Company Secretaryship Training

Project Report

ICSI

PROJECT TOPIC:
Amalgamations & Mergers –
A Detailed Analysis

Prepared By:
Miss.
Company Secretaryship Apprenticeship Trainee
Student Registration Number: 221278930/ 08 / 2011.

Practicing CS under whom trained:

S. P. Jethlia & Co.

Signature of Trainer Signature of Trainee

 INDEX
S. No. Topic Page
No.

1. Preface 1

2. Acknowledgement 2

3. Methodology 3

4. Introduction 4

5. Amalgamations & Mergers – Meaning, Nature & Types 5-9

6. Amalgamations under the Companies Act 10-17

7. Provisions for Amalgamations, Mergers and Acquisitions under the Foreign 18

Exchange Management Act, 1999 and the Regulations framed there under.

8. Amalgamations of Sick Industrial Companies under the Sick Industrial 19-22

Companies (Special Provisions) Act, 1985.

9. Accounting for Amalgamations under Accounting Standard – 14 issued by 23-27

The Institute of Chartered Accountants of India.

10. Conclusion 28

11. Bibliography 29
 PREFACE

As per the Company Secretaryship Regulations, 1982, an Apprenticeship Trainee

is required to prepare a Project report in the Final Quarter of his/her training period. The said
project report should be prepared in consultation with the Company Secretary under whom
he/she has trained.

Keeping in view this requirement, I have prepared this project report in

consultation with my Principal. The topic chosen by me has had a significant impact in the
current corporate scenario, especially after the changing policy of the Government of India
which stresses upon Globalization & Liberalization.

The Project Report has been prepared by me after taking into consideration all
the possible areas which may have an impact on amalgamations and mergers, such as the
Companies Act, 2013, Companies Act, 1956, Income Tax Act, 1961, Central Excise Rules, 1944,
SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997, the Accounting
Standards issued by the Institute of Chartered Accountants of India, the Sick Industrial
Companies (Special Provisions) Act, 1985, the Foreign Exchange Management Act, 1999 and
the Regulations framed by the Reserve Bank of India thereunder and the Industrial Policy
framed by the Government of India.

The said Project has been prepared after referring various Books on the topic
and the Statutory Legislations enacted by the Parliament.

-- ……………….
C.S. Trainee
 ACKNOWLEDGEMENT

This project is a culmination of the constant endeavour to learn while working

and training, while pursuing a professional course such as the Company Secretaryship Course.
At the outset I would like to express my sincere acknowledgements to my parents who have
always encouraged me to pursue the Company Secretaryship Course as well as all my other
family members. Further, I would also like to thank my Principal, who has always trained me
with great enthusiasm and sincerity.

Further, I would also like to express me gratitude to my professional collegues at

work who have always helped me while I was pursuing my apprenticeship training and last
but not least to the Almighty, who has given me the strength, courage, perseverance and the
power to grasp knowledge which are all essential attributes to pursue a professional course
such as the Company Secretaryship Course.

-- ………………..
C.S. Trainee
 METHODOLOGY

The Training Project Report has been prepared by following a “learn while you
work ’’approach to learning. The project has been prepared primarily by referring to various
reference books, professional journals, various bare acts of the statutory legislations, reference
to various case laws, guidelines issued by the professional bodies such as The Institute of
Chartered Accountants of India, regulations framed by the Securities and Exchange Board of
India and the Reserve Bank of India.

The basic approach in the preparation of this project has been the constant
reference to various professional journals and the ever changing corporate and fiscal
legislations as well as discussion with my fellow professional collegues and fellow students
who are pursuing the Company Secretaryship Course.

The best of efforts have been made to make this project as lucid and simple as
possible. Reference to the relevant sections of corporate and fiscal legislations and case laws
has been made at appropriate places to explain the relevant topics thoroughly.
 INTRODUCTION

The Indian Economy is fast changing to adapt itself to the Global Economy and
to bring in foreign capital by relaxing the exchange control norms. This has witnessed new
companies emerging in the corporate scenario either from existing companies or by the
floatation of new companies. However, the amalgamation of companies as well as the merging
of various corporate bodies has been on the rise recently. However, the process of
amalgamation is tedious and elaborate due to the various statutory compliances that have to
be adhered to in the process, such as obtaining the approval of the shareholders of the
amalgamating as well as the amalgamated company.

At the onset it is necessary to understand the meaning of the term

‘amalgamation’. It is interesting to note that the Companies Act has not defined the said term.
However as per common business parlance, the term ‘amalgamation’ is understood as the
process by which the undertakings of two or more companies are brought under the
ownership of one company, which may be one of the amalgamating companies or may be a
new company altogether, formed for the purpose of amalgamation.

The term ‘merger’ is just an extension of the process of amalgamation. In a

‘merger’ two or more companies merge their entities and the acquiring company takes over all
the assets and liabilities of the transferor company. Further, the consideration for
amalgamation is received by the equity shareholders of the transferor company in the form of
equity shares in the transferee company and in no other form (as per Accounting Standard 14,
issued by the Institute of Chartered Accountants of India). In a merger, the transferor company
loses its identity and it merges itself with the transferee company. Thus, the transferee
company takes over the transferor company and continues to remain in existence, which is not
necessarily the position in the case of amalgamation.

The importance of amalgamations and mergers in the fast-changing corporate

scenario can in no way be undervalued as it is of far reaching consequences. Mergers and
Amalgamations (more popularly known as M & As, for brevity sake in international legal and
corporate parlance) are now quite prevalent in the Indian Corporate Scenario. They help in
restructuring the corporate bodies as well as help in tapping previously untapped resources
and markets. They are a tool for economic and corporate growth as well as expansion.

It may thus be summed up that corporate mergers and amalgamations have

come of age and are an essential ingredient for successful corporate expansion and
diversification as well. They not only help in attaining synergistic effects, but also help in
tapping the untapped market potential. They are thus a key tool for corporate restructuring
and growth.
Amalgamations & Mergers – Meaning, Nature & Types -

The term ‘amalgamation’ has not been defined anywhere in the Companies Act,
even though the Act has provided for reconstruction and amalgamation of companies under
Section 394 of the Companies Act, 1956. In a layman’s parlance one can understand that the
term ‘amalgamation’ is a business terminology which indicates the process by which two or
more companies are brought under the ownership of one company, which may be a new
company altogether or may be one of the amalgamating companies itself. The purpose of
amalgamation may be to acquire the business of the transferor company for the purpose of
diversification, capturing a dominant market share and reduction of competition, or to take
over a loss-making company to set off its losses against the profits of the transferee company
and try to revive the same.

