“AMALGAMATION OF FIRM”

A Project Submitted

To

University of Mumbai
For partial completion of the degree of

Master in Commerce
Under the

Faculty of Commerce
By

SURAJ SADASHIV SALUNKHE

Seat No:2122264
Semester: III

Under the Guidance of

Dr. Vinayak R. Gandal (M.Com, NET, Ph. D)
K.T.S.P.Mandal’s
K.M.C.College, Khopoli.
410203

December, 2021

1
 KHALAPUIR TALUKA SHIKSHAN PRASARAK MANDAL’S
KHOPOLI MUNICIPAL COUNCIL COLLEGE, KHOPOLI,
TAL: KHALAPUR, DIST: RAIGAD. PIN NO: 410203

---------------------------------------------------------------------------------------------------------------------

Certificate

This is to certify that __Ms/Mr SURAJ SADASHIV SALUNKHE _has worked and duly completed her/his
Project Work for the degree of Master in Commerce under the Faculty of Commerce in the subject of
Advanced Accounting, Corporate Accounting & Financial Management and her/his project is
entitled,__“AMALGAMATION OF FIRM”__ under my supervision.
I further certify that the entire work has been done by the learner under my guidance and that no part of it has
been submitted previously for any Degree or Diploma of any University.
It is her/ his own work and facts reported by her/his personal findings and investigations.

Signature of Project Guide

Signature of Principal Seal of the
College

Dr. Vinayak R. Gandal

Signature of External Examiner Signature of Internal Examiner

Date of submission:

26-12-2021

2
 Declaration by learner

I the undersigned Miss / Mr. Suraj Sadashiv Salunkhe_here by, declare that the work embodied in this project
work titled “Amalgamation Of Firm”, forms my own contribution to the research work carried out under the
guidance of Dr. Vinayak R. Gandal is a result of my own research work and has not been previously submitted
to any other University for any other Degree/ Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly indicated as such and included
in the bibliography.
I, here by further declare that all information of this document has been obtained and presented in accordance
with academic rules and ethical conduct.

MR. Suraj Sadashiv Salunkhe

Certified by
Name and signature of the Guiding Teacher
Dr. Vinayak R. Gandal

3
 Acknowledgment

I would like to acknowledge the following as being idealistic channels and

fresh dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me
chance to do this project.
I would like to thank my Principal, Dr. M.B. Khanvilkar for providing
the necessary facilities required for completion of this project.
I take this opportunity to thank our Co-ordinator Dr.Gandal V.R for her
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide
Dr. Gandal V. R whose guidance and care made the project successful. I
would like to thank my College Library, for having provided various
reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project.

4
 AMALGAMATION OF FIRM

INDEX
Chapter No. Title of the Chapter Page No.

Chapter: 1 Introduction
1.1 Introduction 6-13
1.2 Definitions

Chapter: 2 Research Methodology 14-16

1.1 Introduction
1.2 Research and methodology
Chapter: 3 Literature Review 17-18
1.1Objective
1.2Hypothesis
1.3Limitation

Chapter: 4 Analysis of data

1.1 Meaning of corporate amalgamation
1.2 Reasons For Failures Of Amalgamation
1.3 Bank Mergers and Acquisitions: A Common 19-50
Phenomenon
1.4 Amalgamations Provisions ITC( 1961)
1.5 Types of Corporate Amalgamation
1.6 Notice Of The Meeting
1.7 Benefits Of Corporate amalgamation
1.8 Accounting for Amalgamations
1.9 Methods of Accounting for Amalgamations
1.10 Main Principles of Amalgamation
Chapter: 5 Conclusions 51-52

Chapter : 6 References 53-54

5
Chapter 1: Introduction
The liberalized economic policies have exposed Indian industry to several
challenges. Time is evident of various economic activities that have grown over a
period of time which led to various forms of business organizations. Initially as the
transactions were limited the businesses used to be a one-man show. But the
shortcomings of the sole trader business led to the development of small
organizations known as ‘partnerships’ 1 , later the use of the partnership form of
also suffered from various mistakes due to (a) lack of specialization of
management and (b) large capital basis as it was not possible for partners to
undertake various infrastructural activities. It was in the 17th and 18th centuries in
England where a corporate body/company was brought into existence by the Royal
Charter or by a special Act of Parliament2. With the passing of time in order to
achieve faster growth in a corporate business, the companies started to explore and
exploit various means of business activities, mergers and acquisitions were one of
such alternatives.
Mergers and Acquisitions have been going on for a long time and the mergers
of many big corporations have taken place and it has become a normal
phenomenon in the modern corporate economy3 . It has become a universal
practice in the corporate world.
1 Juneja and Chawla, Book Keeping, 2003, Pg.137
2 Singh Avatar, Company Law, 1999, Pg.2
3Sudarsanam P.S. The Essence of Merger & Acquisition, 1977 Pg.1 The
structural adjustment program and the new industrial policy adopted by the
Government of India would allow business houses to undertake, without
restriction, any program of expansion either by entering into a new market or
through expansion in an existing market. In that context it also appears that Indian
business houses are increasingly resorting to mergers and acquisitions as a means
to growth. Mergers and acquisitions, all over the globe, have become a common
place universal practice in the corporate world covering different sectors within the
nations and across the borders for securing survival, growth, extension and
globalisation of enterprise as well as achieving a multitude of objectives.

6
 Certain restrictions were placed upon the corporate sectors under the
Monopolies and Restrictive Trade Practices Act, 1969 to check the concentration
of economic growth, control the growth of monopolies and to prevent various
restrictive trade practices. But these restrictions remained vague for two decades
and proved incompatible with the economic system in keeping pace with the global
economic environment. As a result the government under the economic
liberalisation measures removed the restrictions mentioned above by omitting the
relevant sections and provisions under the said act vide the Monopolies and
Restrictive Trade Practices
(Amendment) Act, 1991. Government has recently introduced Competition Bill
2001 for creating a free, economic environment which in turn is a boosting factor
for merger and amalgamation of enterprises.

Meaning and definition

Mergers or Amalgamations result in the combination of two or more
companies into one where the merging entities lose their identities. No fresh
investment is made through this process. However an exchange of shares takes
place between the entities involved in such a process. Generally the company that
survives is the buyer which retains its identity and the seller company is
extinguished. 4Juneja and Chawla, Book Keeping, 2003 at Pg.137
3 Merger Although the word ‘merger’ hasn’t been defined in the Companies
Act, 1956.Its literal meaning is ‘joining together’. This expression has been
explained differently in the dictionaries and law lexicons.
The English Oxford dictionary defines ‘merger’ as a ‘combination’ carrying a
sense of coalescing or uniting two or more things together. In the corporate context
it means uniting or combining two undertakings together5
.

