Compromises, Amalgamation and Arrangement
MERGER
A merger means the combination of two or more companies into a single entity, where one company absorbs the other(s).
The merging company (called the transferor company) ceases to exist.
The surviving company (called the transferee company) continues with its name and identity.
The assets, liabilities, and business of the transferor company are taken over by the transferee company.
ACQUISITION
An acquisition (also called a takeover) happens when one company purchases controlling interest or majority shares of another company.
The acquired company continues to exist as a separate legal entity, but is controlled by the acquiring company.
The acquirer gains ownership and control over the target company’s management and operations.
AMALGAMATION
An amalgamation is a blending of two or more companies to form a completely new company.
Both (or all) the existing companies cease to exist.
Their assets, liabilities, and operations are transferred to the newly formed entity.
It’s usually done to achieve synergy, efficiency, or business expansion.
DIFFERENCE BETWEEN A MERGER AND, ACQUISITION AND AMALGAMATION
A merger is a process where two or more companies combine to form a single entity.
It is generally done with mutual consent, with the goal of achieving growth, synergy, and efficiency.
After a merger, one company usually continues to exist while the other ceases to operate as a separate legal entity.
The control, assets, and liabilities of the merging companies are unified, and the resulting company carries forward the combined business operations.
An acquisition, on the other hand, occurs when one company purchases and takes control of another company.
The acquiring company becomes the owner and gains control over the management, assets, and operations of the target company.
Unlike a merger, both companies may continue to exist separately.
The acquired company often becomes a subsidiary or division of the acquiring company.
Acquisitions can be friendly, where both parties agree to the deal, or hostile, where the acquiring company takes control without the consent of the target company’s management.
An amalgamation is a more complete form of combination where two or more companies dissolve to create an entirely new company.
In this case, both (or all) existing companies lose their separate legal identities, and a new company is formed to take over their assets, liabilities, and business operations.
COMPROMISE
A compromise is essentially a settlement between the company and its creditors or members, where both sides agree to adjust their rights to resolve a dispute, debt, or claim.
It usually arises when there is a conflict or financial difficulty, and the parties agree to give up something.
For example, creditors accepting part payment or extended repayment.
A compromise always involves mutual concessions, meaning the company offers certain benefits (like repayment terms), and creditors or members agree to relax their demands.
It is used to avoid litigation or insolvency, allowing the company to continue its operations while satisfying stakeholders in a fair manner.
A compromise is narrower in scope, as it deals mainly with settling disputes or liabilities, and not with broader restructuring.
ARRANGEMENT
An arrangement refers to any court-approved restructuring or reorganisation of a company’s affairs, and it is intentionally defined very broadly under Section 230 so that companies can use it as a flexible tool to reorganise their business, capital structure, or stakeholder rights.
An arrangement can include:
Changes in share capital.
Modification of debt obligations.
Reorganisation of business units.
Consolidation of different classes of shares.
Restructuring of management rights within the company.
An arrangement does not depend on the existence of a dispute, default, or financial distress.
Even a financially sound company may propose an arrangement purely for strategic reasons such as expansion, operational efficiency, tax optimisation, simplification of corporate structure, or regulatory alignment.
Typical arrangements include:
Mergers.
Amalgamations.
Demergers.
Slump sales through a scheme.
Capital reduction combined with share re-classification.
Conversion of loans into equity, all of which require approval of members/creditors and sanction by the NCLT.
An arrangement often involves the:
Adjustment or alteration of legal rights or obligations of members, creditors, or other stakeholders.
Adjustment or alteration can include:
Changing dividend rights.
Modifying voting rights.
Reorganising preference share terms.
Altering repayment schedules of lenders.
The purpose of an arrangement is to allow the company to restructure in a smooth, collective, and binding way, so that once the scheme is approved by the majority and sanctioned by the Tribunal, it becomes binding on all members and creditors even those who dissent.
Arrangements can also involve:
Restructuring of shareholding patterns.
Buyback of shares as part of the scheme.
Cancellation of shares held by specific groups.
Issuance of shares to new investors or promoters to change control in a regulated and court-approved manner.
Section 230. Power to compromise or make arrangements with creditors and members
230(1).
Whenever a compromise or arrangement is proposed:
(a). Between a company and its creditors or any class of creditors, or
(b). Between a company and its members or any class of members.
