PROCEDURAL REQUIREMENTS FOR AMALGAMATION OF THE COMPANY

 

INTRODUCTION

Amalgamation is a combination of two business entities with the effect of which both the entities loses their identities to for a new entity.  The assets and liabilities of both the former entity in such a case is vested with the new entity which is formed. Amalgamation is a legal process by which two or more companies joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company loses its existence and its shareholders become the shareholders of new company or the amalgamated company. The shareholder of each amalgamating company will get the shares in the new company formed. This acts as the process by which two undertaking vests their control and management in the newly formed company.

Eg.

X Pvt. Ltd                                     Y Pvt. Ltd     =          Z Pvt. Ltd.

In the case of WA Beardsell & Co (P) Ltd., re, Madras High Court stated that the amalgamation of the company completely depends upon the decision taken by the shareholders and no body can interfere with the power of the shareholder to do so.

GENERAL PROCEDURES FOR AMALGAMATION OF THE COMPANY

1) Memorandum of Association: - The MOA should have the clause for amalgamation of the company. If the MOA is silent on the clause for amalgamation  then the amendment can be made for the same going by the condition mentioned for the same in the AOA. But many a times the court has stated that amalgamation is an inherent right of the company irrespective to the fact that their exists the Provision in MOA for the same.[1]

2) Board Meeting: - Board meeting should be conducted to pass the following resolution: -

-  1^st Board Meeting: -  Approval for the proposal of amalgamation.(1st Board Meeting)

-  2^nd Board Meeting: - Once the Draft Scheme of Amalgamation[2] is prepared the board meeting is called for: -

1) Approval of Draft Amalgamation Scheme(2nd Board Meeting)

2) Approval of Exchange Ratio & Appointed Date.(2nd Board Meeting)

3) Appointment of Counsel as to the representation in High Court.(2nd Board Meeting)

4) Authorizing the Director to sign the petition on behalf of the company.

-  Extraordinary General Meeting(EGM) can be called for : -

1) Allotment of shares to other than present shareholders.

2) Change in share capital or its structure.

3) Change with regard to object clause or name clause.

The List for the purpose of carrying on the Board meeting is not the exhaustive one.

3)        Application to the Court: - An application under Section 230(1) should be submitted along with Form No. NCLT-1, 2 and 6 to the NCLT. Should also submit the draft of amalgamation Scheme.[3] The Certified true copy of the MOA of both the companies with the latest audited Balance sheet and Profit and Loss A/c should be submitted.

4)        Copy to Regional Director: -  The application made to the NCLT should then be referred to the R.D. of the particular region. The Court too sends that notice but in a usual practice the Company sends it before itself.[4]

5)        Order of Tribunal: - On hearing of the summons, the NCLT shall pass the orders arranging the meeting by fixing the date, quorum, chairman, procedure for voting by proxy, advertisement of notice of the meeting, time limit of the chairman to submit the report to the court regarding the result of the meeting. The Tribunal can direct for: -

1) Shareholders Meeting: - If the Tribunal directs to the Companies (Transferor & Transferee) proposing Amalgamation, to call shareholders’ meeting, then said meeting should be called as per the direction of the Tribunal after getting approved all the documents by the Court i.e. mode of service of notice, quorum, venue & time, appointment of chairman, name of paper in which the notice of meeting was published. Here Special Resolution should be passed to approve the Amalgamation  (approval has to be in full and cannot be approved in part) and voting is by way of ballot and for approval 75% in value terms and 51% in number terms should vote in favor of the resolution. The question answer session can also be conducted.

2) Creditors Meeting: - If the NCLT can orders to the companies (Transferor & Transferee) proposing Amalgamation to call meeting of the Secured & Unsecured Creditors.

6)        Notice of the Meeting: - Notice of the above stated meeting should be given as per Section 230(3) shall be in Form No. CAA.2[5]  and should be forwarded to each creditor and members individually.

7)        Advertisement of Notice of Meeting[6]: - Notice of the meeting to be advertised in at least one English newspaper and one vernacular newspaper having the circulation in the state where the registered office of the company is located. The Newspaper can also be stated by the tribunal and the notice should be made not less then 30 days before the meeting. The notice regarding meeting should also be displayed in the website of SEBI and the recognized stock exchange where the securities of the company is listed.

8)        Filing of affidavit for the Compliance: - Affidavit stating the directions regarding the issue of notice for meeting as been complied with should be issued by the Chairman.

