Checklist for Mergers

Factors to be considered

Business restructuring may be achieved by a variety of methods, such as, Merger, Demerger / Spin Off, Slump Sale, Acquisition of Shares, etc. Each method has its own pros and cons and must be selected keeping in mind the objectives to be achieved. While adopting a particular method, the following legal factors, wherever applicable, need to be considered, in addition to the commercial and financial justification:

  • Income-tax impact on the Companies and their share holders, e.g., capital gains on the transfer, set-off of losses and depreciation, transfer of deduction, cost of assets to the Transferee, etc.
  • Stamp duty, e.g., levy, concessions, etc.
  • Companies Act provisions
  • Competition Law provisions
  • SEBI’s prior permission
  • SEBI Takeover Regulations and SEBI DIP Guidelines
  • Listing Agreement provisions and procedural requirements
  • FEMA and FIPB Policies
  • VAT – transfer of Exemption Schemes and tax on the transfer of business
  • Transfer of CENVAT Credit and Excise Registration
  • Transfer of Licences under EPCG (Export Promotion Council Guarantee) Scheme, Project Import Regulations, etc.
  • Transfer of tenancies under Rent Control Laws
  • Labour law implications, e.g., Govt. permission for closure of a unit with more than 100 workers
  • Permissions required under contractual agreements, e.g., lenders, Govt. Ministries in case of infrastructure / telecom projects, etc.
  • Transfer of environmental licences
  • Accounting implications of a particular method

Broad Checklist for Mergers

  • Examine whether a Forward Merger or a Reverse Merger is more beneficial : the factors to be considered are tax benefits, listing, etc.
  • In case of Listed Companies, obtain SEBI’s prior permission
  • Ensure that the Main Objects or the incidental objects of the Memorandum of Association contain the power to amalgamate.
  • Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.
  • Consider whether the merger would be covered under the Competition Act and hence, one which requires the permission of the Competition Commission.
  • Valuation of shares for fixing the Share Exchange Ratio
  • Fairness Report from a Merchant Banker on the Valuation Report in the case of Listed Companies
  • Convene a Board Meeting to approving the Scheme of Amalgamation
  • Obtain the consent/approvals, if any, required prior to the merger
  • Prepare the Scheme of Amalgamation and Explanatory Statement.
  • The Explanatory Statement forwarded must disclose the pre and post-merger capital structure and shareholding pattern
  • File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal.

Listed companies must also submit to the stock exchange, an Auditors’ Certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.

Listed Companies must comply with the requirements of SEBI Cir CFD /DIL/1/2014 which lays down various procedures for obtaining SEBI’s permission. These include, obtaining share holders’ approval through Postal Ballot and eVoting in certain cases, e.g., where the promoters would be issued additional shares under the Scheme, where related parties are involved in the Scheme, etc.

  • Receive the approval of the Stock Exchange and the SEBI
  • Apply to the High Court / National Company Law Tribunal in Form Nos. 33 and 34
  • Send a copy of the Application to the ROC within 30 days
  • Send the Notice (in Form No. 36) convening the General Meeting to every member and creditor as directed by the Court along with the Explanatory Statement and Form of Proxy (in Form No. 37). Ensure that the Notice reaches the member at least 21 days before the date of the GM.
  • If the Court directs give an advertisement of the notice meeting (Form 38)
  • Hold the Meeting and pass Resolutions approving the Scheme. Listed Companies may need Postal Ballot and eVoting as explained above.
  • File the Report of the Meeting’s Chairman (in Form No. 39) with the Court.
  • Prepare a Petition in Form No. 40 for obtaining the Court’s sanction to the Scheme.
  • At least 10 days before the date fixed by the Court for the hearing of the Petition, advertise the date of hearing
  • Obtain the Official Liquidator’s Report
  • Receive the Court’s Order sanctioning the Scheme
  • File a copy of the Order of the Court with the ROC within 30 days from the date of receipt of the Order.
  • Allot the securities to the share holders of the Transferor Company
  • Attach a copy of the Court Order with every copy of the Memorandum and Articles of Association

Merger Scheme

The Merger Scheme / Scheme of Amalgamation must cover the following:

