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Project report

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Mergers And Amalgamations under Companies Act 2013

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Project report

  1. 1. PROJECT REPORT PROJECT TOPIC: Mergers & Amalgamations Prepared By: Nivedita Singh
  2. 2. The end of year 2016 witnessed a paradigm shift in the Indian corporate restructuring front as MCA notified the much awaited sections in the Companies Act, 2013 dealing with amalgamations, compromise , arrangement, liquidation and winding up vide Notification dated December 7, 2016 further notifing the procedural aspects of these sections in the form of Rules called Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 ( the “Rules”) , both of which came into force on December 15, 2016 Chapter XV of the New Act deals with “Compromises, Arrangements, and Amalgamations”, and consolidates the applicable provisions and related issues. The Old Act required M& A to be sanctioned through a court process. The said process will continue under the New Act (with certain exemptions and relaxations) but the jurisdiction of court with regard to such Schemes will now vest with NCLT MCA also notified the Companies (Transfer of Pending Proceedings) Rules, 2016 and the Companies (Removal of Difficulties) Fourth Order, 2016. Pursuant thereto, all proceedings under the 1956 Act with High Courts shall stand transferred to the Benches of the National Company Law Tribunal (“NCLT”) exercising respective territorial jurisdiction with effect from December 15, 2016, other than proceedings relating to winding up which have been dealt with separately. However, proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred. There are pragmatic reforms for M&A under the New Act, which could make the process easier, faster and cleaner for companies involved in M&A. Some of the highlights include fast track mergers, mergers between Indian Companies and foreign companies and, setting up of National Company Law Tribunal (NCLT) to hear and decide on M&A proposals, cutting down on the probability and scope of objections to M&A’s and easier as well as wider participation of shareholders through postal ballot approval. Also, The Insolvency and Bankruptcy Code was passed by the Parliament on 11th May 2016 and received Presidential assent on 28th may 2016 and notified in the official gazette on the same day. The law aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation. The Code seeks to repeal the Presidency Towns Insolvency Act, 19 Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003, among others. This project report discusses the Mergers and Amalgamations under the recently notified Companies Act 2013, its procedural aspects, the key differences in provisions relating Amalgamations under new and the old Act. It further briefly discusses the regulatory aspect of merger in India in present time. Preface
  3. 3. Corporate Restructuring refers to changes in ownership, business mix, asset mix and alliances primarily with aim to increase shareholder value. Hence corporate restructuring may involve ownership restructuring, business restructuring or asset restructuring. Simply stated, it implies restructuring or reorganizing a company or its business or its financial structure in such a way as to make it operate more effectively. Merger or Amalgamation is one of the many tools/modes/forms of Corporate Restructuring which can be further classified (as explained in the diagram 1 and 2.) Key Forms of Corporate Restructuring Acquisition Demerger Others Share Purchase (Takeover) Asset Purchase Slump Sale Itemized sale Reverse MergerForward Merger Capital Reduction Buy Back Joint Venture Merger/ Amalgamation Congenric Merger Conglomerate Merger Other Types Vertical Merger Horizontal Merger Backward Merger Forward Merger diagram 1
  4. 4. Merger/Amalgamation – Meaning The terms merger and amalgamation are used interchangeably as a form of business organization to seek external growth of business. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets / liabilities being taken over by the surviving firm. Amalgamation is combination of two corporate entities where the assets and liabilities of both are vested in a third entity, with the effect that both former entities lose their identities to form a new entity” ENTITY A ENTITY B ENTITY B ENTITY A ENTITY B ENTITY C (New entity)
