Merger and Amalgamation of Companies (Section 232)
(a) Tribunal’s power to call meeting of creditors or members, with respect to merger or amalgamation of companies Section 232 (1) states that when an application is made to the Tribunal under Section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that Section, and it is shown to the Tribunal:
(b) Circulation of documents for members/creditors meeting Section 232 (2) states that when an order has been made by the Tribunal under Sub-Section (1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:
(c) Sanctioning of scheme by tribunal:
Section 232 (3) states that the Tribunal, after satisfying itself that the procedure specified in Sub-Sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely:
(d) Auditor’s certificate as to conformity with accounting standard
No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under Section 133.
(e) Transfer of property or liabilities
Sub-Section (4) stares that an order under this Section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall e transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect.
(f) Certified copy of the order to be filed with the registrar Section 232(5) states that every company in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order.
(g) Effective date of the scheme
Section 232 (6) states that the scheme under this Section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date.
(h) Annual statement certified by CA/CS/CWA to be filed with registrar every year until the completion of the scheme
Section 232 (7) states that every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not.
Section 232 (8) states that if a transferor company or a transferee company contravenes the provisions of this Section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.
(j) Compromise or arrangement includes ‘demerger’
(1) Rule 15.31 of the Rules made under Chapter XV states that For the purpose of Chapter XV of the Act, ‘demerger’ in relation to companies means transfer, pursuant to scheme of arrangement by a ‘demerged company’ of its one or more undertakings to any ‘resulting company’ in such a manner as provided in Section 2 (19AA) of the Income Tax Act, 1961, subject to fulfilling the conditions stipulated in Section 2 (19AA) of the Income Tax Act and shares have been allotted by the ‘resulting company’ to the share holders of the .demerged company’ against the transfer of assets and liabilities.
(2) For the purpose of the compromise in the nature of ‘demerger’ till the Accounting Standards is prescribed for the purpose of ‘demerger’, the Accounting Treatment shall be in accordance with the conditions stipulated in Section 2 (19AA) of the Income Tax Act, 1961 and
a) in the books of the ‘demerged company’:
b) In the books of ‘resulting company:
A certificate from a Chartered Accountant is to be submitted to the Tribunal to the effect that both ‘demerged company’ and ‘resulting company’ have complied with conditions as above and accounting treatment prescribed in this rule.
Merger and Amalgamation of Certain Companies (Section 233)
Section 233 prescribes simplified procedure for Merger or amalgamation of
What is a holding company?
As per Section 2 (46) 'holding company', in relation to one or more other companies, means a company of which such companies are subsidiary companies
What is a small company?
As per Section 2 (85) ‘‘small company’’ means a company, other than a public company:
Provided that nothing in this clause shall apply to:
What is a subsidiary company?
As per 2 (87) 'subsidiary company' or 'subsidiary', in relation to any other company (that is to say the holding company), means a company in which the holding company:
(a) controls the composition of the Board of Directors, or
(b) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation: For the purposes of this clause:
(1) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause:
(2) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors.
(3) the expression 'company' includes any body corporate.
(4) 'layer' in relation to a holding company means its subsidiary or subsidiaries.
Merger of small companies/holding and subsidiary companies [Section 233]
Accordingly Sub-Section (1) of Section 233 states that notwithstanding the provisions of Section 230 and Section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed, subject to the following, namely:
Rule 15.25 states as follows with respect to Section 233(1)
(a) For the purposes of Sub-Section (1) of Section 233, a company shall be deemed to be 'wholly owned subsidiary' only if hundred per cent of share capital is held by the holding company except the shares held by the nominee or nominees to ensure that the number of members of subsidiary company is not reduced below the statutory limit as provided in Section 187.
(b) For the purposes of clause (c) of Sub-Section (1) of Section 233, the declaration of solvency shall be filed by the each of the companies involved in a scheme of compromise or arrangement involving merger in Form No. 15.12 along with such fee as provided in Annexure ‘B ‘before convening the meeting of members and creditors for approval of the scheme.
(c) For the purposes of clause (b) and (d) of Sub-Section (1) of Section 233, the notice of the meeting to the members and creditors shall be accompanied by:
Transferee Company to file a copy of scheme approved
Section 233 (2) states that the transferee company shall file a copy of the scheme so approved in the manner as may be prescribed, with the Central Government, Registrar and the Official Liquidator where the registered office of the company is situated.
Central Government to issue confirmation order, where there are no objections or suggestions from registrar or official liquidator
Section 233 (3) states that on the receipt of the scheme, if the Registrar or the Official Liquidator has no objections or suggestions to the scheme, the Central Government shall register the same and issue a confirmation thereof to the companies.
Objections if any by the registrar or official liquidator to be communicated to the central government
Section 233 (4) states that if the Registrar or Official Liquidator has any objections or suggestions, he may communicate the same in writing to the Central Government within a period of thirty days. If no such communication is made, it shall be presumed that he has no objection to the scheme.
Application by Central Government to the Tribunal
Section 233 (5) states that if the Central Government after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in public interest or in the interest of the creditors, it may file an application before the Tribunal within a period of sixty days of the receipt of the scheme under SubSection (2) stating its objections and requesting that the Tribunal may consider the scheme under Section 232.
Tribunal’s Action to Central Government’s application
Section 233 (6) states that on receipt of an application from the Central Government or from any person, if the Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in Section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit: If the Central Government does not have any objection to the scheme or it does not file any application under this Section before the Tribunal, it shall be deemed that it has no objection to the scheme.
Registrar having jurisdiction over transferee company has to be communicated
Section 233 (7) states that a copy of the order under Sub-Section (6) confirming the scheme shall be communicated to the Registrar having jurisdiction over the transferee company and the persons concerned and the Registrar shall register the scheme and issue a confirmation thereof to the companies and such confirmation shall be communicated to the Registrars where transferor company or companies were situated.
Effect of registration of the scheme
Section (8) states that the registration of the scheme under subSection (3) or Sub-Section (7) shall be deemed to have the effect of dissolution of the transferor company without process of winding up.
Section 233 (9) states that the registration of the scheme shall have the following effects, namely:
Transferee Company not to hold any share in its own name or trust and all such shares are to be cancelled or extinguished
Section 233 (10) states that a transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished on the merger or amalgamation.
Transferee Company to file an application with Registrar along with the scheme registered
Section 233 (11) The transferee company shall file an application with the Registrar along with the scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital. The fee, if any, paid by the transferor company on its authorised capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its authorised capital enhanced by the merger or amalgamation.
Merger or Amalgamation of a Company with a Foreign Company (Section 234)
Section 234 (2) Subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, 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, as the case may be, as per the scheme to be drawn up for the purpose.
For the purposes of Sub-Section (2), the expression 'foreign company' means any company or body corporate incorporated outside India whether having a place of business in India or not. Section 234 (1) states that the provisions of this Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies registered under this Act and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the Central Government. The Central Government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this Section.