Group 1 Section AGroup 1 Section AMembers:

Nisha rathi

Shikha Bajaj

Satyendra Kumar

Bedashree Gogoi

Akanksha Sinha

Bhaskar Deka

Kumar Amit

Trinkul Kalita

Vishwajeet

Ashish

RULES & REGULATIONS OF MERGERS AND ACQUISITIONS UNDER THE COMPANIES ACT, 1956

RULES & REGULATIONS OF MERGERS AND ACQUISITIONS UNDER THE COMPANIES ACT, 1956

Legal aspects of Merger/Amalgamation

Legal aspects of Merger/Amalgamation

The provisions relating to merger and amalgamation are contained in Sections 390 to 396A. •Section 390- interpretation of sections 391 and 393•Section 391- power to compromise or make arrangement with creditors and members•Section 392-power of high court to enforce compromises and arrangements•Section 393- Information as to Compromise or arrangements with creditors and members

Contd…Contd…

• Section 394- provision for facilitating reconstruction and merger of companies

• Section 394A- notice to central government• Section 395- power and duty to acquire shares

of s/h dissenting from scheme or contract approved by majority

• Section 396- power of central government to provide for mergers of companies in national interest

• Section 396A- preservation of books and papers of the amalgamated company

Section 390: interpretation of sections 391 and 393Section 390: interpretation of sections 391 and 393

• In sections 391 and 393:(a)expression “company” means any company

liable to be wound up under this Act,(b)Expression “arrangement” includes a

reorganization of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or by both these methods,

(c)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 membersSection 391: power to compromise or make arrangement with creditors and members1. Where a compromise or arrangement is proposed

(a)between a company and its creditors or any class of them, or

(b)between a company and its members or any class of them.

2. representing 3/4th in value of creditors or members for voting in the meeting either in person or in proxy.

3. Order made by the court should be filed with the Registrar of companies.

4. Order copy shall be annexed to the every copy of the memorandum of company.

5. The company and the officer of the company who is in default shall be punishable with fine (Rupees 100 for each default) in case of any default in sub section 4.

6. After an application has been made under this section, court may stay the commencement or continuation until the application is finally disposed of.

Section 392:power of high court to enforce compromises and arrangementsSection 392:power of high court to enforce compromises and arrangements

1. After high court makes an order sanction, it

a. shall have power to supervise the carrying out of the compromise or arrangement.

b. may give direction in regard to any matter or modifications.

2. If compromise or arrangement cannot be worked satisfactorily with or without modifications, it may, make an order of winding up the company.

Section 393: Information as to Compromise or arrangements with creditors and members

Section 393: Information as to Compromise or arrangements with creditors and members1. A Meeting of creditors & members to be called by giving

notice.

2. The company shall provide copies of the scheme of compromise or arrangement , to the creditor or member who applies for the same.

3. If any default is made by officer in the requirements, he shall be punishable with fine extended to Rs 50,000.

4. Every director, managing director or manager for debenture holders of the company, shall give all necessary information to the company. If he fails to do so, he shall be punishable with fine extended to Rs 5,000.

Section 394: provision for facilitating reconstruction and merger of companiesSection 394: provision for facilitating reconstruction and merger of companies

1. Application is made to the court under sec 391 for sanctioning of a compromise or arrangements proposed. The court makes provision for the following:

• Transfer of whole or part of property and liabilities• Allotment or appropriation of shares and debentures• Continuation of proceedings for pending legal matters• Dissolution without winding up• Provision for person who does not agree to the scheme• Orders passed by the court for effective reconstruction

or amalgamation.

Contd…Contd…

2. Order provides for the transfer of any property or liabilities by virtue of order.

3. Certified copy to be filled with the registrar for registration within the 30 days after the making of an order under this section.

4. (a)’Property’ includes property, rights and powers of every description. ’Liabilities’ duties of every description.

(b)’Transferee company’ in a scheme of merger or amalgamation has to be necessarily a company within the meaning of the Act.

Section 394A: notice to central governmentSection 394A: notice to central government

The court shall give notice of every application made under sec 391 or 394 to the central government and shall take into consideration the representation, if any, by the said government.

Salient features of Section 391 and 394Salient features of Section 391 and 394

• There should be a scheme of compromise or arrangement.

• An application must be made to the court to hold meetings of shareholders/creditors.

• Court may order meetings which should be held accordingly.

• Scheme of compromise must be approved by 3/4th in value and majority of the number of creditors.

• Another application must be ade to the court for sanctioning the scheme.

Contd…Contd…

• An approved scheme duly sanctioned by court is binding on all the shareholders/creditors/companies.

• Court’s order takes effect only after a certified copy of it has been filed with the Registrar.

• Copy of court’s order should be annexed to every copy of MoA.

• Court may stay commencement or continuation of any suit against the company after application has been moved in the court.

• Court’s order is appealable in a superior court.

Section 395: power and duty to acquire shares of s/h dissenting from scheme or contract approved by majority

Section 395: power and duty to acquire shares of s/h dissenting from scheme or contract approved by majority

1. Transfer of shares in a company to another company approved by nine-tenths in the value of shares.

1. Notice to the remaining shareholders who have not assented to the scheme.

Contd…Contd…3. Transmit a copy of the notice to the transferor company

and pay or transfer to the transferor company the amount.

4. Sum received by the transferor company shall be paid into a separate bank account.

5. ‘Dissenting shareholder’ includes a shareholder who has not assented to the scheme.

Section 396: power of central government to provide for mergers of companies in national interest

Section 396: power of central government to provide for mergers of companies in national interest

1. Where the Central government is satisfied that it is essential that 2 or more companies should amalgamate then, it shall provide order for such amalgamation.

2. The order may contain provisions for any pending legal proceedings.

3. Every member or creditor shall have the same interest in the company resulting from the amalgamation.

4. No order shall be made unless a copy of the proposed order has been sent in draft to each of the companies concerned.

2. Copies of every order made under this section shall be laid down before both houses of parliament.

Section 396A:preservation of books and papers of the amalgamated company

Section 396A:preservation of books and papers of the amalgamated company

The books and papers of each company should not be disposed of without the prior permission of the Central Government. The government may appoint a person to examine the books and papers.

Scheme of AmalgamationScheme of Amalgamation

• Contents of the scheme:

Transfer date: First day of the financial year preceding the year for audited accounts are available with the companies.

Effective date: The date on which the transfer and vesting of the undertaking of the transferor company shall take effect.

Arrangement with shareholders: The exchange ratio which will have to be worked out based on the valuation of shares of the respective companies as per the audited accounts.

Cancellation/reduction of share capital: Necessary when the shares of the transferor company are held by the transferee company and/or its subsidiaries and vice-versa.

The scheme should provide for:The scheme should provide for:

• Brief details of the transferor and transferee company

• Appointed date and effective date• Main terms of transfer of assets and liabilities• Details of consequences of the scheme into

effect• The terms of carrying on business activity• Details of share capital of both the companies• Proposed share exchange ratio

• Conditions about payment of dividend

• Status of employees of transferor company

• Agreement between both companies towards making applications under sec 391 and 394.

• Statement to bear cost and expenses in connection with the scheme by the transferee company