PROCEDURE UNDER THE COMPANIES ACT, 1956:

1. To prepare the draft scheme of amalgamation/arrangement.

2. To get the valuation report for the purposes of Shares Exchange Ratio
3. To hold Board Meeting for,
 Taking note of the valuation report
 Taking note of the share exchange ratio,
 Taking note of the draft scheme of amalgamation
 Authorizing someone to sign all the application, petition, affidavits etc. on behalf
of the company.
4. Filing of application before the Hon’ble High Court under section 391 of the Act for
convening/dispensing with the meetings of shareholders and creditors of the applicant
companies.
5. Order of the High Court for convening of the meetings of the shareholders/creditors and
appointment of Chairman. The Judge gives directions (Form No. 35) in respect of the
following matters:-
 Determining the class or classes of creditors and/or of members whose meeting or
meetings have to be held
 The time and place of such meeting
 Appointing a chairman for the meeting(s)
 Fixing the quorum and the procedure to be followed at the meeting(s)
 Notice of the meeting and the advertisement of such notice
 The time within which the chairman of the meeting is to report to the Court the
result of the meeting
 Such other matters as the Court may deem necessary
 Such other matters as the Court may deem necessary.
6. To finalize the draft notice of meetings of the creditors/shareholders (Form No 36).
7. To get the notice of the meeting & Explanatory Statement approved from the Chairman
appointed by the Court & Registrar of the High Court
8. To send the notice (Form 36) individually to the shareholders / creditors along with copy
of the Scheme, Explanation Statement, Form of Proxy (Form No. 37) at least 21 clear
days before the date fixed for the meeting.

9. To give advertisement in the newspaper at least 21 clear days before the date of the
meeting (Form No 38)

10. Chairman to file affidavit stating that the directions regarding the issue of notice of
advertisement & dispatch of notices have been complied with (at least 7 days before the
date of the meeting).

11. To convene meetings of the shareholders/creditors – Pass the Resolution with requisite
majority (three-fourth of the total shareholding value)

12. File Form MGT-14 with ROC within 30 days of passing of resolution.

13. The chairman of the meeting(s) shall submission its Report within 7 days after the
conclusion of the meeting to the Court in after the conclusion of the meeting to the Court
in Form No 39.

14. To file petition for obtaining sanction of the Court for the scheme along with all
Annexure at the High Court for confirming compromise/arrangement Form No. 40
within 7 days of filing the Chairman’s Report.

15. Notice of the hearing shall be advertised in the same papers in which the notice of the
meeting was advertised, or in such other papers as the Court may direct, not less than 10
days before the date fixed for the hearing.

16. To follow up with the RD, ROC and OL for submitting their reports that affairs of the
Transferor Company and Transferee Company are not prejudicial to the interest of the
members or to public interest

17. To ensure that RD and OL submit the report with the High Court before the final date of
hearing (Guidelines by MCA in next slide).
 18. To file certified true copy of the order within 30 days with the Registrar of Companies (e-
form- INC-28).

19. To annex copy of the order of every copy of the Memorandum of the transferee company.

PROCEDURE UNDER THE COMPANIES ACT, 2013:

Board Meeting

At first, the company shall convene a board meeting where it is resolved that the company
intends to amalgamate with another company on the basis of the draft scheme of amalgamaton
and the valuation report of the company.

Application to Tribunal

The company shall then make an application in Form no. NCLT-1 to the National Company
Law Tribunal of relevant territorial jurisdiction. The application shall be accompanied by

(i) A notice of admission in Form No. NCLT-2

(ii) An affidavit in Form No. NCLT-6

(iii) A copy of scheme of compromise or arrangement, which should include the

following disclosures–

(a) All material facts relating to the company, such as the latest financial position
of the company, the latest auditor’s report on the accounts of the company and the
pendency of any investigation or proceedings against the company;

(b) Reduction of share capital of the company, if any, included in the

amalgamation;

(c) Any scheme of corporate debt restructuring consented to by not less than
seventy-five per cent of the secured creditors in value, including—

(1) A creditor’s responsibility statement in Form No. CAA. 1;

 (2) Safeguards for the protection of other secured and unsecured creditors;

(3) Report by the auditor that the fund requirements of the company after
the corporate debt restructuring as approved shall conform to the liquidity
test based upon the estimates provided to them by the Board

(4) where the company proposes to adopt the corporate debt restructuring
guidelines specified by the Reserve Bank of India, a statement to that
effect; and

(5) a valuation report in respect of the shares and the property and all
assets, tangible and intangible, movable and immovable, of the company
by a registered valuer.

