INSTITUTIONAL LAWS, AND MERGERS AND ACQUISITIONS IN INDIA

1. INTRODUCTION
Liberalization has brought changes in the corporate landscape. It has left the corporate with two options
“Competition or Collaboration”. Corporate chose M&A as the best strategic option to collaborate to face
competition. Today, the volume and value of mergers and acquisitions is mushrooming in India. The recent mergers
and takeovers in 2011 are ACC ltd with Lucky Minmat Ltd; Crompton Greaves Ltd. with C G Capital &
Investments Ltd; Jaiprakash Power Ventures Ltd. with Jaypee Karcham Hydro Corpn. Ltd.; Tata Communications
Ltd. with Tata Communications Internet Services Ltd and Intas Pharmaceuticals Ltd. taking over Intas
Biopharmaceuticals Ltd. Even prior to 1991, the business houses like Goenka and Manu Chabaria grew through
Acquisitions.
It is therefore necessary to understand and comprehend the rules and regulations governing the Mergers and
Acquisitions in India. The rules and regulations relating to M&A administration do not harm investment climate or
economic growth as generally perceived, but rather it aids to growth. As said by Dhanenendra Kumar, Chairman
CCI “wherever competition laws are in place, large M&As have legal certainty”.
2. M&A: THE LEGAL DEFINITION
The legal definition of amalgamation comes under Section 21B of Income Tax Act which means merger of either
one or more companies with another company or merger of two or more companies to form one company in such a
manner that (a) all the assets and liabilities of the target company/companies become the assets and liabilities of
acquirer company (b) shareholders holding not less than 75% of the value of shares in the target company (other
than shares which are held by, or by a nominee for, the transferee company or its subsidiaries) become shareholders
of the acquirer company. (c) the consideration for the amalgamation receivable by those equity shareholders of the
target company who agree to become equity shareholders of the acquirer company is discharged by the acquirer
company wholly by the issue of equity share in the acquirer company, except that cash may be paid in case of any
fractional shares (d) the business of the target company is intended to be carried on, after the amalgamation, by the
acquirer company (e) No adjustment is intended to be made in the book values of the assets and liabilities of the
target company when they are incorporated in the financial statements of the acquirer company except to ensure
uniformity of accounting policies.
3. LAWS AND STATUTES GOVERNING M&A IN INDIA
We present India’s M&A regulatory framework, which
comprises six sovereign institutions (refer figure),
namely Companies Act, 1956 (Registrar of Companies
under the Ministry of Corporate Affairs), SEBI–SAS&T
Regulations, 1997 (Securities and Exchange Board of
India), Competition Act, 2002 (Competition
Commission of India), Income Tax Act, 1961
(Department of Revenue), Reserve Bank of India (RBI)
and Foreign Investment Promotion Board (FIPB). There
are some other acts, which administer directly or
indirectly related to domestic and foreign investment
deals. For instance, the acts include Transfer of Property
Act, 1882; Indian Stamp Act, 1899; Registration Act,
1908; Customs Act, 1962; and Foreign Exchange
Management Act, 1999. Most of these regulations are
being controlled by the Department of Revenue under
the Ministry of Finance. Herewith, we provide a brief
notes relating to relevant laws based on the importance
of act/governing body.
3.1 The Companies Act’ 1956
The existing Companies Act, 1956 was formally enacted by the Parliament. It is one of the important M&A laws,
which deals with the procedural aspects of mergers or amalgamations. The act has not been defined what is a merger
or acquisition. Hence, it has suggested ‘three terms’ related to inorganic strategies under Sections 390-396, the terms
like “compromise”, “arrangement”, and “reconstruction”. In fact, it uses the term “amalgamation” without defining
it clearly. For instance, Section 390(a) states, “no company involved in an amalgamation likely to be financially
unsound or under winding-up setting. In particular, the Companies (Court) Rules 1959, exhibit various provisions
that should be taken care while processing amalgamations through the courts. Section 391 indicates “the High Court
(where the registered office of the company is situated) has the power to sanction a “compromise” or “arrangement”
between a company and its creditors,
Section 392 empowers the court to enforce and supervise such compromises or arrangements, Section 394 makes
provision for facilitating the reconstruction and amalgamation of companies by making the appropriate application
before the court, Section 395 allows for the acquisition of shares of shareholders dissenting from the scheme or
contract which has been approved by the majority, and Section 396 enables the government to provide for an
amalgamation of companies in national interest”. On the other hand, it does not deal when a merger transaction
involves ‘sick industrial company’ as acquirer or target. In addition,
“Sections 108A-108F of the act has been mandated that the approval of the central government is necessary for the
acquisition of shares by an individual, firm, or corporation where the increased shareholding goes beyond a
prescribed value”. In 2005, the Irani Committee, 2004 (Chairperson: J.J. Irani, Director of Tata Sons Ltd) has made
several recommendations to improve the act, including that there is an urgent need for the law to provide for a single
controller, which is required to approve mergers in a specified and time bound manner”. Further, new Companies
Bill-2012 has updated with significant changes (pre-merger approval) and simplified the process relating to
acquisition of smaller companies.
3.2 Companies Act 2013
Sections 230 to 240 of Companies Act 2013 govern mergers and schemes of arrangements between a company, its
shareholders and/or its creditors. It is to be noted that the provisions of Companies Act 2013 recently been notified
and hence before this it was governed under section 390 to 394 of old Companies Act. The currently applicable
Merger Provisions are in fact worded so widely, that they would provide for and regulate all kinds of corporate
restructuring that a company can possibly undertake, such as mergers, amalgamations, demergers, spin-off/hive off,
and every other compromise, settlement, agreement or arrangement between a company and its members and/or its
creditors. The details of M&As under Companies Act, 2013 is discussed at the end of this chapter
3.3 The Competition Act 2002
The aim of this act is to regulate various forms of business restructuring like mergers, alliances, product
acquisitions, etc. Chapter II’s Sections 5 and 6 of the act deals such business transactions. For instance, in Section 6,
the act clearly stated that “no person or enterprise shall enter into a combination that cause or is likely to cause an
appreciable adverse effect on competition within the relevant market in India and such a combination shall be void”.
Prior to this act, the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 was governed monopoly and