  1. Definitions of important terms such as Appointed Date, Effective Date, Record Date for issue of shares, etc.
  2. Background, capital, history, etc. of the Transferor and Transferee Company
  3. Rationale of the Scheme
  4. Amalgamation of Transferor with Transferee Company and vesting of its undertaking, assets and liabilities in the Transferee Company. Reduction of capital, if any, of the Transferee
  5. Issue of securities, etc. by Transferee to share holders of Transferor, Share Exchange Ratio, Valuation Report, etc.
  6. Increase in Authorised Capital of Transferee, if required
  7. The Date from when the Scheme comes into operation
  8. Accounting Treatment of the amalgamation by the Transferee
  9. All contracts, deeds, bonds, instruments, executed by the Transferor to be binding on and enforceable against the Transferee
  10. All legal proceedings, by or against the Transferor to be binding on and enforceable against the Transferee
  11. Transferee to carry on Transferor’ business until the Effective Date
  12. Applications to relevant High Courts for their approval
  13. All employees of Transferor to become the employees of Transferee
  14. No dividends, bonus, rights, further shares to be issued by either company without prior approval of the other company
  15. The approvals / sanctions upon which the Scheme is conditional and effect of non-receipt of such approvals
  16. Sharing of merger costs and expenses
  17. Change of Board of Directors of Transferee, if any
  18. Dissolution without Winding-Up of Transferor
  19. Change of name and registered office of the Transferee, if applicable

Key Comparison Between Companies Act, 1956 & Companies Act, 2013 – Merger & Amalgamation Perspective

For more then five and a half decades Companies law in India had been governed by Companies Act, 1956. Enactment and introduction of Companies Act, 2013 was a step to rejuvenate the existing corporate legal mechanism in the light of the needs and requirements of the Companies, better governance. In the present article we are dealing with the provisions with regard to the Arrangements, Mergers & Amalgamations; under Companies Act, 2013.


Under Companies Act, 1956 – Section 390-396A.

Under Companies Act, 2013- Section 230-2401

Merger is generally a scheme of arrangement or Compromise between a Company, Shareholders and Creditors , whereas, Amalgamation is defined under section 2(1b) of Income Tax Act, 1961 as a Merger of one or more Companies with another Company or Merger of two or more Companies to form a new Company.


  • Under Companies Act, 1956

Tribunal had Power to sanction any compromise or arrangements with creditors and members if satisfied that company or any other person by whom an application has been made (by way of first motion Petition) has disclosed all material facts relating to company with an affidavit such as latest financial position of the Company, accounts of the company, latest auditor’s report etc. For the compliance part, the notice of meeting was required to be sent along with statement setting forth the terms of the compromise or arrangement and explaining its affect in particular, the statement must state all material interest of directors of the company, whether in their capacity as such or as member or creditors of company or otherwise. The tribunal should also give notice to Central Government (Regional Director and Registrar of Companies) and shall take into consideration the representations, if any, made to it by that government before passing any order. Also, during the same period there was a requirement of newspaper publication and any objections by any of the shareholders, creditors if any, be raised before the Court during the hearing of the second motion Petition. All disclosure provision under 1956 Companies Act has been stated.2

  • Under Companies Act, 2013

The provisions of section 230 of the Companies Act, 2013 provide the additional disclosure if the proposed scheme involves; Reduction of Share Capital or the scheme is of Corporate Debt restructuring; consented not less then 75% in value of secured creditors, Every notice of meeting about scheme to disclose valuation report explaining affection various shareholders. Further, no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133 of the Companies Act, 2013.

As per the provisions of Companies Act, 2013 dealing with the Arrangements; notice of meeting to consider Compromise or arrangement to be given to Central Government, Income Tax Authorities, Reserve Bank, Securities Exchange Board of India, Registrar of Companies, respective Stock Exchange, Official Liquidator, Competition Commission of India and other Authorities likely to be affected by the same.

These Authorities can voice their concern within 30 days of receipt of notice, failing which it will be presumed that they have no objection to the scheme3.