An application for a scheme of compromise or arrangement can be made to the Tribunal (NCLT) by the company itself.
An application can also be made by any creditor, any member.
Under the circumstances a company is being wound up the application can be made by the liquidator appointed under the Companies Act or the Insolvency and Bankruptcy Code, 2016.
Once such an application is filed, the Tribunal has the power to order that a meeting be convened, ensuring that the proposed scheme is considered by those stakeholders who will be affected by it.
The Tribunal may direct a meeting of creditors, or a particular class of creditors, depending on who is impacted by the scheme, so that their consent can be obtained in a structured and lawful manner.
Similarly, the Tribunal may order a meeting of members or a specific class of members, especially when the scheme involves changes in share capital, rights, or ownership.
The Tribunal also has authority to decide how these meetings should be called, held, and conducted, including procedural rules, notice requirements, voting methods, quorum, and any other conditions necessary to ensure fairness and transparency.
Explanation
The term arrangement also includes reorganisation of share capital, such as:
Consolidation of shares of different classes into one class.
Division of shares into different classes, or both.
230(2).
The company or person applying under 230(1) must disclose all material facts about the company to the Tribunal through an affidavit.
These disclosures include:
(a). The latest financial position of the company.
(b). The latest auditor’s report on the company’s accounts.
(c). Details of any ongoing investigation or legal proceedings against the company.
(d). Information about any reduction of share capital, if that reduction forms part of the compromise or arrangement.
(e). If the proposal includes a corporate debt restructuring (CDR) scheme approved by at least 75% of secured creditors (by value), the following additional documents must be attached:
A creditor’s responsibility statement in the prescribed form.
Safeguards for protecting other secured and unsecured creditors.
A report by the auditor confirming that the company’s post-restructuring financial position will meet liquidity requirements based on the Board’s estimates.
A statement that the company has chosen to follow the Reserve Bank of India’s CDR (Corporate Debt Restructuring) guidelines, if applicable.
A valuation report prepared by a registered valuer for the company’s shares, properties, and all assets—both tangible and intangible, movable and immovable.
230(3).
When the Tribunal orders a meeting under 230(1), a notice of that meeting must be sent to:
All creditors or classes of creditors.
All members or classes of members.
Debenture-holders of the company, at their addresses registered with the company.
This notice must be accompanied by:
A statement explaining the details of the compromise or arrangement,
A copy of the valuation report (if any),
An explanation of how the compromise or arrangement will affect creditors, key managerial personnel, promoters, non-promoter members, and debenture-holders,
The effect on any material interests of directors or debenture trustees, and
Any other prescribed matters.
The notice and documents must also be published and shared online:
They must be uploaded on the company’s website (if one exists).
If it is a listed company, the documents must be sent to the Securities and Exchange Board of India (SEBI) and the stock exchanges where its securities are listed so that they can be displayed on their respective websites.
The company must also publish the notice in newspapers as prescribed.
Additionally, when the meeting notice is published through an advertisement, it must specify the time limit within which any concerned person can obtain a free copy of the proposed compromise or arrangement from the company’s registered office.
230(4).
The notice must clearly state that the persons receiving it can vote on the proposed compromise or arrangement:
Either in person.
Through a proxy.
By postal ballot, within one month from the date they receive the notice.
However, only certain persons are allowed to object to the proposal. An objection can be raised only by:
Members holding at least 10% of the shareholding.
Creditors having outstanding debt of not less than 5% of the company’s total outstanding debt (based on the latest audited financial statement).
230(5).
A copy of the notice and all related documents must also be sent to several regulatory and government authorities, including:
The Central Government,
The Income-Tax Department,
The Reserve Bank of India (RBI),
The Securities and Exchange Board of India (SEBI),
The Registrar of Companies (ROC),
The Stock Exchanges,
The Official Liquidator,
The Competition Commission of India (CCI), and
Any other sectoral regulators or authorities likely to be affected by the compromise or arrangement.
These authorities have 30 days from the date of receiving the notice to make their representations or objections.
If no response is received within that period, it is presumed that they have no objections to the proposal.
230(6).
When a meeting is called under the Tribunal’s directions, the proposed compromise or arrangement must be approved by a majority in number representing three-fourths in value of the concerned creditors or members, or their respective classes.
After this majority approval, the scheme is placed before the Tribunal.
If the Tribunal is satisfied about the fairness and legality of the proposal, it sanctions the compromise or arrangement by a formal order.