competition-related issues. In Jain (2012), the author stated that the major issues of the MRTP act were that it had
not been accommodated any express provision for the application of anti-competitive conduct outside India but it
affects the local market in an adverse manner. In fact, the MRTP act had included the Section 23 stating that
“companies should concern the government for approval of possible mergers; more positively, this section has been
removed in successive reforms mentioning that pre-merger inspection no longer is being required”.
In subsequent amendments, Competition Bill was introduced in the Parliament in 2002 to replace the MRTP act, and
thereafter the Competition Act has become a regulation in 2003 under the control of CCI. The act passes the ruling
in four areas include anticompetitive agreements, abuse of dominance, combination ruling and competition
advocacy.
For example, Section 5 of the act provides, what is combination; hence, it has not been defined whether a foreign
entity interest comes under the combination, but it stated ‘the act is applicable in all’. The act defines a
“combination” as any merger, acquisition, or acquiring of control in which the combined assets or turnover of the
firms exceeds specified thresholds. According to the new Bill passed in 2007, has suggested that pre-merger
notification is necessary, and revised the thresholds to be at least Rs. 5,000 million (about US$125 million) or Rs.
15,000 million (about US$375 million), respectively, of the combining parties’ joint worldwide assets and turnover
would have to be in India. The amendment also notified that “a merger involving a firm with no business in India
would still need to be notified if the other party alone has assets or turnover in India exceeding the threshold. The
time limit for the CCI initial review has been reduced from 210 days to 180 days whereas the time limit for passing
a judgment retained for 210 days. The act sheds some light on cross-border deals and implicitly brings all three
types of mergers under its scope and ambit. However, the High Court usually takes at least three to four months to
pass an order under Section 394 of the Companies Act, 1956, and additional time required by the CCI, has the effect
of rendering Section 31(11) Competition Act, 2002 redundant. In other words, these kinds of discrepancies between
various regulations will result in a significant delay in the merger proceedings. We therefore realize that the act is
well written with regard to the anti-competitive measures and the powers of authority, but it has failed to explain any
term or definition clearly and interpretative nature. In the recent discussions, CCI has amended few regulations with
regard to acquisition approval, which include inspect not only the structure of the merger, but also examine the
substance of the transaction while approving any merger proposal and no approval is required when a transaction
occurs entirely outside India with “insignificant local nexus and effect on markets in India” (Economic Times,
2014a).
3.4 SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997
This act is one of influential and straightforward regulations for takeovers and substantial acquisition of shares in
India. Prior to this enactment, Clause 40A and 40B under the listing agreement with SEBI usually apply for takeover
activities. Following the reforms, SEBI is controlling various takeover deals under the enacted law “SEBI (SAS&T)
Regulations, 1994”, which is established under Section 30 of the SEBI Act, 1992. In due course of time, it has
appointed a committee headed by the Justice P.N. Bhagawati to review the existing norms prescribed in the act. In
1996, it has approved the recommendations of the committee, and then it has become ‘SEBI (SAS&T) Regulations,
1997’, which is a standard code for takeovers. More recently, SEBI further appointed a committee in 2009, headed
by C. Achuthan to study and suggest new proposals for improving the 1997 Takeover Code. In a sequence, the
committee has submitted a draft report in 2010 and the New Takeover Code 2011 has replaced the existing act. Ray
(2010) argued that the term ‘Takeover’ has not been defined but the term envisages the concept of an acquirer taking
over the control or management of the target firm through acquiring substantial acquisition of shares or voting
rights. The 1997 takeover code has predominantly been amended roughly 23 times in its 13 years of existence.
Salient features of this New Takeover Codes (Regulations 1997) may be enumerated as follows:
 Any person, who holds more than 5% shares or voting rights in any company, shall within two months of
notification of these Regulation disclose his aggregate shareholding in that company, to the company which in
turn, shall disclose to all the stock exchanges on which the shares of the company are listed, the aggregate
number of shares held by each such person.
 Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any,
held by him) would entitle him to more than 5% shares or voting rights in a company- (a) in pursuance of a
public issue, or (b) by one or more transactions, or (c) in any other manner not covered by (a) and (b) above,
shall disclose the aggregate of his shareholding or voting rights in that company, to the company within four
working days of the acquisition of shares or voting rights, as the case may be.
 Every person, who holds more than 10% shares or voting rights in any company, shall, within 21days from the
end of the financial year, make yearly disclosures to the company, in respect of his holdings as on 31st March
each year.
 No acquirer shall agree to acquire, of acquire shares or voting rights which (taken together with shares or voting
rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise 10% or
more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of
such company in accordance with the Regulations.
 No acquirer holding, not less than 10% but not more than 25% of the shares or voting rights in a company, shall
acquire, additional shares or voting rights entitling him to exercise more than 2% of the voting rights, in any
period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with
the Regulations.
 The minimum offer price shall be the highest of- (a) the negotiated price under the agreement; (b) average price
paid by the acquirer for acquisitions including by way of allotment in a public or rights issue, if any, during the
twelve month period prior to the date of public announcement; (c) the price paid by the acquirer under a
preferential allotment made to him, at any time during the twelve month period up to the date of closure of the
 offer: (d) the average of the weekly high and low of the closing prices of the shares of the target company
during the 26 weeks preceding the date of public announcement.
 The public offer shall be made to the shareholders of the target company to acquire from them an aggregate
minimum of 20% of the voting capital of the company provided that acquisition of shares from each of the
shareholders shall not be less than the minimum marketable lot or the entire holding if it is less than the