An amalgamation may be in the nature of purchase or may be in the nature of

merger, as prescribed in Accounting Standard (AS) – 14, issued by The Institute of Chartered
Accountants of India. In the case of a ‘merger’ the acquiring company continues to exist and
the prime feature of a merger is that the corporate identity of the merged company is the same
as that of the transferee / acquiring company. As per AS-14, in case of amalgamations where
there is a genuine pooling of not only assets and liabilities, but also of the shareholders’
interest and of the business of these companies.

The essential distinguishing accounting feature in case of a ‘merger’ is that the resulting figures
of assets, liabilities, capital and reserves represent the sum total of the relevant figures of both
the amalgamating companies. Further, the business of the amalgamating company is intended
to be carried on by the transferee company. Further in the case of a merger, shareholders
holding not less than 90 % of the face value of the equity shares of the transferor company
should become equity shareholders of the transferee company by virtue of the amalgamation.

A merger is basically an addition of the assets and liabilities of the

amalgamating companies, whereby all assets and liabilities of the transferor company before
the amalgamation become the assets and liabilities of the transferee company on
amalgamation. Further, the consideration receivable by the equity shareholders of the
transferor company is received only in the form of equity shares in the transferee company,
except for the fractional shares which may be discharged in cash.

Thus, amalgamation in the nature of merger is suited only when the business of
the transferor company is intended to be carried on by the transferee company and the equity
shareholders of the former receive only equity shares in the latter as consideration for the
merger. Thus, amalgamation may be said to be the genus, while merger is specie of the former.

Amalgamations – Its Types

 Amalgamations are basically of two types, viz, amalgamation in the nature of
merger and amalgamation in the nature of purchase (as per Accounting Standard – 14 issued
by The Institute of Chartered Accountants of India). These types are briefly explained herein
below:

1. Amalgamation in the Nature of Merger :-

In the case of amalgamation in the nature of merger, as already discussed

above, it can be so called only when all the following conditions are fulfilled:-

1. All the assets and liabilities of the transferor company become the assets and liabilities
of the transferee company, after amalgamation.

2. Shareholders holding not less than 90 % of the face value of equity shares of the
transferor company become the equity shareholders of the transferee company by
virtue of the amalgamation.

3. The business of the transferor company is intended to be continued or carried on, after
the amalgamation, by the transferee company.

4. The consideration for the amalgamation receivable by the equity shareholders of the
transferor company is discharged by the transferee company wholly by the issue of
equity shares in the transferee company, except for cash that any be paid in respect of
fractional shares.

5. No adjustments, in the book value of the assets and liabilities of the transferor company,
are intended to be made when they are incorporated in the financial statements of the
transferee company, except to ensure uniformity in accounting policies.

2. Amalgamation in the Nature of Purchase :-

In the case of amalgamation in the nature of purchase, if the said amalgamation

does not satisfy any of the above criteria, as is mentioned in the case of amalgamation in
the nature of merger, it will be an amalgamation in the nature of purchase. In this case, if
all individual assets and liabilities are not taken over at the existing or agreed value , or if at
least 90% of the equity shareholders do not become the equity shareholders of the
transferee company, or if the other criteria are not fulfilled, it would be an amalgamation in
the nature of purchase.

Mergers & Takeovers – Its Types

 Mergers or takeovers are basically horizontal, vertical and conglomerate
mergers. These types or classifications of mergers are explained in brief in the following
paragraphs:

1. Horizontal Mergers:-

A horizontal merger or takeover is one which takes place between two

companies which are essentially operating in the same kind of market. Their products may or
may not be identical. For example, the merger of Tata Oil Mills Company Ltd., (TOMCO) with
Hindustan Lever Ltd., is a horizontal merger. Both these companies have similar products and
their market is also of the same kind. This method is resorted to by both companies for
achieving optimum size, carving out greater size of market, curbing the competition, gaining
economies of scale, increasing the competitiveness and reducing the competition and to utilize
the previously untapped capacities.

2. Vertical Mergers :-

A vertical merger or takeover refers to a combination of one or more companies

engaged in production of a particular product at different levels of its product process. Under
this type of merger, two corporate bodies which are vertically linked to each other either
forward or backward, come together. Vertical merger is generally resorted to for achieving
operating efficiencies through reliability of imports, better management control, gaining
competing power through controlling input prices and to create an entry barrier in terms of
market and technology. Vertical mergers may further be classified as forward and backward
mergers.

a) Backward Mergers :-

It refers to merging of a firm with another firm engaged in earlier stages of

production. The merger of Reliance Petrochemicals Limited with Reliance Industries
Limited is a good example of a vertical merger with backward linkage, so far as reliance
Industries is concerned.

b) Forward Mergers :-

This kind of merger refers to the merging of a firm with another engaged in the
subsequent stages of production. For example, if a cement manufacturing company
acquires a company engaged in civil construction activities, it will be a case of vertical
takeover or merger with forward linkage.

3. Conglomerate Mergers :-
 Conglomerate mergers or takeovers are also called concentric mergers/takeovers.
Under this type, the concerned companies are in totally unrelated lines of business or markets.
For example, Mohta Steel Industries merged with Vardhaman Mills Limited. Conglomerate
mergers are expected to bring about stability of income and profits since the two units belong
to different industries. Adverse fluctuations in sales and profit arising due to trade cycles may
not hit uniformly all the industries at the same time.

Reasons for Mergers or Takeovers:-

There are several reasons for companies to go in for mergers or takeovers. Some
of the major reasons for such merging or takeovers include the following:-

1. Economies of Scale:-

When two or more companies combine, the larger volume of operations of the
merged entity results in various economies of scale. These economies arise because of the
intensive utilization of the combined production capacities, distribution channels, research and
development facilities, and a range of other economies. These economies of scale are more pre-
dominant in horizontal mergers as the same kinds of resources are available in the merged
entity which can be utilized intensively. In vertical mergers the principal economies are
increased efficiency and control over the production process, better co-ordination of activities
and lower inventory levels.