Once sanctioned, the scheme becomes binding on the company.
Now the company is legally obligated to implement the terms of the compromise or arrangement as approved.
The order also binds:
All creditors or the specific class of creditors.
All members or the relevant class of members, even if some of them dissented or did not participate in the meeting.
In the case of a company being wound up, the scheme further becomes binding on the liquidator and all contributories.
230(7).
The Tribunal’s order may give specific directions when preference shares are being converted into equity.
Preference shareholders must be given an option.
They can choose to receive their arrears of dividend in cash.
They can choose to accept equity shares of equivalent value instead.
The Tribunal may add specific safeguards for any class of creditors while sanctioning the scheme.
If the scheme proposes any alteration of shareholders’ rights, such changes must be reviewed carefully by the Tribunal.
The Tribunal must ensure that the alteration complies with Section 48 of the Companies Act.
Section 48 governs the process and conditions for variation of shareholders’ rights, so the scheme must satisfy all these legal requirements before approval.
If the compromise or arrangement is approved by the creditors, it gains priority over earlier restructuring proceedings.
Any pending proceedings before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 automatically come to an end.
This prevents overlap or conflict between different restructuring processes.
The scheme can then take effect smoothly, without being blocked or delayed by older BIFR proceedings.
The Tribunal may add any other provisions it considers necessary for proper implementation of the scheme.
This can include directing the company to provide an exit offer to dissenting shareholders.
It may also include any additional measures needed to ensure fair and effective execution of the scheme.
The company must file a certificate from its auditor along with the scheme.
The certificate must confirm that the accounting treatment in the scheme complies with accounting standards prescribed under Section 133 of the Companies Act.
230(8).
After receiving the Tribunal’s order, the company must file a copy of the order with the Registrar of Companies (ROC) within 30 days of receiving it.
230(9).
The Tribunal can waive the requirement of holding a creditors’ meeting in certain situations.
This waiver is allowed when creditors holding at least 90% in value of the total debt agree to the proposed scheme.
These creditors must give their consent through an affidavit.
Once this condition is met, the Tribunal may dispense with the formal creditors’ meeting, allowing the scheme to proceed smoothly.
230(10).
No compromise or arrangement that involves a buy-back of securities shall be sanctioned unless the buy-back is in full compliance with Section 68 of the Companies Act, 2013.
230(11).
A scheme of compromise or arrangement may also include a takeover offer, provided it follows the prescribed manner.
However, in the case of listed companies, such takeover offers must comply with the SEBI Takeover Regulations.
230(12).
If any person is aggrieved by the takeover offer of a company that is not listed, they may apply to the Tribunal.
The Tribunal has the authority to hear such grievances and issue appropriate orders as it deems fit.
Explanation:
A clarification is provided to avoid any doubt regarding the applicability of Section 66.
Section 66, which governs reduction of share capital, does not apply when the reduction is done as part of a scheme under this section.
If the Tribunal orders a reduction of share capital within a compromise or arrangement, that reduction is valid without following the separate Section 66 procedure.
Section 231. Power to the Tribunal to enforce a compromise or arrangement
231(1).
The Tribunal’s involvement continues even after it approves a compromise or arrangement under Section 230.
The law gives the Tribunal ongoing authority to monitor and control how the scheme is carried out, so that it is not misused or improperly implemented.
Under clause (a):
The Tribunal has the power to supervise the actual implementation of the scheme.
Tt can check whether the company is following every term of the approved plan, making payments to creditors or members as promised, and completing all restructuring steps exactly as the scheme requires.
Under clause (b):
The Tribunal may issue additional directions or make changes to the scheme.
It can do this either at the time of sanctioning the scheme or at any later point if the need arises.
These additional directions or modifications can relate to any aspect of the scheme, giving the Tribunal flexibility to fix practical problems, clarify steps, or adjust parts of the plan to ensure it works smoothly.
If practical difficulties arise during implementation such as valuation issues, procedural mistakes, or changed financial conditions:
The Tribunal can intervene to resolve them.
It may issue corrective directions.
It may also modify specific parts of the scheme to ensure proper and fair execution.
231(2).
The Tribunal supervises the implementation of the sanctioned scheme.
During this supervision, it may find that the scheme cannot be carried out effectively.
This may be true even after considering or allowing possible modifications to the scheme.