(iv) Fee as prescribed in the Schedule of Fees

Apart from the above the applicant shall also disclose to the Tribunal, the basis on which
each class of members or creditors has been identified for the approval of the scheme.

It shall be noted that the two companies may at their discretion make a joint application.
The Tribunal may on such application, order a meeting of the creditors or class of
creditors or the members or class of members, as the case may be, to be called, held and
conducted in such manner as the Tribunal may direct.

It shall essentially give directions pertaining to the following matters:-

(a) Determining the class or classes of creditors or of members whose meeting or

meetings have to be held for considering the proposed compromise or
arrangement;

(b) Fixing the time and place of the meeting or meetings;

(c) Appointing a Chairperson and scrutinizer for the meeting or meetings to be

held, as the case may be and fixing the terms of his appointment including
remuneration;
 (d) Fixing the quorum and the procedure to be followed at the meeting or
meetings, including voting in person or by proxy or by postal ballot or by voting
through electronic means;

(e) Determining the values of the creditors or the members, or the creditors or
members of any class, as the case may be, whose meetings have to be held;

(f) Notice to be given of the meeting or meetings and the advertisement of such
notice;

(g) notice to be given to sectoral regulators or authorities as required under sub-

section (5) of section 230;

(h) The time within which the chairperson of the meeting is required to report the
result of the meeting to the Tribunal; and

(i) Such other matters as the Tribunal may deem necessary.

Notice Of The Meeting

Notice of the meeting shall be sent to all the creditors or class of creditors and to all the members
or class of members and the debenture-holders of the company, in Form No. CAA.2.

The notice shall be sent by the Chairperson appointed for the meeting, or, if the Tribunal so
directs, by the company or any other person as the Tribunal may direct, by registered post or
speed post or by courier or by email or by hand delivery or any other mode as directed by the
Tribunal to their last known address at least one month before the date fixed for the meeting.

The notice of the meeting to the creditors and members shall be accompanied by a copy of the
scheme of compromise or arrangement and a statement disclosing the following details of the
compromise or arrangement, if such details are not already included in the said scheme:-

(i) Details of the order of the Tribunal directing the calling, convening and conducting of the
meeting:

(a) Date of the Order;

 (b) Date, time and venue of the meeting.

(ii) Details of the company including:

(a) Corporate Identification Number (CIN) or Global Location Number (GLN) of the
company;

(b) Permanent Account Number (PAN);

(c) Name of the company;

(d) Date of incorporation;

(e) Type of the company (whether public or private or one-person company);

(f) Registered office address and e-mail address;

(g) Summary of main object as per the memorandum of association; and main business
carried on by the company;

(h) Details of change of name, registered office and objects of the company during the
last five years;

(i) name of the stock exchange (s) where securities of the company are listed, if
applicable;

(j) Details of the capital structure of the company including authorised, issued, subscribed
and paid up share capital; an

(k) Names of the promoters and directors along with their addresses.

(iii) the date of the board meeting at which the scheme was approved by the board of directors
including the name of the directors who voted in favour of the resolution, who voted against the
resolution and who did not vote or participate on such resolution;

(iv) Explanatory statement disclosing details of the scheme of compromise or arrangement

including:-

(a) Parties involved in such compromise or arrangement;

 (b) Appointed date, effective date, share exchange ratio (if applicable) and other
considerations, if any

(c) summary of valuation report (if applicable) including basis of valuation and fairness
opinion of the registered valuer, if any, and the declaration that the valuation report is
available for inspection at the registered office of the company;

(d) Details of capital or debt restructuring, if any;

(e) Rationale for the compromise or arrangement;

(f) Benefits of the compromise or arrangement as perceived by the Board of directors to

the company, members, creditors and others (as applicable);

(g) Amount due to unsecured creditors.

