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Merger or amalgamation is known as the merging of two or more companies into a single entity, with one company surviving and the other ceasing to exist. The assets and liabilities of the combined company or companies are acquired by the survivor company. To put it another way, it’s literally the merging of two or more companies into one. Amalgamation is another lawful term for merger which is utilized in India.
It normally includes two organizations of a similar size and capacity joining hands. Amalgamation is a circumstance when at least two existing organizations amalgamate or combine to frame another organization, aftereffect of both the current organizations lose their reality called as amalgamating organization and another organization comes into existences called as buying organizations
Until 1988, the definition of merger and amalgamation was not widely accepted in India. At that time, a small number of companies around the country used to get together, usually in an acceptable securing with a pre-arranged agreement. The scheme of provisions in the MRTP (Monopolistic and Restrictive Trade Practices) Act, 1969, is a key factor contributing to less association related to the merger.
As provided by this Act, an alliance or a firm requirement to take after a compressed and irksome procedure to get support for the merger and amalgamation. Mergers and Amalgamation (M&A) have been a fundamental market entry approach and furthermore an expansion strategy of the business. Its noteworthy to mention that the term merger has not been defined under the Act 2013.
The procedure is in such a way that where more than one corporation is involved, an application for merger or amalgamation can be submitted as a joint application at the discretion of the companies involved. However, if the companies’ registered offices are in different jurisdictions, there would be two tribunals with jurisdiction, necessitating the filing of two separate petitions.
The resolution is correct, and the agreement is binding on the shareholders as a result of this transaction between the companies. Nonetheless, any shareholder may object to the sale or agreement under some circumstances.
After the special resolution has been passed, the dissenting shareholder is expected to give notice of his dissent. A legal representative of a deceased (if any) shareholder has the right to object as well.
Facts of the Case
These appeals are preferred by Marshall Sons and Company Limited as successors to Marshall Sons and Company [Manufacturing] Limited [against the judgment and order of the Madras High Court dismissing the writ petitions filed by them. The matter arises under the Income Tax Act.
The Holding Company had its registered office at 33-A, Chowranghee Road, Calcutta while the Subsidiary Company had its registered office at Madras. For the purposes of assessment under the Income Tax Act, while the accounting year of the Holding Company was the year ending on 30th June, the accounting year of the Subsidiary Company was the calendar year.
On 1st December, 1982, two letters were addressed by the Subsidiary Company to the Income Tax Officer stating that the company is desirous of effecting a change in the accounting year. They stated that they would wish to close their accounts on June 30, 1983 for the eighteen months’ period instead of closing the accounts on December 31, 1982.
It was also stated that since the accounting year of the Holding Company ends on June 30, they too would like to follow the same practice. In response to said letters, the Income Tax Officer asked for certain particulars which were supplied.
Pursuant to this the Subsidiary Company passed a resolution proposing to amalgamate with the Holding Company with effect from January 1, 1982. An application was made to the Company Court and pursuant to the orders of the Court, a meeting of the shareholders was held on February 11, 1982 whereat a resolution was passed approving the amalgamation of the Subsidiary Company with the Holding Company, similar resolution was passed by the shareholders of the Holding Company on May 7, 1983.
The Company Court in Madras sanctioned the scheme of amalgamation by its order dated November 21, 1983. On a similar application filed before the Calcutta High Court, that High Court sanctioned the scheme of amalgamation by its order dated January 11, 1984.
In both the orders, it was directed that certified copies of the said orders shall be delivered to the Registrars of Companies at Madras and Calcutta within thirty days therefrom. Accordingly, certified copies of the orders were filed before the Registrars of Companies. The name of the Subsidiary Company was struck off the register of Companies, maintained by the Registrar of Companies at Madras.
On November 25, 1984, a notice under Section 139(2) of the Income Tax Act was issued to the Subsidiary Company calling upon it to file a return of its income for the Assessment Years 1984-85 [for the year ending June 30, 1983] and for 1985-86 [year ending June 30, 1984].
The Subsidiary Company replied stating that inasmuch as the Subsidiary Company has been amalgamated with the Holding Company under a scheme of amalgamation sanctioned by the Company Courts of Madras and Calcutta and because the said amalgamation was with effect from January 1, 1982, there was no question of the Subsidiary Company filing a return for the said two assessment years.
There was exchange of notices/replies thereafter. Ultimately, the Income Tax Officer issued a notice under Section 142(1) asking for compliance with it by February 7, 1986. At that stage, the appellant-company filed writ petitions in the Madras High Court questioning the aforesaid notices.
