by Companies Act, 2013, along with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, governs the legal framework for mergers and amalgamations in India. The relevant provisions are primarily covered under Sections 230 to 240 of the Act. These sections lay down the procedural and regulatory requirements for carrying out mergers, amalgamations, demergers, and arrangements between companies. The aim is to ensure fairness, transparency, and compliance with statutory obligations, while protecting the interests of all stakeholders including creditors, shareholders, and employees.
Key Provisions Related to Mergers
1. Section 230 – Compromise or Arrangement
Section 230 provides the legal basis for compromise or arrangement between a company and its members or creditors. It covers:
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Arrangements related to the reconstruction of the company.
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Compromises involving debt restructuring or shareholding adjustments.
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It is applicable in cases of mergers, demergers, or any form of corporate reorganization.
The process involves filing an application with the National Company Law Tribunal (NCLT) to call a meeting of creditors or members. The scheme must be approved by:
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A majority representing 3/4th in value of creditors or shareholders present and voting.
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The NCLT, which checks the fairness and legality of the arrangement.
2. Section 231 – Power of Tribunal to Enforce Compromise or Arrangement
Once the NCLT is satisfied that all statutory requirements have been complied with, it has the authority to:
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Sanction the scheme of merger or amalgamation.
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Pass orders binding on all parties, including dissenting shareholders or creditors.
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Supervise the implementation of the scheme to ensure full compliance.
3. Section 232 – Merger and Amalgamation of Companies
This section specifically governs mergers and amalgamations. It outlines:
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The procedural aspects of preparing a draft scheme.
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Requirements for notice and disclosures to members, creditors, regulatory authorities like SEBI and RBI.
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Filing of necessary reports and valuation reports to establish the fairness of the scheme.
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The merger must be approved by the NCLT after considering objections, if any, and compliance with all legal formalities.
Once approved, all assets, liabilities, and undertakings of the transferor company stand transferred to the transferee company.
4. Section 233 – Fast Track Merger Process
This section allows a simplified merger process for certain classes of companies, including:
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Two or more small companies.
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A holding company and its wholly-owned subsidiary.
Key features:
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No need for approval from NCLT.
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The scheme needs approval from:
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Board of Directors.
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Shareholders holding at least 90% of the share capital.
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Creditors representing 90% in value.
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Approval from the Registrar of Companies (ROC) and Official Liquidator is required.
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It is a time-efficient and cost-effective process.
5. Section 234 – Merger with Foreign Companies
This section permits mergers between an Indian company and a foreign company in permissible jurisdictions (as notified by the central government). Such cross-border mergers are subject to:
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Approval from the Reserve Bank of India (RBI).
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Compliance with Foreign Exchange Management Act (FEMA) regulations.
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Valuation norms, accounting standards, and consideration mechanisms (cash or shares).
6. Section 235 – Acquisition of Minority Shareholding
When an acquirer holds 90% or more of the equity share capital of a company, they can compel the minority shareholders to sell their shares at a fair value determined by a registered valuer. This facilitates:
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Complete control of the target company.
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Smooth integration post-merger or acquisition.
7. Section 236 – Purchase of Minority Shareholding
This section complements Section 235 and provides a legal route for buying out remaining shareholders by the majority acquirer. It ensures fair exit to minority shareholders through:
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Valuation by an independent valuer.
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Transfer of shares with proper consideration and procedural compliance.
8. Section 237 – Power of the Government for Amalgamation
The Central Government may, in the public interest, order the amalgamation of two companies by issuing a notification. This is usually done in special circumstances like national interest, revival of sick units, or restructuring of public sector undertakings.
Regulatory Approvals Required
Apart from NCLT, other regulators may be involved depending on the type and nature of the merger:
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SEBI: For listed companies.
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RBI: For NBFCs and cross-border mergers.
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Competition Commission of India (CCI): For large mergers exceeding thresholds.
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Stock Exchanges: For compliance with listing norms.