3. Synergy:-

When two companies merge together, the combined effect of their courses of
action is greater than the sum of the individual companies.

3. Growth & Diversification:-

Growth and diversification are important corporate objectives. Growth implies

expansion of a firm’s operation in terms of sales, profit and assets. Diversification on the other
hand, means expansion of operation through the merger of the firm in unrelated lines of
business. The company may want to diversify to reduce risks involved with a seasonal
business. Acquisition of a firm engaged in another industry may help the company to reduce
the risks involved with floatation and initial teething problems which are generally faced by
new companies. A merger may be a pre-emptive move to prevent a competitor from
establishing a similar position in that industry. For example, the merger of Tata Oil Mills
Company Limited and Hindustan Lever Limited. It may entail less risk and even less loss.

4. Tax Savings:-
 A profit-making company can acquire a loss-making company and can set-off
the accumulated losses and unabsorbed depreciation of the loss-making company under
Section 72A of the Income Tax Act, 1961. Subject to the acquiring company fulfilling certain
conditions the healthy company’s profits can be set-off against the losses of the loss-making
company. However, the acquiring company is required to carry on the business of the loss-
making company for at least 5 years from the date on which it amalgamates with the latter.
The healthy company besides saving on tax acquires the manufacturing capacity of the sick
company also.

5. Acquisition of Patents, Brand Names, etc.:-

Mergers and takeovers are a relatively easy way to acquire valuable brand
names, patents, technical knowhow, etc. For instance, one of the attractions for Hindustan
Lever Limited in acquiring Tata Oil Mills Company Limited, is the latter’s brand name “
HAMAM ” which had around 15 percent market share and is a highly popular soap brand, in
the family soap segment.

6. Higher Debt Capacity:-

A company can enhance its borrowing capacity significantly through a

merger. A merged firm will enjoy a higher debt capacity because the earnings of the merged
entity are more stable than the independent earnings of the merging entities. A higher debt
capacity means advantage and thus higher value of the firm.

7. Avoiding Unhealthy Competition:-

Mergers and takeovers may enable companies to avoid unhealthy competition

in a situation where there are too many players aiming at capturing a limited market. It may
be a short cut to reduce monopolistic or unfair trade practices which are not in the interest of
the public at large.

8. Higher Price Earnings Ratio (P/E Ratio) of Stock:-

The net income of a new company may be capitalized at a low rate, resulting in
high market value for its stock. The stock of large companies is usually more marketable than
that of a small one. These attributes may result in a high price earnings ratio for the stock.

9. Fund raising capacity:-

Mergers or acquisitions open the fund raising capacity of the company to meet
its increasing financial requirements for expansion, diversification and modernization. A
company may improve its ability to raise funds when it combines with other companies
having a higher liquid assets and low debts.
10. Reduction in Flotation Costs:-

When two firms merge, they can save on the flotation cost of future equity,
preference and debt issues. In general, these costs decrease with the increase in size of the
issue, in terms of percentage.

11. Deployment of Surplus Funds:-

A profit-making company may be having surplus funds which it is not in a

position to deploy profitably. In the present context, many of the companies having a good
track record of profitability are approaching the capital market for raising resources. Funds are
being raised by the issue of debt or equity at a substantial premium. This enables the
companies to reduce the average cost of capital. At the same time, there are companies which
are starved of funds either due to low profitability or rapid rate of expansion. Mergers and
acquisitions enable a company having surplus funds to invest the same in another company
which is starved of the same.

Amalgamations under the Companies Act, 1956 -

Amalgamation of Companies by way of Transfer of Undertaking under Section 394 -

As per the provisions of Section 394 of the Companies Act, 1956, when an
application is made to the Court under Section 391, for the purpose of a compromise or an
arrangement proposed between a company and any of its creditors or a class of them, or the
members or a class of them and it is shown to the Court that;

1) The compromise or arrangement has been proposed for the purpose of a scheme for the
reconstruction of any company or companies or the amalgamation of any two or more
companies, and

2) under the scheme the whole or any part of the undertaking, property or liabilities of any
company concerned in the scheme (known as the transferor company) is to be transferred to
another company (known as the transferee company) ;the Court may either by the order
sanctioning the compromise or arrangement, or by a separate order make provision for all or
any of the following:

1) The transfer of the whole or any part of the undertaking, property or liabilities of the
transferor company to the transferee company.

2) The allotment or appropriation by the transferee company of any shares, debentures,

policies or any like interests in that company which, under the compromise or
arrangement, are to be allotted or appropriated by that company to or for any person.
3) The continuation by or against the transferee company of any legal proceedings pending
by or against any transferor company.

4) The dissolution of the transferor company, without its being wound- up.

5) The provision to be made for any persons who dissent from the scheme of compromise or
arrangement, within such time and in such manner as the Court directs.

6) Such incidental, consequential and supplemental matters as are necessary to secure that the
reconstruction or amalgamation shall be effectively carried out.

However, it should be noted that no compromise or arrangement proposed for or in

connection with a scheme of amalgamation of a company, which is being wound up, with any
other company or companies, shall be sanctioned unless the Court has received a report from
the Company Law Board or the Registrar of Companies that the affairs of the Company have
not been conducted in a manner which is prejudicial to the interest of its members or to the
public at large.

Jurisdiction of the Court in a Scheme of Arrangement under Section 391 of the Companies
Act, 1956:-

The Court has no jurisdiction to sanction a scheme of arrangement under

Section 391 of the Companies Act, 1956, which does not have the approval of the company,
either through the Board, or, if appropriate, by the means of a simple majority of the members
in a general meeting. This was the decision held in Re., Savoy Hotel Limited. Further when
two amalgamating companies are under the jurisdiction of two different High Courts, it is not
necessary that both of them should come before the same High Court., as was decided in
Telesound India Limited. When two companies are under the jurisdiction of two different
High Courts and no proceedings were commenced in the High Court which had jurisdiction
over the transferee company, such company has no locus standi to intervene in the petition of
the transferor company so as to compel it to transfer shares.