The Tribunal may also note that the company is unable to pay its debts as required under the scheme.
If both these conditions exist, the Tribunal has the power to order that the company be wound up.
When the Tribunal orders winding up in this situation
That order is treated the same as a winding-up order under Section 273.
Section 273 contains the legal rules and procedure for winding up by the Tribunal.
So, the winding-up process will follow all the requirements and consequences laid down in Section 273.
If the scheme fails or the company defaults in following it then:
The Tribunal can intervene and order the company to be wound up.
Winding up ensures that the company’s assets are properly liquidated.
The proceeds are then distributed fairly among creditors, members, and other stakeholders.
231(3).
Section 231 applies not only to schemes sanctioned under the 2013 Act.
It also applies, as far as possible, to companies with schemes approved before the Companies Act, 2013 came into force.
Section 232. Merger and amalgamation of companies
232(1).
When an application is made to the Tribunal (NCLT) under Section 230 to approve a compromise or arrangement, and if:
It is shown that such arrangement involves a reconstruction, merger, or amalgamation of two or more companies, then:
The Tribunal may order meetings of creditors or members to be held.
This applies where the assets or liabilities of one company (transferor company) are to be transferred to another company (transferee company), or are to be divided among two or more companies.
The manner in which these meetings are conducted will follow the same procedure as in Section 230(3)–(6).
232(2).
Once the Tribunal orders the meeting, the merging companies (or companies to be divided) must circulate the following documents to members and creditors:
(a) Draft Scheme: The proposed terms of merger or amalgamation as approved by the directors.
(b) Confirmation of filing: A confirmation that a copy of this draft scheme has been filed with the Registrar of Companies (ROC).
(c) Director’s Report: A report by the directors of each merging company explaining the effect of the merger on each class of shareholders, key managerial personnel, promoters, and non-promoter shareholders. It must include the share exchange ratio and mention any special valuation difficulties.
(d) Valuation Report: A report from an independent expert, if any, concerning valuation of shares or assets.
(e) Supplementary Accounting Statement: If the last annual accounts of any merging company are older than six months from the date of the meeting, a fresh accounting statement must be circulated.
232(3).
After the Tribunal is satisfied that all the above procedures have been properly followed, it may sanction the compromise or arrangement.
It can also make further orders to provide for the following matters:
(a) Transfer of Assets and Liabilities:
The transferor company’s property or liabilities shall be transferred to the transferee company from a date agreed by the parties.
This date can be changed by the Tribunal if decided so by recording reasons for the same.
(b) Issue of Shares/Debentures:
The transferee company may allot or appropriate shares, debentures, or other instruments to persons entitled under the scheme.
The transferee company cannot, as a result of the merger, hold its own shares directly or indirectly.
Such shares must be cancelled or extinguished.
(c) Legal Proceedings:
Any legal proceedings pending by or against the transferor company will continue by or against the transferee company.
(d) Dissolution without winding up:
The transferor company shall be dissolved automatically without going through the winding-up process.
(e) Dissenting Persons:
Provision shall be made for shareholders or creditors who disagree with the scheme, in the manner and within the time directed by the Tribunal.
(f) Non-Resident Shareholders:
If some shares are held by non-resident shareholders under FDI rules, the transferee company must allot shares to them as directed by the Tribunal.
This allotment must comply with all Government and RBI regulations related to foreign investment.
(g) Transfer of Employees:
All employees of the transferor company shall be transferred to the transferee company.
(h) Listed and Unlisted Company Cases:
(A). If the transferor company is listed and the transferee company is unlisted, the transferee will remain unlisted until it becomes listed according to the law.
(B). If any shareholder of the transferor company does not want to be part of the unlisted transferee company, they must be given the option to exit by receiving payment for their shares. The payment must be made at a pre-determined price or after a valuation, and cannot be less than the amount specified by SEBI regulations.
(i) Adjustment of Fees:
When the transferor company is dissolved, the registration fee it had already paid on its authorised capital can be used as a set-off.
This set-off reduces the registration fee payable by the transferee company on its increased authorised capital after the amalgamation.
(j) Supplementary Matters:
The Tribunal can include any incidental, consequential, or supplementary matters needed to ensure that the merger or amalgamation is fully and effectively carried out.
The Tribunal will not sanction any scheme unless the company’s auditor certifies that the accounting treatment proposed in the scheme follows the accounting standards prescribed under Section 133.
