COMPANIES ACT, 1956

SECTION 390 TO 396A• AMALGAMATION• MERGER• DEMERGER• EXTERNAL AND INTERNAL RECONSTRUCTION

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SECTION 390 TO 396AAMALGAMATION

MERGERDEMERGER

EXTERNAL AND INTERNAL RECONSTRUCTION

• Marriage between two artificial persons is termed as Amalgamation.

The procedure regarding it is mentioned in the above referred Section.

Section 390 : Interpretation of Sections 391 and 393

• “Company” means any company liable to be wound up under this act.

• “Arrangement” includes a reorganization of the share capital of the company.

• Unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.

Section 391: Power to compromise or make arrangement with creditors and

members.

• Compromise and arrangement can be between company and its creditors or its members or any class of them.

• The persons who can apply to the court for the above mentioned purpose:

- Application by the company itself, any of its creditors, member of the company, in case of the company which is being wound up by its liquidator.

- To be called held and conducted in such manner as the court directs.

Sec 391(2)

• If a majority in number, representing three-fourth in value of the creditors/members, or class of creditors/members as case may be, present and voting either in person or by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement if sanctioned by the court be binding on all the creditors,

• members and also on the company or in the case of a company which is being wound up, on the liquidator and contributories of the company.

• An order made by the court under sub-section (2) shall have no effect until a certified copy of the order has been filed with ROC.

Sec 392 : Power of H.C. to enforce compromises and arrangement.

• HC has the power to supervise the carrying out the compromise or arrangement.• May, at the time of making such order or

at any time thereafter, give such direction in regard to any matter or make such modification in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

• If the court is satisfied that the arrangement or compromise cannot be worked satisfactory with or without modification, it may either on its own motion or on the application of any person interested in the affairs of the company, make an order winding the company and such an shall be deemed to be an order made under section 433 of this Act.

Refer the cases mentioned below:Maddi Lakshmaiah v. Duncan Agro

Industries Ltd. : Court can modify the scheme only for removing the difficulties of the scheme.

Miheer H. Mafatlal v. Mafatlal and indutries Ltd. : Court only has the supervisory work and has to work as an umpire in the cricket match and not as a player in the field.

Section 393- Information as to compromise or arrangement with creditors

and members.

• Where a meeting of the creditors or member is called under section 391:

• With every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular stating any material interest of the directors, MD, or manager of the company

• In every notice calling the meeting which is given by the advertisement there shall be either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or member entitled to attend the meeting may obtain copies of such a statement as aforesaid.

• Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by the creditors or members entitled to attend the meeting , every creditor or member so entitled to attend the meeting, every creditor or so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.

Section 394: Provision for facilitating reconstruction & amalgamation of

Companies.

• Where an application is made to the Court, the court may either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters :

- The transfer to the transferee company of the whole or any part of the undertaking , property or liabilities of any transferor company.

• The allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interest in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or another person.

- The continuation by or against the transferee company of any legal proceeding pending by or against any transferor company.

- The dissolution, without winding up, of any transferor company.

- The provision to be made for any person who, within such time and in such manner as the court directs, dissent from the compromise or arrangement.

- Such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

Sec. 394A- Notice to be given to CG for application under sec 391 and 394.

• The court shall give notice of every application made to it under section 391 or 394 to CG, and shall take into consideration the representations, if any, made to it by that Govt. before passing any order under any of these sections.

Section 396:

• Power of CG to provide for the amalgamation of companies in national interest.

Section 395:

Power and duty to acquire shares of shareholders dissenting from contract

or scheme approved by majority.

Section 396 A

• Preservation of books and papers of amalgamated company. Prior permission of CG is required, before disposing of the books and papers of the amalgamated company.