PROCEDURE OF MERGER

1.	Observing Memorandum of Association of Transferee 
Company.
It has to be ensured that the objects of the MOA of the 
transferee company cover the objects of the Transferor 
Company or companies. If not then it will be necessary to 
follow the procedure for amendment of objects by passing a 
special resolution at an EGM convened for this purpose.
It has been held by various decisions of the courts that 
there is no necessity to have special power in the object 
clause of the MOA of a company for its amalgamation with 
another company. It has been laid down that to amalgamate 
with another company is power of the company and not an 
object of the company.

2. Convening a Board Meeting
Board Meeting is to be convened and held to consider and 
approve in principle amalgamation and appoint an expert for 
valuation of shares to determine the share exchange ratio. 
Consequent upon finalization of scheme of amalgamation 
anther Board Meeting is to be held to approve the scheme.

3. Preparation of Valuation Report
Chartered Accountants are requested to prepare a Valuation 
Report & the swap ratio for consideration by the Boards of 
both the companies and if necessary it may be prudent to 
obtain confirmation from merchant bankers on the valuation 
to be made by the Chartered Accountants.

4.	Preparation of scheme of amalgamation or merger
Auditors, legal advisors and Practicing Company Secretary 
of both the companies must interact with each other and 
should report the result of their interaction to their 
respective BOD. The Boards of the involved Companies should 
discuss and determine details of the proposed scheme of 
amalgamation and merger. The draft of the scheme finally 
prepared by the Boards of both the companies should be 
exchanged and discussed in their respective Board meetings. 
After such meetings a final draft scheme will emerge.

Contents of Amalgamation scheme
1.	Transfer date: 
This is a cut off date from which all the movable and 
immovable properties including all rights, powers, 
privileges of every kind, nature and description of the 
transferor company shall be transferred or deemed to be 
transferred without any further act, deed or thing to the 
transferee company.

2.	Effective date:
        This is the date on which the transfer and vesting 
of the undertaking of the 
Transferor company shall take effect i.e. all the requisite 
approvals would have been   obtained.
 
The scheme should suitably provide for:

1.	Brief details of transferor and transferee 
companies 
2.	Appointed date
3.	Main terms of transfer of assets and liabilities 
from transferor to transferee.
4.	Effective date of the scheme
5.	Details of happenings and consequences of the 
scheme coming into effect on effective date
6.	The terms of carrying on the business activities by 
transferor between ‘appointed date’ and ‘effective date’
7.	Details of Share capital of transferor and 
transferee company
8.	Proposed share exchange ratio, conditions attached 
thereto fractional certificates to be issued to Transferee 
Company, approvals and consent required etc.
9.	 Conditions about payment of dividend, ranking of 
equity shares, prorata dividend declaration and 
distribution.
10.	 Status of employees of transferor companies and 
various schemes or funds created for their benefit from the 
effective date
11.	 Agreement between transferor and transferee 
companies towards making applications/petitions under 
sec.391 and 394 and other provisions to the respective High 
Courts
12.	 Impact of various provisions covering income tax 
dues, contingencies and other accounting entries deserving 
attention.
13.	 Statement to bear costs, expenses etc. in 
connection with the scheme by transferee company
14.	Qualifications attached to the scheme requiring 
various approvals and sanctions.
15.	 Enhancement of borrowing limit of the transferee 
company upon the scheme coming into effect
16.	 Surrender of shares by Shareholders of Transferor 
Company for exchange into new share certificates.

5. Approvals of scheme
Approvals of BOD, Stock Exchanges, Share holders, 
creditors, financial institutions, Land holders, high 
courts and RBI are required.

6. Application to High Court seeking direction to hold 
meetings
Rule 67 of the Companies (court) Rules, 1959 lays down that 
an application under section 391(1) of the Companies Act, 
1956 for an order seeking direction for convening meetings 
of creditors and/or members or any class of them shall be 
by way of judge’s summons supported by an affidavit. A copy 
of the proposed scheme should be annexed to the affidavit 
as an exhibit thereto. The summons should be moved ex parte 
in Form no.33 of the Companies (court) Rules, 1959. The 
affidavit in support of the application should be in Form 
No. 34. 

7. Jurisdiction of High Court
Joint application or separate applications should be moved 
to the High Court having jurisdiction over the state in 
which registered offices of the companies are situated.


8. Obtaining order of the court for holding class meetings.
On receiving a petition the court may order meetings of the 
members/creditors to be called, held and conducted in such 
manner as the court directs. Once the ordered meetings are 
duly convened, held and conducted and the scheme is 
approved by the prescribed majority in value of the 
members/creditors, the court is bound to sanction scheme.
Notice of the meeting(s) should be in Form no.36 must be 
sent by the person authorized by the court at their last 
known addresses at least 21 clear days before the day fixed 
for the meeting. The notice must be accompanied by a copy 
of the scheme for the proposed compromise or arrangement.

