Scheme of Amalgamation

Section 232 (1) provides that where an application is made to the tribunal under section 230 for the sanctioning of a compromise or an arrangement and it is shown to the Tribunal that

1. The compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies and
2. That under the scheme, the whole or any part of undertakings, property or liabilities of any company (hereinafter called to as transferor company) is required to be transferred to another company ( hereinafter called to as transferee company), or is proposed to be divided among and transferred to two or more companies,

The Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, the meeting will be called , held in such manner as Tribunal direct and the provision of sub- Section (3) to (6) of section 230 shall apply mutatis mutandis.

Special power of NCLT to give orders

Under section 232 (3) the Tribunal after being satisfied that the procedure specified has been complied with, shall pass the order to sanction the scheme and make provisions related to matters such as transfer of whole or part of undertaking, property, liability of Transferor company to Transferee Company, allotment of shares by transferee company, payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, transfer of legal proceedings, transfer of employees, dissolution of transferor company etc. Also, as per section 232 (5) The Company should file such order of the Tribunal with the Registrar of Companies (ROC) within 30 days.

Transfer of property or liabilities:-

Sub-section (4) states that an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect. 

In PMP Auto Industries Ltd., S.S. Mirando Ltd. and Morarjee GoculdasSpg & Wvg Co. Ltd. it has been held that not only is Section 391 (now section 230) a complete code (as is the view of various High Courts), it is intended to be in the nature of ‘single window clearance’ system to ensure that the parties are not put to avoidable, unnecessary and cumbersome procedure of making repeated applications to the court for various other alterations or changes which might be needed effectively to implement the sanctioned scheme whose overall fairness and feasibility has been judged by the court under Section 394 (now section 232).

Amalgamation of Companies in Public Interest. 

Through Section 237 of the Companies Act, 2013 the Central Government is given the power that where the central government is satisfied that it is essential in the public interest that two or more companies should amalgamate, the Central Government may, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be specified in the order. Such an order has to be order notified in the Official Gazette.

The order may also provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

Every member or creditor, of each of the transferor companies before the amalgamation shall have the same interest or rights against the transferee company as he had in the company of which he was originally a member or creditor, and in case the interest or rights of such member or creditor are less than he shall be entitled to compensation to that extent. A copy of the proposed order is sent to the companies in advance to enable them to file their objections, if they have any.

By Mehr Kaur,