AMALGAMATION, MERGER,

ACQUISITION & TAKEOVER

Indian Institute of Foreign Trade
NEW DELHI

16th APRIL 2005

by
SAMEER RASTOGI
Advocate
International Corporate Legal Consultant
 Amalgamation & Mergers

AMALGAMATION "blending together of two or more

undertakings into one undertaking, the shareholders of
each blending company, becoming, substantially, the
shareholders of the blended undertakings. There may be
amalgamations, either by transfer of two or more
undertakings to a new company, or to the transfer of one
or more companies to an existing company”.

Example X + Y = Z

X + Y = X
 Amalgamation & Mergers

"MERGER" its an arrangement, whereby the assets of two

companies become vested in, or under the control of, one
company (which may or may not be one of the original two
companies), which has as its shareholders all, or
substantially all, the shareholders of the two companies.

Procedure for Amalgamation / Merger

Check MoA (change accordingly).
Draft Scheme of Arrangement ( Amalgamation / Merger).
Consider it in Board Meeting.
Apply to Court direction to call General Meeting.
Sent copy of application made to High Court to Central Gov.
Send notices of General Meeting to with scheme
Notice Period shall not be less than 21 days
Notice can be way of Advertisement also
At General Meeting approve scheme, increase authorized share capital
and to issue further shares, as required
 Procedure for Amalgamation / Merger

Forward promptly notice and proceedings of meeting to SE’s

Report the result of the meeting to Court

Move Court for approval of the scheme by filing petition in 7 days

in Form 40

Advertise the date of hearing fixed by the court

On receipt of Order from High Court, file it with RoC.

Proceed on effecting the scheme amalgamation / merger as

approved by High Court
 Amalgamation & Mergers

Section 391 – 394 of the Companies Act, 1956 deals

with Compromises, Arrangements and
Reconstructions and other related issues through
schemes of arrangement approved by the High
Courts. A resolution to approve the scheme of
arrangement has to be passed by the shareholders
in the general meetings. The shareholders have to
vote on the resolutions on the schemes of
arrangement on the basis of the disclosures in the
notice/explanatory statement. Section 393 of the
Companies Act, 1956 specifies the broad
parameters of the disclosures which should be
given to the shareholders / creditors, for approving
a scheme of arrangement.
 Section 391
Amendment in the Companies Act, 1956 in year 2002 gave powers
to National Company Law Tribunal to review and to allow any
compromise or arrangement, which is proposed between a
company and its creditors or any class of them or between a
company and its members or any class of them. However, because
of non formation of National Company Law Tribunal, these powers
still lie with High Courts and the parties concerned can make
applications to high courts.

If the Creditors, Members present at a General meeting

representing three fourth of total number agree to any compromise
or arrangement, it becomes binding on the rest of the members or
creditors provided the tribunal sanctions the compromise or
arrangement.

The order made by Tribunal will come in to effect only after the
filing of certified copy with the Registrar of Companies.
 Section 391

Court’s power under the section are very wide and has discretion to
allow any sort of arrangement between the company and members.
Scope and ambit of the Jurisdiction of the Court:
 The sanctioning court has to see to it that all the requisite
statutory procedure for supporting any scheme has been
complied with along with requisite meetings.
 That the scheme put up for sanction of the court is backed up by
the requisite majority vote.
 That the concerned meetings of the creditors or members or any
class of them had the relevant material to enable the voters to
arrive at an informed decision for approving the scheme.
 That the proposed scheme is not found to be violative of any
provision of law and is not contrary to public policy.
 Section 392
Under this section, the court has power to supervise the carrying out
of the compromise or an arrangement; and

may, at the time of making such order or at any time thereafter,

give such directions in regard to any matter or make such
modifications in the compromise or arrangement as it may consider
necessary for the proper working of the arrangement.

If the court is of the view that a compromise /arrangement

sanctioned under section 391 cannot be worked satisfactorily with or
without modifications, it may on it own motion or on the basis of an
application made by an interested party may order winding up of the
company under section 433 of the Act.
 Section 393
This section prescribes the procedure required for convening the
meeting of the members or creditors called under section 391.

