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MERGER AND

AMALGAMATION
SECTION 237,SECTION 239,
SECTION 240 OF COMPANIES
ACT,2013

MERGERS AND
AMALGAMATION
MEANING
In simple words Merger/Amalgation is an
arrangement whereas the assets or liabilities
of two or more companies are transferred to
one company (which may or may not be one
of the original two companies)
-The companies whose assests or liabiliaties
are being transferred to another company or
companies is known as Transferor of
Amalgamating Companies

-continued

-The companies to whom assests


or liabilities are being transferred
is known as Transfereree or
Amalgamated Companies
Legal framework relating to
Merger and amalgamation can
be seen in Companies Act
1956 ,modified in Companies Act
,2013

Companies Act,2013
Section 237 of Companies Act, 2013 deals:

Power of Central Government to provide for


amalgamation of companies in public interest
(1) Where the Central Government is satisfied that it is
essential in the public interest that two or more companies
should amalgamate, the Central Government may, by order
notified in the Official Gazette, provide for the
amalgamation of those companies into a single company
with such constitution, with such property, powers, rights,
interests, authorities and privileges, and with such
liabilities, duties and obligations, as may be specified in the
order.

continued

(2) The order under sub-section (1) may


also provide for the continuation by or
against the transferee company of any
legal proceedings pending by or against
any transferor company and such
consequential, incidental and
supplemental provisions as may, in the
opinion of the Central Government, be
necessary to give effect to the
amalgamation

continued

(3) Every member or creditor, including a


debenture holder, of each of the transferor
companies before the amalgamation shall have,
as nearly as may be, the same interest in or
rights against the transferee company as he had
in the company of which he was originally a
member or creditor, and in case the interest or
rights of such member or creditor in or against
the transferee company are less than his interest
in or rights against the original company, he shall
be entitled to compensation to that extent, which
shall be assessed by such authority as may be
prescribed and every such assessment shall be
published in the Official Gazette, and the
compensation so assessed shall be paid to the

continued

(4) Any person aggrieved by any


assessment of compensation made by the
prescribed authority under sub-section (3)
may, within a period of thirty days from
the date of publication of such assessment
in the Official Gazette, prefer an appeal to
the Tribunal and thereupon the assessment
of the compensation shall be made by the
Tribunal.

continued

(5) No order shall be made under this section unless

(a) a copy of the proposed order has been sent in draft


to each of the companies concerned;
(b) the time for preferring an appeal under sub-section
(4) has expired, or where any such appeal has been
preferred, the appeal has been finally disposed off; and
(c) the Central Government has considered, and made
such modifications, if any, in the draft order as it may
deem fit in the light of suggestions and objections which
may be received by it from any such company within such
period as the Central Government may fix in that behalf,
not being less than two months from the date on which
the copy aforesaid is received by that company, or from
any class of shareholders therein, or from any creditors or
any class of creditors thereof

continued

6) The copies of every order made


under this section shall, as soon as
may be after it has been made, be
laid before each House of Parliament

Some relevent case law:


Case Law : HINDUSTAN LEVER
EMPLOYEE UNION
Vs
HINDUSTAN LEVER LTD.
If their statutory dues are subsisting
then they are CREDITORS and can
object against amalgamation
If no dues are subsisting ,then they
are NOT CREDITORS and cannot

continued

Case Law : SANDVIK ASIA LTD.(2004)


In this caselaw,it was stated that
even single minority shareholder can
oppose the proposal of
amalgamation.If after making
inquiry,court is satisfied that scheme
is unjust and unreasonable,the court
will accept the opposition

continued

Section 239 of Companies Act, 2013deals


withPreservation of books and papers of
amalgamated companies

The books and papers of a company which has


been amalgamated with, or whose shares have
been acquired by, another company under this
Chapter shall not be disposed of without the prior
permission of the Central Governnment and before
granting such permission, that Government may
appoint a person to examine the books and papers
or any of them for the purpose of
ascertainingwhether they contain any

continued

evidence of the commission of an


offence in connection with the
promotion or formation, or the
management of the affairs, of the
transferor company or its
amalgamation or the acquisition of
its shares.

continued

What is amalgamated companies ?


When two or more company join to
form new company ,that new
company is amalgamated
company .here two companies
becoming one.
Case law : S.K Gupta Vs K.P Jain

continued

Rational behind section 239


:The rational behind this section
is to protect the crucial
document which may be helpful
to find out any offence commited
by the amalgamated companyin
case of promotion formation and
management

continued

Section 239 can be read


wit section
128 of Indian Companies
Act 2013 i.e
Books of account ,etc , to be
kept by
company

continued

Section 240ofCompanies Act, 2013deals


withLiability of officers in respect of
offences committed prior to merger,
amalgamation ,etc

Notwithstanding anything in any other law for


the time being in force, the liability in respect of
offences committed under this Act by the officers
in default, of the transferor company prior to its
merger, amalgamation or acquisition shall
continue after such merger, amalgamation or
acquisition

In the case of In Re: Apex Investments


Pvt. Ltd. (1992) CLA 20 (Del), the
Honble Delhi High Court held that an
arrangement for reconstruction or
amalgamation of a company is
essentially a contract and therefore
parties are free to decide: its terms and
conditions consideration to be paid
According to Section 10 of the
Companies Act, 1956, the jurisdiction for
petition of amalgamation will lie with the
High Court of the State in which the
Registered Office of the Company is
situated.

CONCLUSION

In real terms, the rationale behind mergers and acquisitions is that the
two companies are more valuable, profitable than individual companies
and that the shareholder value is also over and above that of the sum
of the two companies. Despite negative studies and resistance from the
economists, M&As continue to be an important tool behind growth of a
company. Reason being, the expansion is not limited by internal
resources, no drain on working capital - can use exchange of stocks, is
attractive as tax benefit and above all can consolidate industry increase firm's market power.
With the FDI policies becoming more liberalized, Mergers, Acquisitions
and alliance talks are heating up in India and are growing with an ever
increasing cadence. They are no more limited to one particular type of
business. The list of past and anticipated mergers covers every size and
variety of business -- mergers are on the increase over the whole
marketplace, providing platforms for the small companies being
acquired by bigger ones.

continued

The basic reason behind mergers and acquisitions is that


organizations merge and form a single entity to achieve
economies of scale, widen their reach, acquire strategic
skills, and gain competitive advantage. In simple
terminology, mergers are considered as an important tool
by companies for purpose of expanding their operation and
increasing their profits, which in faade depends on the kind
of companies being merged. Indian markets have witnessed
burgeoning trend in mergers which may be due to business
consolidation by large industrial houses, consolidation of
business by multinationals operating in India, increasing
competition against imports and acquisition activities.
Therefore, it is ripe time for business houses and corporates
to watch the Indian