Procedure to be followed for Reconstruction or Amalgamation of a company by the transfer

of undertaking under Section 394 of the Act:-

When a scheme of reconstruction or arrangement is devised for the

amalgamation of a company with another company, by way of transfer of undertaking
under the provisions of Section 394 of the Companies Act, 1956, then the procedure to be
followed for the purpose of effecting such a scheme should be as detailed below :-

1.) The Board of directors of the two companies should consider the proposal of reconstruction
or amalgamation by the transfer of undertaking and accord approval to the proposal
subject to the necessary approvals.
2.) The companies should exchange the resolution passed by the respective Boards.

3.) The Board of the two companies shall appoint one or more Chartered Accountants as may
be mutually decided to value the shares of the two companies and to suggest a formula for
the exchange of the shares of the transferee company to the shareholders of the transferor
company.

4.) The Boards of the two companies shall consider and approve for the ratio of exchange of
shares and the draft scheme of amalgamation or reconstruction. The Boards will also
authorize the moving an application before the High Court and also authorize the
managing director and the secretary to move the application and take all the necessary
action including appointing advocates.

5.) In response the High Court, pursuant to Section 391, will direct the calling and holding the
meeting of the members of the company or separate meetings if there are different classes
of shareholders and will appoint the Chairman or Chairmen to conduct the said meeting or
meetings.

6.) The notice for the meeting or meetings and the explanatory statement will be approved by
the Registrar of the Court. Notices will also be published in newspapers as directed by the
Court.

7.) The majority in numbers of members representing 75 % of the value of shares or above
should approve the resolution at the meetings held on the direction of the Court. The
voting will be by ballot.

8.) The Chairman of the meeting or meetings, as the case may be, will submit his report to the
Court. The company will also file a petition to the Court for sanctioning the scheme of
amalgamation or reconstruction.

9.) The transferor company has to notify the fact to the public before seeking the sanction of
the Court that a petition has been made to the Court under section 394 of the Companies
Act, 1956 and any person interested therein may raise objection, if any, before the Court on
the date as notified on which the petition is to be heard.

10) After this, within 30 days of the receipt of the copy of the order, the company concerned
should file a certified true copy thereof with the Registrar of Companies.

11) The transferor company will then transfer its undertaking to the transferee company
according to the order of the Court and the transferee company then begins the work of
allotting shares and debentures to the shareholders of the transferor company.

Amalgamation by way of a Take-over Offer under Section 395 of the Companies Act, 1956:-
 Another way of acquiring the shares of another company is by way of acquiring
the shares of a target company without going in for the transfer of the undertaking of the
transferee company. This method of amalgamation is done without approaching the Court in
most cases. Section 395 of the Companies Act, 1956, provides that when a company wants to
acquire shares of another company with a view of acquiring its control, then the scheme of
such acquisition has to be accepted by not less than nine-tenths in value of the shares whose
transfer is involved. This acceptance has to be made by the shareholders of the transferor
company within four months after making of the offer by the transferee company to the
transferor company.

When the shareholders of the transferee company have accepted the offer
within the stipulated period of four months, the transferee company should, within two
months after the expiry of the aforesaid period of four months, give notice in the prescribed
manner to the dissenting shareholders, if any that it desires to acquire his shares. If the
dissenting shareholder does not agree to the transferee company acquiring his shares, he must
within one month from the date on which the notice was given to him, approach the Court to
set aside the scheme of acquisition of his shares. If the shareholders dissenting from the
acquisition do not make an application to the Court within one month from the date of giving
the notice, the transferee company will be entitled to acquire the shares of the dissenting
shareholders, on the terms on which the shares of the approving shareholders are to be
transferred to the transferee company.

However, when the transferee company already holds shares greater than
one-tenth of the aggregate value of all the shares in the company of the same class as the
shares whose transfer is involved, then the following additional provisions have to be
complied with :-

1. The transferee company offers the same terms to all the holders of shares of that class
(other than those already held as aforesaid) whose transfer is involved, and

2. The holders who approve the scheme besides holding not less than nine-tenths in value
of the shares (other than those already held as aforesaid) whose transfer is involved are
not less than three-fourths in number of the holders of those shares.

Acquisition of nine-tenths of the value of shares of the Transferor Company by the

Transferee Company:-

Where as a result of a scheme or contract, shares or shares of any class, in a

company are transferred to another company or its nominee, so that the shares so transferred
along with the shares already held by the transferee company before the scheme or contract
comprise nine-tenths in value of the shares, or the shares of that class, in the transferor
company, the transferee company must, within one month from the date of such transfer, give
notice of that fact in the prescribed manner to the holders of the remaining shares who have
not assented to the scheme or contract. Any such holder of shares may within three months of
such notice, may require the transferee company to acquire the shares in question.
Where the shareholder gives notice, the transferee company shall be entitled and
bound to acquire those shares on the terms on which, under the scheme or contract, the shares
of the approving shareholders were transferred to it, or on such terms as may be agreed, or as
the Court on the application of either the transferee company or the shareholder thinks fit to
order.

Acquisition of the shares of the Dissenting Shareholders of the Transferor Company by the
Transferee Company:-

Where the transferee company has given notice to the dissenting shareholders
and the Court has rejected the application of the dissenting shareholder against the scheme,
the transferee company must, on the expiry of one month from the date of its notice, transmit a
copy of the notice to the transferor company together with an instrument of transfer executed
on behalf of the shareholder by any person appointed by the transferee company and on its
own behalf by the transferee company. The transferee company shall also pay or transfer to
the transferor company the amount or other consideration representing the price payable by
the transferee company for the shares which that company is entitled to acquire. The transferor
company then must,

a) Thereupon register the transferee company as the holder of these shares and

b) Within one month of the date of such registration, inform the dissenting shareholders of the
fact of such registration and of the receipt of the amount or other consideration representing
the price payable to them by the transferee company.

It is to be noted that an instrument of transfer is not required for any share for
which a share warrant is for the time being outstanding. Any sum received by the transferor
company from the transferee company must be paid into a separate bank account and held in
trust for the several persons entitled to the shares in respect of which the said sums or other
consideration were respectively received.
The term “ dissenting shareholder ’’ includes a shareholder who has not assented
to the scheme or contract or any shareholder who has failed or refused to transfer his shares to
the transferee company in accordance with the scheme or contract.

