The domestic mergers and acquisitions market in india has seen an exponential growth, both in scale and sophistication. The goal of a horizontal merger is to create a new, larger organization with more market share. A study on merger and amalgamation of companies under companies act, 20 1jeevitha selvaraj,2arya r 1 student, bba. Mergers, amalgamations, acquisitions, consolidation and takeovers are the expressions that have. Law relating to cross border mergers under companies act, 1956. The 20 act features some new provisions in the area of mergers and acquisitions, apart from making certain changes from the existing provisions. It provides a composite code for facilitating mergers and amalgamations which obviates the need for making multiple applications under the act. Cg may make the rules, in consultation with rbi prior approval of. Combining two companies allows for cost savings and earnings growth and, as a result, increased shareholder value. Further it compares the merger provisions of companies act 1956 and.
Khemka, a kings law scholar pursuing an llm at the university of cambridge this post comments on section 396 of the indian companies act, 1956 carried forward as section 237 in the companies act. The 20 act provides an opportunity to catch up and make our corporate regulations more contemporary, as also potentially. I the companies act, 1956 section 390 to 395 of companies act, 1956 deal with arrangements, amalgamations, mergers and the. What will be the impact of mergers and acquisitions. However, section 234 which enables crossborder mergers. Corresponds in section 392 of the company act,1956.
In a merger, there are more legal formalities as compared to the acquisition. Mergers and acquisitions in india are governed by two laws, the company act, 1956 and the sebi substantial acquisition of shares and takeovers regulations, 1997. Difference between merger and acquisition with example. Permission for merger, information to the stock exchange, approval of board of directors, application in the high court, shareholders and creators meetings. Following are the laws that regulate the merger of the company. The doctrine of merger and acquisition of companies is neither a doctrine of. Amalgamation of two banking companies is under the provisions of section 44 of the banking regulation act,1949. Procedure for merger and amalgamation is different from takeover. Mergers and acquisitions edinburgh business school. Corporate law take over and acquisition of companies. Fasttrack merger under the 1956 act, all mergers and amalgamations require court approval. Abhijeet singh rawaley is a bar council of india trust scholar and a iii year b.
Cross border merger activity is on the rise in india. Act contains provisions on compromises, arrangements and amalgamations, that covers compromise or arrangements, mergers and amalgamations, corporate debt restructuring, demergers, fast track mergers for small companies holding subsidiary companies, cross border mergers, takeovers, amalgamation of companies. Similar provisions have been given under section 235 and 236 of the companies act 20. The present article deals with state of law relating to cross border mergers under the companies act, 1956 and the jurisdiction of indian. However, the eld of play for crossborder mergers and acquisitions is still nascent. The companies act, 1956 section 372 stipulates that a companys investment in the shares of another.
A study of merger and acquisitions with provisions under companies act. It is important to note that though the companies act, 1956 has been substantially repealed by the companies act, 20, the regulatory provisions pertaining to arrangements and amalgamations still continue to be regulated by the companies act, 1956 as the chapter xv compromises, arrangements and amalgamations under the companies. Pdf law relating to cross border mergers under companies act. Deepak verma, a study of merger and acquisitions with provisions under companies act 20 in india. Under section 234, companies act, 20 foreign company indian company. Companies compromises, arrangements and amalgamations rules, 2016, effective from 15122016 have also been notified by the mca. Under the companies act, 1956, while foreign companies can be amalgamated into an indian company, the reverse is not permissible i. Ministry of corporate affairs mergers and acquisitions. For the purpose of this act the terms merger and amalgamation are synonymous. Acquisition of corus group by tata steel in the year 2006. The companies act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements.
Only recently, on december 7, 2016, merger related provisions of the act i. Prior to december 15, 2016, the relevant provisions under the companies act, 1956 1956 act governed mergers and amalgamations in india. This scheme is known as single window clearance scheme. The objective of this study lesson is to enable the students to understand an overview mergers, amalgamations takeovers concept of takeovers, its kinds etc. However, the companies act, 20 ca 20 without strictly defining the term explains the concept. Pdf cross border merger activity is on the rise in india. A curious case of public interest in indian corporate law. Under section 234, companies act, 20 foreign company indian company notified by cg now indian co. Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger without due diligence is like entering a tunnel with darkness growing with each step. Mergers and amalgamations are regulated under the provisions of the companies act, 1956 whereas takeovers are regulated under the sebi substantial acquisition of shares and takeovers regulations. Amalgamation of a banking company with a nonbanking company is governed by sections 391 to 394 of the companies act, 1956.
The 20 act requires that mergers and amalgamations between two or more small companies or between holding companies and its whollyowned subsidiary or between such companies as may be prescribed does not require court approval. Demerger under section 391 to 394 of the companies act, 1956 the primary purpose while going for a demerger is to have focused attention on both businesses. Although the erstwhile companies act, 1956 1956 act did permit the merger. The new companies act, 20 envisages removing this barrier. Companies act, 1956 section 372, regarding intercorporate loans by companies and section 395, regarding acquisition of the shares of dissentient shareholders, there was hardly anything solid. The companies act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements and reconstructions, however other provisions of the companies act get attracted at different times and in each case of merger and acquisition. However it deals with schemes of merger acquisition which are stipulated under section 391 to 394. Mergers and acquisitions in india are governed by the indian companies act, 1956, under sections 391 to 394. Acquisition and transfer of undertakings act, 1980. The new law will replace the nearly 60yearold companies act, 1956 1956 act. Mergers and amalgamations are regulated under the provisions of the companies act, 1956 whereas takeovers are regulated under the sebi.
Cross border merger under companies act, 1956 foreign company can be only transferor co. The term merger is not defined under the companies act, 1956 ca 1956, and under income tax act, 1961 ita. The provisions relating to merger and amalgamation are contained in sections 390 to 396a in chapter v of part vi of the companies act, 1956. The merger is done voluntarily by the companies while the acquisition is done either voluntarily or involuntarily. The companies act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements and reconstructions, however other provisions of the companies act get attracted at different times and in each case of merger and acquisition and the procedure remains far from simple.
The terms merger and amalgamation are synonyms and the term amalgamation, as per concise oxford dictionary, tenth edition, means, to combine or unite to form one organization or structure. Corporate restructuring,corporate restructuring, valuations and insolvencyvaluations and insolvency module 1 paper 3 icsi house, 22, institutional area. The terms merger and amalgamation have not been defined in the companies act, 1956 though this voluminous piece of legislation contains more than 50 definitions in section 2 of the act. Section 391 of the companies act, 1956 is a boon to corporate restructuring. Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger. Companies act 1956, takeover acquisition of shares of unlisted companies was dealt under section 395 which provided for both power as well as duty of the acquirer company to acquire the shares of the target company. A study of merger and acquisitions with provisions under companies act 20 in. This chapter will focus on the rationale behind the introduction of statutory mergers under the companies act no. Definitions of company, existing company, private company and public company 4. Introduction to mergers and acquisitions 5 a horizontal merger horizontal mergers occur when two companies sell similar products to the same markets. Sections 230233, 235240 of the act were made effective which replaced similar provisions of the companies act, 1956 1956 act. The companies act, 1956 does not define the term merger or amalgamation.