7
The Encyclopedia Britannica expresses ‘merger’ as being a corporate combination
of two or more independent business corporations into a single enterprise, usually
the absorption of one or more firms by a dominant one. The reasons for a merger
are many. The acquiring company may seek to eliminate competition, increase its
own efficiency or diversify its products, services and markets or to reduce its tax
liability.
Merger activity varies with the business cycle, being higher when the business is
good6
.
Concise Law Dictionary defines the term ‘merger’ in a similar way to its definition
in the Transfer of Property Act, 1882 as the ‘extinguishment of a right, estate,
contract, company, action, etc by absorption in another.’
7Webster’s dictionary explains ‘merger’ as the combination of
‘commercial or industrial firms’ or ‘to lose identity by being absorbed in
something else.’
8 According to the Transfer of Property Act, 1882 a merger occurs when two
estates held in the same legal right become united in the same person. A merger in
respect of mortgage arises commonly (i) by mortgages; and (iii) By the purchaser
of the equity of redemption redeeming the mortgagee.9 5 Oxford Dictionary,
2003, Pg.564
6 Encyclopedia Britannica Inc. 1999-2002, Pg. 463, Link Merger
7 Aiyar P. Ragmantha, Concise Law Dictionary, 1997, Pg.173 8 Webster’s
Dictionary as quoted in Amalgamation 9The Transfer of Property Act,
1882, Section 101.
Although the term ‘amalgamation’ has been used in the Companies Act and not
defined, there is no reference at all to term ‘merger’ in the Companies Act either.
Weinberg, who entitled the second edition of his book ‘Takeovers and
Amalgamations’, had sought to change the title of the third editions of his book to
‘Takeovers and Mergers’ and therein defines ‘merger’ along the same line as
‘amalgamation’ by saying “...an arrangement whereby the assets of two companies
become vested in or under the control of one company (which may or may not be

8
one of the original companies) which has its two shareholders all or substantially
all the shareholders of the two companies”10. To Gower, like an amalgamation,
under a merger two or more companies are merged either de-jure by consolidation
of their undertakings or de-facto by the acquisition of a controlling interest in the
share
capital of one by the other or of the capital of both by a new company11
.
Not only this eminent scholars and practitioners have given different meaning to
merger. According to J.C.Verma merger is a combination of two or more
companies into a single company where one survives and the other loses its
corporate existence.
The survivor acquires the assets as well as the liability of the merged company or .
Generally the buyer company survives and the seller company extinguishes, losing
its identity. That means merger is the fusion of two or more existing firms or
companies. All the assets, liabilities and stocks of one companystand transferred to
the transferee company in the consideration of payment in theform of equity shares
of the transferee company or debentures or cash or a mix ofthe two or three modes.
Another view was given by J.F.Weston. He defined merger as a transaction that
forms one economic unit from two or more previous ones12 According to Section
6 of Monopolies and Merger Act, 1965 (United Kingdom)13 merger means “two
enterprises by or under the control of a corporate body ceasing to be distinct
enterprises”. P.S.Sudarsanam explains that in a merger the
10 Weinberg, Takeovers & Mergers, Third Edition, Pg.9
11 Gower, Principles of Modern Company Law, Third Edition, Pg.615
12 J. Fred Weston, Merger and Corporate Control, 1997, Pg.4 13 Section 6 of
Monopolies and Mergers Act, 1965 (UK) corporations come together to
combine and share their resources to achieve common objectives. The
shareholders of the combining firms often remain as joint owners of the
combined entity. James I Wittenbach and Matt M Starvich have given an
illustration thereby explaining the concept of a merger. According to them,
mergers occur when one firm acquires the assets of another firm, with the
acquiring firm being dissolved. A merger may be illustrated by the formula ‘X +
Y =X’ where the

9
Y firm is absorbed by the X firm and is dissolved. A similar view is given by
Sudarshan Lal considering mergers as a fusion of two companies.
Amalgamation
Nowhere in the Companies Act is the term amalgamation defined. It is said to be a
term of art without any clear or precise legal meaning.
However Halsbury has attempted a definition which reads,
“Amalgamation is the blending of two or more existing undertaking into one
undertaking with the shareholder of each blending company becoming
substantially the shareholders in the company which is to carry on the blended
undertakings”14. Weinberg defines ‘Amalgamation’ in his book on the Takeovers
and Amalgamations 2nd edition as, “...an arrangement whereby the assets of two
companies become vested in or under the control of one company (which may or
may not be one of the original companies) which has its two shareholders all or
substantially all the shareholders of the two companies.” In essence “under a
merger two or more companies are merged either de-jure by consolidation of their
undertakings or de-facto by the acquisition of a controlling interest in the share
capital of one by the other or of the capital of both by a new company.” This is the
view of Gower.
According to Mitra’s Legal and Commercial Dictionary the term
‘amalgamation’means merger16.
14 Halsbury Laws, Third Edition, Vol. 6, Pg.764
15 Gower, Principles of Modern Company Law, Third edition, Pg. 61 16 Mitra’s
Legal and Commercial Dictionary as quoted. According to Webster’s
Dictionary ‘amalgamation’ means to compound, consolidate or combine the
interest of firms.
Oxford Economic Papers defines amalgamation as uniting of two companies, the
shareholders in each unit emerging as shareholders in the resultant organization.
The companies are often of similar size. Thus, the success of the consumer
cooperative movement depends upon the extent to which the smaller units are
amalgamated with similar neighbouring primary consumers stores to secure the
benefits of economics of scale and provide diversified services to cater to the tastes
and needs of

10
consumers.17
According to the Concise Law Dictionary it means merging of two or more
business concerns into one.
The English Oxford Dictionary defines amalgamation as combining to form a new
corporate or structure.
“There may be amalgamations either by the transfer of two or more undertakings
to a new company or by the transfer of two or more undertakings to an existing
company”
18. The meaning of the term given in Section 2 (1B) of Income Tax Act, 1961
which has peculiar characteristics to be found in a transaction to be covered under
the definition due to a) vesting of all properties of amalgamating company in the
company, b) vesting of all liabilities of amalgamating company in the
amalgamated company and c) the shareholder of the amalgamating company
holding not less that 90% of the shares should become shareholders of the
amalgamated company19.
In Heavy Head and co-Vs. Roprer Holdings Ltd., it is stated that, “The effect of an
arrangement would be one of the companies involved to absorb the business and
all
17 Acquisition Objectives and Policies, Oxford Economic Papers, Vol.49, No.3,
July 1997.
18 Magnus & Estrin, Companies – Law and Practice, Fourteenth Edition, Pg. 216
19 Section 2(1B) Income Tax Act, 1961,
7 assets and liabilities of the other, the latter being then dissolved, or
alternatively, both companies might be absorbed into a new company formed for
that purpose.20
Not only this the Andhra Pradesh High Court held in S.S. Somajulu vs. Hope
Pradhomme and Co,21 that “the word amalgamation has no definite legal meaning.
It contemplates a state of things under which tow companies are so joined as to
form a third entity or one company is absorbed or blended with another company.
Amalgamation doesn’t involve a formation of new company to carry on the
business of old company.”