Offer or Circular to be given to the Members of the Transferor Company by its Board of
Directors:-

With a view to prevent certain malpractices in relation to takeover bids and

acquisition of shares of dissenting shareholders under the scheme approved by the majority,
sub-section (4A) to Section 395 was added to the said Section by the Amendment Act in 1965.
The following provisions are applicable to every offer of a scheme or contract involving the
transfer of shares or any class of shares in the transferor company to the transferee company :-

a) Every such offer or every circular containing such offer or every recommendation to the
members of the transferor company by its directors to accept such offer shall be
accompanied by such information as may be prescribed by the Central Government. This
is to ensure that adequate information is disclosed in a take-over offer to the shareholders
so that they could be allowed to judge for themselves whether or not to accept the offer.

b) Every such offer shall contain a statement by or on behalf of the transferee company,
disclosing the steps it has taken to ensure that necessary cash will be available for payment
of consideration for the shares to be acquired.

c) Every circular containing or recommending acceptance of such offer shall be prescribed to

the Registrar of Companies for registration and no such circular shall be issued unless it is
registered.

d) The Registrar has the power to refuse to register any such circular which does not contain
the prescribed information in a manner likely to give a false impression.

e) An appeal shall lie to the Court against an order of the Registrar, refusing to register any
such circular. If the circular containing an offer to purchase shares is not registered as
aforesaid, then whosoever issues it, shall be punishable with fine which may extend to
Rs.5000.

The provisions of section 395 of the Companies Act, 1956 apply only when an offer to acquire
shares is made by one company and they do not apply to a scheme or contract involving the
transfer of shares to two or more companies jointly, even if the offer to acquire only a fraction
of shares by each.

Amalgamation by Order of the Central Government in Public Interest [Section 396] -

In cases the Central Government may feel it necessary to amalgamate two or

more companies in the interest of the public at large. For such a case, to follow the procedure
as discussed aforesaid would be detrimental to the interest of the public. Thus, where the
Central Government is satisfied that it is in the interest of the public to do so, it may under the
provisions of Section 396 of the Companies Act, 1956, by an order notified in the Official
Gazette, provide for the amalgamation of, the aforesaid, two or more companies into a single
company. The order will specify the constitution, property, powers, rights, interests,
authorities, privileges, liabilities, duties and obligations of the resulting amalgamated
company. The order will also provide for the consequential, incidental and supplemental
provisions deemed necessary to give effect to the amalgamation. The order must also provide
that the old members, debenture holders and other creditors will have, as nearly as may be,
the same interests in and rights against the company as a result of the amalgamation as they
had in their original companies. The old members will be entitled to compensation, assessed
by the prescribed authority, if their rights or interests fall short of their rights and interests
against the original companies. The compensation will have to be paid by the company
resulting from the amalgamation.

Before making the order for amalgamation, the Central Government should
send a draft copy of the proposed order to each of the companies concerned for their
suggestions and objections. If any company, within two months after receipt of the notice,
makes some suggestions or raises any objections, the Central Government may, before issuing
the order, modify the draft in the light of those suggestions or objections received from the
company, its creditors or the shareholders.

Any person aggrieved by an order of the prescribed authority [i.e., the Joint
Director (Accounts) in the Department of Company Affairs] may, within 30 days from the date
of publication of such assessment in the Official Gazette, prefer an appeal to the Company
Law Board and thereupon the assessment of compensation shall be made by the Company
Law Board.

Copies of every order under this Section shall, as soon as may be after it has been
made, be laid before both Houses of the Parliament.

Preservation of Books and Papers of the Amalgamated Company:-

With a view to preventing the practice of destroying incriminating accounts and

records of the company which has been amalgamated with another company, Section 396A of
the Act provides that, the books and papers of the company which has been amalgamated
with or whose shares have been acquired by another company, shall not be disposed off
without the prior permission of the Central Government. Before granting such permission, the
Central Government shall appoint a person to examine books and papers or any of them for
the purpose of ascertaining whether they contain any evidence of the commission of an offence
in connection with the promotion or formation, or the management of the affairs of the
company or amalgamation or the acquisition of shares of the company being amalgamated
with the other company.

Provision prohibiting Reconstruction or Amalgamation void:-

As per the provisions of Section 376 of the Companies Act, 1956, any provision
contained in the Memorandum or Articles of Association of a company, or by the resolution of
the Board of Directors or of the company in the general meeting, in the deed of agreement
between the company and its managing director or manager, which prohibits, or has the effect
of prohibiting reconstruction of the company or its amalgamation with another company or
companies absolutely or Conditionally such that the managing director or manager will be
appointed to such office in the reconstructed or amalgamated company, shall be void.

Reconstruction or Amalgamation by Sale of Assets / Property under Section 494 of the

Companies Act, 1956:-

Sometimes it may happen that a company wants to wind itself up voluntarily

merely for the purpose of reconstruction or amalgamation with another company, by the
transfer of the whole or a part of its business or property to the latter. In that case, the
company, may, by way of a Special Resolution confer a general or special authority to the
Liquidator of the company, to do any of the following:

1. Receive, by way of compensation or part compensation for the transfer or sale, any
shares, policies, or other like interests in the transferee company, for distribution among
the members of the transferor company, or

2. Enter into any other arrangement whereby the members of the transferor company
may, in lieu of receiving cash, shares, policies or other like interests or in addition
thereto, participate in the profits of, or receive any other benefits from, the transferee
company.

Any sale or arrangement in pursuance of this section shall be binding upon the
members of the transferor company, as per sub-section (2) to Section 494 of the Companies
Act, 1956.

The liquidator will give notice to the shareholders of the transferor company as regards the
number of shares to which they are entitled, the amount payable by them thereafter and the
time within which they must apply for the shares. The sale or arrangement under this
provision is binding on all members as already mentioned earlier. However, if any member or
members does or do not vote in favour of the Special resolution, he may address to the
Liquidator his dissent in writing within 7 days after the passing of the said Special Resolution
and require him to,

1. abstain from carrying out the resolution into effect, or

2. Purchase his interest at a price to be determined by an agreement or arbitration.

The Liquidator has the right to exercise either of the two options. Should he
elect to purchase the interest of the dissenting shareholders, he must raise money in such a
manner as is determined by the company. It must be paid before the company is dissolved.