(v) disclosure about the effect of the compromise or arrangement on:

(a) key managerial personnel;

(b) directors;

(c) promoters;

(d) non-promoter members;

(e) Depositors;

(f) Creditors;

(g) Debenture holders;

(h) Deposit trustee and debenture trustee;

(i) Employees of the company:

(vi) Disclosure about effect of compromise or arrangement on material interests of directors, Key
Managerial Personnel (KMP) and debenture trustee.

(vii) Investigation or proceedings, if any, pending against the company under the Act.
(viii) Details of the availability of the following documents for obtaining extract from or for
making or obtaining copies of or for inspection by the members and creditors, namely:

(a) Latest audited financial statements of the company including consolidated financial
statements;

(b) Copy of the order of Tribunal in pursuance of which the meeting is to be convened;

(c) Copy of scheme of compromise or arrangement;

(d) Contracts or agreements material to the compromise or arrangement;

(e) the certificate issued by Auditor of the company 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 of the Companies Act,
2013; and

(f) Such other information or documents as the Board or Management believes necessary
and relevant for making decision for or against the scheme;

(ix) Details of approvals, sanctions or no-objection(s), if any, from regulatory or any other
governmental authorities required, received or pending for the proposed scheme of compromise
or arrangement.

(x) A statement to the effect that the persons to whom the notice is sent may vote in the meeting
either in person or by proxies, or where applicable, by voting through electronic means.

Advertisement

The notice of the meeting shall be advertised in Form No. CAA.2 in at least one English
newspaper and in at least one vernacular newspaper having wide circulation in the State in which
the registered office of the company is situated. A copy of the notice shall also be placed, not less
than thirty days before the date fixed for the meeting, on the website of the company .

It may be noted that the two companies may give a joint advertisement.

Notice To Statutory Authorities

The aforesaid notice along with a copy of the scheme of compromise or arrangement, the
explanatory statement and the aforementioned disclosures, shall also be sent to the Central
Government, the income-tax authorities, the Reserve Bank of India, the Registrar of Companies,
the Official Liquidator, the Competition Commission of India and such other sectoral regulators
or authorities which are likely to be affected by the amalgamation in form CAA-3.

If the authorities stated above desire to make any representation, the same shall be sent to the
Tribunal within a period of thirty days from the date of receipt of such notice and copy of such
representation shall simultaneously be sent to the concerned companies.

Affidavit Of Service.—

The Chairperson appointed for the meeting of the company or other person directed to issue the
advertisement and the notices of the meeting shall file an affidavit before the Tribunal not less
than seven days before the date fixed for the meeting or the date of the first of the meetings, as
the case may be, stating that the directions regarding the issue of notices and the advertisement
have been duly complied with.

Convene Meeting

The next step is to convene a meeting of members, creditors or a class of them to accord sanction
to the scheme. The scheme is said to be approved in the meeting where majority of persons
representing three-fourths in value of the creditors, or class of creditors or members or class of
members, as the case may be, voting in person or by proxy or by postal ballot, agree to it.

Following are some important points in this regard:

(1) The voting at the meeting shall take place by poll or by voting through electronic means.

(2) Report of the result of the meeting—

The Chairperson of the meeting shall, within the time fixed by the Tribunal, or where no time
has been fixed, within three days after the conclusion of the meeting, submit a report to the
Tribunal on the result of the meeting in Form No. CAA.4. It shall state accurately the number of
creditors or class of creditors or the number of members or class of members, as the case may be,
who were present and who voted at the meeting either in person or by proxy, and where
applicable, who voted through electronic means, their individual values and the way they voted.
Petition for confirming compromise or arrangement—

The company (or its liquidator), shall, within seven days of the filing of the report by the
Chairperson, present a petition to the Tribunal in Form No. CAA.5 for sanction of the scheme of
amalgamation. In case of the company’s failure, it shall be open to any creditor or member as the
case may be, with the leave of the Tribunal, to present the petition and the company shall be
liable for the cost thereof.

