This section (Section 232 of the Companies Act) outlines the legal
framework for mergers and amalgamations in India, providing guidance
on the procedure and requirements involved in the transfer, restructuring,
or combination of companies. Here’s a summary of its key provisions:
Key Provisions
1. Application to Tribunal for Merger/Amalgamation:
An application must be made to the Tribunal for approval of a
merger or amalgamation plan between companies, specifying the
proposed arrangement and confirming the involvement of a
transferor and transferee company.
2. Necessary Documentation:
o Draft Scheme: A draft of the proposed scheme, including
terms agreed upon by the directors.
o Registrar Filing: Confirmation that the scheme has been
filed with the Registrar.
o Director’s Report: An explanation by the directors on the
impact of the merger on shareholders and stakeholders,
including the share exchange ratio.
o Expert Valuation Report: If applicable, a valuation report
provided by an expert.
o Updated Financial Statement: A supplementary accounting
statement if the last financial report is more than six months
old.
3. Tribunal’s Approval and Conditions: Upon verifying compliance
with procedural requirements, the Tribunal may order the merger,
addressing the following:
o Asset and Liability Transfer: Transfer of the assets and
liabilities of the transferor to the transferee, with an appointed
effective date.
o Allotment of Shares: Issuance of shares or other
instruments by the transferee company to stakeholders.
o Legal Proceedings: Continuation of any pending legal
matters against the transferee company.
o Company Dissolution: Dissolution of the transferor company
without winding up.
o Non-resident Shareholders: Shareholding arrangements in
line with foreign direct investment (FDI) guidelines.
o Employee Transfer: Transfer of employees from the
transferor to the transferee company.
o Compensation for Dissatisfied Shareholders: For listed-
to-unlisted mergers, exit options for shareholders of the
transferor company with fair compensation based on SEBI
regulations.
o Fee Adjustments: Authorized capital fees paid by the
transferor may offset fees due by the transferee.
4. Scheme Compliance:
o An annual compliance statement must be filed with the
Registrar, verified by a qualified professional.
o Non-compliance may result in penalties, including fines and
possible imprisonment for officers in default.
5. Types of Mergers and Divisions:
o Merger by Absorption: Transfer of assets and liabilities from
the transferor to an existing company.
o Merger by Formation: Transfer to a newly formed company.
o Division: Assets and liabilities are split between multiple
companies.
6. Filing and Certification:
o Companies must file certified copies of the Tribunal’s order
with the Registrar within 30 days.
o An auditor’s certificate confirming conformity with accounting
standards is required.
This structured legal process ensures that mergers and amalgamations
are transparent, compliant, and safeguard the interests of shareholders,
employees, and other stakeholders.
Section 233 simplifies the merger or amalgamation process for
certain types of companies, specifically small companies, holding
companies with wholly-owned subsidiaries, or other prescribed
classes. Here are the key provisions:
Key Provisions
1. Eligibility:
o Applies to small companies, holding companies with wholly-
owned subsidiaries, and certain prescribed company classes.
2. Scheme Approval:
o Notice and Objections: The scheme must be proposed with
a 30-day notice period for objections from the Registrar,
Official Liquidator, or affected parties.
o General Meetings: Companies involved must consider
objections and gain approval from shareholders holding 90%
of shares.
o Declaration of Solvency: Each company must file a
solvency declaration with the Registrar.
o Creditor Approval: Approval from creditors holding 90% in
value, either through a meeting or in writing, is required.
3. Filing and Confirmation:
o Registrar and Official Liquidator Review: The approved
scheme is filed with the Central Government, Registrar, and
Official Liquidator.
o No Objections: If there are no objections, the Central
Government registers the scheme and issues a confirmation.
o Objections Handling: Objections by the Central Government
are filed with the Tribunal within 60 days. The Tribunal may
either confirm the scheme or review it as per Section 232.
4. Effect of Scheme Registration:
o Automatic Dissolution: Transferor company dissolves
without the winding-up process.
o Asset and Liability Transfer: All assets and liabilities of the
transferor become those of the transferee company.
o Continuation of Legal Proceedings: Any ongoing legal
actions involving the transferor company are transferred to
the transferee company.
o Shares Held by Transferor: Transferee cannot hold its own
shares post-merger; these shares are cancelled.
5. Revised Authorized Capital:
o Capital Fees Adjustment: The authorized capital fee paid by
the transferor is offset against any fee due from the transferee
company on revised capital.
6. Additional Provisions:
o Section 233 can be used alongside Section 232 or 230 for
compromises, divisions, or transfers.
This streamlined approach helps reduce procedural complexity for
mergers within eligible companies, ensuring a more efficient merger or
amalgamation process.
Section 234: Merger or Amalgamation of a Company with a
Foreign Company
1. Applicability: Allows mergers between companies registered in
India and those incorporated in foreign jurisdictions notified by the
Central Government.
2. Approval Requirements:
o Requires compliance with Indian law and Central Government
rules (formulated in consultation with the Reserve Bank of
India).
o Foreign companies can merge into Indian companies and vice
versa, subject to Reserve Bank of India (RBI) approval.
3. Consideration Options: Payment to shareholders can be in cash,
depository receipts, or a mix, as specified in the scheme.
4. Definition of "Foreign Company": Includes any company
incorporated outside India, regardless of its business presence in
India.
Section 235: Acquisition of Shares from Dissenting Shareholders
1. Offer and Approval Threshold: When 90% of shareholders agree
to a scheme transferring shares to a new company, the acquiring
company may require dissenting shareholders to sell their shares.
2. Notice to Dissenting Shareholders: The transferee company
gives notice to dissenters, who can petition the Tribunal within one
month if they oppose the acquisition.
3. Registration and Payment:
o Upon expiration of the notice period, the transferee company
registers the shares and deposits payment.
o The transferor company holds funds for dissenting
shareholders in a separate trust account, disbursing them
within 60 days.
4. Trust for Consideration: Amounts held in trust must be paid to
entitled shareholders or held until claimed.
Section 236: Purchase of Minority Shareholding
1. Mandatory Purchase Offer:
o When a person or group holds 90% or more of a company’s
equity (through merger, share exchange, etc.), they must
notify the company of their intent to buy remaining shares.
o Price for shares is determined by a registered valuer.
2. Minority’s Right to Sell: Minority shareholders can also require
the majority to buy their shares at the assessed value.
3. Deposit and Disbursement: Majority shareholders deposit funds
with the company for share payments, available for one year.
4. Acting as Transfer Agent: The company acts as an agent to
transfer payments and shares.
5. Issuance in Case of Non-Delivery: If physical shares are not
provided by minority shareholders, they are canceled and replaced,
and payment is made from the deposited funds.
6. Compensation for Higher Price: If the majority sells their shares
at a higher price post-acquisition, they must share any additional
profit with minority shareholders on a pro-rata basis.
7. Continued Applicability: Rules apply to remaining minority
shareholders even after delisting or if SEBI regulation timelines have
expired.
