Companies Act Section 378ZN

Companies Act, Section 378ZN: Amalgamation, Merger or Division to Form New Producer Companies

1. Transfer or Division of a Producer Company

A Producer Company may, through a resolution passed in its general meeting:

(a) Transfer its assets and liabilities (in whole or in part) to another Producer Company for the objects stated in Section 378B, provided the receiving company agrees via a similar resolution.
(b) Divide itself into two or more new Producer Companies.
2. Formation of a New Producer Company through Amalgamation or Merger

Two or more Producer Companies may, by resolution in any general or special meeting:

(a) Amalgamate and form a new Producer Company.
(b) Merge one company (called the merging company) with another (called the merged company).
3. Resolution Requirements

Any such resolution must:

Be passed at a general meeting. Be approved by at least two-thirds of the members present and voting who have voting rights. Contain detailed particulars of the intended transfer, division, amalgamation, or merger.
4. Notice to Members and Creditors

Before passing such resolution, written notice along with a copy of the proposed resolution must be given to all members and creditors for their consent.

5. Rights of Non-Consenting Members or Creditors

Within one month from the date of receiving the notice:

A member may transfer their shares to an active member (with Board approval) and exit the company. A creditor may withdraw their deposit, loan, or advance.
6. Deemed Consent

Any member or creditor who does not exercise the above option within the specified one-month period shall be deemed to have consented.

7. When the Resolution Takes Effect

The resolution becomes effective either:

After the expiry of one month, or once all members and creditors have given their assent, whichever is earlier.
8. Contents of the Resolution

The resolution may also provide for:

(a) Future regulation of company affairs;
(b) Share purchase by other members or the company itself;
(c) Share capital reduction in case of such purchases;
(d) Termination/modification of agreements with directors or officers;
(e) Termination/modification of agreements with third parties (after notice and consent);
(f) Setting aside of any fraudulent transfers or transactions made within 3 months prior to the resolution;
(g) Transfer of property/liabilities to the merged company;
(h) Allotment of shares/debentures in the merged company;
(i) Continuation of legal proceedings by/against the merged company;
(j) Dissolution (without winding up) of the original company;
(k) Provisions for dissenting members/creditors;
(l) Tax liabilities of the Producer Company;
(m) Any other incidental or necessary provisions to ensure proper implementation of the amalgamation, merger, or division.
9. Legal Effect of the Resolution

Once the resolution becomes effective, it serves as a valid legal instrument to transfer assets and liabilities to the transferee company.

10. Obligations Towards Dissenting Members and Creditors

The Producer Company must settle or satisfy all claims of members and creditors who opt not to continue within the period mentioned in Section 4.

11. Cancellation of Registration (Transfer or Merger)

When all assets and liabilities are transferred, or a merger is completed:

The registration of the transferor or merging company is automatically cancelled.
The company is deemed dissolved and ceases to exist as a corporate body.
12. Cancellation of Registration (Amalgamation)

If multiple Producer Companies amalgamate into a new company:

Their registrations are cancelled upon registration of the new company.
The original companies cease to exist as corporate bodies.
13. Cancellation of Registration (Division)

If a Producer Company divides into two or more new companies:

The original company’s registration is cancelled once the new companies are registered.
The original company is deemed dissolved.
14. Continuation of Legal Rights and Obligations

The amalgamation, merger, or division:

Does not affect pre-existing rights or obligations.
Legal proceedings can continue against or be initiated by the resulting or merged company.
15. Role of the Registrar

The Registrar shall strike off the names of all Producer Companies that are deemed dissolved under sub-sections (11) to (14).

16. Right to Appeal

Any aggrieved member, creditor, or employee may file an appeal to the Tribunal within 30 days of passing the resolution.

17. Tribunal Orders

The Tribunal shall provide a reasonable opportunity of hearing and may pass any appropriate order.

18. Status of Resolution During Appeal

If an appeal is filed:

The transfer, amalgamation, merger, or division shall be subject to the Tribunal’s decision.