marketable lot.
 Within 14 days of the public announcement of the offer, the acquire must send a copy of the draft letter to the
target company at its registered office address, for being placed before the Board of Directors and to all the
stock exchanges where the shares of the company are listed.
 Any person other than the acquirer who had made the first public announcement, who is desirous of making any
offer, shall, within 21 days of the public announcement of the first offer, make a public announcement of his
offer for acquisition of some or all of the shares of the same target company. Such offer shall be deemed to be a
competitive bid. No public announcement for an offer or competitive bid shall be made during the offer period
except during 21days period from the public announcement of the first offer.
 Upon the public announcement of a competitive bid or bids, the acquirer(s) who had made the public
announcement (s) of the earlier offer(s), shall have the option to make an announcement revising the offer or
withdrawing the offer with the approval of the SEBI.
3.5 Income Tax Act’ 1961
Tax planning is an important component in M&A activities. There are two taxations-income tax and stamp duty-
which may have an impact on the M&A activities. The important issues are given below.
One of the motives for mergers is the saving under Section 72A Income Tax Act. It is attractive for amalgamation of
a sick company with a healthy and profitable one to take advantage of the carry forward losses. The conditions are:
– The amalgamating company is not financing viable by reasons of its liabilities, losses and other relevant
factors immediately before such amalgamation.
– Amalgamation is in public interest.
– Any other conditions of the central government to ensure that the benefit under this section is restricted to
amalgamations, which enable rehabilitation or revival of the business of the amalgamating company.
The major section affecting M&A activities is Section 73A of Income Tax Act. Section 72A of the Act has
provisions for carry-forward and set-off of accumulated loss and unabsorbed depreciation allowances in certain
cases of amalgamation. Guidelines for approval of amalgamation under Section 72A of Income Tax, 1961 have been
issued.
The spin-off or hiving off of a particular unit to its wholly owned subsidiary has nil tax payment on transfer of
assets. Other sections of relevance are given below.
a) Section 47(iv) states that any transfer of a capital asset by a subsidiary company to the holding company, if
the whole of the share capital of the subsidiary company is held by the holding company or the holding
company is an Indian company, is not treated as transfer.
b) Section 47A states that if at any time before the expiry of eight years from the date of transfer by the assets
to the subsidiary, such capital assets are converted or treated by the subsidiary as stock in trade or the
parent company ceases hold the whole of the share capital of the subsidiary, the profits or gains arising
from such transfer not taxed earlier will be taxed. The gains are deemed to be income for the year previous
to the one in which the transfer took place.
c) Section 50 states that an excess arising from the sale of depreciable capital asset gives rise to short-term
capital gains. In case of parent company transfer the plant at an advanced stage of completion and has not
claimed any depreciation, this becomes a short-term under Section 50.
d) Section 47(vi) allows transfer of capital assets by the amalgamating company to the amalgamated
company. The pre-condition is that the amalgamated company should be an Indian company. The nature
business transferred in a lump; all the assets and liabilities of the amalgamating company. It is not liable to
pay income tax on the difference between the cost and book value of the stock in trade. India Income Tax
Act, 1961,
3.6 Reserve Bank of India
In terms of section 19 (1) (d) of the Foreign Exchange Regulation Act, 1973, permission of the RBI is required for
the issue of any security to a person resident outside India. Accordingly, in a merger, the transferee company has to
obtain permission before issuing shares in exchange of shares held in the transferor company. Further, Section 29
restricts the acquisition of the whole or any part of any undertaking in Indian in which non-residents’ interest is
more than the specified percentage.
3.7 Foreign Investment Promotion Board (FIPB)
Following the Parliamentary guidelines in 2003, Board has been transferred to the Department of Economic Affairs,
Ministry of Finance. The Board directly coordinates with RBI to facilitate foreign capital flows. It is the important
government agency provides single window clearance for FDI in the country. It does not deal with FDI through
automatic route. In several policy recommendations, the FDI approval limit has doubled from Rs. 600 crores to Rs.
1200 crores, and more than that maximum limit should approve by the Cabinet Committee on Economic Affairs
(CCEA). The e-filing facility is an important initiative of the FIPB to enhance both efficiency and transparency in
decision-making. The board has made compulsory to fill “mandatory preliminary application”. The FEMA act, 2000
(replacement of the Foreign Exchange Regulation Act, 1973 in 1999) governs trade and foreign exchange market
that controlled by the RBI. The objective of the act is to “facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India”. According to RBI guidelines, FDI is prohibited
under the government route as well as the automatic route in specific sectors include atomic energy, lottery business,
business of chit fund, nidhi company, agricultural and plantation activities, housing and real estate business, trading
in transferable development rights, and other specified sectors as per the revisions. Hence, the newly elected
government has positively reacted in the recent 2014-15 budget proposal with regard to foreign direct investment in
various sectors including defense, insurance and retail sectors.
3.8 Other Institutional Compliances
3.8.1 The Industries Development and Regulation Act (IDRA)’ 1951
This is “An Act to provide for the development and regulation of certain industries” this Act contains provisions for
reconstruction of such companies where management or control of industrial undertaking is taken over as per
direction of Central Government. The provisions of this Act have a very restricted applicability in case of mergers.
An application under section 391 of companies Act, initiating a merger proposal cannot be proceeded with, where
permission of High Court has been granted under section 18FA of this Act to appoint any one to take over the
management of individual under section the application of Central Government for the purpose of running or
restarting it. However, the Central Government may review its order at the request of the parties to proceed with the
scheme of merger. There is no requirement to get a new license as license of amalgamating company is treated
adequate for amalgamated company since takeover of all assets includes license also.

