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Merger and Amalgamation

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Merger and amalgamation are two ways of combining two or more companies into one. The Companies Act, 2013 (the Act) has introduced some new provisions and rules to simplify and facilitate the process of merger and amalgamation, especially for small companies, holding companies & subsidiaries, & cross-border transactions.

Features of the Act regarding Merger and Amalgamation:

The Act defines a compromise as any arrangement between a company and its creditors or any class of them, or between a company and its members or any class of them, for the restructuring of its debt or capital, or for any other purpose.

The Act defines an arrangement as any change in the rights or liabilities of the shareholders, creditors, debenture holders, or any class of them, or in the regulation of a company, otherwise than by a resolution passed in the general meeting or by the board.

The Act defines an amalgamation as the merger of one or more companies with another company, or the merger of two or more companies to form a new company, in such a way that all the assets and liabilities of the amalgamating companies become the assets and liabilities of the amalgamated company, and the shareholders of the amalgamating companies become the shareholders of the amalgamated company..

The Act provides for a fast track merger process for certain classes of companies, such as small companies, holding companies and wholly owned subsidiaries, and such other companies as may be prescribed, without the approval of the National Company Law Tribunal (NCLT). The fast track merger process involves the approval of the board of directors, the consent of the creditors and members holding at least 90% of the total number of shares, and the filing of the scheme of merger with the Registrar of Companies and the Official Liquidator.

The Act allows for cross-border merger of an Indian company with a foreign company, or vice versa, subject to the approval of the Reserve Bank of India and the NCLT, and in accordance with the rules prescribed by the Central Government. The cross-border merger process involves the valuation of the companies by a valuer who is a member of a recognized professional body in the jurisdiction of the transferee company, and the protection of the interests of the creditors and employees of the transferor company.

The Act empowers the NCLT to sanction any compromise or arrangement between a company and its creditors or members, or any class of them, for any lawful purpose, subject to the approval of the majority of the creditors or members, or class of them, representing three-fourths in value, and the satisfaction of the NCLT that the compromise or arrangement is fair and reasonable. The NCLT can also order a meeting of the creditors or members, or class of them, to be convened and supervised by a chairperson appointed by the NCLT.

The Act also empowers the NCLT to sanction any merger or amalgamation of two or more companies, subject to the approval of the board of directors, the creditors and members of the companies, and the compliance with the provisions of the Act and the rules made thereunder. The NCLT can also order the transfer of any property or liability of the transferor company to the transferee company, the allotment or appropriation of any shares or securities in the transferee company, the continuation or termination of any legal proceedings by or against the transferor company, the dissolution of the transferor company, and any other matter necessary to give effect to the merger or amalgamation.
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