The transferor company may pass the Special Resolution either before or
concurrently with the resolution for voluntary winding up or for the appointment of a
liquidator. However, if an order for winding up of a company by or under the supervision of
the Court has been passed within one year, the Special Resolution will not be valid unless
sanctioned by the Court. Section 494 does not make any provision as regards the rights of
creditors, who may feel that they have been affected by the scheme of transfer. As such, the
only remedy available to them is to present a petition for compulsory winding up under the
supervision of the Court within one year of the passing of the Special Resolution.

According to Section 507 of the Act, the provisions of Section 494 will apply to
a creditors’ voluntary winding up as well as to members’ winding up, but with the
modification that the liquidator shall have to exercise the power only with the sanction of the
Court or that of the Committee of Inspection.

Provisions for Amalgamation, Mergers and Acquisitions

under the Foreign Exchange Management Act, 1999 and the
Regulations framed thereunder by the Reserve Bank of India:-

Issue and Acquisition of Shares after Merger or de-merger or Amalgamation of Indian

Companies:-

As per the provisions of the regulations framed by the Reserve Bank of India,
under the authority conferred upon it vide Section 47 of the Foreign Exchange
Management Act, 1999, where a scheme of merger or amalgamation of two or
more Indian companies or a reconstruction by way of a de-merger or otherwise
of an Indian company, has been approved by a Court in India, the transferee
company or, as the case may be, the new company may issue shares to the
shareholders of the transferor company resident outside India, subject to the
following conditions, namely;

a) The percentage of shareholding of person’s resident outside India in the transferee or new
company does not exceed the percentage specified in the approval granted by the Central
Government or the Reserve Bank of India, or specified in the regulations. However, where
the percentage is likely to exceed the percentage specified in the approval or Regulations,
the transferor company or the transferee or new company may, after obtaining an
approval from the Central Government, apply to the Reserve Bank of India for its approval
under these Regulations, i.e., the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 1999.

b) The transferor company or the transferee or new company shall not be engaged in the
agriculture, plantation or real estate business or trading in TDRs.

c) The transferee or new company files a report, within 30 days with the Reserve Bank of
India, giving full details of the shares held by persons resident outside India in the
transferor and the transferee company, before and after the merger or de-merger or
 amalgamation, as the case may be, and also furnishes a confirmation that all the terms and
conditions stipulated in the scheme approved by the Court have been complied with.

Thus, it is evident that an Indian Company which merges with or amalgamates

with another Indian Company can issue shares to persons resident outside India, being
shareholders of the transferor company, provided the scheme of amalgamation or
reconstruction is sanctioned by the High Court concerned and further, such issue is not in
excess of the upper limit specified by the Central Government or the Reserve Bank of India.

Amalgamation of Sick Industrial Companies under the Sick

Industrial Companies (Special Provisions) Act, 1985:-

Though the Sick Industrial Companies (Special Provisions) Act, 1985, may have
outlived its utility, it still provides a ray of hope to sick and potentially sick industrial
companies. The provisions of Section 17 read with that of Section 18 of the said Act, provide
that where the Board for Industrial and Financial Reconstruction (more commonly known as
the BIFR) after making an inquiry under Section 16 thereto is satisfied that a company has
become a sick industrial company, the BIFR shall, after considering the facts and
circumstances of the case, decide whether it is possible to make the net worth of the company
exceed the accumulated losses within a reasonable time.

Where the Board (BIFR) decides that it is not practicable for a sick industrial
company to make its net worth exceed the accumulated losses within a reasonable time and
that it is necessary in the interest of the public to do so, the Board shall by an order in writing,
direct an operating agency specified in the order to prepare a scheme under Section 18 of the
Act.
When an order is made by the Board, as stated above, the operating agency will
prepare a scheme, as expeditiously as possible, within a period of 90 days from the date of the
order which, among other schemes, provides for, under clause (c) of sub-section (1) to Section
18 of the Sick Industrial Companies (Special Provisions) Act, 1985, the amalgamation of –

(i) the sick industrial company with any other company, or

(ii) Any other company with the sick industrial company.

The scheme formulated by the operating agency may provide for any one or
more of the following, namely-

1) The constitution, name and registered office, the capital, assets, powers, rights, interests,
authorities and privileges, duties and obligations of the sick industrial company or, as
the case may be of the transferee company.
2) The transfer to the transferee company, of the business, properties, assets and liabilities
of the sick industrial company on such terms and conditions as may be specified in the
scheme.

3) The change in the Board of Directors, or the appointment of a new Board of Directors,
of the sick industrial company and the authority by whom, the manner in which and
other terms and conditions on which, such change or appointment shall be made, and
in the case of appointment of a new Board of Directors or any director, the period for
such appointment.

4) The alteration of the memorandum or articles of association of the sick industrial

company or, as the case may be, the transferee company for the purpose of altering the
capital structure thereof or for such other purposes as may be necessary to give effect to
the reconstruction or amalgamation.

5) The reduction of the interest or the rights which the shareholders have in the sick
industrial company to such extent as the Board considers necessary in the interest of the
reconstruction, revival or rehabilitation of the sick industrial company or for the
maintenance of the business of the sick industrial company.

6) The allotment to the shareholders of the sick industrial company of shares in the sick
industrial company or, as the case may be, in the transferee company and where any
shareholder claims payment in cash and not allotment of shares, or where it is not
possible to allot shares to any shareholder, the payment of cash to those shareholders in
full satisfaction of their claims –

(a) in respect of their interest in shares in the sick industrial company before its
reconstruction or amalgamation, or
(b) Where such interest has been reduced, in respect of their interest as so reduced.

7) Any other terms and conditions for the reconstruction or amalgamation of the sick
industrial company.

8) The continuation by, or against, the sick industrial company or, as the case may be, the
transferee company of any action or other legal proceeding pending against the sick
industrial company immediately before the date of the order made under sub-section
(3) of Section 17 of the Act.

9) The method of sale of the assets of the industrial undertaking of the sick industrial
company such as by public auction or by inviting tenders or in any other manner as
may be specified and for the manner of publicity thereof.