Date and notice of hearing—

(1) The Tribunal shall fix a date for the hearing of the petition, and notice of the hearing shall be
advertised in the same newspaper in which the notice of the meeting was advertised, or in such
other newspaper as the Tribunal may direct, not less than ten days before the date fixed for the
hearing.

(2) The notice of the hearing of the petition shall also be served by the Tribunal to the objectors
or to their representatives under sub-section (4) of section 230 of the Act and to the Central
Government and other authorities who have made representation under rule 8 and have desired to
be heard in their representation.

Order On Petition—

(1) Where the Tribunal sanctions the compromise or arrangement, the order shall include such
directions in regard to any matter or such modifications in the compromise or arrangement as the
Tribunal may think fit to make for the proper working of the compromise or arrangement.

It shall be in Form No. CAA. 6, with such variations as may be necessary.

The company 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.

The scheme 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.
The company 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.

CHANGES IN THE FRAMEWORK FROM THE 1956 ACT:

Changes to the Process:

Regulatory/Third party approvals1: As shareholders' and creditors' consents are essential, the
1956 Act, therefore, contemplates issue of a notice to them. The 2013 Act requires service of the
notice of the merger along with documents (such as copy of the Scheme and valuation report) not
only upon the shareholders and creditors but also on various regulators including the Ministry of
Corporate Affairs (through Regional Director, Registrar of Companies and Official Liquidator),4
Reserve Bank of India ("RBI") (where non-resident investors are involved), SEBI (only for listed
companies), Competition Commission of India (where the prescribed fiscal thresholds are
crossed and the proposed merger could have an adverse effect on competition), Stock Exchanges
(only for listed companies), Income Tax authorities and other sector regulators or authorities
which are likely to be affected by the merger. This ensures compliance of the Scheme with other
regulatory requirements imposed on the merging entities. In fact, under the 1956 Act the courts
have made mergers subject to approval of the regulators. The 2013 Act prescribes a 30 day time
frame for the regulators to make representations, failing which the right would cease to exist.
This is a positive step because in the 1956 Act no such time frame was provided leading to
considerable delays in the court proceedings.

Approval of the Scheme through postal ballot: The 1956 Act required presence of the
shareholders and creditors in the physical meetings, either in person or by proxy, to cast vote
for/against the Scheme. In the 2013 Act, the shareholders and creditors also have the option to
cast vote through postal ballot while considering a Scheme. The 1956 Act did not allow this and
the shareholders and creditors could only cast votes physically. This right will ensure wider
participation of the shareholders and creditors, particularly for those who are scattered all over
the country and who find it difficult to be either physically present or provide a proxy. Postal
ballot, therefore, will offer them a greater flexibility to cast their votes.
1
Section 230(5) of the 2013 Act
Valuation Report: Though the 1956 Act is silent on disclosing the valuation report to the
stakeholders, as a matter of transparency and good corporate governance, the listed companies
used to make available the valuation report for inspection and also during the course of the
meetings. Courts also required annexing of the valuation report to the application submitted
before them. The 2013 Act now mandates annexing of the valuation report to the notices for the
meetings to enable ready access to the shareholders and creditors7.

Objections: A bane under the 1956 Act was that it permitted the individual shareholders and
creditors to raise frivolous objections to arm-twist and unnecessarily harass the companies
following the meetings. Such right to object to the Scheme would no longer be available to any
and every person. Objections can be raised by shareholders holding 10% or more equity and
creditors whose debt represent 5% or more of the total debt as per the last audited financial
statements. By raising the bar, the new law aims to ensure that the frivolous objections/litigation
can be avoided.

Accounting Standards: As a matter of practice, frequently the Scheme provided for accounting
treatment that would deviate from the prescribed accounting standards necessitating a note to this
effect in the balance sheet of the company. This was frowned upon by the tax authorities.
Consequently, in case of listed companies, the listing agreement was amended to provide that an
auditor's certificate stating that the accounting treatment is in accordance with the accounting
standards was required to be filed for seeking approval of the stock exchanges. The 2013 Act
makes such prior certification from an auditor mandatory for both listed and unlisted companies.

