Nowadays mergers and amalgamations in India are increasing rapidly due to
continuous changes in dynamics, increasing competition, technology adaptation,
business expansion, and globalization of companies, etc.
Amalgamation and merger are used as single expressions. But in terms of company
law, they are different from each other. The Companies Act 2013 (Act 2013)
enacted and replaced the 1956 Act with several amendments, including those
relating to mergers and acquisitions (M&A). The new bill has been praised by
unions for features such as business-friendly regulation, improved reporting
standards, and protection for investors and investors.
Recognizing the rights of
business owners brings the law one step closer to regulating individual
businesses. The 2013 Act aims to simplify the entire acquisition, merger, and
restructuring process and facilitate local and cross-border mergers and
acquisitions, thus making Indian companies more profitable for private
Meaning Of Amalgamation
Amalgamation is the blending of two or more undertakings (companies) into one
undertaking, the shareholders of each blending company substantially become the
shareholders of the other company which holds blended undertakings.
Meaning Of Merger
Merger is a form of amalgamation where all the assets and liabilities of a
transferor company get merged with the assets and liabilities of the transferee
company leaving behind nothing for the transferee company except, its name which
gets removed through the process of law.
In reality, companies don't merge, only their assets and liabilities merge .
Causes Of Merger And Amalgamation
The reasons why companies choose merger and amalgamation in India are:
- For economies of scale.
- For the increasing market share of companies.
- For reducing competition.
- For increasing shareholder value.
- For diversifying risk.
- For minimizing tax liabilities.
- For developing a brand name.
Types Of Merger In India
Following are the types of mergers in India:
Horizontal merger: a horizontal merger takes place between companies dealing
with similar products. The purpose of such a merger is to reduce competition,
acquire a dominant market position and expand market reach. Example: the merger
of Brooke Bond and Lipton India, Hindustan Unilever, and Patanjali.
Vertical merger: the main aim of a vertical merger is to combine companies that
deal with the same type of product. However, the stage of production at which
they operate is different.
the merger of Reliance Industries and FLAG
Concentric merger: the term co-centric merger means that the organization serves
the same type of customers. Example: Axis Bank acquiring free charge.
Conglomerate merger: when two or more unrelated industries or companies merge
with each other It is termed a conglomerate merger. Example: Voltas Limited and
Cash merger: when the shareholders are offered cash in place of the shares of a
newly formed company it is called a cash merger.
Forward merger: when a company chooses to merge with its customers, it is called
a forward merger.
A reverse merger is the opposite of a merger no clear definition has been given
in the companies act nor the term has been precisely defined by the Indian
The reverse merger represents a case where the loss-making company or less
profit-earning company extends its embracing arm to the profitable company and
in turn, absorbs in its fold. The lost-making company is called a shell company.
Features of Reverse merger/test of Reverse merger:
The Gujarat High Court has given the following test to be satisfied before an
arrangement can be termed as a reverse merger in the case of Bihari Mills Ltd,
In re, Maneklal Harilal Spg & Mfg. Co Ltd
If the value of the assets of the healthy company exceeds the value of the
loss-making company or less profit-making company.
If the net profit attributable to the assets of the healthy company exceeds
those of the loss-making company or less profit-making company.
If the aggregate value of the consideration being issued by the loss-making or
less profit-making company exceeds the healthy company's value of the net asset.
If the equity capital of the less profit-making company for an acquisition
exceeds its amount of equity share capital prior to acquisition.
If the issue of shares of the loss-making company would result in its change in
control through the introduction of minority holders or groups of holders.
Features of a shell company:
A shell company, for the purpose of this project, refers to a loss-making or a
less profit-making company.
A shell company for the purposes of a valid reverse
merger may be:
- a former operating company that is public or private, for some reason has
ceased operations and liquidated its assets; or
- one which never had any operations but was formed from scratch for the
specific purpose of creating a shell.
In the former situation, shell promoters gain control of defunct operating
companies by buying up a majority of their shares. In the latter situation,
shell promoters incubate the shells - they incorporate a company, under the
Companies Act. In Exchange for letting an operating company merge into a shell,
the promoter charges the operating company a fee and retains an ownership
interest in the shell post-merge.
Type Of Amalgamation In India
The following are the type of amalgamation in India:
Amalgamation in the nature of merger:
When the transferor and transferee company
decide to combine shareholder interest along with their assets and liabilities,
it is called amalgamation in the nature of merger.
Amalgamation in the nature of purchase:
When the conditions of the amalgamation
in the nature of the merger are not satisfied, the same terms as amalgamation in
the nature of the purchase. In this method, a transferor company acquires the
transferee company and the shareholders of the transferee company do not change
having any properties holding in the amalgamated company.
Effect Of Amalgamation
The true effect of and character of amalgamation largely depends on the scheme
of the merger. But, when two companies amalgamate and merge into one, the
transferor company loses its entity as it ceases to have its business. However,
their respective rights and liabilities are determined under the scheme of
amalgamation- Saraswati Industrial Syndicate Ltd. v. CIT  70 Comp. Cas.
When the transferee-company takes over a property subject to charge, from the
transferor-company, the transferee-company has to file the necessary form with
R.O.C. for registration of charge in its name.