11
According to S.C. Sen the term amalgamation which is used in relation to
companies has no technical meaning and thus falls on one or other of the following
heads (a)
Transfer of undertaking of an existing company to another existing company, of
which all the members of the transferring company become members, and the
subsequent dissolution of the transferring company. (b) The transfer of
undertaking of two or more existing companies to a new company formed to
takeover the same, of which all the members of the transferring company become
or have the right to become members, and the subsequent dissolution of
transferring company. (c) the acquisition by one company of the whole of or a
controlling interest in the shares of another company. S.Shiva Ramu has given
similar definition for the merger/amalgamation. He defines in amalgamation a new
corporation is created by uniting companies voluntarily.
According to Brookfields Lawyers Commercial Tax an amalgamation involves the
blending of business of one company with the business of one or more companies
to form an amalgamated company. Shareholders of each blending company
become the shareholders in the amalgamated company. The result of amalgamation
is that each of the amalgamated company ceases to exist. If company ‘A’
amalgamates with company ‘B’ and Company ‘A’ is the amalgamated company,
company ‘A’ survives and company ‘B’ doesn’t. Alternatively, it might be
desirable to establish a new company. Company ‘C’, to be the amalgamated
(surviving) company to which the
20 Hooper vs. Western Countries and South Western Telephone Co., 41 WR 84
(PC).
21 (1963) 2 Comp. LJ 61(AP)
8 business of company ‘A’ and company ‘B’ are to be transferred. In that case both
companies ‘A’ and ‘B’ would strike off and ceases to exist.22 Their business
wouldcontinue to operate through company ‘C’.After all these definitions a new
question arises. Are amalgamations and mergers synonymous?
Very often, the two expressions “Merger” and “amalgamation” are taken as
synonymous but in fact, a difference, merger is a restricted to a case where the
assets and liabilities of the companies get vested in another company, the company
which is merged losing its identity and its shareholders becoming shareholders of

12
other company. On the other hand, amalgamation is an arrangement, whereby the
assets and liabilities of two or more companies become vested in another company
(Which may or may not be one of the original companies) and which would have
as its shareholders substantially, all the shareholder of the amalgamating
companies.
It is submitted that they are not. Merger is the whole of which amalgamations is a
part. “When companies coalesce or firms unite in some form the result is variously
described as an ‘absorption’, ‘amalgamation’, ‘fusion’, ‘merger’, or
‘takeover’.Although the word amalgamation is commonly used by businessmen,
of recent, the word ‘merger’ has been preferred because it covers a wide range of
ways and means by which the union is achieved”23.
To Weston24 merger covers ‘acquisitions’, ‘absorptions’,
‘amalgamations’ and ‘combinations’. There for the reader is advised that the term
merger used in this and subsequent chapters includes amalgamations in absence of
specific reference of the term amalgamation. Mergers or amalgamations result in
the combination of two or more companies into one, wherein the merging entities
lose their identities. No fresh investment is made through this process.
However an exchange of shares takes place between the
22 Brookfields Lawyers, Tax Issues Merger and Acquisition, Brookfields
Lawyers-Commercial/Tax, 2002, Pg.57.
23 Ronald W Moon, Business – Mergers and Takeovers, 24 JF Weston, Role
of Mergers in Growth of Large Firms, , Pg.5 entities involved in such a process.
Generally, the company that survives is the buyer which retains its identity and
the seller company is extinguished.
A merger can also be defined as an amalgamation if all assets and liabilities of one
company are transferred to the transferee company in consideration of payment in
the form of equity shares of the transferee company or debentures or cash or a mix
of above modes of payment.

Chapter 2 : Research methodology

13
1. Introduction
Following the financial changes in India in the post – 1991 period, there is aperceivable
patterns among promoters and built up corporate gatherings towards union of piece of the
overall industry and expansion into new zones through obtaining takeover of organizations yet
in a more articulated way through mergers or amalgamations1 . Under the Companies Act
2013, the idea of merger and amalgamation is completely clarified though under organizations
Act 1956, the term 'merger' isn't characterized and furthermore under the Income Tax Act,
1961. The merger is a mix of at least two substances into one, it isn't only the gathering of
advantages and liabilities of the particular elements, yet the association of element into one
business. Focal Government issued notice for authorisation of areas identified with merger and
amalgamation on seventh November 2016. Despite the fact that significant changes have been
joined in the new demonstration yet at the same time there are sure arrangements which stay
unaltered, for example, pre-condition to merger and amalgamation of tolerating plan by three-
fourths of investors is as yet a pre-condition under the new demonstration. Focal government
still has the ability to arrange merger and amalgamation in light of a legitimate concern for the
country. There is additionally a commitment to keep up records of merger and amalgamation
under area 239. There are some different arrangements which stay unaltered identified with
gathering gatherings, getting the authorisation of administrative specialists and focal
government. Application recorded in connection to the reproduction of the organization under
segment 230 for trade off and course of action or which includes merger or amalgamation of at
least two organizations need to indicate the motivation behind the plan

Aim of the Study

The aim of the study is used to know about the amalgamation and merger of the company.
Hypothesis HO
The common reason in increase merge is sustain growth, It couldn’t be achieved by increasing
market share and gaining access to additional customer. HA The common reason in increase
merge is sustain growth, It could be achieved by increasing market share and gaining access to
additional customer. 2. Objective
• To know about the procedure for merger and Amalgamation under companies act 2013.
• To understand the process of terms mergers and Amalgamation.

1 Jain ., Khan ., Financial Management ., published by Springer ., on 2007., in India.

International Journal of Pure and Applied Mathematics Special Issue 736

14
• To analysis the concept of merger and Amalgamation of the company •
To achieve growth of the company

4. Research Question
Whether the mergers and amalgamation is that it provides productive platform
for the company to grow under Companies act 2013 with comparison to Income
tax act 1961 ?
5. Methodology
In this research the researcher used the descriptive method.
Descriptive
Research More simply put, descriptive research is all about describing people
who take part in the study. There are three ways a researcher can go about doing a
descriptive research project, and they are: Observational, defined as a method of
viewing and recording the participants.
6. Sources of Study
Various books, e-sources and journals are used for the study related to
amalgamation and merger of the company.
7. Limitation
• The research has been limited to only referring to online sources and books.
• The topic is very vast with limited time.

Chpater 3: Review of Literature

15
It is the shareholders who have created it and they can bring it to a close. The
other means by which a company can cease its identity is by merging with another
company. This is called merger. Alternately, two companies can join to form a
new company. This is called amalgamation( Author : Khan Jain , 2007) Following
the economic reforms in India in the post- 1991 period, there is a discernible trend
among promoters and established corporate groups towardsconsolidation of
market share and diversification into new (Author : Machiraju. H.R, 2007)
Business combinations, corporate restructuring and corporate reorganizations are
terms used to cover mergers, acquisitions, amalgamations and takeovers. They are
critical to the healthy expansion of business firms as they evolve through
successive stages of growth and development( Author: Prasanna Chandra,2010) he
central government is provided with an opportunityto have a say in the matter of
amalgamations of companies before the scheme of amalgamation is approved The
law relating to mergers also explicitly prescribed that any merger or amalgamation
which increased concentration of asset ownership(Author :
Godbole Prasad .G, 2006) Amalgamation, however, doesn't involve formation of a
new company to carry on the business of an old company. As per Companies Act,
2013, legislation that facilitates amalgamation in India,10 the terms merger and
amalgamation are synonymous and not defined anywhere in the Act. Sections 390-
396A of Companies ( Author:
Beena.P.L,2011) This section summarises the important and relevant tax
provisions applicable to amalgamations, acquisitions, mergers and demergers .
Tax Aspects Related to Amalgamation/Mergers Amalgamation for the purposes of
income tax is recognised(Author: Ray Ghosh kamal , 2014) Thus, corporate
restructuring can take different forms like mergers, acquisitions, spinoffs or
divestitures in order to increase a firm's value. However, according to Section 2
(IB) of the Income Tax Act, "an amalgamation means the merger of one or more
companies with another company or the merger of two or more (Author:
Rajasekhar,2010) As co-operative banks are under dual control, with both the
RBI and the RCS (Registrar of Co-operative Societies) for merger to take place the
RBI must issue a no- objection certificate (NOC) to RCS. Amalgamation and
mergers of co-operative banks falls under the purview (Author : Pradeep