3.8.2 Foreign Exchange Regulation Act (FERA) 1983.

This is an “Act to consolidate and amend laws regulating certain payments, dealing in foreign exchange and
securities, transactions indirectly affecting for, foreign exchange and import and export currency, for the
conservation of foreign exchange resource of the country and proper utilization thereof in the interest of economic
development of the country. “Section 14 of this Act contains provisions regulating export and transfer of securities.”
Permission of RBI is required u/s 19(1) (d) of FERA of the issue of any security to a person resident outside India.
Accordingly, in a merger, Transferee Company should obtain permission before issuing shares in exchange of shares
held in Transferor Company

3.8.3 Sick Industrial Companies (Special Provisions) Act (SICA) 1985

Sick Industrial Companies (Special Provisions) Act (SICA), 1985 contains provisions to relating to sick companies.
This act objective is to find out any sick or potentially sick companies so that quick preventive and remedial
measures can be taken to revive the company. An industrial company will be deemed to be sick industrial company
if it has been registered for at least five years and has accumulated losses more than or equal to its net worth at the
end of any financial year. Once a company becomes sick, it will be referred to BIFR, which may under section 18
section its merger with a healthy company for its revival. The sanctioned scheme must be approved through a
special resolution by employees, particularly of transferor sick company who may anticipate uncertainty on merger,
and the scheme once sanctioned will be binding on them.
 3.8.4 Monopolistic and Restrictive Trade Practices (MRTP) Act 1969
The Monopolistic and Restrictive Trade Practices (MRTP) Act 1969, was enacted to ensure that the various
activities in the economic system does not result in the concentration of economic power in hands of few business
houses by controlling monopolies and by prohibiting monopolistic and restrictive trade practices. But this power has
been removed in MRTP Act 1991 and the companies need not have any permission required for going into scheme
of amalgamation. But this Act no more valid. MRTP Act which allowed scrutiny and clearance of merger proposals
has been deleted to a great extent. Later, in the ruling of HLL/TOMCO merger case in 1992, Supreme Court of India
stated that prior approval of government was not required for amalgamations following amendment of MRTP Act.
The commission has now powers post – facto to investigate if mergers have had any adverse effect.

3.8.5 Indian Stamp Act’ 1989

The Indian Stamp Act, 1899, provides for stamp duty on transfer/issue of shares at the rate of 0.25%. In case the
shares are in dematerialised form, there would be no stamp duty on transfer of shares. Conveyance of business under
a business transfer agreement in the case of a slump sale is charged to stamp duty at the same rate as in the case of
conveyance of assets. Typically, a scheme of merger is charged to stamp duty at a concessional rate as compared to
conveyance of assets. The exact rate levied depends upon the specific entry under the respective state laws.
Conclusion
The main motive behind these rules and regulations is to encourage more of mergers and acquisitions along with
transparency, fairness and equal opportunities for all in all activities relating to acquisition of shares or taking over
ownership and control of companies. It is not enough to make policy and prohibitions to meet current needs; rather
it must allow the industries to evolve, with speed and commercial viability to meet future needs. Take for example,
the current telecoms M&A rules restrictive and it is expected from the government to relax these norms to facilitate
mergers and acquisitions in the 15-operator market. One way as suggested by telecom minister is the number of
players in each telecoms zone should not fall below six, including the state-run operator.