Merger of a listed company into an unlisted one: The 2013 Act specifically provides for the
Tribunal's order to state that the merger of a listed company into an unlisted company will not
ipso facto make the unlisted company listed. It will continue to be unlisted until the applicable
listing regulations and SEBI guidelines in relation to allotment of shares to public shareholders
are complied with. Further, in case the shareholders of the listed company decide to exit, the
unlisted company would facilitate the exit with a pre-determined price formula which shall be
within the price specified by SEBI regulations. The Indian securities law prescribes strict
enforcement of listing requirements by companies intending to get listed. SEBI had, however,
eased these requirements for listed companies proposing merger by granting them exemptions
from complying with the initial public offering requirements11 on a case-to-case basis. Recently
SEBI had issued guidelines12 stating that if the Scheme provides for listing of shares of an
unlisted company without complying with the initial public offering requirements, then, upon
court approval of the Scheme, the unlisted company has to file a specific application seeking
such exemption from SEBI. Such an application has to be filed upon, inter-alia, allotment of
equity shares to the holders of securities of the listed company.13 The changes under the 2013
Act are in line with SEBI requirements. The 1956 Act was silent on this aspect.

The New Kinds of Mergers

Apart from the aforesaid changes, the 2013 Act provides for separate provisions for cross border
mergers, merger of two small companies and that of holding with wholly-owned subsidiaries.
These are described briefly below.

Cross-border mergers: The 1956 Act permits cross-border mergers only where the transferor is
a foreign company. In contrast, the 2013 Act permits in-principle mergers between an Indian and
a foreign company located in a jurisdiction notified by the central government in periodic
consultation with RBI. Such a merger would be subject to RBI approval and Scheme may
provide payment in cash or depository receipts or both. The payment in cash or depository
receipts would facilitate exit to the shareholders of the merging entity who do not want to be a
part of the merged entity. These changes reflect the legislature's intent to facilitate cross-border
business. The Income Tax Act presently grants tax exemptions15 on mergers if the transferee is
an Indian company and does not recognize a situation where the transferee will be a foreign
company, as contemplated under the 2013 Act. The introduction of cross-border mergers under
the 2013 Act may, therefore, require corresponding changes in other laws, including foreign
exchange and tax.

Merger of "small companies" and holding with wholly-owned subsidiaries: Unlike the 1956
Act under which merger of all companies, irrespective of nature and size requires court approval,
the 2013 Act carves out a separate procedure for small companies16 and the holding and wholly-
owned subsidiaries. Section 233 of the 2013 Act prescribes a simplified fast track procedure for
their merger which requires consent of shareholders holding 90% in value and creditors
representing 9/10th of debt in value as well as approval of the Scheme by the Regional Director,
Ministry of Corporate Affairs in case no objections are received from the Official Liquidator and
Registrar of Companies. Approval of the Tribunal is not required for such mergers. This could be
good news for the merging entities who may not be required to (i) file documents required to be
filed under the listing agreement, in the case of listed companies, (ii) give notice to various
authorities, (iii) provide auditor's certificate of compliance with applicable accounting standards.
However, if the Regional Director is of the opinion that the Scheme is not in the interest of the
stakeholders, he may approach the Tribunal who could follow the merger procedure prescribed
under the 2013 Act. This ability to transfer to the Tribunal has the potential to change fast-track
to a normal merger and make such mergers less appealing.

Penalties

The penalties for contravention of the provisions under the 1956 Act were a maximum of INR
50,000 (approximately US$ 80617) which apply to the company as well as officer-in-default.
However under the 2013 Act, separate penalties have been levied on the company and its
defaulting officer. To bring in more accountability, quantum for companies has been increased
from the aforesaid sum to a minimum of INR 100,000 (approximately US$ 1,612) and maximum
of INR 2,500,000 (approximately US$ 40,322). Defaulting officer(s) will also be punishable with
imprisonment up to one year or with a minimum fine of INR 100,000 (approximately US$
1,612) and maximum INR 300,000 (approximately US$ 4,838) or both.18 Such stringent penal
provisions will not apply to mergers of small companies and that of a holding company with its
wholly-owned subsidiaries unless their merger is transferred to the Tribunal and approved by it.