In the writ petitions filed by the appellant, the main ground urged was that inasmuch as the amalgamation has taken effect on and from January 1, 1982, the Income Tax Officer had no authority to call upon the Subsidiary Company to file a return for any period subsequent thereto.
The issue that has arisen for the consideration before the court was “Whether the Income tax office had the authority to issue notices asking to file returns when the company has been amalgamated by the order of Court.
Decision of the Court
The Hon’ble court observed that the notices issued by the Income Tax Officer, the one that is issue, were not warranted in law. The court further clarified that the Transferor Company (Subsidiary Company) should be considered to be doing business with and on behalf of the Transferee Company.
This was the appropriate and logical result of the court’s approval of the merger scheme as presented to it. This was the necessary and it is in fact the logical consequence of the court sanctioning the scheme of amalgamation as presented to it.
Further the court held that while the court’s order sanctioning the arrangement, the filing of certified copies of the court’s orders with the Registrar of Companies, and the allotment of shares, among other things, may have occurred after the date of amalgamation/transfer, the date of amalgamation in this case would be January 1, 1982.
Hence the appeal was allowed.
For the purpose of understanding the present case, it becomes necessary to understand the language of section 391
S. 391. Power to compromise or make arrangements with creditors and member. – (1) Where a compromise or arrangement is proposed–
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them; the Court may, on the application of the company or of any creditor or
member of the company, or in the case of a company which s being wound-up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.
(2) If a majority in number representing three-fourths 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, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound-up, on the liquidator and constributories of the company…”
An application is needed to be a record with Tribunal. To authorize the scheme of amalgamation a request can be made by both the transferor and transferee of the organization to the. For the purpose of amalgamation, the word “terminal date” refers to the date that occurs immediately before the operative date. The capital structure of the Transferor and Transferee Companies is referred to as the scheme and the object of the scheme underlying the agreement between the parties.
It becomes necessary to understand that with effect from the transferred date, the whole undertaking of the Subsidiary organisation shall be transferred to the Holding organisation, and the Subsidiary organisation shall be amalgamated with the Holding organisation. Further scheme of amalgamation produced results just on and from the date it was endorsed by the High Courts of Madras and Calcutta combined with the date on which the investors of the Subsidiary Company become the investors of the Holding Company as given in the sub-provisions.
Each scheme of amalgamation needs to fundamentally give a date impact from which the mixture/move will happen. The plan concerned in the present case as well does so give viz., January 1, 1982It should be noticed that under the steady gaze of applying to the Court under Section 391(1), a plan must be outlined and such plan needs to contain a date of amalgamation or transfer.
The systems under the attentive gaze of the court may take some time; truth be told, they will without a doubt make some time in light of the fact that couple of steps given by Sections 391 to 394 and the huge Rules should be followed and concurred with. During the time span the techniques are impending under the watchful eye of the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened for the present circumstance anyway consistently course of action is made for this point in like manner in the arrangement of blend.
It is comparatively relevant to see that the Courts have supported the arrangement for the present circumstance just as not demonstrated some other date as the date of move blend. In such a situation, it would not be reasonable to say that the plan of blend produces results on and from the date of the solicitation approving the arrangement.
The Companies Act, 2013 has carried many empowering arrangements as to consolidations and blends, particularly as for time-bound and single-window clearances, upgraded exposures, revelations to different controllers, worked on systems.
Mergers and Amalgamation are convincing pointers of a creating economy. The legitimate system for such corporate changing ought to be clear and facilitative and not prohibitive and shrouded in administrative and administrative hindrances. The best impediment in the method for finishing a solidification or a blend remains the routinely broadened court framework required for the endorse of an arrangement obviously of activity. Two or three essential changes have been proposed, associations could see the need to get various backings from various controllers as irksome. Notwithstanding, the thirty days’ time oblige compelled on the controllers will, ideally, guarantee that they react in a period bound way.
On its substance, the 2013 Act offers broad and better transparency ensuring affirmation of investors’ interest, while meanwhile keeping an essential separation from paltry fights. It is sensible for say that the 2013 Act hopes to smooth out and make M&A smoother and more direct. The system overseeing the corporate rebuilding of organizations has been rearranged and has been made facilitative with the presentation of the idea of quick track consolidations and is an invite move. The recent legal structure, concerning merger and acquisitions, required the intercession of courts and was a since a long time ago drawn and costly system
In these lines the appeals are accordingly allowed.