16
Mehta.S,2008) Mergers and Amalgamation Concentration of economic power
may result from merger, amalgamation or take -over. The MRTP Act does not
prohibit merger, amalgamation or take-over, but seeks to ensure(Author:
Orithazzan,2016) Nature and Significance Business combinations, corporate
restructuring and corporate reorganizations are terms used to cover mergers,
acquisitions, amalgamations and takeovers. They are critical to the healthy
expansion of business firms as they evolve through successive stages of
growth(Author: S.petitt Barbara, 2007) The least contentious, perhaps, is that
legislated municipal amalgamation is not a new policy, in the United States at
International Journal of Pure and Applied Mathematics Special Issue
737 least. Much else about the lessons from Philadelphia's story would likely be
subject to heated dispute. Without focusing on Philadelphia, the aims of this
report are to explore the history of municipal ( Author: Eric Barr.J,2009)

Chapter 4: Analysis of Data

1. Meaning Of Corporate Amalgamation

Recently the news about two of the best banks in India having recognition I in their
won fields namely Allahabad Bank in northern India and the Indian bank in
southern India merger is in news. The newly merged entity plans to start its
operations from 1 April 2020. This raises questions “WHY DO THEY DO SO”?
HOW DO THEY BENEFIT FROM IT? Etc. Let’s delve into the deeper aspects of
Mergers and Acquisitions and the reason behind their increase in India.

17
The Indian economy has been growing at a rapid pace and has been emerging at
the top, be it IT, RandD, pharmaceutical, infrastructure, energy, consumer retail,
telecom, financial services, media, and hospitality etc. It is the second-
fastestgrowing economy in the world with GDP touching 9.3 % last year. This
growth momentum was supported by the double-digit growth of the services
sector at 10.6% and industry at 9.7% in the first quarter of 2006-07. Investors, big
companies, industrial houses view Indian market in a growing and proliferating
phase, whereby returns on capital and the shareholder returns are high. Both the
inbound and outbound mergers and acquisitions have increased dramatically. One
of the first overseas acquisitions by an Indian company in 2007 was Mahindra and
Mahindra’s takeover of 90 percent stake in Schoneweiss, a family-owned German
company with over 140 years of experience in forging business. Also,
Tata’s takeover of Corus for slightly over $10 billion.
On the heels of that deal, Hutchison Whampoa of Hong Kong sold its controlling
stake in Hutchison-Essar to Vodafone for a whopping $11.1 billion.
Bangalorebased MTR’s packaged food division found a buyer in Orkla, a
Norwegian company for $100 million. Service companies have also joined the
MandA game.
Mergers or amalgamation, are the result in the combination of two or more
companies into one, wherein the merging entities lose their identities. No fresh
investment is made through this process. However, an exchange of shares takes
place between the entities involved in such a process. Generally, the company that
survives is the buyer which retains its identity and the seller company is
extinguished.
Corporate Mergers

2. What Do You Understand By Mergers?

Mergers and acquisitions (M&A) is a general term used to describe the
consolidation of companies or assets through various types of financial
transactions, including mergers, acquisitions, consolidations, tender offers,

18
purchase of assets and management acquisitions. The term M&A also refers to the
desks at financial institutions that deal with such activity. Mergers, acquisitions,
and takeovers have been a part of the business world for centuries. In today’s
dynamic economic environment, companies are often faced with decisions
concerning these actions – after all, the job of management is to maximize
shareholder value. Through mergers and acquisitions, a company can (at least in
theory) develop a competitive advantage and ultimately increase shareholder value.

In simple terms, A merger involves the mutual decision of two companies to

combine and become one entity; it can be seen as a decision made by two “equals”,
whereas an acquisition or takeover, on the other hand, is characterized the purchase
of a smaller company by a much larger one.

The concept of merger and acquisition in India was not popular until the year 1988.
During that period a very small percentage of businesses in the country used to
come together, mostly into a friendly acquisition with a negotiated deal. The key
factor contributing to fewer companies involved in the merger is the regulatory and
prohibitory provisions of the MRTP Act, 1969. According to this Act, a company
or a firm has to follow a pressurized and burdensome procedure to get approval for
mergers and acquisitions.

The year 1988 witnessed one of the oldest business acquisitions or company
mergers in India. It is the well-known ineffective unfriendly takeover bid by
Swaraj Paul to overpower DCM Ltd. and Escorts Ltd.

This combination of “unequal” can produce the same benefits as a merger, but it
does not necessarily have to be a mutual decision. A typical merger, in other
words, involves two relatively equal companies, which combine to become one
legal entity with the goal of producing a company that is worth more than the sum
of its parts.

19
In a merger of two corporations, the shareholders usually have their shares in the
old company exchanged for an equal number of shares in the merged entity. In an
acquisition, the acquiring firm usually offers a cash price per share to the target
firm’s shareholders or the acquiring firm’s share’s to the shareholders of the target
firm according to a specified conversion ratio. Either way, the purchasing company
essentially finances the purchase of the target company, buying it outright for its
shareholders.

3. Difference between Merger and Acquisition

Both the terms “Merger and acquisition” are often known to be a single
terminology defined as a process of combining two or more companies together.
However, fact remains that the so-called single terminologies are different terms
used under different situations. Though there is a thin line difference between the
two but the impact of the kind of completely different in both the cases.

Merger is considered to be a process when two or more companies come together

to expand their business operations. In such a case the deal gets finalized on
friendly terms and both the companies share equal profits in the newly created
entity. When one company takes over the other and rules all its business
operations, it is known as acquisitions.
In this process of restructuring, one company overpowers the other company and
the decision is mainly taken during downturns in the economy or during declining
profit margins. Among the two, the one that is financially stronger and bigger in all
ways establishes it power. The combined operations then run under the name of the
powerful entity who also takes over the existing stocks of the other company.
Another difference is, in an acquisition usually two companies of different sizes
come together to combat the challenges of the downturn and in a merger two
companies of the same size combine to increase their strength and financial gains
along with breaking the trade barriers.

20
A deal in case of acquisition is often done in an unfriendly manner, it is more or
less a forceful or a helpless association where the power company either swallows
the operation or a company in loss is forced to sell its entity. In the case of a
merger, there is a friendly association where both the partners hold the same
percentage of ownership and equal profit share.
It’s a well-known fact that a good number of mergers fail because of various
factors including cultural differences and flawed intentions. Most companies when
sign an agreement often get a create a bigger picture of their expectations as they
believe in the pure concept of higher capital gains when two are combining
together. This belief is not always true as conditions in the market and economy
often rule the operation and functioning of any company.
There are many factors contributing to the failure and elements that are problems
of mergers and acquisitions. There are many aspects that should be understood and
analyzed before signing an agreement because even one small mistake in taking a
decision can completely dump both the companies with an irreversible impact.