9. Notice by advertisement
Where the court has directed that the notice of the 
meetings should also be given by newspaper, advertisements, 
and such notices are required to be given in the prescribed 
Form no. 38 and published once in an English newspaper and 
once in the regional language of the state in which the 
registered office of the company is situated.

10. Convening of General Meeting
At the General meeting convened by the High Court 
resolution will be passed approving the scheme of 
amalgamation with such modification as may be proposed and 
agreed to at the meeting.
The resolution relating to the approval of amalgamation has 
to be approved by a majority of members representing 3/4th 
in value of the creditors or class of creditors or members 
or class of members as the case may be present and voting 
either in person or by proxy.
The minutes of the meeting should be finalized in 
consultation with the Chairman of the meeting and should be 
signed by him once it is finalized and approved. Copies of 
such minutes are required to be furnished to the Stock 
Exchange in terms of the Listing Agreement.


11. Reporting of the results
The Chairman of the meeting will submit report of the 
meeting indicating the results to the concerned High Court 
in Form no.39 within 7 days of the conclusion of the 
meeting. The Report must state:
a)	The no. of creditors/members or class of 
creditors/members who were present at the meeting and who 
voted.
b)	Their individual values and the way they voted

12. Petition to court for confirmation of scheme
When the scheme is agreed to, with or without modification 
a petition must be made to the court for confirmation of 
the scheme on the Form no.40
The court also directs that notices of petition be sent to 
the concerned Regional Director, ROC and the official 
liquidator.
On hearing the petition the court shall fix the date of 
hearing and it shall be published in the same newspaper in 
which notice of the meetings was advertised or in such 
other papers, not less than 10 days before the date of 
hearing.

13. Obtaining order of the court sanctioning the scheme
An order of the court on summons for directions should be 
obtained which will be in obtained which will be in Form 
no.41.

14. Filing of copy of court’s order with ROC
A certified copy of the order passed by the court under 
both the section 391(3) and 394(3) is required to be filed 
with concerned ROC in E-form no.21.
If default is made in complying with this sub-section the 
company and every officer of the company who is in default, 
shall be punishable with fine which may extend to five 
hundred rupees. According to sub-section (3) of section 391 
the court order shall not have effect unless a certified 
copy of the order has been filed with the Registrar.

15. Transfer of the Assets & Liabilities
Section-394(2) vests power in the High Court to order for 
the transfer of any property or liabilities from Transferor 
Company to Transferee Company. In pursuance of and by 
virtue of such order such properties and liabilities of the 
transferor shall automatically stand transferred to 
transferee company without any further act or deed from the 
date the Court’s Order is filed with ROC.

16. Allotment of Shares to Shareholders of Transferor 
Company
Pursuant to the sanctioned scheme of amalgamation, the 
share-holders of the
Transferor company are entitled to get shares in the 
transferee company in the
Exchange ratio provided under the said scheme. There are 
three different situations in which allotment could be 
given effect:-

i) Where Transferor Company is not a listed company, the 
formalities prescribed under listing agreement do not exist 
and the allotment could take place without setting the 
record date or giving any advance notice to shareholders 
except asking them to surrender their old share 
certificates for exchange by the new ones;

ii) The second situation will emerge different where 
transferor company is a listed company. In this case, the 
stock exchange is to be intimated of the record date by 
giving at least 42 days notice or such notice as provided 
in the listing agreement ;

iii) The third situation is where allotment to Non-Resident 
Indians is involved and permission of Reserve Bank of India 
is necessary. The allotment will take place only on receipt 
of RBI permission. In this connection refer to Regulations-
7, 9 & 10B of Foreign Exchange Management (Transfer or 
Issue of Security by a Person Resident outside India) 
Regulations, 2000 as and where applicable. 

Having made the allotment, the transferee company is 
required to file with ROC with return of allotment in Form 
No-2 appended to the Companies (Central
Government’s) General Rules and Forms within 30 days from 
the date of allotment in terms of Sec-75 of the Act.

Transferee Company shall having issued the new share 
certificates in lieu of and in exchange of old ones, 
surrendered by transferor’s shareholders should make
necessary entries in the register of members and index of 
members for the shares so allotted in terms of Sec-150 and 
151 respectively of the Companies Act,1



17.	Listing of the Shares at Stock Exchange
After the amalgamation is effected, the company which takes 
over the assets and liabilities of the transferor company 
should apply to the stock exchanges where its securities 
are listed, for listing the new shares allotted to the 
shareholders of the transferor company.