10) Lease of the industrial undertaking of the sick industrial company to any person,
including a co-operative society formed by the employees of such undertaking.
 11) Transfer or issue of the shares in the sick industrial company at the face value or at the
intrinsic value which may be at discount value or such other value as may be specified
to any industrial company or any person including the executives and employees of the
sick industrial company.

12) Sale of the industrial undertaking of the sick industrial company free from all
encumbrances and all liabilities of the company or other such encumbrances and
liabilities as may be specified, to any person, including a co-operative society formed by
the employees of such undertaking and fixing of reserve price for such sale.

13) Such incidental, consequential and supplemental matters as may be necessary to secure
that the reconstruction or amalgamation or other measures mentioned in the scheme are
fully and effectively carried out.

The scheme carried prepared by the operating agency shall be examined by the
Board of Industrial and Financial Reconstruction (BIFR) and a copy of the scheme with or
without modification made by the Board shall be sent, in draft, to the sick industrial company
and the operating agency and in the case of amalgamation, also to any other company
concerned, and the Board shall publish or caused to be published the draft scheme in brief in
such daily newspapers as the Board may consider necessary, for suggestions and objections, if
any, within such period as the Board may specify.

The Board may make such modifications as it may consider necessary in the
light of the suggestions and objections received from the sick industrial company and the
operating agency and also from the transferee company and any other company concerned in
the amalgamation and from any shareholder or any creditors or employees of such companies.
Where the scheme provides for the amalgamation of two or more companies, the scheme shall
be laid before the company with which the sick industrial company is going to amalgamate, in
the general meeting for the approval of the scheme by its shareholders and no such scheme
shall be proceeded with unless it has been approved, with or without modification, by a
special resolution passed by the shareholders of the transferee company.

The scheme shall then be sanctioned by the Board and shall come into force on
such date as may be specified in this behalf. Different dates may be specified for different
provisions of the scheme. Thus, the scheme providing for the amalgamation shall be effective
from such date as may be specified by the Board after obtaining the approval of the
shareholders, by special resolution, in the general meeting.

Where the sanctioned scheme provides for the transfer of any property or
liability of the sick industrial company in favour of any other company or person or where
such a scheme provides for the transfer of any property or liability of any other company or
person in favour of the sick industrial company, then by virtue of, and to the extent provided
in, the scheme, on and from the date of coming into operation of the sanctioned scheme or
any provision thereof, the property shall be transferred to, and vest in, and the liability shall
become the liability of, such other company or person or, as the case may be, the sick industrial
company.

On and from the date of the coming into operation of the sanctioned scheme or
any provision thereof, the scheme or such provision shall be binding on the sick industrial
company and the transferee company or, as the case may be, the other company and also on
the shareholders, creditors and guarantors and employees of the said companies. The Board
may if it deems necessary or expedient so to do, by order in writing, direct any operating
agency specified in the order to implement a sanctioned scheme with such terms and
conditions and in relation to such sick industrial company as may be specified in the order.

Thus, the provisions of the Sick Industrial Companies (Special Provisions) Act,
1985, provide for the amalgamation or reconstruction of a sick industrial company with a
normal healthy company, in a scheme formulated by the operating agency, under Section 18
(1) (c) of the Act. The scheme has been formulated in order to save the winding up of the sick
industrial company when it is not possible, in the opinion of the BIFR, to make its net worth
exceed the accumulated losses within a reasonable period of time. As a last resort the BIFR
may forward its opinion to the High Court concerned and the said High Court, having
jurisdiction to wind up the sick industrial company, shall order the winding up of the said sick
company in accordance with the provisions of the Companies Act, 1956, pursuant to Section
20(2) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Accounting for Amalgamations under Accounting Standard –

14 issued by The Institute of Chartered Accountants of India:-

The Institute of Chartered Accountants of India had issued Accounting Standard

14 which is applicable w.e.f. 1 st April, 1995. The accounting standard is mandatory in nature
and has to be complied with by all entities which have amalgamated with other entities, after
1st April, 1995.

As already explained earlier an amalgamation can be either in the nature of

merger or in the nature of purchase. These two concepts are briefly explained below:

(1) Amalgamation in the Nature of Merger :

As per AS-14 an amalgamation is said to be in the nature of merger only if

all the following conditions are satisfied:
 (a) All the assets and liabilities of the transferor company become the assets and
liabilities of the transferee company, after amalgamation.

(b) Shareholders holding not less than 90 % of the face value of the equity shares of
the transferor company become the equity shareholders of the transferee
company by virtue of the amalgamation.

(c) The business of the transferor company is intended to be carried on by the

transferee company after the amalgamation.

(d) The consideration received by the equity shareholders of the transferor company
who agree to become the equity shareholders of the transferee company is
discharged by way of issue of equity shares by the transferor company to the
said shareholders of the transferee company, except for cash which may be paid
for fractional shares, if any.

(e) No adjustment is intended to be made in the book value of the assets and
liabilities of the transferor company when they are incorporated in the books of
the transferee company, except to ensure uniformity of accounting policies.

(2) Amalgamation in the Nature of Purchase:

An amalgamation is said to be one in the nature of purchase when any of the

conditions which are required to be satisfied in case of amalgamation in the nature of
merger, are not so satisfied. Thus, when any of the required conditions are not complied
with, for instance, when all the assets and liabilities of the transferor company are not taken
over by the transferee company, it would not be an amalgamation in the nature of merger.

When one company acquires the other company and, as a consequence, the
shareholders of the company which is acquired normally do not continue to have a
proportionate shareholding in the equity share capital of the combined entity, or in the
business of the company which is acquired is not intended to be continued, the
amalgamation is said to be in the nature of purchase and not in the nature of merger.

Methods of Accounting for Amalgamations:-

There are two main methods of accounting for amalgamations, viz, the pooling
of interest method and the purchase method. The pooling of interest is confined to the
circumstances which meet the criteria 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. The purchase method is used for amalgamations
in the nature of purchase. These two methods of accounting for amalgamations are explained
below:
 (1) The Pooling of Interest Method :

Under the pooling of interest 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. If at any time of amalgamation, the transferor
company and the transferee company 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 AS-5, “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies”.

(2) The Purchase Method :

Under this 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.

Consideration for the Amalgamation:-

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 are applied in arriving at the 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.