1.2 Reasons For Failures Of Amalgamation:

(1) A flawed intention in terms of unethical motivation or high expectations can

eventually lead to failure of the merger. If any company desires high capital gain
along with glory and fame irrespective of the corporate strategy defined to fulfill
the requirements of the company, the merger fails.

(2) Any kind of agreement based completely on the optimistic stock market
condition can also lead to failure as the stock market is an uncertain entity. In such
cases more risks are involved with the prevailing merger.

(3) Cultural difference is also a big problem in the case of a merger. When two
companies from different corporate cultures come together it becomes a really

21
challenging task to integrate the cultures of both the companies. It is certainly
difficult to maintain the difference and move ahead for success with

1.3 Bank Mergers and Acquisitions: A Common Phenomenon

Mergers and acquisitions in the banking sector are a common phenomenon across
the world, especially in banks and NBFC’S. The primary objective behind this
move is to attain growth at the strategic level in terms of size and customer base.
This, in turn, increases the credit-creation capacity of the merged bank
tremendously. Small banks fearing aggressive acquisition by a large bank
sometimes enter into a merger to increase their market share and protect
themselves from the possible acquisition.
Banks also prefer mergers and acquisitions to reap the benefits of economies of
scale through the reduction of costs and maximization of both economic and
noneconomic benefits. This is a vertical type of merger because all banks are in the
same line of business of collecting and mobilizing funds. In some instances, other
financial institutions prefer merging with a bank in case they provide a similar type
of banking service.
Another important factor is the elimination of competition between the banks. This
way a considerable amount of funds earlier used for sustaining competition can be
channelized to grow the banking business. Sometimes, a bank with a large bad debt
portfolio and poor revenue will merge itself with another bank to seek support for
survival. However, such types of mergers are accompanied by retrenchment and a
drastic change in the organizational structure.
Consolidating the business also makes the bank robust enough to sustain itself in
the ever-changing business environment. They find it easier to adapt quickly and
grow in the domestic and international financial markets.
Amalgamations Provisions Income Tax Act 1961
A merger of companies is typically conducted through a scheme of arrangement
under Chapter XV and SECTIONS 230-240 requires the approval of the High

22
Court. In order for a merger to be tax neutral, it must satisfy specific criteria and
qualify as an Amalgamation under the ITA. These criteria are in addition to the
requirements under the Companies Act.
Hence, an Amalgamation must necessarily be conducted under a scheme of
arrangement approved by the High Court.

The ITA 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.
For the purpose of the ITA, the merging company is referred to as the
“amalgamating company” and the company into which it merges or which is
formed as the result of the merger is referred to as the “amalgamated company”.
An Amalgamation must satisfy the following criteria:
1. All the properties and liabilities of the amalgamating company must become
the properties and liabilities of the amalgamated company by virtue of the
Amalgamation; and

2. Shareholders holding at least 3/4th in value of the shares in the amalgamating

company (not including shares held by a nominee or a subsidiary of the
amalgamated company) become shareholders of the amalgamated company by
virtue of the Amalgamation.

It is only when a merger satisfies all the above conditions, that the merger will be
considered as an Amalgamation for the purposes of the ITA.
Where a merger qualifies as an Amalgamation, subject to fulfilling certain
additional criteria, the Amalgamation may be regarded as tax neutral and exempt
from capital gains tax.
At least 25% of the shareholders of the amalgamating company continue to remain
shareholders of the amalgamated company. Hence, shareholders of an
amalgamating company holding 3/4th in value of shares who become shareholders

23
of the amalgamated company must constitute at least 25% of the total number of
shareholders of the amalgamated company.
Such transfer does not attract capital gains tax in the amalgamating company’s
country of incorporation.
3. Transfer of shares in a foreign company in an amalgamation between two
foreign companies, where such transfer results in an indirect transfer of Indian
shares.3 The criteria to be satisfied to avail of this exemption are the same as
above.

4. Transfer of shares by the shareholders of the amalgamating company in

consideration for allotment of shares in the amalgamated company is not regarded
as transfer for capital gains purpose. This exemption is available if the
amalgamated company is an Indian company.

For such shareholders, the cost of acquisition of shares of the amalgamated

company will be deemed as the cost at which the shares other amalgamating
companies were acquired by the shareholder.

Types of Corporate Amalgamation

From the perception of business organizations, there is a whole host of different
mergers. However, from an economist point of view i.e. based on the relationship
between the two merging companies, mergers are classified into the following:

(1) Horizontal merger- Two companies that are in direct competition and share
the same product lines and markets i.e. it results in the consolidation of firms that
are direct rivals. E.g. Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls
Royce and Lamborghini

24
(2) Vertical merger- A customer and company or a supplier and company i.e.
merger of firms that have actual or potential buyer-seller relationship eg. Ford-
Bendix, Time Warner-TBS.

(3) Conglomerate merger- Generally a merger between companies that do not

have any common business areas or no common relationship of any kind.
Consolidated firm may sell related products or share marketing and distribution
channels or production processes. Such kind of merger may be broadly classified
into the following:

(4) Product-extension merger – Conglomerate mergers which involves

companies selling different but related products in the same market or sell
noncompeting products and use the same marketing channels of the production
process. E.g. Phillip Morris-Kraft, Pepsico- Pizza Hut, Proctor and Gamble and
Clorox.

(5) Market-extension merger – Conglomerate mergers wherein companies that

sell the same products in different markets/ geographic markets. E.g. Morrison
supermarkets and Safeway, Time Warner-TCI.

(6) Pure Conglomerate merger- two companies which merge have no obvious
relationship of any kind. E.g. BankCorp of America- Hughes Electronics.

On a general analysis, it can be concluded that Horizontal mergers eliminate sellers

and hence reshape the market structure i.e. they have a direct impact on seller
concentration whereas vertical and conglomerate mergers do not affect market
structures e.g. the seller concentration directly. They do not have anti-competitive
consequences.

25
The circumstances and reasons for every merger are different and these
circumstances impact the way the deal is dealt, approached, managed and
executed. .However, the success of mergers depends on how well the deal makers
can integrate two companies while maintaining day-to-day operations.
Each deal has its own flips which are influenced by various extraneous factors such
as human capital component and the leadership. Much of it depends on the
company’s leadership and the ability to retain people who are key to the company
‘s ongoing success.
It is important, that both the parties should be clear in their mind as to the motive
of such acquisition i.e. there should be census- ad- idiom. Profits, intellectual
property, customer base are peripheral or central to the acquiring company, the
motive will determine the risk profile of such mergers. Generally, before the onset
of any deal, due diligence is conducted so as to gauze the risks involved, the
quantum of assets and liabilities that are acquired.
8. Legal Procedure For Corporate Mergers:
The Ministry of Corporate Affairs, Government of India, vide notification dated
14th December 2016 has issued rules i.e. the Companies (Compromises,
Arrangements, and Amalgamations) Rules,
2016 under Chapter XV of the act which came into effect from 15th December
2016 after which all compromises, arrangements, and mergers shall have to be
carried out in accordance with the Companies Act 2013 (essentially Sections 230,
231 and 232) and the Companies (Compromises, Arrangements, and
Amalgamations) Rules, 2016.
Following mentioned is the procedure to merge two corporate entities:

1. Board Meeting: At first, the company shall convene a board meeting where it is
resolved to amalgamate with another company.

