A merger is a complicated transaction, involving fairly complex legal considerations. While evaluating a merger proposal, one should bear in mind the following legal provisions.
Sections 391 to 394 of the Companies Act, 1956 contain the provisions for amalgamations. The procedure for merger or amalgamation normally involves the following steps:
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- Examination of object Clauses: The memorandum of association of both the companies should be examined to check if the power to amalgamate is available. Further, the object clause of the amalgamated company (transferee company) should permit it to carry on the business of the amalgamating company (transferor company). If such clauses do not exists, necessary approvals of the shareholders, boards of directors and Company Law Board are required.
- Intimation to stock Exchanges: The stock exchanges where the amalgamated and amalgamating companies are listed should be informed about the amalgamation proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the concerned stock exchanges.
- Approval of the draft amalgamation proposal by the Respective Boards: The draft amalgamation proposal should be approved by the respective boards of directors. The board of each company should pass a resolution authorizing its directors/executives to pursue the matter further.
- Application to the National Company Law Tribunal (NCLT): Once the draft of amalgamation proposal is approved by the respective boards, each company should make an application to the NCLT so that it can convene the meetings of shareholders and creditors for passing the amalgamation proposal.
- Dispatch of notice to shareholders and creditors: In order to convene the meeting of shareholders and creditors, a notice and an explanatory statement of the meeting, as approved by the NCLT, should be dispatched by each company to its shareholders and creditors so that they get 21 days advance intimation. The notice of the meetings should also be published in two newspapers (one English and one vernacular). An affidavit confirming that the notice has been dispatched to the shareholders/creditors and that the same has been published in newspapers should be filed with the NCLT.
- Holding of Meetings of shareholders and creditors: A meeting of shareholders should be held by each company for passing the scheme of amalgamation. At least 75 percent (in value) of shareholders in each class, who vote either in person or by proxy, must approve the scheme of amalgamation. Likewise, in a separate meeting, the creditors of the company must approve of the amalgamation scheme.
- Petition to the NCLT for confirmation and passing of NCLT orders: Once the amalgamation scheme is passed by the shareholders and creditors, the companies involved in the amalgamation should present a petition to the NCLT for confirming the scheme of amalgamation. The NCLT will fix a date of hearing. A notice about the same has to be published in two newspapers. After hearing the parties the parties concerned ascertaining that the amalgamation scheme is fair and reasonable, the NCLT will pass an order sanctioning the same. However, the NCLT is empowered to modify the scheme and pass orders accordingly.
- Filing the order with the Registrar: Certified true copies of the NCLT order must be filed with the Registrar of Companies within the time limit specified by the NCLT.
- Transfer of Assets and Liabilities: After the final orders have been passed by the NCLT, all the assets and liabilities of the amalgamating company will, with effect from the appointed date, have to be transferred to the amalgamated company.
- Issue of shares and debentures: The amalgamated company, after fulfilling the provisions of the law, should issue shares and debentures of the amalgamated company. The new shares and debentures so issued will then be listed on the stock exchange.