WELCOME. Scheme of Arrangement under the Companies Act, 1956 – Revised requirements for the Stock Exchanges and Listed Companies. Existing Regulatory Framework. Companies Act, 1956 – [Sec 391-394] Listing Agreement FEMA Accounting Standards – 14 AP Stamp Act Competition Act, 2002
Scheme of Arrangement under the Companies Act, 1956 –Revised requirements for the Stock Exchanges and Listed Companies
(i) Change of Name
(ii) Change in Objects Clause
(iii) Reduction of Capital
(iv) Sale, lease etc., of the Company’s Property u/s 293
(v) Change in Management, Promoters and Preferential Allotment (exempted from SEBI (Issue of Capital and Disclosure Requirements) Regulations
Comprosie: There can be no compromise, unless there is some dispute e.g., as to the power to enforce rights, or as to what those rights are. (Sneath v. Valley Gold Ltd.,)
In order to constitute a class, members belonging to the class must form a homogenous group with commonality of interest. Commonality of interests constitutes a class.
Ex: Deposit holders, Debenture holders, Foreign creditors, preferential creditors, secured creditors and unsecured creditors
Principles laid down by the Supreme Court in (i) Miheer H. Mafatlal v. Mafatlal Industries Ltd., and (ii) Hindustan Lever Employees’ Union v. Hindustan Lever Ltd
That the provisions of the statute have been complied with.
Procedural Aspects in Mergers and Amalgamations
(i) The Memorandum of Association of both the Transferor and Transferee Company must provide the power to amalgamate in its objects clause.
To amalgamate is power or object?
It is held that to amalgamate is an inherent power and an express provision in the MOA is not required:
Even Companies with different objects can opt for amalgamation.
(ii) Convene the Board Meeting for Transferor and Transferee Companies for approval of Scheme.
(iii) Valuation of shares and fairness of exchange ratio:
(iv) Filing of Petition with High Court
- If Registered office of both the Companies are situated in jurisdiction of different High Court, then separate petition are required to be filed by the concerned company in their respective High Court, otherwise a single petition can be filed by both the Companies jointly.
- Joint petition
Madras High Court has allowed a joint petition, on the grounds that neither the Companies Act nor the Company Court Rules prohibit filing of Joint Petition where subject matter is same and common question of law would arise for decision.
On receiving a petition, the court may order a meeting of the creditors or class of creditors, or of the members of class of members, to be called, held and conducted such manner as the court directs.
- Whether holding of meeting necessary in all cases?
In case of amalgamation of the wholly owned subsidiary companies with their holding company, the court dispensed with the requirement of calling meetings
Where the concerned shareholders gave their written consent to the proposed scheme, their meeting was dispensed with.
- Where proxies are allowed – may mean, “where proxies are allowed under the articles or other provisions of the Act”. The Court would have no power to allow voting by proxy where it is not allowed by the articles or the other provisions of the Act. For instance creditors or a class meeting, who are not members, no proxy is allowed.
(v) Upon hearing of the Petition, the Hon’ble High Court will pass the necessary order
(vi) The Notice of the respective meetings shall be dispatched to each Shareholder and Creditors in such mode as directed by the Hon’ble High Court. The Notice should be dispatched in accordance with the Court order. The following documents should be enclosed with the Notice:-
a.) Explanatory Statement
b.) A copy of the proposed Scheme of Amalgamation
c) Proxy Form & Attendance Slip
d) Others, if any
(vii) Publish the Notices of the respective meetings in such newspapers as directed by the Hon’ble High Court before the date of the respective meeting.
Not less than 7 days before the date of the meetings the respective Chairperson of the meeting shall file an affidavit with the Hon’ble High Court showing that the directions regarding the issue of the notices and publication of notices have been complied with.
(viii) On respective dates convene and hold the meetings of the Shareholders and the Creditors under the chairmanship of the Chairperson appointed by the Hon’ble High Court.
(ix) Approvals and sanctions required :
Simple in majority, Special in Value
(Bowkett & Fullers United Electric Words Re,)
Who is a Creditor
Creditors whose names appear in the books of the company should be considered as creditors. Even contingent or prospective creditors are creditors within the meaning of companies act. A contingent creditor is one to whom nothing is at present due but a right in whose favour will arise on the happening of a contingency which is already provided for. ChittaRanjan (Benode) Ghuha v. M.Ameen.