  • Under Companies Act, 1956

As per section 394, Court can sanction arrangement between two or more Companies where whole or part of undertaking, property or liability of any company referred to as transferor Company is to be transferred to another company referred as transferee company. According to the provisions of Companies Act, 1956, Inbound merger (Foreign Company merges into an Indian Company) was permissible however, outbound merger (Indian company cannot merge with foreign Company) was not allowed. According to this section only inbound merger is allowed where transferor/target company means any body corporate whether or not registered under 1956 Act, that a foreign company could be transferor or target company. Transferee Company means an Indian Company. Cross Border merger allowed under 1956 Act as long as the Acquirer/transferee is Indian Company.

  • Under Companies Act, 2013

In bound and out bond foreign company merger are allowed, which means Foreign Company merging into Indian Company and Indian Company merging into foreign Company could be done with RBI approval. Therefore both these options are open under 2013 Act if foreign companies to be in notified countries, under Exchange Control Regulation, shares can be issued under Automatic route to non- resident, subject to certain consideration, consideration to shareholders of merging Company may include cash, depository receipts or combination of both. This section has widen the scope for Indian Companies as now they have both options of arrangement4.


Fast Track merger or quick form merger is the new provision which is added in Companies Act, 2013. Fast track merger is merger between two or more small companies5, holding company and its wholly own subsidiary and such other company as may be prescribed.

Fast Track merger does not involve Court or Tribunal, approval of National Company Law Tribunal is also not required. For fast track merger board of directors of both the Companies would approve the scheme. However, notice has to be issued to ROC and official liquidator and objections / suggestions has to be placed before the members. The scheme needs to be approved by members holding at least 90 percent of the total number of shares or by creditors representing nine-tenths in value of the creditors or class of creditors of respective companies.6 Once the scheme is approved, notice would have to be given to the Central Government, ROC and Official Liquidator. NCLT may confirm the scheme or order that consider as normal merger under section 232 of Companies Act, 2013.

Therefore Fast track merger will be a speedy process as it does not require approval for NCLT available to certain kind of truncations. It opens the scope for small companies who wanted to merge and can propose the scheme of Merger or Amalgamation through their Board of directors. There is also no requirement for sending notices to RBI or income-tax or providing a valuation report or providing auditor certificate for complying with the accounting standard.


Scheme of Amalgamation can be objected as per section 230(4) of Companies Act, 2013, only by shareholders having not less than 10% holdings or creditors debt is not less than 5% of total outstanding debt as per the last audited financial statement. whereas earlier under Companies Act, 1956 there was no such limit which state that person holding even 1% in the company can object the scheme which was not fair at all therefore the new threshold limit for raising objections in regard to scheme or arrangement will protect the scheme from small shareholders’ and creditors’ unnecessary litigation and objection.


  • Under Companies Act, 1956

Scheme to approved by 3/4th value of creditors or members, agree to scheme, then it will be binding, if sanctioned by court as stated under section 391(2), voting in person or a proxy at meeting. E-Voting is not permitted under 1956 Act.

  • Under Companies Act, 2013

Scheme is to be approved by 3/4th of creditors or members, agree to scheme, then it will be binding, if sanctioned by National Company Law Tribunal as stated under section 230(6)(1). The 2013 Act additionally allows the approval of the scheme by postal ballot. Postal ballot gives an equal opportunity of vote to all stake holders. E-Voting is permitted under new 2013 Act. Therefore concept of E-Voting is introduced under new Act and section 108 of the Companies Act, 2013 read with rule 20 of Companies(Management and Administrative) rules, 2014 deal with exercise of right to vote by member by electronic means. Therefore postal ballot system and introduction E-Voting will protect the shareholders interest and will also increase the participation of shareholders of the company in voting.


The Companies Act, 2013 requires that in case of merger between a listed transferor company and an unlisted transferee company, transferee company would continue to be unlisted until it becomes listed. Shareholders of listed Company have the option to exit on payment of value of their shares, as otherwise they will continue as a shareholder of the unlisted company. the Payment to such shareholders willing to exit shall be made on pre-determined price formula or after valuation. Whereas; under Companies Act, 1956 there was no such provision. Therefore reverse merger of listed Company into an unlisted Company does not automatically result in a listing of surviving entity, which may be the unlisted Company.


Approval of scheme requires an independent body of oversight and fairness. According to 1956 Companies Act , scheme of arrangement was to be approved by respective High Court which has jurisdiction over Acquirer and Target companies. Whereas; under Companies Act, 2013 National Company Law Tribunal will deal with matters related to Merger & Acquisition.

