Compliances for Mergers and Acquisitions in India under Companies Act, 2013

Compliances for Mergers and Acquisitions in India under Companies Act, 2013

Section 230/232/233/234 of Companies Act 2013 : Legal Analysis

Mergers and acquisitions have been one of the most effective ways whether it’s about business expansion or eliminating competition. Also, strategic mergers with the intent to collaborate can help survive the cut-throat competition. However, mergers and acquisitions are complex transactions that involve multiple compliances under various laws. Here, we have covered compliances Checklist for merger and amalgamation under Companies Act 2013 that should be ensured ahead of their mergers.

The Companies Act, 2013

Companies Act, 2013 lays down explicit provisions governing the mergers and acquisitions of companies and body corporates, including that with foreign companies. Relevant sections that deal with mergers and acquisitions include sections 230 to 240. Apart from this, the companies should also adhere to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.

This guide covers the key compliances for mergers and acquisitions under the Companies Act, 2013 for the following types of mergers.

  • Normal merger and amalgamation (Section 230-232) 
  • Fast-track merger or amalgamation (Section 233)
  • Merger with foreign companies (Section 234)

Section 230 of companies act 2013: Making Compromise and Arrangements with Creditors and Members

Section 230 lays down the procedure whereby the company can enter into any compromise or arrangement between creditors and members. The procedure shall be equally applicable for the company entering into merger and acquisition arrangements. As per Section 230 of companies act 2013:

  • In case of a merger between the company and its creditors or members, the tribunal shall order a meeting of the creditors and members on the application of creditors, members, or the company. The application shall be made in Form No. NCLT-1.
  • If the company makes the application to the tribunal for the conduct of the meeting, it shall make the following disclosures to the tribunal by affidavit:
    • All material facts relating to the company
    • Reduction of share capital, if any
    • The scheme of corporate debt restructuring that is consented to by not less than 75% of the creditors in value
  • The notice of the meeting shall be sent to all the creditors, members, and debenture holders of the company. The notice shall be in Form No. CAA-2 and shall be accompanied by a statement containing the details of the compromise or arrangement, a copy of the valuation report, etc.
  • The notice shall also be placed on the website of the company and the documents shall be sent to SEBI where the securities of the company are listed for placing on their website as well as published in the newspaper.
  • Further, the notice shall also be sent to the following authorities in Form No. CAA-3 to invite their representations within 30 days of receipt of the notice, failing which it shall be presumed that there are no representations to be made by these regulators:
    • The Central Government
    • RBI
    • Income Tax Authorities
    • Registrar
    • Official Liquidator
    • Competition Commission of India
    • Any other sectoral regulator.
  • In the meeting, the majority of the persons (more than 50% in numbers) representing 3/4th in value (75% in value) of the creditors and members, voting in person or by proxy, shall agree to the merger. If the merger is sanctioned by the tribunal, then an order of sanction shall be issued in Form No. CAA-6 and it shall be binding all the company, creditors, members, liquidator, and contributors.
  • The merger shall not be sanctioned unless a certificate from the company’s auditors has been filed with the tribunal that the accounting treatment proposed in the merger scheme conforms to the accounting standards prescribed under section 133.
  • The order of the tribunal shall be filed with the registrar within 30 days of receipt of the order.
  • The tribunal may dispense with calling of the meeting of the creditors if more than 90% of creditors in value agree to the scheme of merger by an affidavit.