  5. 5. Merger/Amalgamation Classification Congeneric Merger Merger within same or related industries . Conglomerate Merger Involves coming together of two or more companies engaged in different industries and/or services . Their businesses or services are neither horizontally nor vertically related to each other Vertical Merger a merger between two companies that operate at separate stages of the production process for a specific finished product. i.e. merger where two or more firms, operating at different levels within an industry's supply chain, merge operations. Horizontal Merger a merger between business competitiors who maunfacture similar products or provide similar services. It occurs when competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. Backward Merger When a company merges or combines with supplier of material Forward Merger When a company merges or combines with customer Downstream Merger Merger of parent company into its subsidiary. Upstream Merger Merger of subsidiary company into its holding company Triangular Merger Merger of a company into subsidiary of another company by virtue of which shareholders get shares of holding company. Other Types diagram 2
  6. 6. However Section 2(1B) of the Income-Tax Act, 1961 defines amalgamation as follows: Amalgamation in relation to companies means the merger of one or more companies with another company or merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such manner that i. all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; ii. all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; iii. shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation E.g. Say X Ltd. Merges with Y Ltd. In a scheme of amalgamation and immediately before the amalgamation , Y Ltd. Held 20% shares in X Ltd. The condition mention in (iii) above will be satisfied if shareholders holding not less than 75% in value of remaining 80% of shares of X. Ltd i.e. 60% thereof become shareholders in Y Ltd by virtue of amalgamation. In Indian context, the terms amalgamation or merger have neither been defined in the Companies Act, 1956 nor in Companies Act 2013. Also both the terms i.e. Merger and Amalgamation are often used synonymously and intended to mean the same. Merger/Amalgamation – In India AS 14 prescribed by ICAI (Institute of Chartered Accountants Of India) which has been used for accounting of amalgamation in India until now and has only recently been substituted by new accounting standards called IND AS 103 for certain category of companies; classifies and defines amalgamation as: 1. AMALGAMATION IN THE NATURE OF MERGER is an amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) (ii) Share holders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries∗ or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. 2. AMALGAMATION IN THE NATURE OF PURCHASE is an amalgamation which does not satisfy any one or more of the conditions specified above
  7. 7. Companies Act 2013 Section 230-240 (Companies Act 1956) AS 14/ IND AS 103 Stamp Duty Provisions LODR Regulations (Listed Company) IncomeTax Act NCLT Rules 2016 (Court Rules 67-87) Regulatory Framework
  8. 8. Section 230-231 Compromise or Arrangements Section 232 Mergers and Amalgamation including Demergers Section 233 Amalgamation of small companies (Fast track mergers) Section 234 Amalgamation with Foreign Company (Cross Border Mergers) Section 235 Acquisition of Shares of dissenting shareholders Section 236 Purchase of minority shareholding Section 237 Power of central government to provide for amalgamation of companies in public interest Section 238 Registration of offer of schemes involving of shares Section 239 Preservation of books and papers of amalgamated companies Section 240 Liability of officers in respect of offences committed prior to merger amalgamation etc. Until November 2016, Companies Act 1956 (Section 391-396) dealt with Compromises, Arrangement and Amalgamations. Thereafter, in December 2016 the sections governing Arrangement and Amalgamation under Companies Act 2013 were notified. Chapter XV (Section 230-240) of Companies Act 2013 contains the provisions on Compromises, Arrangements and Amalgamations. The procedural aspects involved and format of applications to be made to NCLT are covered under rules called Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 ( the “Rules”) made under the Act. A gist of sections is as follows. Merger/Amalgamation – Companies Act 2013
