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Mergers and Amalgamations have become the symbol of new economic world and with the passage of time more and more enterprises are opting for mergers and acquisitions with an intent to produce on massive scale, to reduce the cost of production and to make prices internationally competitive. Mergers. However, play a very important role in the external growth and expansion of leading companies all over the world and their major popularity is because of the increased and enhanced competition, breaking of trade barriers, globalisation of businesses and facilitating free flow of capital across different countries.

There are many ways for an entrepreneur to expand and grow its business and can be done either by an Internal expansion or by External expansion. In cases of Internal expansion, the firms gradually grow in the normal course of business by replacing old and technologically obsolete equipments, inclusion or acquisition of new assets overtime and also by establishment of new lines and sets of products. But, in the case of External expansion, it is majorly done through corporate combinations among different leading companies and corporations which may be in the form of Mergers, Amalgamations, Acquisitions and Takeovers and have eventually become important features of corporate restructuring thus increasing exposure to competition both domestically and internationally.

Under the Companies Act, 2013, the concept of Merger and Amalgamation has been fully explained whereas under the Companies Act, 1956 and Income Tax Act, 1961, the term “merger” was not been defined. “Merger” means an arrangement whereby one or more existing companies merge their identity in to another existing company or form a distinct new entity. Any proposal and application for a merger or amalgamation begins with the process of due diligence, an essential step in carrying out the hole merger or amalgamation.

The institution of The Companies Act, 2013 simplified the overall process of mergers and amalgamations which eventually made it easy for the Indian firms to attract Private Equity investors thus facilitating the cross border and domestic mergers. The act of 2013 also enhanced the disclosure norms by providing protection to investors and minorities.

It was in 2016, when the Central Government issued a notification for the enforcement of sections related to Merger and amalgamation and vide notification dated 14th December 2016, Ministry of Corporate Affairs issued rules regarding Companies (Compromises, Arrangements, and Amalgamation) Rules, 2016.

There have been many substantial and visible changes in the new Act but still there were certain unchanged provisions such as the pre-condition to merger and amalgamation of accepting the scheme by 3/4th of shareholders. Apart from the aforesaid changes, the 2013 Act provides for separate provisions for cross border mergers, merger of two small companies and that of holding with wholly-owned subsidiaries.

The Companies Act, 2013 provided for different provisions in relation to different types of restructuring processes as follows:

  • Compromise or Arrangements under section 230 & 231of the Act;

  • Amalgamation including Demergers falls within section 232 of the Act;

  • Amalgamation of Small Companies within section 233 of the Act;

  • Amalgamation of Foreign Companies under section 234 of the Act.

Before the initiation of restructuring mechanism, it’s very important that there is a provision in the Memorandum of Association regarding the company’s power to amalgamate clause. In case, if it’s a listed company then the stock exchange of both the merged and merging companies needs to be informed about the Merger Proposal. Before making any application to the High Court of the Sate, it first needs to be approved by the Board of Directors of the respective companies so that further procedure as per section 230 to 234 of the Companies Act, 2013 can be followed. The courts in their jurisdiction have the power to supervise any arrangements and modifications after sanctioning the scheme of mergers as per the Section 392 of the Companies Act. Thereafter, courts after dealing with the application for the mergers, if convinced, would issue necessary sanctions for the scheme of mergers.

The Companies act, 2013 opened new and improved avenues for corporate restructuring and its related procedures in India. And while retaining the old provisions, the act also adds robust and progressive new provisions. The changes brought upon by the restructuring provisions overtime were likely to have a positive impact on the manner in which corporate structuring is undertaken in India, keeping in mind the numerous procedural changes; while some of the changes that were brought up were applicable at conceptual level but there was still a lot to be done in terms of increased clarity in the provisions on some critical areas and the overall interplay of the 2013 Act with other laws.

However, the reasons and circumstances for every merger (horizontal, vertical or conglomerate) are very different and these conditions impact the way, the deals for mergers are dealt, approached, managed or executed. Whereas, the major success of mergers is dependent on the capability of the deal makers to integrate two companies while also maintaining day-to-day operations.

Various extraneous factors like Human Capital, Component and Leadership are there to influence each and every deal; and the major part of it is dependent on company’s leadership and management quality and its ability to retain those people who have played a key role in company’s on-going success. Also, it’s very important that there should be consensus ad-idem between both the parties with a clear motive of such acquisition in their mind. Determination of risk profile of any Merger or amalgamation process is to be done by the profits it may earn, customer base of the merging companies and the motive behind such acquisition.

It is also very important to note that for these restructuring mechanisms every possible effort has been made so that the law makers can ensure that Combination Regulation so applied is simplified in its approach and easy to implement. The authorities and the companies have been made accountable to ensure speedy implementation of the process by removing any contradictions.

Talking about overseas jurisdictions, The Companies Act 2013 introduced the new concept of fast track mergers and demergers which were more simplified and efficient and can be used as an option for various companies opting for restructuring in following cases:

· Merger of two or more specified small companies;

· Merger between holding company and its wholly owned subsidiary ; and

· Such other classes of companies as may be prescribed, by the approval of Central

Government and with no further requirement of approaching NCLT.

The currently applicable Merger Provisions are in fact framed so widely, that all the corporate restructuring mechanisms that a company can possibly undertake such as mergers, takeovers, amalgamations, acquisitions, spin off- hive off, and every other settlement or arrangement between a company and its members or its creditors, can be regulated.

The basic reason behind all types of restructuring mechanisms is that these companies when merged form a single entity to achieve economies of scale, widen their reach and horizon, acquire strategic skills and decrease competition in the market which is an advantage in itself.


It was after the introduction of liberalisation process in 1991, the scenario of Merger and Amalgamation in India started changing, not only the government regulations were reduced, but also many new reforms and measures were introduced by the Government for a more structural transformation in the Indian Industries and Companies. Measures like delicensing, dereservation, Monopolies and Restrictive Trade Practices Act relaxations, liberalization of policy towards foreign capital and technology were brought up and while analysing the size, growth and presence of leading corporate groups in India, this structural transformation has provided a more refined platform for the corporate enterprises to grow and expand strategically.

With the emergence of economic liberalization reforms all around the world, the most significant development has been the integration of national economy with “market oriented globalised economy”, with the Multilateral Trade Agenda and the World Trade Organisation facilitating easy and free flow of technology, capital and expertise across the globe. Also, because of the institution of these reforms, Mergers and Amalgamations became a common phenomenon throughout India, and the most sought after ways for the companies to expand and diversify their businesses, gain the strategic as well as competitive advantage in both domestic and international markets, reduce cost and market risks and also unlock the value.

The growth of Indian Companies in near future is crucially dependent upon improving the overall productivity of these leading companies, technological upgradation, search for trade markets through promotional efforts by the marketing sector, rationalisation of the tax structure and finally creating an enabling legal environment for its efficient working.

But, the different parts of this act have existed for too short a period for the industry and law makers to be sure of its efficacy and will still continue to require focus from the law makers to not only periodically scrutinize the current legislations and alignments among various Acts, but also to remove any issue that may be there to keep the legislations relevant and topical.

Author: Navin Kumar Jaggi

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