18.	Court order to be annexed to Memorandum of 
Transferee Company
It is the mandatory requirement vide Sec-391(4) of the 
Companies Act, 1956 that after the certified copy of the 
Court’s Order sanctioning the scheme of amalgamation is 
filed with Registrar, it should be annexed to every copy of 
the Memorandum issued by the transferee company. Failure to 
comply with requirement renders the company and its 
officers liable to punishment.

19.	Preservation of Books & Papers of Amalgamated 
Company

Sec-396A of the Act requires that the books and papers of 
the amalgamated Company should be preserved and not be 
disposed of without prior permission of the Central 
Government.

20.	The Post Merger Secretarial Obligations

There are various formalities to be complied with after 
amalgamation of the companies is given effect to and 
allotment of shares to the shareholders of the transferor 
Company is over. These formalities include filing of the 
returns with Registrar of Companies, transfer of 
investments of transferor company in; the name of the 
transferee, intimating banks and financial institutions, 
creditors and debtors about the transfer of the transferor 
company’s assets and liabilities in the name of the 
transferee company, transfer of employees, gratuity, PF and 
Pension funds etc.


21.	Withdrawal of the Scheme not permissible

Once the scheme for merger has been approved by requisite 
majority of
Shareholders and creditors, the scheme cannot be with-drawn 
by subsequent meeting of shareholders by passing Resolution 
for withdrawal of the petition submitted to the court U/s-
391 for sanctioning the scheme.

PROCEDURE OF DEMERGER
  The procedure is as follows:
1.	Incorporate the company which will be the Resulting 
Company. 
2.	Frame a scheme of Demerger 
3.	File a Judges Summons in the High Court praying for 
an Order convening separate meetings of the Creditors, 
Share-holders, or any class of them. Each such Judges 
summons must be supported by an 
Affidavit and a copy of the Scheme must be annexed to the 
Affidavit. If all the Creditors agree to the Scheme, the 
meeting may be dispensed with. In the case of a Demerger, 
it would not be possible to dispense with a meeting of the 
share-holders, since under Section 293 (1)(a) of the 
Companies Act, a general meeting of the share-holders would 
be essential before any such Demerger can take place. 
4.	Notice of the meeting must be given to the 
Creditors and /or members and sent individually to each 
Share-holder/Creditor. Each notice must be accompanied by a 
copy of the scheme, explanatory statement as required by 
Section 393 of the Companies Act and a proxy form. 
5.	The notice of meeting must be advertised in such 
newspapers and in such manner as the judge may direct. The 
Advertisement must take place at least 21 clear days before 
the date of the meeting,i.e. 21 days notice must be given 
excluding the date of advertising of the notice and the 
date of the meeting. 
6.	The Chairman of the meeting or other person 
directed to issue the Advertisement and notices must file 
an Affidavit not less than 7 days before the date of the 
meeting showing that the directions reg: issue of notices 
and advertisements have been duly complied with. 
7.	On the date of the meeting, the decisions of the 
meetings must be ascertained only be taking a poll. 
8.	The Chairman of each meeting must file a report in 
the Court within that time fixed by the Judge or where no 
time has been fixed, within 7 days after the conclusion of 
the meeting. The report must state accurately the number of 
creditors or class of creditors or number of members or 
class of members as the case may be who were present and 
who voted at the meeting either in person or by proxy, 
their individual values and the way they voted. The report 
shall be in Form 39 annexed to the Companies (Court) Rules, 
1959. 
9.	Where the proposed Demerger is approved by the 
various meetings with or without modification, the company 
must present the petition to the Court, for confirmation of 
the Demerger within 7 days of the filing of the Chairman's 
Report. 
10.	The Court shall fix a date for hearing of the 
Petition and direct advertising in the same newspapers in 
which the notices of the meetings were advertised or in 
such other papers as the Court might direct. The notice 
must be given not less than 10 days before the date of the 
hearing. 
11.	If the Court sanctions the Demerger, it may give 
such directions as it considers necessary for the proper 
working of the Demerger. The certified copy of the Order 
must be filed within 14 days from the date of the Order or 
such other time, as may be fixed by the Court. 
12.	Applications for Orders in connection with the 
Demerger or for any variation, etc. shall be made under 
Section 394 by Judges Summons supported by an Affidavit for 
directions as to the proceedings to be taken. Notice of the 
summons shall be given in such manner and to such person as 
the Court may direct. On hearing the Summons, the Court may 
make such Order or Directions as may be necessary. 
13.	The Company or any Creditor or Member thereof may 
at any time after the passing of the Order sanctioning 
Demerger, apply to the Court for determination of any 
question relating to the working of the compromise or 
arrangement. Notices and Advertisements shall be as the 
Court may direct. The Court may pass such Orders, give such 
Directions as it may think necessary