an unlisted company and viceversa.
218 57 585 372 1535 995 494 19 571 436 1125 672 82 866 515 1482 1470 1179 640 254 822 649 749 1317 1500 875 539 1059 1251 258 1329 176 597 310 215 1485 826 1373 330