NCLT would be one specified body dealing with cases opposed to multiple High Court in case of the companies falling under the jurisdiction of different high courts.


The 2013 Act makes it mandatory that notice of meeting to discuss a scheme must be accompanied by valuation report prepared by an expert whereas, Companies Act,1956 Act is silent on disclosing the valuation report to the stakeholders, as a matter of transparency and good corporate governance. Courts also required annexing of the valuation report to the application submitted before them.


It seems that Companies Act, 2013 makes merger process more efficient but it also has some obscurity which need to be modified in order to reduce or avoid any complexity in the process which can be identified once the corresponding sections are notified. The outbound mergers now being allowed (when notified) open an opportunity towards globalization.

Mergers Under The Companies Act, 2013

Chapter XV of the 2013 Act, Sections 230 to 240 deal with “Compromises, Arrangements and Amalgamations.” In this chapter, the Act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations; however, other provisions are also attracted at different stages of the process. Merger means combining of two or more entities into one, which results in merger of all the assets, liabilities of the entities under one business. The dissolution of company/companies involved in a merger takes place without winding up. The possible objectives of mergers are manifold- economies of scale, acquisition of technologies, access to sectors / markets etc.


The memorandum of association of the companies seeking to merge, should give power to companies to amalgamate. Also, the creditors of the companies must approve the merger scheme. Notice of merger along with merger proposal and valuation report etc. needs to be served upon creditors, shareholders, and various regulators (MCA, RBI, CCI, Stock exchanges of listed companies, IT authorities and other sector authority likely to be affected by merger.) Shareholders and creditors are given option to cast their vote through postal ballot. Tribunal can order meeting of creditors if application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement for merger or amalgamation. Objections can be raised by shareholders who hold 10% or more equity or creditors whose outstanding debt is 5 % or more of the total debt as per last audited balance sheet. Prior certification from auditors saying accounting treatment is in consonance with accounting standards needs to be filed with stock exchanges (for both listed and unlisted companies).

Board of Directors need to approve the draft proposal after which application will be made to respective High Court (State where registered office is located) in Form no. 36. After the approval mentioned above, the scheme will have to be filed with the Official Liquidator, RoC and the Central Government. In the event of there being “no objection,” this will be deemed as approve. The 2013 Act has established National Company Law Tribunal which will handle all the matters related to company law and replace the HCs.

After the Court order, its certified true copies will be filed with the Registrar of Companies.

The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date. As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

Merging of listed Co. With unlisted Co.

 If a listed company merges with an unlisted company under the Act, then unlisted will by default not become listed. The option is given to the transferee company to remain unlisted till it is listed or applies for listing, provided the shareholders of the merged listed company are given an exit opportunity. It also provides that provision should be made by the NCLT for an exit route for the shareholders of a transferor company who decide to opt out of the transferee company by making payment amounting to the value of the shares and other benefits.

Fast track mergers

The Act provides for Fast track mergers in cases of merger between:

  1. two or more small companies or
  2. between a holding company and its wholly-owned subsidiary company or
  3. such other class or classes of companies as may be prescribed;

Under the procedure for fast track mergers, the notice of the proposal to the Registrar, official regulators and persons affected by the merger has to be sent within thirty days. They can provide their objections and suggestions. The merger proposal has to be approved by member holders of 90% shares at the general meeting and majority representing nine-tenths in value of the creditors at the meeting convened by giving 21 days notice. The notice to the meeting to members and creditors has to be accompanied by merger scheme and declaration of solvency.

The transferee company has to file merger scheme (within 7 days of meeting) and declaration of solvency with ROC. Objections of ROC or official liquidator have to be communicated to Central Government within 30 days in writing. Central government has time period of 60 days after receiving merger proposal to file objections before tribunal which will consider whether the scheme is appropriate for fast track merger or not.

Cross border mergers

The Act also permits ‘Cross border mergers’ between Indian and foreign company located in a jurisdiction notified by Central government in consultation with RBI. The consideration of a merger, which will also be subject to the approval of the RBI, could either be in cash or depository receipts, or partly in cash and partly in depository receipts.