4. M&A UNDER COMPANIES ACT, 2013

The Companies Act, 2013 (2013 Act) has seen the light of day and replaced the 1956 Act with some sweeping
changes including those in relation to Mergers and Acquisitions (M&A).
The new Act has been lauded by corporate organizations for its business-friendly corporate regulations, enhanced
disclosure norms and providing protection to investors and minorities, among other factors, thereby making M&A
smooth and efficient. Its recognition of interse shareholder rights takes the law one step forward to an investor-
friendly regime. The 2013 Act seeks to simplify the overall process of acquisitions, mergers and restructuring,
facilitate domestic and cross-border mergers and acquisitions, and thereby, make Indian firms relatively more
attractive to PE investors.
The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and under Income Tax Act, 1961
(“ITA”). However, the Companies Act, 2013 (“CA 2013”) without strictly defining the term explains the concept. A
‘merger’ is a combination of two or more entities into one; the desired effect being not just the accumulation of
assets and liabilities of the distinct entities, but organization of such entity into one business.
On 7th November, 2016 Central Government issued a notification for enforcement of section 230-233, 235-240,
270-288 etc w.e.f. 15th December, 2016. But still rules were not available till date for CAA.
MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016. These rules will be effective from 15th December, 2016. Consequently, w.e.f.
15.12.2016 all the matters relating to Compromises, Arrangements, and Amalgamations (hereafter read as “CAA”)
will be dealt as per provisions of Companies Act, 2013 and The Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
Where a compromise or arrangement is proposed for the purposes of or in connection with scheme for the
reconstruction of any company or companies, or for the amalgamation of any two or more companies, the petition
shall pray for appropriate orders and directions under section 230 read with section 232 of the Act.
Section relating to Merger & Amalgamation Section 230 & 232
In Case of application filing u/s 230 for Compromise & Arrangement in relation to reconstruction of the Company
or companies involving merger or the amalgamation of any two or more companies should specify the purpose of
the scheme.
Who can file the application for Merger & Amalgamation Propose?
[1]An application for Merger & Amalgamation can be file with Tribunal (NCLT). Both the transferor and the
transferee company shall make an application in the form of petition to the Tribunal under section 230-232 of the
Companies Act, 2013 for the purpose of sanctioning the scheme of amalgamation.
Joint Application
Where more than one company is involved in a scheme, such application may, at the discretion of such companies,
be filed as a joint-application.
[2]However, where the registered office of the Companies are in different states, there will be two Tribunals having
the jurisdiction over those, companies, hence separate petition will have to be filed.
Process
 It must be ensure that the companies under amalgamation should have the power in the object clause of
their Memorandum of Association to undergo amalgamation though the absence may not be an
impediment, but this will make matters smooth.
 A draft scheme of amalgamation shall be prepared for getting it approved in Board meeting of each
company.

4.1 FORMAT OF APPLICATION

Application to the tribunal for Merger & Amalgamation will be submitted in form no. NCLT-1 along with
following documents: Rule 3(1)
a) A notice of admission in Form No. NCLT-2
b) An affidavit in form no. NCLT-6
c) A copy of Scheme of C&A (Merger & Amalgamation)
d) A disclosure in form of affidavit including following points Section 230(2)
o All material facts relating to the company, such as
(i) the latest financial position of the company,
(ii) the latest auditor’s report on the accounts of the company and
(iii) the pendency of any investigation or proceedings against the company
o Reduction of share capital of the company, if any, included in the compromise or arrangement
e) Any scheme of Corporate Debt Restructuring consented to by not less than seventy five per cent. of the
secured creditors in value, including
(i) A Creditor’s Responsibility statement in the form No. CAA-1
 (ii) safeguards for the protection of other secured and unsecured creditors;
(iii) report by the auditor that the fund requirements of the company after the corporate debt
restructuring as approved shall conform to the liquidity test based upon the estimates provided to
them by the Board;
(iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the
Reserve Bank of India, a statement to that effect; and
(v) a valuation report in respect of the shares and the property and all assets, tangible and intangible,
movable and immovable, of the company by a registered valuer.
f) The applicant shall also disclose to the Tribunal in the application, the basis on which each class of
members or creditors has been identified for the purposes of approval of the scheme.
4.2 CALLING OF MEETING BY TRIBUNAL

Upon hearing of the application Tribunal shall, unless it thinks fit for any reason to dismiss the application, give
such directions / order as it may think necessary in respect meeting of the creditors or class of creditors, or of the
members or class of members, as the case may be, to be called, held and conducted in such manner as prescribed
in rule 5 of CAA Rules, 2016 as follow:
(i) Fixing the time and place of the meeting or meetings;
(ii) Appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be
and fixing the terms of his appointment including remuneration;
(iii) Fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in
person or by proxy or by postal ballot or by voting through electronic means;
(iv) Determining the values of the creditors or the members, or the creditors or members of any class, as
the case may be, whose meetings have to be held;
(v) Notice to be given of the meeting or meetings and the advertisement of such notice.
(vi) Notice to be given to sectoral regulators or authorities as required under sub-section (5) of section
230;
(vii) The time within which the chairperson of the meeting is required to report the result of the meeting to
the Tribunal; and
(viii) Such other matters as the Tribunal may deem necessary.