Creditor in this section is held to include also a contingent creditor such as the Government, Sales Tax, Income Tax or other Tax Liability, which has already arisen though the assessment may not yet have been made. Seksaria Cotton Mills Ltd. V. A E Naik.????
(x) After convening of the meetings, the respective Chairperson of the meeting shall file their reports in respect of the outcome of the meeting with the registry of the Hon’ble High Court.
(xi) Within 7 days of filling of the reports by the Chairperson of the meeting file the Petition for confirmation of the proposed Scheme before the Hon’ble High Court.
(xiii) File one set of Final Petition with the Regional Director and official Liquidator as directed by the Hon’ble High Court.
(xiv) Publish the Notice as directed by the Hon’ble High Court at least 21 days before the next date of hearing.
(xv) Not less than 3 days before the next date of hearing, file an affidavit with the Hon’ble High Court showing that the directions regarding publication of notices have been complied with.
(xvii) Upon considering the Report of Chairman on the Meetings, Report of Official Liquidator and Regional Director the High Court pass the final order confirming or rejecting the amalgamation.
(xv) Modification of Scheme
The High Court has the power to modify a scheme even at the time of working a sanctioned scheme and can also take into account the subsequent developments.
(xvi) Once a scheme has been sanctioned by the Court, it has no power to modify it subsequently without the consent of those who agreed to the original scheme. Mymenshingh Loan Office Ltd., Re. 1937, Cal.
(xviii) After obtaining the copy of the said order, within 30 days of obtaining the same file the Order of the Hon’ble High Court in electronic mode along with eForm 21 with the respective office of the Registrar of Companies.
(xviv) Court’s order to be annexed to memorandum (sub-section 4)
Every copy of the courts order in relation to compromise or arrangement is required to be annexed to every copy of the Memorandum of the company issued after the certified copy of the order has been filed with Registrar.
(xviv) Post amalgamation/arrangement compliances (including RBI, Stock Exchange)
Regulation 7 of Notification No. FEMA 20 /2000-RB dated 3rd May 2000 i.e. Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, are applicable.
Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies :-
The Transferee Company or the new Company, pursuant to a Scheme approved by a High Court may issue shares to the shareholders of the transferor company resident outside India, subject to the following conditions, namely:
All mergers, amalgamations and/or acquisitions falling within the thresholds indicated in section 5 of the Competition Act will require prior approval of the CCI.
I. Acquisition by enterprises
Assets – In India – Rs.1500 cr.
Worldwide- USD 750 mn
(Rs.750 cr. in India)
Turnover – In India – Rs.4500 cr.
Worldwide- USD 2250 mn
(Rs.2250 cr. in India)
Exceptions – Merger between Holding and subsidiary Companies and between wholly-owned subsidiaries belonging to the same Group
Acquisition by Group
Assets – In India – Rs.6000 cr.
Worldwide- USD 3 bn
(Rs.750 cr. in India)
Turnover – In India – Rs.18000 cr.
Worldwide- USD 9 bn
(Rs.2250 cr. in India)
If an amalgamation takes place within the meaning of section 2(1B) of the Income Tax Act, 1961, the following tax reliefs and benefits shall available:-
1. Tax Relief to the Amalgamating Company:
2. Tax Relief to the shareholders of an Amalgamating Company:
Tax Relief to the Amalgamated Company: .
(i) Stamp Duty
-Under the AP Stamp Act, stamp duty is applicable only to Amalgamations.
-De-merger and other arrangements not covered.
(ii) Landmark decision of Supreme Court in Hindustan Lever & Anr. vs. State of Maharashtra & Anr. (2004) 9 SCC 438, where it was held that STAMP DUTY HAS TO BE PAID AS IT IS “CONVEYANCE” OF PROPERTY.
(iii) The stamp duty as per the Schedule I -A of the AP Stamp Act, which provides 2% on the market value of the property, which is subject matter of such conveyance.
(iv) Market Value of the property shall be deemed to be the amount of total value of the shares issued or allotted by the transferee Company, either in exchange or otherwise and the amount of consideration, if any, paid for such amalgamation.