Companies Act 2013 – Mergers and Acquisitions 2014

Written By ADITYA

The changes proposed would require companies to consider the scale and extent of compliance requirements while formulating their restructuring plans once the 2013 Act is enacted. These changes are quite constructive and could go a long way in streamlining the manner in which mergers and other corporate schemes of arrangements are structured and implemented in India.

1. Streamlining requirements

The section dealing with compromises and arrangements deals comprehensively with all forms of compromises as well as arrangements and extends to the reduction of share capital, buy-back, takeovers and corporate debt restructuring as well. Another positive inclusion within this section is that objection to any compromise or arrangement can now be made only by persons holding not less than 10% of shareholding or having an outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statements. [section

230 of the 2013 Act] Further, currently, under the 1956 Act, an order does not have any effect until the same is filed with the ROC. However, such a requirement has been done away with under the 2013 Act. The 2013 Act merely requires the filing of the order with the ROC.

Companies Act 2013 – Mergers and Acquisitions 2014


There are certain additional documents mandated to be circulated for the meeting to be held of creditors or a class of members (section 232 of the 2013 Act). These include the following:

1. Draft of the proposed terms of the scheme drawn-up and adopted by the directors of the merging company.

2. Confirmation that a copy of the draft scheme has been filed with the ROC.

3. Report adopted by the directors of the merging companies explaining the effect of the compromise.

4. Report of the expert with regard to valuation.

5. Supplementary accounting statement if the last annual accounts of any of the merging companies relate to a financial year ending more than six months before the first meeting of the company summoned for the purpose of approving the scheme.

3. Certifying the accounting treatment

Currently, under the 1956 Act, there is no mandate requiring companies to ensure compliance with accounting standards or generally accepted accounting principles while proposing the accounting treatment in a scheme.  However, listed companies are required to ensure such compliance as the Equity Listing Agreement mandates such companies to obtain an auditor’s certificate regarding the appropriateness of the accounting treatment proposed in the scheme of arrangement. The 2013 Act requires all companies undertaking any compromise or arrangement to obtain an auditor’s certificate (section 230 and 232 of the 2013 Act). This requirement will help in streamlining the varied practices as well as ensuring appropriate accounting treatment. However, another aspect that is yet to be addressed is that the applicable notified accounting standards in India, currently, address only amalgamations and not any other form of restructuring arrangements.

4. Simplifying procedures

The current procedural requirements in case of a merger and acquisition in any form are quite cumbersome and complex. There are no exemptions even in the case of mergers between a company and its wholly-owned subsidiaries. The 2013 Act now introduces simplification of procedures in two areas, firstly, for holding wholly-owned subsidiaries and secondly, for arrangements between small companies (section 233 of the 2013 Act). Small companies are a new category of companies, introduced within the 2013 Act, with defined capital and turnover thresholds, which has been given certain benefits, including simplified procedures.

One of the significant restrictions proposed in case of these situations is the restriction on the transferee company to hold any shares either in its own name or in the name of a trust, subsidiary or associate since all shares will need to be canceled or extinguished on merger or amalgamation. This requirement will stem the practice followed by several companies that have in the past followed this route. Further, in certain cases, it has also rationalized the requirements, for example in the case of the reduction of the share capital, which is part of compromise or arrangement, the company will need to comply with the provisions of this section only, as against the existing requirement under the 1956 Act, where the company is required to comply with the provision of section 108 in case of a reduction of share capital as well those relating compromise.


The 1956 Act, allows the merger of a foreign company with an Indian company but does not allow the reverse situation of merger of an Indian company with a foreign company. The 2013 Act now allows this flexibility, with a rider that any such mergers can be effected only with respect to companies incorporated within specific countries, the names of which will be notified by the central government. With prior approval of the central government, companies are now allowed to pay the consideration for such mergers either in cash or in depository receipts or partly in cash and partly in depository receipts as agreed upon in the scheme of arrangement. (section 234 of the 2013 Act). These new provisions can be greatly beneficial to Indian companies that have a global presence by providing them structuring options that do not exist currently.

6. Squeeze out provisions

The 2013 Act has introduced new provisions for enabling the acquirer of a company (holding 90% or more shares) by way of amalgamation, share exchange, etc to acquire shares from the minority holders subject to compliance with certain conditions. This has also introduced the requirement for ‘registered valuers’, since the price to be offered by majority shareholder needs to be determined on the basis of valuation by a registered valuer (section 236 of the 2013 Act).

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