2. 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:

26
3. Draft :

(i) Notice of admission in Form No. NCLT-2 along with following documents:

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

(iii) A copy of the 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 percent 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

27
(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.

It shall be noted that the two companies may at their discretion make a joint
application. The Tribunal may on such an 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.
v) 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 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;

28
(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

subsection (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.

(ii) 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.

29
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;

30
(g) Summary of the main object as per the memorandum of association; and main
business carried on by the company;

(h) Details of the 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 authorized, 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 favor 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

31
(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) The 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;

32
(f) Creditors;

(g) Debenture holders;

(h) Deposit trustee and debenture trustee;

(i) Employees of the company:

(vi) Disclosure about the 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 an 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;

33
(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 of Management believes

necessary and relevant for making a 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.

iii) 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.

iv). 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

34
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 the 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

vi) 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.

vii) 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 the majority of persons representing threefourths
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.

35
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.
vii) 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.

viii) Date and a 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.

ix) 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.

36
(2) 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 a certified copy of the
order.

(3) 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.

(4) 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. 9) Merger and amalgamation of
a company with a foreign company: The merger and amalgamation of a company
with a foreign company shall be effective upon-

(a) Sanction of the scheme by the Tribunal in India in accordance with the Act
and these Rules; and

(b) Sanction of the scheme by the relevant adjudicating and regulatory authorities
of the notified countries having jurisdiction over the other companies who are party
to such scheme, in accordance with the law applicable to sanction of such schemes
in those countries, if applicable.

Thus, merger or amalgamation of a domestic company into a foreign company, or

vice versa, shall comply in all respects with the Foreign Exchange Management
Act, 1999 and any applicable regulations thereunder, including any amendments or
clarifications thereto, and any other applicable laws (including the applicable law
in the relevant jurisdiction), including with respect to the obtaining of any
approvals required for the purposes of giving effect to the International Journal of

37
Pure and Applied Mathematics Special Issue 200 merger or amalgamation
d) For the purposes of this rule, a “company‟ means a company as defined under
section 2(30) of the Act and a „foreign company‟ means a company or a body
corporate as defined under section 2(42) of the Act, incorporated outside India in
jurisdictions as may be notified by the Central Government from time to time for
the purpose of section 234 (Levi 2007).

9. Benefits Of Corporate Mergers:

Corporate mergers bring lots of benefits for the business concerned. The basic
reason behind mergers and acquisitions is that organizations merge and form a
single entity to achieve economies of scale, widen their reach, acquire strategic
skills, and gain competitive advantage. In simple terminology, mergers are
considered as an important tool by companies for the purpose of expanding their
operation and increasing their profits, which in the façade depends on the kind of
companies being merged.

The general advantage behind mergers and acquisitions is that it provides a

productive platform for the companies to grow, though much of it depends on the
way the deal is implemented. It is a way to increase market penetration in a
particular area with the help of an established base. As per Mr. D.S Brar (former
C.E.O of Ranbaxy pharmaceuticals), few reasons for the formation of Manda’s are:

1) Access to new markets

2) Maintaining growth momentum

3) Acquiring visibility and international brands

4) Buying cutting edge technology rather than importing it

38
5) Taking on global competition

6) Improving operating margins and efficiencies

7) Developing new product mixes

Accounting for Amalgamations

Introduction
1. This standard deals with accounting for amalgamations and the treatment of
any resultant goodwill or reserves. This standard is directed principally to
companies although some of its requirements also apply to financial statements of
other enterprises.

Accounting for Amalgamations

(This Accounting Standard includes paragraphs set in bold italic type and plain
type, which have equal authority. Paragraphs in bold italic type indicate the main
principles. This Accounting Standard should be read in the context of the General
Instructions contained in part A of the Annexure to the Notification.)
Introduction
1. This standard deals with accounting for amalgamations and the treatment of
any resultant goodwill or reserves. This standard is directed principally to
companies although some of its requirements also apply to financial
statements of other enterprises.
2. This standard does not deal with cases of acquisitions which arise when there
is a purchase by one company (referred to as the acquiring company) of the
whole or part of the shares, or the whole or part of the assets, of another

39
 company (referred to as the acquired company) in consideration for payment
in cash or by issue of shares or other securities in the acquiring company or
partly in one form and partly in the other. The distinguishing feature of an
acquisition is that the acquired company is not dissolved and its separate
entity continues to exist.
Definitions
3. The following terms are used in this standard with the meanings specified:
(a) Amalgamation means an amalgamation pursuant to the provisions of the
Companies Act, 1956 or any other statute which may be applicable to companies.
(b) Transferor company means the company which is amalgamated into another
company. Accounting for Amalgamations 147
(c) Transferee company means the company into which a transferor company is
amalgamated.
(d) Reserve means the portion of earnings, receipts or othersurplus of an
enterprise (whether capital or revenue) appropriated by the management for a
general or a specific purpose other than a provision for depreciation or diminution
in the value of assets or for a known liability.
(e) Amalgamation in the nature of merger is an amalgamation which satisfies all
the following conditions.
(i) All the assets and liabilities of the transferor company become, after
amalgamation, the assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares
of the transferor company (other than the equity shares already held therein,
immediately before the amalgamation, by the transferee company or its
subsidiaries or their nominees) become equity shareholders of the transferee
company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity
shareholders of the transferor company who agree to become equity shareholders
of the transferee company is discharged by the transferee company wholly by the

40
issue of equity shares in the transferee company, except that cash may be paid in
respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.

v) No adjustment is intended to be made to the book values of the assets and

liabilities of the transferor company when they are incorporated in the financial
statements of the transferee company except to ensure uniformity of
accounting policies.
148 AS 14
(f) Amalgamation in the nature of purchase is an amalgamation which does
not satisfy any one or more of the conditions specified in sub-paragraph (e)
above.
(g) Consideration for the amalgamation means the aggregate of the shares and
other securities issued and the payment made in the form of cash or other assets
by the transferee company to the shareholders of the transferor company. (h)
Fair value is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s
length transaction.
(i) Pooling of interests is a method of accounting for amalgamations the object
of which is to account for the amalgamation as if the separate businesses of the
amalgamating companies were intended to be continued by the transferee
company. Accordingly, only minimal changes are made in aggregating the
individual financial statements of the amalgamating companies

Types of Amalgamations

41
4. Generally speaking, amalgamations fall into two broad categories. In the first
category are those amalgamations where there is a genuine pooling not merely of
the assets and liabilities of the amalgamating companies but also of the
shareholders’ interests and of the businesses of these companies. Such
amalgamations are amalgamations which are in the nature of ‘merger’ and the
accounting treatment of such amalgamations should ensure that the resultant
figures of assets, liabilities, capital and reserves more or less represent the sum of
the relevant figures of the amalgamating companies.

