Companies Act Section 237

Companies Act, Section 237: Power of Central Government to Provide for Amalgamation of Companies in Public Interest

Section 237 of the Companies Act, 2013 confers upon the Central Government the extraordinary power to direct the amalgamation of two or more companies when it is deemed essential in the public interest. This provision operates independently of the will of the companies or their members, and allows the Government to take proactive steps to consolidate corporate entities to safeguard economic, financial, social, or administrative objectives of national importance.

The section details the conditions, consequences, rights, compensations, and appeal procedures associated with such a government-directed amalgamation, ensuring a structured and equitable process for all stakeholders involved.

1. Government-Initiated Amalgamation in Public Interest

Where the Central Government is satisfied that the amalgamation of two or more companies is essential in the public interest, it may, through an order notified in the Official Gazette, direct that such companies be amalgamated into a single entity.

This government-ordered amalgamation shall include:

The constitution of the new (transferee) company,
The transfer of all property, powers, rights, interests, authorities, and privileges from the existing (transferor) companies to the new company, and
The assumption by the transferee company of all liabilities, duties, and obligations of the transferor companies.
This provision is often invoked in cases involving failing financial institutions, large infrastructure firms, or companies impacting public health, national security, or the economy.

2. Legal Continuity and Supplemental Provisions

The order issued under Subsection (1) may further provide that any legal proceedings pending by or against the transferor companies will continue seamlessly by or against the transferee company.

Additionally, the Central Government may include in the order such consequential, incidental, or supplemental provisions as it deems necessary to give full effect to the amalgamation. This ensures continuity in operations, contracts, and litigation without disruption.

3. Protection of Stakeholder Interests and Compensation

Every member or creditor, including debenture holders, of the transferor companies is entitled to receive, as far as practicable, the same interest or rights in the transferee company as they held in the respective transferor companies.

However, if the rights or interests of such members or creditors in the transferee company are found to be less than what they previously held, they are entitled to monetary compensation for the shortfall.

Key points:

The assessment of compensation shall be conducted by a prescribed authority, appointed in accordance with rules under the Act.
The result of such assessment must be published in the Official Gazette.
The transferee company bears the obligation to pay the assessed compensation to affected members or creditors.
This ensures that stakeholders do not suffer losses due to changes in shareholding value or contractual entitlements.

4. Right to Appeal the Compensation Assessment

If any member or creditor is dissatisfied with the compensation amount assessed by the prescribed authority, they have the right to appeal to the Tribunal.

Key procedural details:

The appeal must be filed within thirty days from the date of publication of the compensation assessment in the Official Gazette.
Once the appeal is admitted, the Tribunal will reassess the compensation and pass appropriate orders.
This appellate mechanism serves as a safeguard to protect stakeholders from arbitrary or inadequate valuations.

5. Preconditions Before the Final Order

The Central Government cannot make a final order of amalgamation under this section unless the following preconditions are fulfilled:

(a) A draft of the proposed amalgamation order must be sent to each company involved, allowing them to review it.

(b) Either:

The time period for filing an appeal under Subsection (4) has expired, or
If any appeal was filed, it has been finally decided by the Tribunal.
(c) The Government must consider any suggestions or objections received from:

The concerned companies,
Any class of shareholders, or
Any creditors or class of creditors,
These suggestions or objections must be received within a period of not less than two months from the date the draft order was sent to the company.

Upon reviewing such responses, the Government may make modifications to the draft order as it deems appropriate before finalizing it.

This provision ensures transparency, stakeholder participation, and administrative fairness in the exercise of the Government's powers.

6. Parliamentary Oversight

Once the final amalgamation order is made, copies of the order must be laid before both Houses of Parliament as soon as practicable. This ensures parliamentary oversight over the use of executive powers in directing amalgamations and provides an additional layer of accountability.