Section 232 of companies act 2013: Broad Provisions Governing Mergers and Amalgamations of Companies

Following are the compliances that shall be undertaken for the merger of the companies as per section 232 of companies act 2013:

  • The application for merger or amalgamation of companies shall be filed with the National Company Law Tribunal (NCLT) in Form No.- NCLT-1. After receiving the application, the tribunal shall order the conduct of a meeting of the creditors and members (as discussed in Section 230).
  • The companies shall conduct a meeting as ordered above and circulate the following:
    • A draft of the proposed terms of the scheme of merger or amalgamation
    • A confirmation that the draft has been filed with the registrar
    • Report adopted by the directors of the merging companies
    • Report of valuation by an expert
    • Supplementary accounting statement
  • The tribunal may sanction the amalgamation by order after being satisfied that the procedure has been followed.
  • The companies shall file a certified copy of the order with the registrar within 30 days of receipt of the same.
  • Until the completion of the scheme, the companies shall file a statement indicating whether the scheme of merger or amalgamation has been carried out in accordance with the order of the tribunal. The statement shall be filed with the registrar after being certified by a Chartered Accountant, Cost Accountant, or a Company Secretary in practice.

Section 233 of companies act 2013: Fast Track Merger

  • The following companies can adopt the fast-track merger route:
    • Two or more small companies
    • A holding company and its wholly-owned subsidiary company
    • Two or more start-up companies
    • One or more start-up companies with one or more small companies
  • The company shall send a notice of the proposed scheme of merger or amalgamation to the Registrar and Official Liquidators for inviting suggestions and objections in Form No. CAA-9 which shall be considered by the amalgamating companies in their general meeting.
  • The companies shall file a declaration of solvency with the registrar in Form No. CAA-10.
  • The scheme shall be approved by the members holding at least 90% of the total number of shares as well as the majority of the creditors holding 9/10th of the value of creditors. The transferee company shall file the scheme so approved with the Central Government in Form No. CAA-11. A copy of the scheme along with Form No. CAA-11 shall also be filed with-
    • The registrar in Form No. GNL-1.
    • The official liquidator through hand delivery or speed post or registered post.
  • If the registrar or official liquidator does not have objections, the Central Government shall approve the scheme. However, in case the registrar or official liquidator has objections, they shall file the same with the Central Government. If the Central Government feels that the scheme is not in the public interest, then it may file objections with the tribunal.
  • The tribunal may either direct to consider the scheme as per Section 232 (normal merger) or it may confirm the merger as per this scheme of fast-track merger. 
  • The order of the tribunal confirming the scheme shall be communicated to the registrar of the transferee company. Such registrar will issue a confirmation which shall then be forwarded to the registrar of the transferor company.

Section 234 of companies act 2013: Merger or amalgamation of company with a foreign company

Section 234 of companies act 2013 authorizes mergers and amalgamations between the companies registered under the Companies Act, 2013 and the companies incorporated in the jurisdiction of such countries as the Central Government specifies. Further, a foreign company may merge with a company registered under this act or vice-versa with the prior approval of RBI. For this purpose, the term ‘foreign company’ means any company or body corporate incorporated outside India whether having a place of business in India or not.

Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 lays down the procedural aspects of such merger or amalgamation that are as follows:

  • A foreign company incorporated outside India may merge with an Indian company with the prior approval of RBI. It shall comply with the requirements of Section 230 to 232 of companies act 2013 and related rules.
  • A company may merge with a foreign company incorporated in the jurisdiction as specified in Annexure-B after obtaining prior approval of RBI and complying with the provisions of Section 230-232 of the act and related rules.
  • The transferee company shall ensure that the valuation is carried out by the valuers being the members of the recognized professional body in the jurisdiction of the transferee company. The valuation shall be as per the internationally accepted principles on accounting and valuation. A declaration to this effect shall be attached with the application for prior approval of RBI.
  • The company shall file the application with the tribunal as per Section 230-232 after obtaining the approval of RBI.

The following are the jurisdiction as per Annexure-B:

  1. Whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to a bilateral Memorandum of Understanding with SEBI, or
  2. Whose central bank is a member of the Bank for International Settlements (BIS), and
  3. A jurisdiction, which is not identified in the public statement of the Financial Action Task Force (FATF) as:

a) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
b) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies

Following were the compliances Checklist for merger and amalgamation under Companies Act 2013. In case of any queries, please feel free to contact the ASC Group.


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