Many amalgamations recognize 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 of amalgamation, it is included in the
calculation of the consideration. In all other cases, the adjustment is recognized as soon as the
amount is determinable, keeping in mind AS-4, “Contingencies and Events Occurring after the
Balance Sheet Date”.

Treatment of Reserves on Amalgamation:-

In case of “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. As a result
of preserving the identity, the 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 and the amount of share
capital of the transferor company is adjusted in reserves in the financial statements of the
transferee company.

If the amalgamation is an “amalgamation in the nature of purchase”, the identity

of the reserves, other than the statutory reserves such as Development Rebate Reserve or
Investment Allowance Reserve, is not preserved. The amount of 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 is amortized to income on a systematic basis over its useful life. On the
other hand, if the result of the computation is positive, the difference is credited to ‘Capital
Reserve’.

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 instance,
Development Rebate Reserve or the Investment Allowance Reserve. The Act requires that the
identity of the reserves should be preserved for a specified period. Similarly, certain other
reserves may have been created in the books of the transferor company in terms of the
requirements of other statutes. Though in the case of amalgamation in the nature of purchase,
the identity of the reserves is not preserved, an exception is made in respect of statutory
reserves and such reserves retain their identity in the financial statements of the transferee
company, so long as their identity is required to be maintained to comply with the relevant
statute. In such a case the statutory reserves are recorded in the books of the transferee
company by a corresponding debit to a suitable account head such as “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 reserve is no longer
required to be maintained, both reserves and the aforesaid account are reversed.

Treatment of Goodwill arising on Amalgamation:-

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 amortized 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 amortize goodwill over a period
not exceeding 5 years unless a somewhat longer period can be justified.

Factors which are considered in estimating the useful life of goodwill arising on
amalgamation include, among others, the following:

(1) The foreseeable life of the business or industry.

(2) The effects of product obsolescence, changes in demand and other economic factors.
(3) The service life expectancies of key individuals or groups of employees.
(4) Expected actions by competitors or potential competitors.
 (5) Legal, regulatory or contractual provisions affecting the useful life.

Balance of Profit and Loss Account:-

In case of “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. In case of
“amalgamation in the nature of purchase”, the balance of the Profit and Loss Account
appearing in the financial statements of the transferor company, whether debited or credited,
loses its identity.

Treatment of Reserves specified in a Scheme of Amalgamation:-

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.

Disclosures to be made in the Financial Statements:-

For all amalgamations, the following disclosures are considered appropriate in

the first financial statements following the amalgamation:

(a) Names and general nature of business of the amalgamating companies.

(b) Effective date of amalgamation for accounting purposes.
(c) The method of accounting used to reflect the amalgamation, and
(d) Particulars of the scheme sanctioned under a statute.

For amalgamations accounted for under the “Pooling of Interest Method”, the
following additional disclosures are considered appropriate in the first financial statements
following the amalgamation:
(a) Description and number of shares issued, together with the percentage of each
company’s equity shares exchanged to effect the amalgamation.
(b) The amount of any difference between the consideration and the value of net
identifiable assets acquired, and the treatment thereof.

For amalgamations accounted for under the “Purchase Method”, the following
additional disclosures are required to be made in the first financial statements following the
amalgamation:
 (a) Consideration for the amalgamation and a description of the consideration paid or
contingently payable, and
(b) The amount of any difference between the consideration and the value of net
identifiable assets acquired, and the treatment thereof including the period of
amortization of any goodwill arising on the amalgamation.

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 is to be
made in accordance with the provisions of AS-4, “Contingencies and Events Occurring after
the Balance Sheet Date”. However, the amalgamation is not incorporated in the financial
statements. In certain circumstances, the amalgamation may also provide additional
information affecting the financial statements themselves, for instance, by allowing the going
concern assumption to be maintained.
 CONCLUSION

In conclusion it is evident that the role of amalgamations and mergers can in no way be
undermined in the present corporate scenario. From the procedure to be followed for
implementing the scheme of amalgamation under the Companies Act, 1956, to the various tax
benefits available under the Income Tax Act, 1961, an amalgamation or a merger is a detailed
and complex procedure requiring the analytical skills and accounting knowledge of a
Chartered Accountant, the legal knowledge of an Advocate and the secretarial expertise of a
Company Secretary.

Corporate restructuring is very common in today’s corporate scenario. It has

provided a means to eliminate competition within the four corners of the legal framework; it
helps to achieve better operational effectiveness and also helps in presenting a true and fair
view of the state of the company. Mergers due to their synergistic effects are gaining
popularity in India. To cite a few examples, the merger of Tata Oil Mills Company Limited
(TOMCO) with Hindustan Lever Limited (HLL) is a classic example of a horizontal merger
which was effected to gain synergistic effects. The merger of Mohta Steel Industries with
Vardhaman Mills Limited is another example of a conglomerate merger which was effected to
bring about stability of income and profits.

Thus, it may be concluded that in order to implement a good and effective

scheme of amalgamation or in order to effect a merger it is essential to first of all select the
proper transferee company or target company, as the case may be, and also to see that the
company is worth acquiring.

Thus, amalgamations and mergers are a boon to the corporate world, but also
have an adverse effect on the economy at times due to excessive monopolization and
cartelization. In order to achieve a balance between the good and adverse effects of
amalgamations and mergers it must be seen that the underlying reason for the same
considered while evaluating the scheme by the Court. The Court cannot refuse the scheme, if it
is in the bona fide interest of the companies and approved by the requisite majority of the
shareholders.

Therefore, though a complex and elaborate process, amalgamations and mergers

are indeed essential in the present economic scenario of the country so as to attain economy
and utilize the resources in an efficient and effective manner, so as to optimize production and
achieve a general reduction in the cost of production, thus resulting in the optimization of
price level in the economy.
 BIBLIOGRAPHY

S. No. Name of the Book Author / Publishers

1) Corporate Laws (Bare Act) Taxmann Publishers

2) Corporate Tax Planning & Management Girish Ahuja and Ravi Gupta

3) Chartered Secretary (Monthly Journal of The ICSI Publication

Institute of Company Secretaries of India)

4) Guide to the Companies Act A. Ramaiya

5) Corporate Laws and Practice – I ICSI Publication

6) Financial Management Prasanna Chandra