232(4).
When the Tribunal orders the transfer of any property or liabilities, such transfer automatically takes effect by law.
The property becomes the property of the transferee company, and the liabilities become its liabilities.
The Tribunal may also order that the transferred property be freed from any existing charge or encumbrance that ceases to have effect after the transfer.
232(5).
Every company involved in the scheme must file a certified copy of the Tribunal’s order with the Registrar of Companies within 30 days from the date of receiving the certified copy.
232(6).
The scheme must clearly specify an appointed date,
The scheme will be effective from that date and not from any later date.
232(7).
Until the scheme is fully completed, every company covered by the order must file an annual statement with the Registrar.
This statement, certified by a chartered accountant, cost accountant, or company secretary in practice, must confirm whether the company is complying with the Tribunal’s orders and the scheme.
232(8).
If a company fails to file the Tribunal’s order 232(5):
The company and every officer in default shall be liable to a penalty of ₹20,000.
If the failure continues, a further penalty of ₹1,000 per day shall apply after the first day, up to a maximum of ₹3,00,000.
Explanation:
(i).
Merger by Absorption:
In a merger by absorption, one or more companies transfer all their assets, liabilities, and business operations to an existing company.
The transferring company (or companies) generally gets dissolved, and its shareholders receive shares of the existing company as per the merger terms.
The existing company continues to operate but now owns the combined businesses.
Merger by Formation of a New Company:
In this type of merger, two or more companies combine and transfer their undertakings, assets, and liabilities to a newly created company.
The original companies typically dissolve after the transfer, and their shareholders receive shares in the new company.
The newly formed company then carries on the combined operations of all merging entities.
(ii).
The term “merging companies” refers to:
In a merger by absorption - The transferor and transferee companies.
In a merger by formation - The transferor companies.
(iii).
A division happens when a single company splits its business into parts.
Its undertaking, assets, and liabilities are divided into separate portions.
These portions are then transferred to two or more companies.
The receiving companies may be existing companies or newly created companies.
(iv).
Property includes assets, rights, and interests of every description.
Liabilities include debts and obligations of every kind.
Section 233. Merger or amalgamation of certain companies
233(1).
Despite Sections 230 and 232, a simplified merger process is allowed in certain cases.
It applies to mergers between two or more small companies.
It also applies to a merger between a holding company and its wholly-owned subsidiary.
It can also apply to any other class of companies that may be prescribed by law.
This simplified process is available only if certain conditions are met.
(a).
The transferor and transferee companies must issue a notice of the proposed scheme to invite objections or suggestions from the Registrar of Companies (ROC), Official Liquidator (OL), and any person affected by the scheme within 30 days.
(b).
The companies must consider all such objections or suggestions in their general meetings.
The scheme should be approved by members holding at least 90% of the total number of shares.
(c).
Each company involved in the merger must file a declaration of solvency (in the prescribed form) with the Registrar of the place where its registered office is located.
(d).
The scheme must be approved by creditors representing at least 90% in value, either in a meeting called with 21 days’ notice or through written consent.
232(2).
After approval, the transferee company must file a copy of the scheme with the Central Government, Registrar, and Official Liquidator.
232(3).
If neither the ROC nor the OL has objections or suggestions, the Central Government shall register and confirm the scheme.
232(4).
If there are any objections or suggestions, the ROC or OL must communicate them to the Central Government within 30 days.
If no communication is received within this period, it is presumed that they have no objections.
232(5).
If the Central Government believes the scheme is not in public interest or against the interests of creditors, it may, within 60 days, refer the matter to the Tribunal (NCLT) for consideration under Section 232.
232(6).
The Tribunal, upon receiving the application, may either direct the scheme to follow the normal procedure under Section 232 confirm the scheme if it finds it proper.
If the Central Government does not object or file any application, the scheme is deemed approved.
232(7).
Once the Tribunal or Central Government confirms the scheme, a copy of the order is sent to the Registrar, who registers and issues confirmation to all concerned parties, including where the transferor companies were situated.
232(8).
The registration of the scheme results in the automatic dissolution of the transferor company without the need for winding up.
232(9).
The registration also brings certain legal effects:
(a). All assets and liabilities of the transferor company automatically become those of the transferee company.
(b). Any charges on the property of the transferor company continue to apply to the transferee company.