  9. 9. 1. National Company LawTribunal to assume jurisdiction of HighCourt. 2. Section 230(2) – Application for compromise or arrangement to be accompanied by an affidavit, disclosing i. All material facts relating to the company. ii. Reduction of capital if any included in the compromise or arrangement; iii. . Any scheme of corporate debt restructuring consented to by not less than 75% of the secured iv. creditors in value along with creditors responsibility statement, report of the auditor as to the funds requirement after CDR and the conformity to liquidity test etc. 3. Proviso to Section 230(3) – Notice relating to compromise or arrangement and other documents to be placed on the website of the company. 4. Section 230(5) – Notice of meeting for approval of the scheme of compromise or arrangement be sent to various regulators including: i. 1.The Central Government; ii. 2. Income-taxAuthorities; iii. 3. Reserve Bank of India (`RBI’); iv. 4. Securities Exchange Board of India (`SEBI’); v. 5.The Registrar; vi. 6. Respective Stock Exchange; vii. 8.TheCompetition Commission of India; if necessary; and Other Sectoral regulators which could likely be affected by the scheme. Representation, if any, by the above authorities will have to be made within a period of 30 days from receipt of notice. 5. Proviso to Section 230(4) – Persons holding not less than 10% of the shareholdings or persons having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement, entitled to object the scheme of compromise or arrangement. 6. Proviso to Section 230(7) – No sanction for Compromise or arrangement if accounting treatment is no AS compliant. 7. Section 234 – Cross border Merger permitted.The 1956 act permits merger of foreign company wit h Indian company and not vice versa. 8. Section 233 (10) – Abolishing the practice of companies holding their own shares through a trust (Treasury Stock) in case of merger of holding and subsidiary companies. Ultimately the shares are to be cancelled. 9. Section 233 – Fast track mergers introduced. –The new Act enables fast track merger without the approval of NCLT, between: i. Two or more small companies. Small company is defined under the Act. ii. Holding and wholly owned subsidiary company iii. Other class of companies as may be prescribed 10. Section 230(6) – Approval of scheme by postal ballot thereby involving wider participation; 11. Section 230(11) – Any compromise or arrangement may also include takeover offer made in prescribed manner. In case of listed companies, takeover offer shall be as per the regulations framed by SEBI. Salient Features of Companies Act, 2013 relating to Corporate Restructuring
  10. 10. S.No PROCEDURE TIMELINE FORMS Company Specific Steps/ Procedure 1. Board Meeting of the Company to Consider the proposal of amalgamation and authorize the Committee or Directors to appoint Consultants, Valuers, Merchant Bankers, Lawyers etc 2. Intimate Stock exchange on the decision of the board within 30 minutes of the meeting. 3.  Consultants prepare Roadmap and submit analysis report of structuring  Valuation of company and determination of exchange ratio  Finalize draft scheme of merger  Valuation report placed before Audit committee and Audit committee to give its recommendation on draft scheme, taking into consideration the Valuation report. 4. Board Meeting to be held to :  Approve the scheme of merger  Accept the report of Auditor on valuation and share exchange ratio  Consider fairness opinion of merchant banker  Authorize Directors to take all action for implementing Scheme of merger Procedure as prescribed under Rules: 5. Company to file following documents with NCLT An application (joint application at discretion of all the parties if registered office under same jurisdiction) to order that meeting of shareholders/members, creditors or class of creditors be called and conducted in such manner as Tribunal directs. A notice of admission An affidavit A copy of scheme of compromise or arrangement which shall include disclosures as given in Section 230(2) NCLT 1 NCLT 2 NCLT 6 Procedure for Amalgamation – Section 230-232 of Companies Act 2013