9)        General Meeting: - The meeting to be held to pass the resolution for the reasons stated above in the Board Meeting some among them are approval of draft scheme of amalgamation, allotment of shares to the new shareholder, to empower the director to dispose of the shares, to increase the authorized capital etc. The decision of the meeting will be final going by the polls held and majority required for approving the same. The majority decision passed should be in good faith[7] and not through improper inducements[8]. It is not necessary for total numbers of members or creditors of the company to attend the meeting unless guided by the court. It is enough that requisite majority is obtained in the meeting.[9]

10)    Reporting the Result of the Meeting: - The Chairman of the meeting shall report the result thereof to the Court within the time fixed by the judge or within 7 days, as directed. The results should be reached by the polls conducted and can also be through electronic means.[10]

11)    Formalities with ROC: -  Along with requisite filing fees the ROC should be provided with all the documents of the resolutions passed in the meeting.

12)    Petition:  - For approval of the scheme of amalgamation, a petition shall be made to the Tribunal within 7 days of the filing of report by the chairman[11] with the signature of the authorized director. The Petition should be submitted in the Form No. CAA. 5 for the sanction. While doing so the orders and directions mentioned under Section 230 and Section 232 should be complied. If the petition is not presented by the company or fails to then the creditor or the member as the case may be, with the leave of the tribunal, can file the petition.

       The Question here arises as to the jurisdiction in which tribunal petition should be filed in the situation where both the previous companies are from different states then the petition must be filed in both the jurisdiction.[12]

13)    Sanction of the Scheme: -  the Tribunal will then sanction the Scheme by looking into: -

I) Whether the scheme was approved by 2/3^rd Majority of the members present -  The Tribunal can also struck down the scheme if it finds it to be illusory, even if it is passed by the requisite majority.[13]

II) Reasonableness of the Scheme: - The scheme should be fair and equitable. If the majority is not meet with and the scheme is fair and is questioned by some members then the court will not look into the commercial merits of the case. The scheme which held that a creditor holding an decree for principal and interest, could be paid only the principal keeping in mind payment to workers was held as Fair scheme[14] by the Bombay Tribunal.

III) Disclosure of Material Facts: - the Tribunal cannot approve the scheme when the proper disclosure of material facts as not been done by the Company. Such as the Submission of latest financial report, in case of Jaypee Cement Ltd., re[15] the company filed the latest financial report but their was no change seen in the financial position of the company till the date of hearing hence, valid ground for rejection. Other material facts regarding if any inquiry or investigation is taking or taken place should be updated with.

IV) Interest of the Creditors: -  Even without any application from the creditors the interest of the creditors is taken care of can be ensured by the Tribunal and based on that the Scheme will be sanctioned.

14)    Stamp Duty: - The sanction given for the scheme by the court acts as the instrument on which the stamp duty is imposed.

15)    Filing with ROC: -The order on petition passed by the tribunal should be filed with the registrar of companies within 30 days[16] from the date of the receipt of the copy of the order or any other time as fixed by the tribunal. The order passed shall be in Form CAA. 6, with the variations as may be necessary.

16)    Court Order to be annexed with every copy of MOA

17)    Allotment of shares:  - A Board Resolution shall be passed for the allotment of shares to the shareholders in the place of  shares held in the Transferor Company and to fix the record date for this purpose. The exchange to take place as per the valuation of the shares.

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[1] RBR Knit Process P. Ltd Re, (2007) 80 CLA 41(Mad).

[2] Draft Scheme Of Amalgamation: - The document consists of the description about the company to be formed, date of amalgamation coming into effect, Share Capital of the company, Details about compliance with tax laws[eg. Section 2(1B)], Transfer of assets or liabilities or rights or title, General Terms & Conditions of Amalgamation, Conduct of Business till appointed Date, Dissolution of Amalgamating Company, Modification or Amendment,  Effect of Non-approval by the Court etc.

[3] Rule 3, Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[4] Merger and Amalgamation, Helpline Law, available at: - www.helplinelaw.com/business-law/MAGN/merger-and- amalgamation.html.

[5] Rule 6, Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[6] Rule 7, Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[7] Allen v. Gold Reefs of West Africa Ltd., 1990 1 Ch 656.

[8] Apurva J Parekh v. Essen Computers Ltd.,(2006) 129 Comp Cas 121 (Guj).

[9] Bessemer Steel Co, re(1876) LR 1 Ch D 251.

[10]  Rule 13,  Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[11] Rule 15,  Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

[12] Jaipur Polyspin Ltd. V. Rajasthan Spg & Wvg. Mills Ltd(2006) 130 Com Cas 694.

[13] Premeir Motors(P) Ltd. V. Ashok Tandon, (1971)41 Comp Cas 656(All).

[14] Sharp Industries Ltd., re., (2006) 131 Com Cas 535(Bom).

[15] 2004, 122 Comp Cas 854.

[16] Rule 17,  Chapter XV The Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.