(c). Any legal proceedings involving the transferor company continue against the transferee company.
(d). Any payments due to dissenting shareholders or creditors become liabilities of the transferee company.
232(10).
The transferee company cannot hold its own shares (including those held in trust or by subsidiaries) after the merger.
All such shares must be cancelled or extinguished.
232(11).
The transferee company must file an application with the Registrar showing its revised authorised capital and pay the prescribed fees.
However, any fees already paid by the transferor company on its authorised capital will be set off against the new amount.
232(12).
The same procedure applies mutatis mutandis to schemes involving compromise, arrangement, or division of companies covered under this section.
232(13).
The Central Government may prescribe detailed procedures for carrying out such mergers or amalgamations.
232(14).
Lastly, any company eligible under this section may choose to follow the regular merger process under Section 232 instead of the fast-track route.
Section 234. Merger or amalgamation of a company with a foreign company
234(1).
The same rules for mergers and amalgamations in India will also apply to mergers between an Indian company and a foreign company, but with any necessary adjustments.(Mutatis Mutandis)
These rules apply only if they do not conflict with other laws.
So, the general merger procedures and safeguards outlined in Sections 230 to 233 (like approval, filings, and sanction) will apply, but with necessary adjustments to suit cross-border transactions.
However, such mergers are only allowed with companies incorporated in countries or jurisdictions notified by the Central Government.
So , only countries that have proper regulatory and legal systems, & are not on any restricted or blacklisted list, can participate in mergers with Indian entities.
The Central Government is also empowered to frame specific rules in consultation with the Reserve Bank of India (RBI) to regulate such cross-border mergers and ensure compliance with India’s foreign exchange and financial regulations.
234(2).
A foreign company can merge into an Indian company, and an Indian company can merge into a foreign company but only with RBI’s prior approval and subject to laws like FEMA.
The merger scheme can decide how shareholders will be paid, and the payment can be:
In cash.
In Depository Receipts (like ADRs or GDRs).
A mix of cash and Depository Receipts.
Explanation
The term “foreign company” refers to any company or body corporate incorporated outside India, whether or not it has a place of business in India.
Section 235. Power to acquire shares of shareholders dissenting from the scheme or contract approved by the majority
235(1).
A transfer scheme is proposed under which shareholders of the transferor company are offered to sell their shares to a transferee company.
This means that through the transferee makes a formal offer to those shareholders.
When checking whether the 90% acceptance level is reached, you cannot count the shares already owned by the buyer, its subsidiaries, or its nominees.
Only the shares that other shareholders agree to sell are counted toward the 90% requirement.
If within four months of the offer, shareholders holding 90% of the shares involved agree to sell, then the buyer (transferee) gets a legal right to force the remaining shareholders to sell their shares too.
So the buyer can buy out the small group that refused, even if they didn’t agree.
There are two time periods to remember:
A 4-month period to get the required 90% approval from shareholders.
After that, a 2-month period in which the buyer can send notice and complete the buyout of the remaining shareholders.
After the 4-month approval period ends, the buyer has 2 more months to act.
During this time, the buyer can send a notice to the shareholders who did not agree, telling them that it plans to compulsorily acquire their shares.
The buyer’s notice must offer the same price and terms to the dissenting shareholders that were given to the shareholders who agreed earlier.
If the offer starts on Day 0, the buyer has up to Day 120 to get 90% approval.
After that, from Day 121 to Day 180, the buyer can send notices to the remaining shareholders to buy their shares.
235(2).
Once the buyer sends the notice, it must buy the dissenting shareholders’ shares on the same terms as everyone else.
The dissenting shareholder can stop or change this only by applying to the Tribunal within one month of receiving the notice.
If they don’t apply, or if the Tribunal doesn’t interfere, the buyer automatically gets the right to acquire their shares.
235(3).
If no objection is raised by the Tribunal, or if the Tribunal rejects the dissenting shareholder’s application, then after one month, the transferee company must send:
A copy of the notice to the transferor company,
Along with an instrument of transfer executed on behalf of the dissenting shareholder (by a person appointed by the transferor company) and by the transferee company on its own behalf, and
Pay the price or consideration for the shares to the transferor company.
The transferor company must then:
(a) Register the transferee company as the new holder of those shares.
(b) Within one month, inform the dissenting shareholders that their shares have been transferred and the payment received on their behalf.
235(4).
