ACKNOLEDGEMENT

Mergers & Acquisitions

I (Hardeep Singh 13BBL019) would like to thank all the people who have directly or
indirectly contributed in any way on the creation of my assignment on Company Law- II on
the subject of Mergers & Acquisitions.
I would especially like to thank my professor Prof. Deepak Singh, School of Law, IMS
Unison University DehraDun, for his continued support and guidance in creation of this
assignment.

TABLE OF CONTENTS

Introduction4
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Mergers & Acquisitions

Mergers...5
Legal Process..5
Types of Mergers...7
Acquisitions9
Types of Acquisitions9
Conclusion.10
Bibliography..................................................................................................................11

INTRODUCTION

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Mergers & Acquisitions

A merger can be simply defined as when two or more companies combine together to create a
single company. Mergers have not been expressively defined under companies act, 2013 1 but
under chapter XV of this act titled Compromises, Arrangements and Amalgamation the
process of mergers has been defined thoroughly, the word Merger is first seen in the act in the
heading of S.232 merger and amalgamation of companies.
Merger is a restructuring tool available to Indian conglomerates aiming to expand and
diversify their businesses for various reasons whether it is to gain competitive advantage,
reduce costs or unlock values.2
Acquisition or takeover can be defined as when a company takes over the management of
another company by friendly or hostile means. Takeover is a frequent tool which is used by
the companies to expand its horizons and increase its value. Acquisition has also not been
expressively defined in the Companies Act, 2013.
The main point of distinction between a merger and a takeover is that while a merger is
always mutual it is not necessary that an acquisition/takeover is mutual as seen in the case of
a hostile takeover.
In this assignment we will see what is the process of a merger and acquisition and also
various legal provisions regarding it.

1 18 of 2013
2http://www.psalegal.com/upload/publication/assocFile/ENewslineJanuary2014.pdf?
utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
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MERGERS
The most accurate legal definition of a merger can be seen in the definition of amalgamation
under the Income tax Act3, It says thatThe term amalgamation, in relation to companies, means the merger of one or more
companies with another company or the merger of two or more companies to form one
company.4
The terms Mergers and Amalgamations have been used synonymously under the purview of
Companies act, 2013.
Legal Process
Mergers and amalgamation of companies have been defined in s 232 of the companies act
under the heading Mergers and Amalgamation of Companies. S.232 provides the legal
process of merging or amalgamating two or more companies.
Subsection (1) of this section talks making an application to the tribunal 5 for the approval of
the scheme of the reconstruction of a company which will include the proposition of the
merger of two or more companies, secondly it also talks about how the liabilities (and assets)
of the transferor company is being transferred to the transferee company. The tribunal under
this subsection can also order for the convening a meeting of the shareholders and a separate
meeting of the creditors to get the merger approved by them, but if such a meeting has
already been conveyed by the company and the consent of the shareholders and the creditors
has already been obtained then the court may skip such meetings.
Subsection (2) talks about certain documents which need to be presented with the scheme
which has been filed with the tribunal in the meeting of the shareholders and creditors, the
documents are as followsi.
ii.
iii.

iv.
v.

A draft of proposed terms of schemes of the directors of all the merging companies.
Confirmation of the copy of the draft scheme has already been filed with the registrar
of companies.
A report by the directors of the merging companies explaining the effect of the
scheme on every aspect of the company from its shareholding structure to key
managerial positions etc.
The report of an expert with regard to the valuation of the companies.
The books of accounts of the companies.

The process under subsection (1) & (2) is also known as the first motion of a merger.
3 43 of 1961
4 S. 2(1b)
5 National Company Law Tribunal
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Subsection (3) of this section talks about the second motion of the merger where when the
first motion has been completed and the tribunal has satisfied itself that the procedure in
regards to a merger is being followed properly will pass an order merging both the companies
which will have the following effectsa) The undertakings, liabilities and the property of the transferor company will be
transferred to the transferee company partly or wholly.
b) The transferee company will allot shares of the company to the shareholders of the
transferor company in the manner and amount which has been described in the
scheme.
c) Any legal proceedings of the transferor company will be continued by or against the
transferee company.
d) Dissolution of the transferor company without winding up.
e) Provision to be made for a person who gave his dissent against such merger.
f) If any amount of share capital is held by a non resident of India under FDI 6 or any
other scheme of the central government, the allotment of his shares will be done in a
manner prescribed by the tribunal.
g) The transfer of employees of the transferor company to the transferee company.
h) If the transferor company is listed and the transferee company is an unlisted company
then firstly the transferee company will remain an unlisted company until it decides
to list its shares on the stock exchange and follow the process of listing of company,
secondly if the shareholders of the transferor company decide to opt out of the
merged company then provisions should be made for buying back of their shares with
some extra benefits to them.
i) Any fees paid off by the transferor company on its authorised share capital shall be
set off against any such fee paid by the transferee company.
j) Any such order which is deemed necessary by the tribunal for the completion of the
merger.
Subsection (4) talks about that if the tribunal has passed an order transferring the assets,
liabilities of the transferor company to the transferee company then such liability or assets
will becomes that of the transferee company.
Subsection (5) says that the certified copy of the order passed by the tribunal has to be filed
with the registrar of companies within 30 days of passing of such order by all the companies
of the merger.
Subsection (6) says that the scheme which will be filed with the tribunal will indicate a date
from which the merger will take effect.
Subsection (7) says that every company party to the merger shall file a report every year with
the registrar certified by a chartered accountant or a cost accountant or a company secretary
indicating that the provisions of the order passed by the tribunal regarding the merger are
being followed or not.
6 Foreign Direct Investment
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Subsection (8) talks about the penalty that will be imposed on the contravention of the
provisions of this section, if the defaulter is a company then the penalty imposed on it will be
between 1 lakh to 25 lakhs while if any officer of a company is at default then he will be
punishable with a term up to 1 year or with fine between 1 lakh to 3 lakhs.

