232. Merger and amalgamation of companies
(1) Where an application is made to the Tribunal under section 230 for the
sanctioning of a compromise or an arrangement proposed between a company and any
such persons as are mentioned in that section, and it is shown to the Tribunal—
(a) that the compromise or arrangement has been proposed for the purposes
of, or in connection with, a scheme for the reconstruction of the company or
companies involving merger or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the undertaking, property
or liabilities of any company (hereinafter referred to as the transferor company) is
required to be transferred to another company (hereinafter referred to as the transferee
company), or is proposed to be divided among and transferred to two or more
companies,
the Tribunal may on such application, order a meeting of the creditors or class of creditors
or the members or class of members, as the case may be, to be called, held and conducted
in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of
section 230 shall apply mutatis mutandis.
(2) Where an order has been made by the Tribunal under sub-section (1), merging
companies or the companies in respect of which a division is proposed, shall also be
required to circulate the following for the meeting so ordered by the Tribunal, namely:—
(a) the draft of the proposed terms of the scheme drawn up and adopted by the
directors of the merging company;
(b) confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) a report adopted by the directors of the merging companies explaining
effect of compromise on each class of shareholders, key managerial personnel,
promotors and non-promoter shareholders laying out in particular the share exchange
ratio, specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of
the merging company relate to a financial year ending more than six months before
the first meeting of the company summoned for the purposes of approving the
scheme.
(3) The Tribunal, after satisfying itself that the procedure specified in sub-sections
(1) and (2) has been complied with, may, by order, sanction the compromise or arrangement
or by a subsequent order, make provision for the following matters, namely:—
(a) the transfer to the transferee company of the whole or any part of the
undertaking, property or liabilities of the transferor company from a date to be
determined by the parties unless the Tribunal, for reasons to be recorded by it in
writing, decides otherwise;
(b) the allotment or appropriation by the transferee company of any shares,
debentures, policies or other like instruments in the company which, under the
compromise or arrangement, are to be allotted or appropriated by that company to or
for any person:
Provided that a transferee company shall not, as a result of the compromise or
arrangement, hold any shares in its own name or in the name of any trust whether on
its behalf or on behalf of any of its subsidiary or associate companies and any such
shares shall be cancelled or extinguished;
(c) the continuation by or against the transferee company of any legal
proceedings pending by or against any transferor company on the date of transfer;
(d) dissolution, without winding-up, of any transferor company;
(e) the provision to be made for any persons who, within such time and in such
manner as the Tribunal directs, dissent from the compromise or arrangement;
(f) where share capital is held by any non-resident shareholder under the
foreign direct investment norms or guidelines specified by the Central Government
or in accordance with any law for the time being in force, the allotment of shares of
the transferee company to such shareholder shall be in the manner specified in the
order;
(g) the transfer of the employees of the transferor company to the transferee
company;
(h) where the transferor company is a listed company and the transferee
company is an unlisted company,—
(A) the transferee company shall remain an unlisted company until it
becomes a listed company;
(B) if shareholders of the transferor company decide to opt out of the
transferee company, provision shall be made for payment of the value of shares
held by them and other benefits in accordance with a pre-determined price
formula or after a valuation is made, and the arrangements under this provision
may be made by the Tribunal:
Provided that the amount of payment or valuation under this clause for any
share shall not be less than what has been specified by the Securities and Exchange
Board under any regulations framed by it;
(i) where the transferor company is dissolved, the fee, if any, paid by the
transferor company on its authorised capital shall be set-off against any fees payable
by the transferee company on its authorised capital subsequent to the amalgamation;
and
(j) such incidental, consequential and supplemental matters as are deemed
necessary to secure that the merger or amalgamation is fully and effectively carried
out:
Provided that no compromise or arrangement shall be sanctioned by the
Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal
to the effect that the accounting treatment, if any, proposed in the scheme of
compromise or arrangement is in conformity with the accounting standards prescribed
under section 133.
(4) Where an order under this section provides for the transfer of any property or
liabilities, then, by virtue of the order, that property shall be transferred to the transferee
company and the liabilities shall be transferred to and become the liabilities of the transferee
company and any property may, if the order so directs, be freed from any charge which
shall by virtue of the compromise or arrangement, cease to have effect.
(5) Every company in relation to which the order is made shall cause a certified copy
of the order to be filed with the Registrar for registration within thirty days of the receipt of
certified copy of the order.
(6) The scheme under this section shall clearly indicate an appointed date from
which it shall be effective and the scheme shall be deemed to be effective from such date
and not at a date subsequent to the appointed date.
(7) Every company in relation to which the order is made shall, until the completion
of the scheme, file a statement in such form and within such time as may be prescribed with
the Registrar every year duly certified by a chartered accountant or a cost accountant or a
company secretary in practice indicating whether the scheme is being complied with in
accordance with the orders of the Tribunal or not.
(8) If a transferor company or a transferee company contravenes the provisions of
this section, the transferor company or the transferee company, as the case may be, shall
be punishable with fine which shall not be less than one lakh rupees but which may extend
to twenty-five lakh rupees and every officer of such transferor or transferee company who
is in default, shall be punishable with imprisonment for a term which may extend to one
year or with fine which shall not be less than one lakh rupees but which may extend to
three lakh rupees, or with both.
Explanation.—For the purposes of this section,—
(i) in a scheme involving a merger, where under the scheme the undertaking,
property and liabilities of one or more companies, including the company in respect
of which the compromise or arrangement is proposed, are to be transferred to another
existing company, it is a merger by absorption, or where the undertaking, property
and liabilities of two or more companies, including the company in respect of which
the compromise or arrangement is proposed, are to be transferred to a new company,
whether or not a public company, it is a merger by formation of a new company;
(ii) references to merging companies are in relation to a merger by absorption,
to the transferor and transferee companies, and, in relation to a merger by formation
of a new company, to the transferor companies;
(iii) a scheme involves a division, where under the scheme the undertaking,
property and liabilities of the company in respect of which the compromise or
arrangement is proposed are to be divided among and transferred to two or more
companies each of which is either an existing company or a new company; and
(iv) property includes assets, rights and interests of every description and
liabilities include debts and obligations of every description.