Any money or consideration received by the transferor company for such shares must be kept in a separate bank account.
The company holds this amount in trust for the dissenting shareholders and must pay them within 60 days.
235(5).
For offers that were made before this Act came into force, the law allows some simplified procedures.
These changes mainly make the transfer process easier and remove some of the old technical steps that were required earlier.
Explanation
A “dissenting shareholder” refers to any shareholder who has not agreed to the scheme or refused to transfer their shares under it.
Section 236. Purchase of minority shareholding
236(1).
An acquirer, or any person acting along with the acquirer can become the registered holder of 90% or more of the company’s issued equity share capital.
This majority can be achieved through amalgamation, share exchange, conversion of securities, or any other method,
After acquiring the shares, the acquirer is required to notify the company once this 90% threshold is crossed.
The purpose of this notification is to state their intention to buy out the remaining minority shareholders.
236(2).
The acquirer or the majority shareholders must then offer to purchase the shares held by the minority shareholders at a fair price determined by a registered valuer, following the rules prescribed under this section.
236(3).
Similarly, the minority shareholders also have a right to offer their shares to the majority shareholders, asking them to buy the minority shareholding at the price determined in the same fair valuation manner.
Thus, both majority and minority shareholders have reciprocal rights.
236(4).
The majority shareholders must deposit the total amount payable for acquiring the minority shares in a separate bank account.
This bank account will be operated by the company whose shares are being transferred.
This deposit must remain for at least one year, and the payment must be made to the minority shareholders within 60 days.
If some shareholders fail to collect the payment, the company must continue to make disbursements for up to one year.
236(5).
The company acts as a transfer agent, responsible for receiving and paying the purchase price to minority shareholders.
The company is also responsible for completing the delivery and transfer of shares to the majority shareholder.
236(6).
If a minority shareholder fails to deliver the share certificates within the specified time, their shares are deemed cancelled.
The company will then be authorised to issue new shares in favour of the majority shareholder and make payment to the minority shareholder from the deposit amount.
236(7).
If the majority shareholder has already deposited the payment for minority shareholders who are deceased, untraceable, or whose legal heirs are not recorded, then:
The law preserves the rights of these shareholders or their heirs.
These shareholders or their legal heirs can claim and sell their shares for up to three years,
This three-year period is counted from the date on which the majority acquired 90% or more shareholding.
236(8).
If, after acquiring the minority shareholders’ shares, the majority shareholders later negotiate a higher sale price for their own shares then:
They are required to share the additional compensation they receive.
This extra amount must be shared proportionately with the former minority shareholders.
So that the majority does not unfairly benefit after having earlier compelled the minority to sell at a lower price.
236(9).
Even if the majority shareholder fails to buy all the remaining minority shares as required, the law does not take away the protections given to the minority.
The minority shareholders who are left out will still be protected under this section.
This protection continues even if the company’s shares get delisted, and it also continues even if the one-year deadline or any SEBI-prescribed time limit has passed.
Explanation:
The terms Acquirer and Person acting in concert are as defined under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, meaning a person or group working together to gain control over a company’s shares.
Acquirer
An acquirer is any person or entity that seeks to obtain shares, voting rights, or control of a target company.
They may acquire these directly or indirectly, or even just agree to acquire them in the future.
They can act alone or together with others (persons acting in concert).
Person acting in Concert
Individuals or entities who co-operate with the acquirer to acquire shares, voting rights, or control of a target company.
They share a common objective or purpose of taking over or influencing the target company.
Their actions are coordinated, directly or indirectly (e.g., financing the acquisition, jointly making decisions, supporting the acquirer).
Section 237. Power of the Central Government to provide for the amalgamation of companies in the public interest
237(1).
If the Central Government is satisfied that it is essential in the public interest ) that two or more companies should be merged, it can issue an order in the Official Gazette.
This order will combine those companies into a single company (transferee company), and
The order will specify all the details such as:
The constitution of the new company,
Transfer of property, powers, rights, interests, authorities, and privileges, and
Transfer of liabilities, duties, and obligations.
237(2).
The order may also provide for the continuation of any legal cases or proceedings:
Any case that was pending by or against any of the old (transferor) companies will continue by or against the new (transferee) company.
The Central Government can include any consequential, incidental, or supplemental provisions it thinks are necessary to make the merger effective and smooth.
237(3).
