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The two types Mergers/Amalgamations being referred to in this blog are:

  • Merger (Outbound Merger- domestic company merges with foreign company) or Amalgamation between Indian Company and Foreign Company;
  • Merger (Inbound Merger- foreign company merges with domestic company) or Amalgamation between Foreign Company and Indian Company;
  1. Foreign Company: Foreign company means any company or body corporate registered outside India whether having a place of business in India or not. Foreign Company notified in Annexure B[1] can merge as per Section 234 of the Companies Act, 2013;
  2. Applicable law: Section 234 of the Companies Act, 2013 read with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2017. Merger or amalgamation is a type of compromise and hence Section 230 of the Companies Act, 2013 which applies to compromise shall apply to merger and amalgamation.
  3. Valuation: Valuation of the company in jurisdiction of transferee company in accordance with internationally accepted principles on accounting and valuation;
  4. Payment of consideration: Scheme to provide for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts;
  5. Permitted jurisdiction: In case of outbound cross-border merger, a permitted jurisdiction will mean the surviving entity is located in a jurisdiction which is:
  • whose securities market regulator is a signatory to the International Organisation of Securities Commission’s Multilateral Memorandum of Understanding or a signatory to a bilateral Memorandum of Understanding with SEBI; OR
  • whose Central Bank is a member of the Bank of International Settlements (BIS); AND
  • a jurisdiction not identified in the public statement of the Financial Action Task Force (FATF) as:
  1. a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; OR
  2. a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies.
  3. Compliance under Section 230-232 of the Companies Act, 2013 –
  • Authorised by MoA: Company must be authorised to carry out merger or amalgamation through its Memorandum of Association. If it is so authorised then a draft scheme for amalgamation is to be prepared for approval in board meeting.
  • Prior approval of RBI is required;
  1. Application to NCLT post RBI approval (Chapter XV applies – Section 230, 231 and 232 of the Companies Act, 2013):
  • Application to NCLT in Form NCLT-1 seeking an order in favour of calling a meeting of creditors or members for approving the proposed merger or amalgamation;
  • Documents to be submitted with application: Copy of scheme, affidavit verifying petition and notice of admission along with material disclosures relating to company such as financial position, latest auditor’s report, and pendency of proceeding against company is also required to be submitted. The Tribunal has the right to either accept or dismiss the application;
  • NCLT orders meeting of members and creditors (if any) and debenture holders (if any);
  • Notice of meeting to members, creditors or debenture holders (valuation report + details of arrangement of merger or amalgamation) and SEBI, RBI and other regulatory authorities;
  • Members or creditors may vote on the matter within 30 days of receipt of notice;
  • Consent by members or creditors – ¾ in value and scheme approved by NCLT;
  • The results of voting shall be filed with NCLT within 3 days from the date of meeting;
  • If the scheme is approved by the majority of members/creditors, then a petition for confirming compromise, arrangement shall be made to NCLT within 7 days of filling of report of result;
  • NCLT after being satisfied that the procedure specified has been complied with, shall pass the order to sanction the scheme and make provisions related to matters such as transfer of whole or part of undertaking, property, liability of transferor company to transferee company, allotment of shares by transferee company, payment of consideration to shareholders of the merging company in cash, depository receipts, or partly in cash and partly in depository receipts, transfer of legal proceedings, transfer of employees, dissolution of transferor company etc;
  • Order of NCLT filed with ROC within 30 days from receipt of order.

[1] http://ebook.mca.gov.in/notificationdetail.aspx?acturl=6CoJDC4uKVUR7C9Fl4rZdatyDbeJTqg3vNSAbX4+/FnRv0SwiT9AvkJmaf8QndWb+mromSz37dk=