Types of Mergers
1) Cross Border Mergers7- The 1956 Act, allows the merger of a foreign company with an
Indian company, but does not allow the reverse situation of merger of an Indian company
with a foreign company. The 2013 Act now allows this flexibility, with a rider that any
such mergers can be effected only with respect to companies incorporated within specific
countries, the names of which will be notified by the central government. With prior
approval of the central government, companies are now allowed to pay the consideration
for such mergers either in cash or in depository receipts or partly in cash and partly in
depository receipts as agreed upon in the scheme of arrangement. These new provisions
can be greatly beneficial to Indian companies which have a global presence by providing
them structuring options which do not exist currently8.
2) Fast track mergers9 - The new Act permits options for mergers / amalgamations,
divisions and demergers and other compromise and arrangements sans the court approval
between:
(a) Two or more small companies10
(b) Holding and wholly owned subsidiary company
(c) Other class of companies as may be prescribed
7 S.234 of Companies act, 2013
8 http://indiamicrofinance.com/companies-act-2013-mergers-acquisitions2014.html
9 S. 233 of the companies act, 2013
10 Small company means a company, other than a public company,- (i) paid-up share capital of which does not
exceed fifty lakh rupees (or such higher amount as may be prescribed which shall not be more than five crore
rupees); or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees (or such higher
amount as may be prescribed which shall not be more than twenty crore rupees):
Provided that nothing in this clause shall apply to (A) a holding company or a subsidiary company; (B) a
company registered under section 8 (formed with charitable objects); or (C) a company or body corporate
governed by any special Act;

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Such scheme can be approved by the Central Government after the fulfilment of the
following primary conditions:
Approval from at least 90% of the shareholders (number of shares) and at least 90% of
the creditors (value);
No objection from the Registrar and Official Liquidator. Further, there seems to be no
requirement to send notices to various regulators or provide valuation report also. This
provision would help cut costs, simplify procedures and save time involved.11
3) Demerger- The draft Rules pertaining to Chapter XV on compromise, arrangements and
amalgamations also define the term demerger. The definition of demerger has been
retained to be synonymous with the definition under the Income-tax provisions. Though
accounting treatment of demergers has also been defined to be similar to Income-tax
provisions, any revaluation / write off of assets during the preceding two years need to be
excluded from the value of assets and liabilities transferred. Further, it is important to
note here that while demerger has been specifically defined and dealt with in the draft
rules, nothing in the Act or the Rules restrict divisions which do not satisfy the
prescribed conditions of being defined as a demerger. Thus, compromise or
arrangements include any kind of division which is wider than demerger.

11 http://www.leapridge.com/wp-content/uploads/2013/12/Companies-Act-2013_Insight-onprovisions-relating-to-Corporate-Restructuring.pdf
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ACQUISITIONS
Acquisition also known as a takeover can simply be defined as when one company purchases
the controlling stake of another company by friendly or hostile means.
Takeovers are generally used by corporate houses to expand their business and monetary
value, it has been a tool which has been used in the capitalist world from the very beginning.
It is not necessary that takeovers are mutual, a friendly takeover is usually mutual on the
other hand a hostile takeover is not mutual.
Acquisition or takeover has not been expressively defined in the Indian companies act 2013
but an acquisition can be made by the way of a demerger,
A demerger is the opposite of a merger, involving the splitting up of one entity into two or
more entities. An entity which has more than one business, may decide to hive off or spin
off one of its businesses into a new entity. The shareholders of the original entity would
generally receive shares of the new entity if one of the businesses of a company is financially
sick and the other business is financially sound, the sick business may be demerged from the
company. This facilitates the restructuring or sale of the sick business, without affecting the
assets of the healthy business. Conversely, a demerger may also be undertaken for moving a
lucrative business into a separate entity. A demerger may be completed through a court
process under the Merger Provisions or contractually by way of a business transfer
agreement.12
An acquisition is usually done by acquiring at least 51% of the total shares of the company
and taking over its administration.
Types of Acquisitions
1) Friendly Takeover- In this type of takeover the bidder company before purchasing the
controlling stake of the target company approaches the board of the target company to
obtain their approval. For e.g. Acquisition of Jaguar Land Rover by TATA motors from
Ford.
2) Hostile Takeover- In this type of takeover the bidder company acquires the controlling
stakes of the target company without taking the consent of the board of the target
company and by using suppressive tactics. For e.g. Acquisition of Arcelor by Mittal Steel
company in 2006.
12http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research
%20Papers/Mergers___Acquisitions_in_India.pdf
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3) Reverse Takeover- this happens when a private company takes over a public company as
a means of acquiring public status without having to list itself. For e.g. Acquisition of The
New York Stock Exchange by Archipelago Holdings.

CONCLUSION
Mergers and Acquisitions are two very common practices in the corporate world and have
been used continuously since the dawn of corporate era and has been becoming more and
more complex and technical and to cope with the changing needs of the corporate world the
law governing these company should also change with it and thus the new companies act,
2013 as seen in the case of introducing the new kinds of mergers and expanding the scope of
mergers has succeeded in doing that to a very successful extent and will continue to do so.

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BIBLIOGRAPHY
ACTS

Companies Act, 2013

Income Tax Act, 1961

WEBSITES

En.wikipedia.com
www.indianlegalservices.com
www.indiankanoon.org
www.nishithdesai.com
www.leapridge.com
www.indiamicrofinance.com
www.psalegal.com

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