After the amalgamation:
The members and creditors of the transferor company should receive the same or almost the same rights in the transferee company as they had earlier.
This means their shareholding rights, voting power, dividend rights, or creditor interests should not be unfairly reduced.
If their rights or interests become less valuable after the merger, they should not suffer the loss themselves.
In such cases, the law gives them a right to claim compensation for the reduction.
The amount of compensation is not decided by the company itself.
It is assessed by a prescribed authority, meaning an official body appointed by the government to evaluate and determine what compensation is fair.
Once the authority decides the amount, the assessment is published in the Official Gazette so that it becomes an official and publicly notified decision.
The transferee company (the new merged company) must pay the compensation to all affected members or creditors, ensuring that no stakeholder is financially harmed because of the amalgamation.
273(4).
If any person is not satisfied with the compensation decided by the prescribed authority:
They can file an appeal to the National Company Law Tribunal (NCLT) within 30 days from the date the assessment was published in the Official Gazette.
The Tribunal will then review and reassess the compensation amount, and its decision will be final.
273(5).
The Central Government cannot issue such an amalgamation order unless certain steps are followed:
(a) A draft copy of the proposed order must be sent to each of the companies involved.
(b) The time for filing appeals 273(4) must have expired, or if any appeals were filed, they must be finally disposed of.
(c) The Central Government must consider all objections or suggestions received:
From any of the companies,
From shareholders or any class of shareholders, and
From creditors or any class of creditors.
For this, the government will give them at least two months from the date they receive the draft order to send in their objections or suggestions.
he government may then modify the draft order as it deems fit before finalizing it.
273(6).
Once the final order for amalgamation has been made, copies of the order must be laid before both Houses of Parliament (Lok Sabha and Rajya Sabha) as soon as possible.
Section 238. Registration of the offer of schemes involving the transfer of shares
238(1).
Whenever an offer or scheme is made for the transfer of shares from one company to another, certain formalities must be followed:
(a) Proper Information in Circulars
The company making the offer (the transferee company) will issue a circular to the shareholders of the transferor company, explaining the offer and recommending them to accept it.
This circular must include all the required information, presented in the manner prescribed by law (as per rules made under the Act).
(b) Statement on Availability of Funds
The offer must also include a statement from the transferee company, either directly or through its representatives, confirming that it has taken necessary steps to ensure sufficient cash will be available to pay the shareholders if they accept the offer.
(c) Registration with Registrar
Before the circular can be issued to shareholders, it must first be submitted to the Registrar of Companies (ROC) for registration.
No circular can be circulated or issued until it has been registered by the ROC.
The Registrar can refuse to register any circular if:
It does not contain all the required information, or
The information is presented in a way that could create a false impression or mislead shareholders.
The Registrar must:
Record the reasons for refusal in writing, and
Communicate the decision to the parties within 30 days from the date of application.
238(2).
If the Registrar refuses to register the circular:
The company or its directors can appeal to the National Company Law Tribunal (NCLT).
The Tribunal has the authority to review the Registrar’s decision and pass an appropriate order.
238(3).
If a director issues a circular to shareholders without first registering it with the Registrar as required:
That director is liable to a penalty of ₹1,00,000 (one lakh rupees).
Section 239. Preservation of books and papers of amalgamated companies
When a company merges with another or its shares are taken over , the transferor company that is, the company being merged or acquired will have a set of books and papers, which include:
Accounting records,
Statutory registers,
Meeting minutes,
Financial statements, and
Correspondence and documents related to management or operations.
Under Section 239, these books and papers cannot be destroyed, discarded, or disposed of without the prior permission of the Central Government.
Before giving permission to dispose of these records, the Central Government may:
Appoint a person (such as an inspector or examiner) to examine the books and papers and in order to determine whether they contain any evidence of an offence particularly in relation to:
The promotion or formation of the company.
The management of its affairs.
The process of amalgamation or acquisition itself.
Section 240. Liability of officers in respect of offences committed prior to merger, amalgamation
When two or more companies merge, amalgamate, or one company acquires another, the original (transferor) company may cease to exist as a separate legal entity.
However, Section 240 makes it clear that this does not erase the personal liability of the officers of that company for any offences committed before the merger.
Even after the merger or acquisition has taken place, if it is found that any officer in default (such as a director, manager, or key managerial personnel) had committed an offence under the Act they can still be held responsible and prosecuted.