  11. 11. 6. Tribunal may at its discretion give directions to convene the meeting of shareholders and creditors or dispense with the meeting of creditors of transferor and transferee company. 7. Send the notice of the meeting to class of shareholders and members whose meeting has been directed by Tribunal in manner provided under Section 230(3) and shall be sent individually to each creditor and member. i. The notice shall be accompanied by: a. Details of order of Tribunal directing the calling, convening and conducting the meeting b. Date of order i. Date time and venue of meeting ii. Date of board meeting at which such scheme was approved, name of directors who voted in favor and against the resolution and those who did not vote. iii. The facts and details of any relation between parties to amalgamation iv. explanatory statement disclosing details like parties involved, appointed date, effective date, share exchange ratio,, summary of valuation report etc. v. Disclosure about the effect of the compromise or arrangement on: key managerial personnel; directors; promoters; non-promoter members; depositors; creditors; debenture holders; deposit trustee and debenture trustee; employees of the company. CAA.2 Advertisement of the notice of the meeting The notice of the meeting shall be advertised in Form No. CAA.2 in at least one English newspaper and in at least one vernacular newspaper having wide circulation in the State in which the registered office of the company is situated. Further the notice shall be placed on the website of the company (if any) and in case of listed companies also on the website of the SEBI and the recognized stock exchange where the securities of the company are listed At least 30 days before the meeting
  12. 12. 9. Notice to statutory authorities CAA.3, Post sending notices to members/creditors company to send notice of meeting to regulators like the Central Government, Registrar of Companies, Income Tax authorities, Reserve Bank Of India, SEBI, CCI, Stock Exchange, as applicable. 10. Filing of affidavit of service of notice by the respective chairperson of the meetings of shareholders and/or secured and unsecured creditors with the Hon'ble NCLT 11. Convening the meeting of the members & creditors and approve the scheme of Merger by voting and passing the resolution by poll or by voting through electronic means. 12. Filing of Chairman’s Report of result of the meeting with the NCLT CAA.4 13. Filing of the petition for confirming amalgamation/arrangement with tribunal Within 7 days of report of chairperson CAA.5 14. The tribunal shall fix a date for hearing of the petition and notice of hearing shall be published in the same newspaper in which notice of meeting was published earlier At least 10 days before the date of hearing 15. Filing of copies of Petition with Registrar of Companies, Regional Director and Official Liquidator 16. Final Hearing at the tribunal 17. Receipt of Certified True Copy of the Order of the NCLT. 18. Filing of e Form INC- 28 with the Registrar of Companies
  13. 13. Section 230 – Section 240 Section 390-396A BODY OF APPROVING MERGER National Company Law Tribunal will deal with matters related to Mergers & Acquisitions. Scheme of arrangement to be approved by respective High Court which has jurisdiction overTransferor andTransferee Company. CROSS BORDER MERGERS Inbound mergers (Foreign Company merging into Indian Company as well as outbound foreign company mergers (Indian Company merging into foreign Company with RBI approval) are allowed. Permits only inbound foreign Company merger (Foreign Company merging into Indian Company) FAST TRACK MERGER Fast track merger is merger between two or more small companies, holding company and its wholly owned subsidiary and such other company as may be prescribed, where approval of NCLT shall not be required. The scheme must be approved by 90% of shareholders and 90% of creditors(in value) , and after approval of scheme notice must be given to Central Governemnt, NCLT, ROC and official liquidator. No provisions for exemption from court process for corporate reorganizations like amalgamation, merger etc. The provisions relating to Compromise,Arrangement and Amalgamations under CompaniesAct 1956 and Companies Act 2013 more or less remain same in substance with a few very pragmatic changes like FastTrack merger of small companies, merger of Indian company into foreign company, introduction of threshold for raising objection to amalgamation scheme.The key changes in the new act has been discussed hereunder while making comparisons with the old act. Key changes in Comparison to Companies Act 1956.