In the second category are those amalgamations which are in effect a mode by
which one company acquires another company and, as a consequence, the
shareholders of the company which is acquired normally do not continue to have a
proportionate share in the equity of the combined company, or the business of the
company which is acquired is not intended to be continued. Such amalgamations
are amalgamations in

5. An amalgamation is classified as an ‘amalgamation in the nature of

Accounting for Amalgamations 149 merger’ when all the conditions listed in
paragraph 3(e) are satisfied. There are, however, differing views regarding the
nature of any further conditionsthat may apply. Some believe that, in addition to an
exchange of equity shares, it is necessary that the shareholders of the transferor
company obtain a substantial share in the transferee company even to the extent
that it should not be possible to identify any one party as dominant therein. This
belief is based in part on the view that the exchange of control of one company for
an insignificant share in a larger company does not amount to a mutual sharing of
risks and benefits.
6. Others believe that the substance of an amalgamation in the nature of merger
is evidenced by meeting certain criteria regarding the relationship of the parties,
such as the former independence of the amalgamating companies, the manner of
their amalgamation, the absence of planned transactions that would undermine the

42
effect of the amalgamation, and the continuing participation by the management of
the transferor company in the management of the transferee company after the
amalgamation.

Methods of Accounting for Amalgamations

There are two main methods of accounting for amalgamations:
(a) the pooling of interests method; and (b) the purchase
method.
The use of the pooling of interests method is confined to circumstances which meet
the criteria referred to in paragraph 3(e) for an amalgamation in the nature of
merger.
The object of the purchase method is to account for the amalgamation by applying
the same principles as are applied in the normal purchase of assets. This method is
used in accounting for amalgamations in the nature of purchase. Pooling of
Interests Method
10. Under the pooling of interests method, the assets, liabilities and reserves of
the transferor company are recorded by the transferee company at their existing
carrying amounts (after making the adjustments required in paragraph 11). 150 AS
14
11. If, at the time of the amalgamation, the transferor and the transferee
companies have conflicting accounting policies, a uniform set of accounting
policies is adopted following the amalgamation. The effects on the financial
statements of any changes in accounting policies are reported in accordance with
Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items
and Changes in Accounting Policies.

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The Purchase Method
12. Under the purchase method, the transferee company accounts for the
amalgamation either by incorporating the assets and liabilities at their existing
carrying amounts or by allocating the consideration to individual identifiable assets
and liabilities of the transferor company on the basis of their fair values at the date
of amalgamation. The identifiable assets and liabilities may include assets and
liabilities not recorded in the financial statements of the transferor company.
13. Where assets and liabilities are restated on the basis of their fair values, the
determination of fair values may be influenced by the intentions of the transferee
company. For example, the transferee company may have a specialised use for an
asset, which is not available to other potential buyers. The transferee company may
intend to effect changes in the activities of the transferor company which
necessitate the creation of specific provisions for the expected costs, e.g. planned
employee termination and plant relocation costs.

Consideration
14. The consideration for the amalgamation may consist of securities, cash or
other assets. In determining the value of the consideration, an assessment is made
of the fair value of its elements. A variety of techniques is applied in arriving at fair
value. For example, when the consideration includes securities, the value fixed by
the statutory authorities may be taken to be the fair value. In case of other assets,
the fair value may be determined by reference to the market value of the assets
given up. Where the market value of the assets given up cannot be reliably
assessed, such assets may be valued at their respective net book values.
15. Many amalgamations recognise that adjustments may have to be made to the
consideration in the light of one or more future events. When the additional
payment is probable and can reasonably be estimated at the date
Accounting for Amalgamations 151 of amalgamation, it is included in the
calculation of the consideration. In allother cases, the adjustment is recognised as

44
soon as the amount is determinable [see Accounting Standard (AS) 4,
Contingencies and Events Occurring After the Balance Sheet Date].

Treatment of Reserves on Amalgamation

16. If the amalgamation is an ‘amalgamation in the nature of merger’, the identity
of the reserves is preserved and they appear in the financial statements of the
transferee company in the same form in which they appeared in the financial
statements of the transferor company. Thus, for
example, the General Reserve of the transferor company becomes the General
Reserve of the transferee company, the Capital Reserve of the transferor company
becomes the Capital Reserve of the transferee company and the Revaluation
Reserve of the transferor company becomes the Revaluation Reserve of the
transferee company. As a result of preserving the identity, reserves which are
available for distribution as dividend before the amalgamation would also be
available for distribution as dividend after the amalgamation. The difference
between the amount recorded as share capital issued (plus any additional
consideration in the form of cash or other assets) and the amount of share capital of
the transferor company is adjusted 17. If the amalgamation is an ‘amalgamation in
the nature of purchase’, the identity of the reserves, other than the statutory
reserves dealt with in paragraph 18, is not preserved. The amount of the
consideration is deducted from the value of the net assets of the transferor company
acquired by the transferee company. If the result of the computation is negative, the
difference is debited to goodwill arising on amalgamation and dealt with in the
manner stated in paragraphs 19-20. If the result of the computation is positive, the
difference is credited to Capital Reserve.
18. Certain reserves may have been created by the transferor company pursuant to
the requirements of, or to avail of the benefits under, the Income-tax Act, 1961; for
example, Development Allowance Reserve, or Investment Allowance Reserve. The
Act requires that the identity of the reserves should be preserved for a specified
period. Likewise, certain other reserves may have been created in the financial
statements of the transferor company in terms of the requirements of other statutes.
Though, normally, in an amalgamation in the nature of purchase, the identity of

45
reserves is not preserved, an exception is made in respect of reserves of the
aforesaid
152 AS 14nature (referred to hereinafter as ‘statutory reserves’) and such reserves
retain their identity in the financial statements of the transferee company in the
same form in which they appeared in the financial statements of the transferor
company, so long as their identity is required to be maintained to comply with the
relevant statute. This exception is made only in those amalgamations where the
requirements of the relevant statute for recording the statutory reserves in the
books of the transferee company are complied with. In such cases the statutory
reserves are recorded in the financial statements of the transferee company by a
corresponding debit to a suitable account head (e.g., ‘Amalgamation Adjustment
Account’) which is disclosed as a part of ‘miscellaneous expenditure’ or other
similar category in the balance sheet. When the identity of the statutory reserves is
no longerrequired to be maintained, both the reserves and the aforesaid account are
reversed.
Treatment of Goodwill Arising on Amalgamation
19. Goodwill arising on amalgamation represents a payment made in
anticipation of future income and it is appropriate to treat it as an asset to be
amortised to income on a systematic basis over its useful life. Due to the nature of
goodwill, it is frequently difficult to estimate its useful life with reasonable
certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is
considered appropriate to amortise goodwill over a period not exceeding five
years unless a somewhat longer period can be justified.
20. Factors which may be considered in estimating the useful life of goodwill
arising on amalgamation include: (a) the foreseeable life of the business or
industry;

(b) the effects of product obsolescence, changes in demand and other economic
factors;
(c) the service life expectancies of key individuals or groups of employees;

46
(d) expected actions by competitors or potential competitors; and
(e) legal, regulatory or contractual provisions affecting the useful life.

Accounting for Amalgamations 153

Balance of Profit and Loss Account
21. In the case of an ‘amalgamation in the nature of merger’, the balance of the
Profit and Loss Account appearing in the financial statements of the transferor
company is aggregated with the corresponding balance appearing in
the financial statements of the transferee company. Alternatively, it is transferred
to the General Reserve, if any.
22. In the case of an ‘amalgamation in the nature of purchase’, the balance of
the Profit and Loss Account appearing in the financial statements of the
transferor company, whether debit or credit, loses its identity.