Procedure Of Merger And Amalgamation
The Companies (Compromises, Arrangements, and Amalgamation) Rules, 2016, lay
down the following procedure for filling petition under Section 230/232:
Application for order of meeting:
An application for compromise or arrangement
by the creditors and shareholders under section 230 of the act may be made to
the National Company Law Tribunal for convincing creditors meeting or
shareholder meeting in the prescribed form (Form No. NCLT-1). The application
needed to be a company by a notice of admission (Form No. NCLT-2) an affidavit
(Form No. NCLT-6) and a copy of the schedule for compromise and arrangement.
Hearing of application by the tribunal:
At the hearing, the tribunal determines
the class for the classes of creditors who are to attend the meeting to discuss
the proposed compromise and arrangement, fixing the date and time of such
meeting, appointing a chairman, determining the quorum and procedure of such
Notice of meeting:
Once that tribunal sees the application it issues notice for
the conveyance of a meeting of the creditors and the members of the company
within 21 days. An annexure with the notice is to be attached specifying details
of the compromise or arrangement, a copy of the valuation report, etc. Notice
shall also be sent to the central government, income tax authorities, respective
stock exchange sectoral regulators or authorities, etc. Representation by the
above authorities should be made within 30 days of receipt of the notice. In
case of no response within the stipulated time, it shall be presumed that they
have no representation to make on the proposals.
Voting and Proxies:
The notice shall also specify the person to whom the notice
is sent may vote in the meeting either themselves or through proxies or by
postal ballot within 1 month of the date of receipt of the notice.
Filing of the petition:
If the scheme proposed for compromise and arrangement
has been approved in the meeting the company needs to present a petition (Form
No. CAA 5) within 7 days after the chairman of the meeting submitted the report.
Hearing of the petition:
The tribunal shall hear the petition on the appointed
day. The tribunal may grant the scheme by an order (Form No. CAA. 6). The
certified copy of the order shall be filed with the ROC within 30 days of
receipt of the same.
Application for a direction under section 232:
When the scheme concerning
reconstruction and amalgamation of the company and the mere sanction of the
scheme by the tribunal is not sufficient to implement it, an application may be
filed with the tribunal for the direction with regard to the same.
Role Of Tribunal
Any person aggrieved by any assessment of compensation made by the prescribed
authority under sub-section (3) may, within 30 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
The Government, before making the order, must:
- send a draft copy of the proposed order to each of the companies
- have considered and made such modifications in the draft order as may
seem to it desirable in the light of any suggestions and objections which
may be received by it from the companies concerned, or from shareholders
therein, or from any creditors thereof [Section 237(5)]. The time for
raising an objection, not less than two months from the date of receipt of
the copy of the draft order, shall be fixed by the Central Government.
Copies of every order made under Section 237 must, after it has been made, be
laid before both Houses of Parliament as soon as possible [Section 237(6)]. The
provisions of Section 238 regarding disclosure and registration shall also apply
to the transfer of shares under Section 237.
Cases On Amalgamation And Merger
A scheme of amalgamation between a holding and its subsidiary company, not
involving any reorganization or restructuring of shares or any variation of
members' rights in the transferee company, does not need the sanction of the
High Court (now Tribunal) insofar as the transferee company is concerned -
Nebula Motors Ltd., In re (2003). 
Merely because a winding up petition is pending before the company court (now
Tribunal), the company cannot be barred from submitting a scheme of arrangements
to the court, even for avoiding winding up - Macho Foods (P.) Ltd. v. Modiluft
Where the majority of creditors had no notice of the petition for amalgamation,
their interest should be protected and the petition for sanction of amalgamation
scheme should be dismissed - Kaveri Entertainment Ltd., In re (2003). In this
case, the transferor company obtained the court's permission for the non-holding
of creditors' meetings on condition that it would issue notices to all creditors
- which it did only selectively i.e. only to some unsecured creditors.
Unless the exchange ratio and scheme are unconscionable or illegal or unfair or
unjust, the court (now Tribunal) would not act as a court of appeal and sit in
judgment. The court (now Tribunal), in the exercise of its jurisdiction, is to
- statutory provisions have been complied with
- the class of persons who attended the meeting was fairly represented
- the statutory majority was acting bona fide and
- the arrangement (Scheme) was such that an intelligent and honest man,
acting in respect of his interest might reasonably approve.
The concept of market value means the price that a willing purchaser
will pay to a willing seller for a property having due regard to its existing
conditions with all its advantages and potential possibilities - Reliance
Petroleum Ltd., In re (2003). Also, see German Remedies Ltd., In re (2004)
Written By: Shaista Waseem
- Areva T. and D. India Ltd., In re  81 SCL 140 (Cal.).
- Bihari Mills Ltd., In re, Maneklal Harilal Spg. & Mfg. Co. Ltd.  85 Comp. Cas. 6 (Guj.).
- Nebula Motors Ltd., In re  45 SCL 143 (AP).
- Macho Foods (P.) Ltd. v. Modiluft Ltd.  45 SCL 159 (Delhi).
- Kaveri Entertainment Ltd., In re  45 SCL 294 (Bom.).
- Reli- ance Petroleum Ltd., In re  46 SCL 38 (Guj.).
- German Remedies Ltd., In re  50 SCL 77 (Bom.).
- Taxmann's Company Law And-Practice By Dr. GK-Kapoor (24th-Edition)
, student at Unity P.G and Law College, affiliated with Lucknow University.