  14. 14. Section 230 – Section 240 Section 390-396A OBJECTION TO THE SCHEME OF AMALGAMATION Such scheme can be objected only by shareholders having not less than 10% shareholding or creditors whose debt is not less than 5% of total outstanding debt as per the last audited financial statement. Objection to scheme compromise or arrangement can be made by any shareholder and/or creditor, as the case maybe irrespective of their shareholding /outstanding debt DISCLOSURES TO BE MADE VIDE AN AFFIDAVIT AT THE TIME OF FILING AN APPLICATION BEFORE THE NCLT Along with all material facts like latest financial position, auditors report, investigation against company if any additionally disclose: i. Reduction of share capital of the company, if any, included in the compromise or arrangement; i. Any scheme of Corporate Debt Restructuring consented to by not less than 75% of secured creditors.. All material facts relating to company, such as latest financial position of the company, the latest auditor’s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company. NOTICE CONVENING MEETING Notice convening meetings shall be sent to all shareholders /creditors / debenture holders of the company individually at the address registered with the company. Notice to be served to the Central Govt., IncomeTax Authorities, RBI, SEBI, the Registrar, respective stock exchanges, Official Liquidator, Competition Commission of India, if necessary, and such other sectoral regulators or authorities. Notice convening meeting to be sent to the shareholders / creditors and shall be given by advertisement. No specific provisions for serving of notice to IncomeTax and other regulators. VALUATION REPORT The 2013 Act now mandatorily requires the scheme to contain the valuation certificate. The valuation report also needs to be annexed to the notice for meetings for approval of the scheme. The 1956 Act does not mandate disclosing the valuation report to the shareholders. Though in practice, valuation reports are included in documents shared with the shareholders and also to the Court as part of the appraisal process of the scheme by the Courts.
  15. 15. Section 230 – Section 240 Section 390-396A CERTIFICATE OF COMPANY’S AUDITOR No compromise or arrangement shall be sanctioned unless a certificate by the company's auditor has been filed with the NCLT to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133 viz. by the Central Govt. as recommended bythe Institute of Chartered Accountants of India No specific provision with respect to filing of the certificate of the company’s auditor. VOTING BY POTAL BALLOT Scheme of compromise / arrangement needs to be approved by majority representing 3/4th in value of the creditors and members or class thereof present and voting in person or by proxy and by Postal Ballot. Scheme of compromise / arrangement needs to be approved by majority representing 3/4th in value of the creditors and members or class thereof present and voting in person or by proxy only. TAKEOVER OFFER A scheme of compromise or arrangement may include “takeover offer” in a prescribed manner. In the case of listed companies such takeover offer shall be as per the SEBI regulations A scheme of compromise or arrangement cannot include a “takeover offer”. OFFER TO SELL BY MINORITY SHAREHOLDERSTO MAJORITY SHAREHOLDERS The minority shareholders of the company may also offer to sell their shares to the majority shareholders at a price determined in accordance with the rules as may be prescribed. No specific provision for offer to sell by the minority shareholder to the majority shareholders.
  16. 16. Possible Implications  Due to introduction of Postal Ballot there shall be wider participation of the shareholders of the company in voting and will protect shareholders interest.  The requirement of presenting Valuation Report to shareholders will enable the shareholders to understand the business rationale of the transaction and take an informed decision  The new threshold limit for raising objections inregard to scheme or arrangement will protect the scheme from small shareholders’ and creditors’ frivolous litigation and objection.  The 2013 Act will provide an opportunity of growth and expansion to Indian Company by permitting amalgamation with foreign company or vice versa. This will provide opportunity to form corporate strategies on a global scale.  Internal Restructuring will increase due to separate provision for Small Companies (Only Private Companies) and Holding and Wholly Owned Subsidiary Company under Fast Track Merger.  Dissenting Shareholder will easily exit the Compromise, Arrangement, Merger and Amalgamation  Role of other authority like Income Tax, Reserve Bank of India, etc. becomes important but this mul;ti authority appraisal may also make the procedure lengthy. It is expected that these important changes would bring in substantial efficiency in the manner in which amalgamation, compromise, arrangement, liquidation, winding up, etc. are carried out.