4.3 NOTICE OF MEETING

The Notice of the meeting pursuant to the order of tribunal to be give in Form No CAA-2
Person entitled to receive the notice
The notice shall be sent individually to each of the Creditors or Members and the debenture-holders at the address
registered with the company. Section 230(3)
Person authorized to send the notice:
 Chairman of the Company, or
 If tribunal so direct- by the Company or its liquidator or by any other person
Modes of Sending of notice:
 By [4]Registered post, or by Speed post, orby courier, or
 By e-mail, or by hand delivery, or by any other mode as directed by the tribunal
Documents to be send along with notice:
The notice of meeting send with (i) Copy of Scheme of C&A and (ii) Following below mentioned details of C&A if
not included in the said scheme:
a) Details of the order of the Tribunal directing the calling, convening and conducting of the meeting:-
- Date of the Order;
- Date, time and venue of the meeting.
b) Details of the company including:
- Corporate Identification Number (CIN) or Global Location Number (GLN) of the company;
- Permanent Account Number (PAN);
- Name of the company;
- Date of incorporation;
- Type of the company (whether public or private or one person company);
- Registered office address and e-mail address;
- Summary of main object as per the memorandum of association; and main business carried on by
the company;
- Details of change of name, registered office and objects of the company during the last five
years;
- Name of the stock exchange (s) where securities of the company are listed, if applicable;
- Details of the capital structure of the company including authorised, issued, subscribed and paid
up share capital; and
- Names of the promoters and directors along with their addresses.
c) Relationship in case of Combined Application:
If the scheme of compromise or arrangement relates to more than one company, then the fact and details of
any relationship subsisting between such companies who are parties to such scheme of compromise or
arrangement, including holding, subsidiary or of associate companies.
d) Disclosure about effect of M&A on material [5]interests of directors, Key Managerial Personnel (KMP)
and debenture trustee
e) Details of Board Meeting:
- The date of the board meeting at which the scheme was approved by the board of directors
- The name of the directors, who voted in favour of the resolution,
- The name of the directors who voted against the resolution and
- The name of the directors who did not vote or participate on such resolution
f) Explanatory Statement disclosing details of the scheme of compromise or arrangement including:
- Parties involved in such compromise or arrangement;
- Appointed date, effective date, share exchange ratio (if applicable) and other considerations, if
any;
- Summary of valuation report (if applicable) including basis of valuation and fairness opinion of
the registered valuer, if any, and the declaration that the valuation report is available for
inspection at the registered office of the company;
- Details of capital or debt restructuring, if any;
- Rationale for the compromise or arrangement;
- Benefits of the compromise or arrangement as perceived by the Board of directors to the
company, members, creditors and others (as applicable);
- Amount due to unsecured creditors.
g) Disclosure about the effect of the Merger & Amalgamation (C&A) on: Section 230(3)
- Key Managerial Personnel;
- Directors;
- Promoters;
- Non-Promoter Members;
- Depositors;
- Creditors;
- Debenture holders;
- Deposit trustee and debenture trustee;
- Employees of the company:
- Share holders of the Company
h) A report adopted by the directors of the merging companies explaining effect of compromise on each class
of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in
particular the share exchange ratio, specifying any special valuation difficulties;
i) Below Mentioned Details: Following below mentioned details
 - Investigation or proceedings, if any, pending against the company under the Act.
- Details of approvals, sanctions or no-objection(s), if any, from regulatory or any other
governmental authorities required, received or pending for the proposed scheme of compromise
or arrangement
- A statement to the effect that the persons to whom the notice is sent may vote in the meeting
either in person or by proxies, or where applicable, by voting through electronic means
- A copy of the [6]valuation report, if any Section 230(3)
j) Details of availability of documents: Details of the availability of the following documents for obtaining
extract from or for making or obtaining copies of or for inspection by the members and creditors, namely
- Latest audited financial statements of the company including consolidated financial statements;
- Copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been
dispensed with;
- copy of scheme of Merger & Amalgamation ( C&A);
- Contracts or agreements material to the Merger & Amalgamation ( C&A);
- The certificate issued by Auditor of the company to the effect that the accounting treatment, if
any,
- Proposed in the scheme of Merger & Amalgamation ( C&A) is in conformity with the
Accounting Standards prescribed under Section 133 of the Companies Act, 2013; and
- Such other information or documents as the Board or Management believes necessary and
relevant for making decision for or against the scheme;
- k. Some Other documents: Where an order has been made by the Tribunal under section 232(1),
merging companies or the companies in respect of which a division is proposed, shall also be
required to circulate the following:
- The draft of the proposed terms of the scheme drawn up and adopted by the directors of the
merging company;
- Confirmation that a copy of the draft scheme has been filed with the Registrar;
- The report of the expert with regard to valuation, if any