The notice for the meeting should be sent along with a statement
setting forth the terms of the compromise and or arrangement and
explaining its effect and in particular, the statement must state all
material interest of the directors, managing directors of the
company, whether in their capacity as such or as members or
creditors of the company or otherwise.

Where the compromise or arrangement affects the rights of

debenture holders of the company, the statement shall give the
information and explanation in respects to the trustees of any deed
for securing the issue of the debentures as it is required to give in
respect of directors.

Any default in complying with the requirements under this section

may lead to a fine of Rs. 50, 000 against the concerned official of
the company, who is found guilty.
 Section 394
Where the court is of the view that the proposed arrangement/scheme is of
such nature that
• the scheme is for the reconstruction of any company or for amalgamation of
any two or more companies; and
• that under the scheme the whole or any part of the undertaking property or
liabilities of any concerned company is to be transferred to another company;

the court may make provision for all or any of the following matters.
The transfer to Transferee Company of the property or liabilities of transferor
company.
 The allotment or appropriation by the transferee company of any
shares, debentures or other like interest in that company which,
under the arrangement, are to be allotted or appropriated by that
company to.
 The continuation of any legal proceeding against the transferee
company by the transferor company.
 The dissolution, without winding up, of any transferor company.
 The provisions for any dissenting persons. Who are opposing such
scheme or any other matter, which the court deems fit.
 Acquisitions & Takeovers
Major Laws Involved
SEBI (substantial Acquisition of shares &Takeovers)
Regulations 1997.
The Securities and Exchange Board of India Act,1992 .
Security Contract Regulation Act ,1956 .
The Depositories Act,1956.
SEBI Disclosure and Investor Protection Guidelines 2000.
Securities and Exchange Board of India (Prohibition of
Insider Trading Regulation ),1992.
Securities and Exchange Board of India (Merchant Bankers)
Rules/Regulation 1992.
SEBI (Delisting of Securities )Guidelines,2003.
Foreign Exchange Management Act,1999.
Companies Act,1956.
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)

Reg-7:Disclosuure to company and to stock

exchange by any person who acquire more
than 5%,10% or 14% shares

Reg-10: NO acquirer shall acquire 15% or more

shares unless such acquirer makes a public
announcement to acquire shares of such
company as per SAST,1997.
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)…….continued

Reg-11: If (15%-75%) shares acquired as per

Law then no acquirer can acquire additional
shares which entitle him to exercise 5% or
more in any financial year, unless public
announcement is made.
Acquisition :-
* Direct Acquisition in a listed company to which the
Regulation apply.
* Indirect acquisition by virtue of acquisition of
companies, whether listed or unlisted, whether in
India or aboard.
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)…….continued

Reg-13:Before making public announcement

merchant banker is to be appointed
Reg-14:Timing of Public Announcement Offer
not later than 4 working days after
agreement for acquisition of shares.
Reg-15: Public Announcement of offer to be
made in newspaper, Hindi, regional and
mostly traded area. Public Announcement
shall be submitted to: SEBI through
merchant Banker
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)…….continued

Reg-18:Within 14 days from the date of Public

Announcement draft letter of offer to be
filed with SEBI through Merchant Banker.

The letter of Offer to be dispatched to

share-holders not earlier than 21days.

Reg-19: Public announcement shall specify a

date for the purpose of determining the
name of the shareholder to whom Letter of
Offer will be sent shall not be later than 30 th
day.
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)…….continued

Reg-21: Minimum number of shares to be

acquired by Public offer-20%.
If the public shareholding goes below 10%,
delisting of securities guidelines will apply.
Reg-28: ESCROW- The acquirer by way of
security performance of his obligation,
deposit in ESCROW account sum as under
For consideration (C) payable under the public offer upto and including
C=<100 cr - 25%
C>100 cr - 25% upto Rs.100 cr &10% thereafter.
 Acquisitions & Takeovers
PROCEDURE (SAST,1997)…….continued

Reg-29: PAYMENT OF CONSIDERATION

7days from closure of offer open special
account with Banker to an issue and
deposit sum as would together with 90% of
lying in ESCROW make up entire sum due
and payable to shareholders.