  17. 17. Basic requirements relating to Scheme of Arrangement are covered under Clauses 11, 37 And 94 of the SEBI LODR Regulations. Regulation 11 : The listed entity shall ensure that any scheme of arrangement /amalgamation /merger /reconstruction /reduction of capital etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchange(s): Regulation 37 :  The listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement proposed to be filed before any Tribunal under Sections 230- 234 of Companies Act, 2013, with the stock exchange(s) for obtaining Observation Letter or No-objection letter, before filing such scheme with any Tribunal.  The listed entity shall not file any scheme of arrangement under Sections 230-234 of Companies Act, 2013 with any Court or Tribunal unless it has obtained observation letter or No-objection letter from the stock exchange(s).  The listed entity shall place the Observation letter or No-objection letter of the stock exchange(s) before the Tribunal at the time of seeking approval of the scheme of arrangement: The validity of the Observation Letter or No-objection letter of stock exchanges shall be six months from the date of issuance, within which the draft scheme of arrangement shall be submitted to the Tribunal .  Upon sanction of the Scheme by the Tribunal, the listed entity shall submit the documents, to the stock exchange(s), as prescribed by the Board and/or stock exchange(s) from time to time. Merger/Amalgamation of Listed Entity – LODR Regulations Regulation 94 :  The designated stock exchange, upon receipt of draft schemes of arrangement and the documents prescribed by the Board, as per regulation 37, shall forward the same to SEBI (Board)  The stock exchange(s) shall submit to the Board its Objection Letter or No Objection Letter on the draft scheme of arrangement after inter-alia ascertaining whether the draft scheme of arrangement is in compliance with securities laws  within thirty days of receipt of draft scheme of arrangement or  within seven days of date of receipt of satisfactory reply on clarifications from the listed entity  The stock exchange(s), shall issue Observation Letter or No-objection letter to the listed entity within seven days of receipt of comments from the Board, after suitably incorporating such comments in the Observation Letter or No-objection letter:
  18. 18. Since the order of the Court merging two or more companies has the effect of transferring property to the surviving company, the order of the Court may be required to be stamped. The stamp laws of most states require the stamping of such orders. The amount of the stamp duty payable would depend on the state specific stamp law. Infact the incidence of stamp duty is an important consideration in the planning of any merger. In fact, in some cases, the whole form in which the merger is sought to take place is selected taking into account the savings in stamp duty. Stamp duty is levied in India on almost all, except a few documents, by the States and hence the rate and incidence of stamp in different states varies. The State Legislature has jurisdiction to levy stamp duty under entry 44, List III of the Seventh Schedule of the Constitution of India and prescribe rates of stamp duty under entry 63, List 11 The applicability of stamp duty in case of amalgamation is determined on two grounds: i. the State/states(s) in which the registered office of the Companies is situated and the ii. sites of the properties being transferred under the Scheme. Whether order of the Court for amalgamation is an instrument of conveyance under the Stamp Act or not? Maharashtra, Gujrat, Karnataka, Rajasthan, Chhattisgarh, Madhya Pradesh, Andhra Pradesh, West Bengal and Uttar Pradesh –have included the orders passed u/s 394 of the Companies Act 1956 in the definition of ‘Conveyance’ Hindustan Lever Vs. State of Maharashtra (2004) 1 CLJ 148 (SC) - held that order of the Court is an instrument constituting a transfer inter-vivos and therefore, falls within the ambit of the definition of conveyance The Hon’ble High Court of Calcutta vide its order dated 8th February, 2012, in the matter of Emami Biotech Limited (CP. No. 627 of 2011) held that an order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act answers to the description of the words "instrument" and "conveyance" within the meaning of the Indian Stamp Act, 1899 as applicable in the State of West Bengal and is, accordingly,exigible to stamp duty. DelhiTowers Limited vs. G.N.C.T. of Delhi [(2010) 159 Comp Cas 129 (Del)] it was held that the order of the HighCourt under section 394 of the CompaniesAct constitutes an instrument by virtue of which the assets and liabilities of the transferor/demerged company are transferred and vested in the transferee/resulting company disregarding the fact that there is no specific entry in the schedule-I of the Delhi StampAct and hence, made such order eligible to stamp duty. Similarly, there are various other judgments from different High Courts that provides for references as to the applicability of Stamp Duty on M&A transactions in respective states Merger/Amalgamation- Stamp Duty Aspect