5 KEY COMPARISON BETWEEN COMPANIES ACT, 1956 & COMPANIES ACT, 2013

For more than five and a half decades Companies law in India had been governed by Companies Act, 1956.
Enactment and introduction of Companies Act, 2013 was a step to rejuvenate the existing corporate legal
mechanism in the light of the needs and requirements of the Companies, better governance. In the present article we
are dealing with the provisions with regard to the Arrangements, Mergers & Amalgamations; under Companies Act,
2013.
5.1 Relevant Provisions For Merger & Amalgamation
Under Companies Act, 1956 – Section 390-396A.
Under Companies Act, 2013- Section 230-2401
Merger is generally a scheme of arrangement or Compromise between a Company, Shareholders and Creditors ,
whereas, Amalgamation is defined under section 2(1b) of Income Tax Act, 1961 as a Merger of one or more
Companies with another Company or Merger of two or more Companies to form a new Company.
5.2 Disclosures in connection with Merger & Amalgamation
 Under Companies Act, 1956
Tribunal had Power to sanction any compromise or arrangements with creditors and members if satisfied that
company or any other person by whom an application has been made (by way of first motion Petition) has disclosed
all material facts relating to company with an affidavit such as latest financial position of the Company, accounts of
the company, latest auditor's report etc. For the compliance part, the notice of meeting was required to be sent along
with statement setting forth the terms of the compromise or arrangement and explaining its affect in particular, the
statement must state all material interest of directors of the company, whether in their capacity as such or as member
or creditors of company or otherwise. The tribunal should also give notice to Central Government (Regional
Director and Registrar of Companies) and shall take into consideration the representations, if any, made to it by that
government before passing any order. Also, during the same period there was a requirement of newspaper
publication and any objections by any of the shareholders, creditors if any, be raised before the Court during the
hearing of the second motion Petition. All disclosure provision under 1956 Companies Act has been stated. 2
 Under Companies Act, 2013
The provisions of section 230 of the Companies Act, 2013 provide the additional disclosure if the proposed scheme
involves; Reduction of Share Capital or the scheme is of Corporate Debt restructuring; consented not less then 75%
in value of secured creditors, Every notice of meeting about scheme to disclose valuation report explaining affection
various shareholders. Further, no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate
by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any,
proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed
under section 133 of the Companies Act, 2013.
As per the provisions of Companies Act, 2013 dealing with the Arrangements; notice of meeting to consider
Compromise or arrangement to be given to Central Government, Income Tax Authorities, Reserve Bank, Securities
Exchange Board of India, Registrar of Companies, respective Stock Exchange, Official Liquidator, Competition
Commission of India and other Authorities likely to be affected by the same.
These Authorities can voice their concern within 30 days of receipt of notice, failing which it will be presumed that
they have no objection to the scheme3.
5.3 Cross Border Merger & Amalgamation
 Under Companies Act, 1956
As per section 394, Court can sanction arrangement between two or more Companies where whole or part of
undertaking, property or liability of any company referred to as transferor Company is to be transferred to another
company referred as ‘transferee company’. According to the provisions of Companies Act, 1956, Inbound merger
(Foreign Company merges into an Indian Company) was permissible however, outbound merger (Indian company
cannot merge with foreign Company) was not allowed. According to this section only inbound merger is allowed
where transferor/target Company means anybody corporate whether or not registered under 1956 Act, that a foreign
company could be transferor or target company. Transferee Company means an Indian Company. Cross Border
merger allowed under 1956 Act as long as the Acquirer/transferee is Indian Company.
 Under Companies Act, 2013
In bound and out bond foreign company merger are allowed, which means Foreign Company merging into Indian
Company and Indian Company merging into foreign Company could be done with RBI approval. Therefore both
these options are open under 2013 Act if foreign companies to be in notified countries, under Exchange Control
Regulation, shares can be issued under Automatic route to non- resident, subject to certain consideration,
consideration to shareholders of merging Company may include cash, depository receipts or combination of both.
This section has widened the scope for Indian Companies as now they have both options of arrangement4.
5.4 Fast Track Merger
Fast Track merger or quick form merger is the new provision which is added in Companies Act, 2013. Fast track
merger is merger between two or more small companies 5, holding company and its wholly own subsidiary and such
other company as may be prescribed.
Fast Track merger does not involve Court or Tribunal, approval of National Company Law Tribunal is also not
required. For fast track merger board of directors of both the Companies would approve the scheme. However,
notice has to be issued to ROC and official liquidator and objections / suggestions has to be placed before the
members. The scheme needs to be approved by members holding at least 90 percent of the total number of shares or
by creditors representing nine-tenths in value of the creditors or class of creditors of respective companies. 6 Once
the scheme is approved, notice would have to be given to the Central Government, ROC and Official Liquidator.
NCLT may confirm the scheme or order that consider as normal merger under section 232 of Companies Act, 2013.
Therefore Fast track merger will be a speedy process as it does not require approval for NCLT available to certain
kind of truncations. It opens the scope for small companies who wanted to merge and can propose the scheme of
Merger or Amalgamation through their Board of directors. There is also no requirement for sending notices to RBI
or income-tax or providing a valuation report or providing auditor certificate for complying with the accounting
standard.
5.5 Objection to Scheme Of Amalgamation
Scheme of Amalgamation can be objected as per section 230(4) of Companies Act, 2013, only by shareholders
having not less than 10% holdings or creditors debt is not less than 5% of total outstanding debt as per the last
audited financial statement. whereas earlier under Companies Act, 1956 there was no such limit which state that
person holding even 1% in the company can object the scheme which was not fair at all therefore the new threshold
limit for raising objections in regard to scheme or arrangement will protect the scheme from small shareholders' and
creditors' unnecessary litigation and objection.
5.6 Meeting of Creditors/Shareholders to Approve the Scheme
 Under Companies Act, 1956
Scheme to approved by 3/4th value of creditors or members, agree to scheme, then it will be binding, if sanctioned
by court as stated under section 391(2), voting in person or a proxy at meeting. E-Voting is not permitted under
1956 Act.
 Under Companies Act, 2013
Scheme is to be approved by 3/4th of creditors or members, agree to scheme, then it will be binding, if sanctioned
by National Company Law Tribunal as stated under section 230(6)(1). The 2013 Act additionally allows the
approval of the scheme by postal ballot. Postal ballot gives an equal opportunity of vote to all stake holders. E-
Voting is permitted under new 2013 Act. Therefore concept of E-Voting is introduced under new Act and section
108 of the Companies Act, 2013 read with rule 20 of Companies(Management and Administrative) rules, 2014 deal
with exercise of right to vote by member by electronic means. Therefore postal ballot system and introduction E-
Voting will protect the shareholders interest and will also increase the participation of shareholders of the company
in voting.
5.7 Merger of a Listed Company into Unlisted Company
The Companies Act, 2013 requires that in case of merger between a listed transferor company and an unlisted
transferee company, Transferee Company would continue to be unlisted until it becomes listed. Shareholders of
listed Company have the option to exit on payment of value of their shares, as otherwise they will continue as a
shareholder of the unlisted company. The Payment to such shareholders willing to exit shall be made on pre-
determined price formula or after valuation, whereas; under Companies Act, 1956 there was no such provision.
Therefore reverse merger of listed Company into an unlisted Company does not automatically result in a listing of
surviving entity, which may be the unlisted Company.
5.8 Body of Approving Merger
Approval of scheme requires an independent body of oversight and fairness. According to 1956 Companies Act ,
scheme of arrangement was to be approved by respective High Court which has jurisdiction over Acquirer and
Target companies, Whereas; under Companies Act, 2013 National Company Law Tribunal will deal with matters
related to Merger & Acquisition.
NCLT would be one specified body dealing with cases opposed to multiple High Court in case of the companies
falling under the jurisdiction of different high courts.
5.9 Valuation Report
The 2013 Act makes it mandatory that notice of meeting to discuss a scheme must be accompanied by valuation
report prepared by an expert whereas, Companies Act, 1956 Act is silent on disclosing the valuation report to the
stakeholders, as a matter of transparency and good corporate governance. Courts also required annexing of the
valuation report to the application submitted before them.

