Companies Act Section 232

Companies Act, Section 232: Merger and Amalgamation of Companies

Section 232 of the Companies Act, 2013 governs the merger and amalgamation of companies, providing a legal framework for merging operations and assets through reconstruction or business consolidation, ensuring transparency and oversight by the Tribunal.

1. Application for Sanctioning a Compromise or Arrangement Involving Merger or Amalgamation

When an application under Section 230 for sanctioning a compromise or arrangement involves a merger or amalgamation, the Tribunal must assess key aspects before proceeding.

(a) Purpose of the Scheme Merger or Amalgamation
The Tribunal must ensure that the compromise or arrangement aims to facilitate the reconstruction of companies, including mergers or amalgamations, to streamline operations and improve efficiency.

(b) Transfer of Undertaking, Property, or Liabilities
The Tribunal reviews the transfer of assets and liabilities between companies and may direct a meeting of creditors or members, ensuring compliance with Section 230 procedures.

2. Circulation of Information for the Meeting

Once the Tribunal orders a meeting, relevant information must be circulated to ensure transparency and inform stakeholders about the proposed scheme.

(a) Draft of the Proposed Terms
The draft scheme, outlining key elements like share exchange ratios, asset transfers, and liabilities, must be circulated to stakeholders.

(b) Filing with Registrar
The companies must confirm that the draft scheme has been filed with the Registrar of Companies for regulatory compliance.

(c) Report on the Impact of the Compromise
A report from the directors must explain the scheme's impact on shareholders, key managerial personnel, promoters, and non-promoters, including share exchange ratios and asset valuation issues.

(d) Expert Valuation Report
An expert's report on the valuation of the companies must be included to ensure fair and objective asset and liability transfers.

(e) Supplementary Accounting Statements
If the last annual accounts are over six months old, the companies must provide a supplementary accounting statement to ensure stakeholders have up-to-date financial information.

3. Tribunal’s Powers to Sanction the Scheme

Once the procedure is followed, the Tribunal can sanction the compromise or arrangement and issue orders to facilitate the merger or amalgamation.

(a) Transfer of Property or Liabilities
The Tribunal may order the transfer of the transferor company's assets, property, or liabilities to the transferee company, effective from a specified date, with possible conditions for fairness.

(b) Allotment of Shares, Debentures, or Other Instruments
The Tribunal may approve share allotment by the transferee company, but shares held in its own name or through subsidiaries must be cancelled to avoid conflicts of interest.

(c) Continuation of Legal Proceedings
The Tribunal may allow pending legal proceedings against the transferor company to continue against the transferee, preserving rights and liabilities in ongoing disputes.

(d) Dissolution of Transferor Company
The Tribunal may order the dissolution of the transferor company without formal winding-up, streamlining the post-merger process.

(e) Protection for Dissenting Shareholders
The Tribunal must protect dissenting shareholders or members, possibly through compensatory measures like a buyout at a pre-determined price or valuation.

(f) Foreign Shareholding and FDI Norms
If the company involves FDI, the Tribunal may direct how shares will be allotted to non-resident shareholders to ensure FDI compliance.

(g) Employee Transfers
The Tribunal may also address the transfer of employees from the transferor company to the transferee company. This ensures that employee rights are protected during the transition.

(h) Listed and Unlisted Companies
If the transferor company is listed and the transferee unlisted, the Tribunal may set terms for the transferee's listing and outline opt-out provisions, including share valuation and payment.

(i) Adjustment of Fees
If the transferor company is dissolved, any fees paid on its authorized capital can be set off against fees payable by the transferee company after the amalgamation.

(j) Incidental and Supplemental Matters
The Tribunal may address any matters necessary for the smooth execution of the merger. No scheme will be sanctioned without an auditor's certificate confirming compliance with accounting standards.

4. Transfer of Property and Liabilities

Upon the Tribunal's order, the transferee company will automatically assume the transferor company's property and liabilities, with assets transferred free from charges, as per the scheme.

5. Filing of Certified Copy of Order with Registrar

The companies must file a certified copy of the Tribunal's order with the Registrar of Companies within 30 days to officially record the merger.

6. Effective Date of the Scheme

The scheme must specify an appointed date from which it becomes effective, establishing the timeline for all merger-related changes.

7. Annual Filing Requirement

Until the scheme is completed, the companies must submit an annual compliance statement to the Registrar, certified by a professional, ensuring adherence to the Tribunal’s orders.

8. Penalty for Non-Compliance

Failure to comply with filing requirements will result in a ?20,000 fine for the company and officers, with a daily penalty of ?1,000, up to a maximum of ?3 lakh.