  19. 19. Merger/Amalgamation- Accounting Aspect The 2013 Act has introduced a new requirement, that no scheme of compromise or arrangement, whether for listed company or unlisted company shall be sanctioned unless the company’s auditor has given a certificate that the accounting treatment of the proposed scheme is in conformity with the prescribed accounting standards. AS 14 notified under Companies(Accounting Standards) Rules 2006 has been used for accounting of amalgamation in India until now . On 16th February MCA notified the Companies(Indian Accounting Standards) Rules 2015 laying down the roadmap to application of IFRS converged standards (IND AS) to Indian companies. IND AS 103 shall be applicable on all Amalgamations as per following Roadmap. TYPES OF COMPANIES BASIS FROM YEAR Any Company Voluntary Accounting periods beginning on or after 1st April, 2015 a. Listed and Unlisted Companies having net worth 500 crores or more b. Holding/Subsidiary/Joint Venture or associate of these companies Mandatory For Accounting periods beginning on or after !April, 2016. a. Listed Companies having net worth less than 500 crores a. Unlisted companies having net worth between 250-500 crores. a. Holding/Subsidiary/Joint Venture or associate of these companies Mandatory For Accounting periods beginning on or after !April, 2017. Companies not covered under the Roadmap can either adopt IND AS 103 Voluntarily or continue applying existing standards i.e. AS 14 as notified under Companies(Accounting Standards) Rules 2006.
  20. 20. AS 14 – ACCOUNTING FOR AMALGAMATIONS IND AS 103 – BUSINESS COMBINATIONS There are two methods of of accounting for amalgamations. The pooling of interest method and purchase method. Under pooling method the acquired assets are valued at their book values only., asnd in purchase method they are valued either at book value or at fair value. Their was no comprehensive standard to measure fair value. IND AS 103 prescribes acquisition method where acquired assets and liabilities are measured at their fair value only. Fair value is determined by using principles of INDAS 113 Goodwill measurement / Purchase Price Allocation In case of an amalgamation in the nature of purchase, difference between the consideration and the value of the net assets acquired is recognised as Goodwill (if the difference is positive) or Capital Reserve (if the difference is negative). Hence, only assets and liabilities reflected in the books of the acquiree and acquired by acquirer will be considered while arriving at the Goodwill. Goodwill is the difference between the fair value of the consideration and fair values of the identifiable assets (tangible and intangible) and liabilities as of the acquisition date. Hence, assets or liabilities even if not appearing in the books of the acquiree and which can be identified will be considered at fair values for arriving at the goodwill. Some commonly identifiable intangibles in purchase price allocation include customer contracts, customer relationships, brand and technology. Subsequent measurement of goodwill Goodwill arising on amalgamation is to be amortised over a period not exceeding five years unless a somewhat longer period can be justified. Goodwill arising on business combination is to be tested for impairment annually. (Ind AS 36) AS 14 VS. IND AS 103
  21. 21.  The provisions relating to regulation of combination as provided under Sections 5 and 6 of the Competition Act, 2002 and the Competition Commission of India (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 are to be complied with.  Competition law regulates merger(called combinations) deals with threshold limits (domestic/cross border) notice to Competition Commission of India etc.  Section 5 of the Competition Act, 2002 provides that amalgamation of enterprises shall be Combination of such enterprises if its above certain threshold limits in terms of Assets or Turnover as prescribed as provided in the section.  Section 6 provides that any enterprise entering into Combination (as described above) shall give a notice to the Commission disclosing details of proposed combination, in the form prescribed along with the prescribed fee.; within 30 days of approval of proposal relating to Merger or Amalgamation. Section 6 further prohibits any person or enterprise from entering into a combination (as described above) which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void. Merger/Amalgamation and Competition Act 2002
  22. 22. THE END
  23. 23. I hereby express my profound gratitude and indebtedness to my guide Mr. Manoj Kumar for his valuable guidance and encouragement in preparing this project. ACKNOWLEDGEMENTS