S.
Particulars Companies Act, 2013 Companies Act, 1956
No.
1 Applicability Section 230 – 240 Section 390 -396A
2 Cross Border Mergers Inbound mergers (Foreign Company merging Permits only inbound foreign
 into Indian Company as well as outbound Company merger
foreign company mergers (Indian Company (Foreign Company merging into
merging into foreign Company with RBI Indian Company)
approval) are allowed.

Fast track merger is merger between two or

more small companies, holding company and
its wholly owned subsidiary and such other
company as may be prescribed.
 Fast Track merger does not involve
Court or Tribunal. Approval of
National Company Law Tribunal is
not required but both the Directors of
the Company will have to approve the
scheme after giving notice to the ROC
and official liquidator inviting
objections/suggestions to scheme.
No provisions for exemption from
 Approval from at least 90%
court process for corporate
3 Fast Track Merger shareholders and 90% creditors
reorganizations like amalgamation,
(value) would be required
merger etc.
 After the approval of the scheme,
notice to be given to Central
Government, ROC and official
liquidator. NCLT may confirm the
scheme or order to go through the
normal merger u/s 232 of the
Companies Act, 2013
 No requirements of sending notices to
RBI or Income Tax or providing a
valuation report or providing auditor
certificate for complying with the
accounting standards.

Such scheme can be objected only by

shareholders having not less than 10%
Objection to Scheme of
4 shareholding or creditors whose debt is not less
Amalgamation
than 5% of total outstanding debt as per the last
audited financial statement
Scheme if approved by 3/4th of creditors
(value or class) or members, and if sanctioned
Meeting of by National Company Law Tribunal, the same
5 Creditors/Shareholders shall be binding as stated under section
to approve the Scheme 230(6)(1).
The 2013 Act additionally allows the approval
of scheme by postal ballot and E-voting
The Companies Act, 2013 requires that in case
Merger of a Listed of merger between a listed transferor company
6 Company into Unlisted and an unlisted transferee company, the
Company transferee company would continue to be
unlisted until it becomes listed.
National Company Law Tribunal will deal
Body of approving
7 with matters related to Mergers &
Merger
Acquisitions.
There was no such limit which
stated that a person holding even
1% of shareholding in the Company
can object the scheme
Scheme if approved by 3/4th value
of creditors or members, it will be
binding if sanctioned by court as
stated under section 391(2), voting
in person or a proxy at meeting.
E-Voting was not permitted under
1956 Act.
No specific provisions governing
merger of listed company with
unlisted company.
Scheme of arrangement to be
approved by respective High Court
which has jurisdiction over

It is mandatory that notice of meeting to
8 Valuation Report discuss a scheme must be accompanied by
valuation report prepared by an expert.
Acquirer and Target companies.
The 1956 Act does not mandate
disclosing the valuation report to
the shareholders. Though in
practice, valuation reports are
included in documents shared with
the shareholders and also to the
Court as part of the appraisal
process of the scheme by the
Courts.

Conclusion
It seems that Companies Act, 2013 makes merger process more efficient but it also has some obscurity which need
to be modified in order to reduce or avoid any complexity in the process which can be identified once the
corresponding sections are notified. The outbound mergers now being allowed (when notified) open an opportunity
towards globalization.