Treatment of Reserves Specified in A Scheme of Amalgamation

23. The scheme of amalgamation sanctioned under the provisions of the
Companies Act, 1956 or any other statute may prescribe the treatment to be given
to the reserves of the transferor company after its amalgamation. Where the
treatment is so prescribed, the same is followed. In some cases, the scheme of
amalgamation sanctioned under a statute may prescribe a different treatment to be
given to the reserves of the transferor company after amalgamation as compared to
the requirements of this Standard that would have been followed had no treatment
been prescribed by the scheme. In such cases, the following disclosures are made
in the
First financial statements following the amalgamation:

47
(a) A description of the accounting treatment given to the reserves and the reasons
for following the treatment different from that prescribed in this Standard.
(b) Deviations in the accounting treatment given to the reserves as prescribed by the
scheme of amalgamation sanctioned under the statute as compared to the
requirements of this Standard that would have been followed had no treatment
been prescribed by the scheme.
(c) The financial effect, if any, arising due to such deviation.

Amalgamation after the Balance Sheet Date

When an amalgamation is effected after the balance sheet date but before the
issuance of the financial statements of either party to the amalgamation, disclosure
should be made in accordance with AS 4, ‘Contingencies and Events Occurring
After the Balance Sheet Date’, but the amalgamation should not be incorporated in
the financial statements. In certain circumstances, the amalgamation may also
provide additional information affecting the financial statements

Main Principles of Amalgamation

An amalgamation may be either –

a) an amalgamation in the nature of merger, or (b) an

amalgamation in the nature of purchase.

48
An amalgamation should be considered to be an amalgamation in the nature of merger when all
the following conditions are satisfied:

(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.

(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately before the
amalgamation, by the transferee company or its subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the amalgamation.

(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.

(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.

(v) No adjustment is intended to be made to the book values of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies. 30. An amalgamation should be
considered to be an amalgamation in the nature of purchase, when any one or more of the
conditions specified in paragraph 29 is not satisfied. 156 AS 14 31. When an amalgamation is
considered to be an amalgamation in the nature of merger, it should be accounted for under the
pooling of interests method described in paragraphs 33–35. 32. When an amalgamation is
considered to be an amalgamation in the nature of purchase, it should be accounted for under
the purchase method described in paragraphs 36– 39.

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Chapter 5 : Conclusion

In real terms, the rationale behind mergers and acquisitions is that the two
companies become more valuable, profitable, better equipped in its operations
rather than standing solely in the market and that the shareholder value is also over
and above that of the sum of the two companies.

Despite receiving resistance from the economists, Manda’s continues to be an

important tool behind growth of a company. The biggest reason being, the
expansion is not limited by internal resources, no drain on working capital can use
the exchange of stocks, is attractive with tax benefits and above all can consolidate
industry – increase firm’s market power.
With the FDI policies getting more liberalized, Mergers& Acquisitions talks are
heating up in India and are growing with an ever-increasing cadence. They are no
more limited to just one particular type of business. The list of past and anticipated
mergers covers every size and a variety of business mergers are on the increase
over the whole marketplace, providing platforms for the small companies being
acquired by bigger ones.
Since the last few years, Indian markets have witnessed a burgeoning trend in
mergers between domestic as well as foreign companies which may be due to
business consolidation by large industrial houses, consolidation of business by
multinationals operating in India, increasing competition against imports and
acquisition activities.
For eg. Merger of IDFC bank & Capital First(NBFC), domestic deals like
Penta homes acquiring Agro Dutch Industries, ACC taking over Encore Cement
and Addictive, Dalmia Cement acquiring Orissa Cement,
Edelweiss Capital acquiring Anagram Capital. ICICI Bank’s acquisition of Bank
of Rajasthan at out Rs 3000 Crore is a great move by ICICI to enhance its market
share across the Indian boundaries especially in northern and western regions.

50
One of the initial international mergers was namely between Tata Chemicals and
British salt based in the UK with a deal of US $ 13 billion.
This is one of the most successful recent mergers and acquisitions in 2010 that
made Tata even more powerful with strong access to British Salt’s facilities that
are known to produce about 800,000 tons of pure white salt annually.
Last year, on 30 Aug 2019, the Finance minister Mrs. Nirmala Sitharaman
announced the four major banks are coming merged together by consolidating
Punjab National Bank, Oriental Bank of Commerce and United Bank to create
India’s second-largest lender; merging Canara bank with Syndicate bank to create
the fourth-largest
PSU lender, bringing together Union Bank of India, Andhra Bank, and Corporation
Bank and Allahabad Bank with Indian bank After the merger, the number of
India’s public sector banks drops to 12 from 27 earlier.
Thus, corporate mergers are a good option to eradicate deficiencies within a single
organization and combining resources and fighting the global competition in a
better way, also joining hands together brings better energies and ideas together for
the ultimate goal of boosting the growth of the Indian economy.

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Chapter 6: References

[1] Jain ., Khan ., Financial Management ., published by Springer ., on 2007., in

India.
[2] Roger., Undy ., Trade union merger strategies., published by Emerald
Group Publishing ., on 2008 ., in USA .
[3] Chandra., Prasanna., Fund of Financial Management ., published by
Kluwer Law International., on 2010., in Sweden. [4] Godbole., Prasad .G.,
Merger and Amalgamation and Corporate restricting ., published by Universal
law on 2006 ., in England . [5] Beena.P.L., Merger and acquisition under
globalisation ., published by PHI Learning , Pvt ltd ., on 2011., in London. [6]
Ghosh., kamal., Ray ., Evaluating companies for mergers and acquisitions .,
published by PHI Learning , Pvt ltd ., on 2014.,in India.
[7] Rajasekhar ., Corporate accounting ., published by Kluwer Law International.,
on 2010., in NewDelhi.
[8] Machiraju. H.R. , Mergers Acquisition and Takeovers ., published by Kluwer
Law International.,on 2007 ., in Harayana.
[9] Mehta., Pradeep.S., A functional competition policy for India., published by
pentagon press on 2008., in India.
[10] Orithazzan ., The merger model for business Development., published by
little brown on 2016.,in USA.
[11] Barbara., S.petitt., Valuation for merger and acquisition ., published by
Springer ., on 2007., in London.

52
[12] Barr.J., Eric., Valuing Pass., published by little brown on 2009.,in USA.
[13] Law Regulating mergers and Amalgamation by Prabhanshu., in India.
[14] Merger and Amalgamation under companies act 2013 by Jyoti
Rawat
[15] Changing contours of mergers and Amalgamation under companies act 2013
by Anup Kaushik.
[16] https://www.researchgate.net/publication/258769054AStudy_on_
Mergers_and_Acquisitions_-_Its_impact onManagement_and_Employees.

[17] http://www.theinternationaljournal.org/ojs/index.php.

[18] http://shodhganga.inflibnet.ac.in/handle/10603/7210

International Journal of Pure and Applied Mathematics Special Issue 745

[19] https://www.dissertationserviceuk.com/files.

[20] https://www.emeraldinsight.com/doi/pdf/

[21] http://innovativejournal.in/jbme/index.php/jbme/article

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 THANK YOU !!!

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