Key points
- The scheme needs approval by a majority in number representing three-fourths in value of each class of shareholders and creditors at NCLT-convened meetings.
- Notices go to the Central Government (Regional Director), ROC, Income Tax Department and sector regulators, who may object.
- A typical NCLT merger takes 8 to 14 months; the Section 233 fast-track for small companies and wholly-owned subsidiaries takes 3 to 6 months.
Drafting the scheme
The scheme sets out the appointed date, the share exchange ratio supported by a valuation report and fairness opinion where required, treatment of employees, transfer of assets, liabilities, licences and litigation, and accounting treatment compliant with Ind AS. Boards of all companies approve it.
First motion
An application under Section 230 asks the NCLT to convene or dispense with meetings of shareholders and creditors. Meetings may be dispensed with where consents of 90% or more in value are filed. The tribunal appoints a chairperson and directs notice to members and creditors and to the authorities.
Meetings and approvals
Each class must approve by a majority in number representing three-fourths in value of those voting. The chairperson reports the result to the tribunal.
Second motion
A petition under Section 232 seeks sanction. The Regional Director and ROC file reports; the Income Tax Department may object to schemes that appear designed to avoid tax; the Official Liquidator reports on transferor companies. The tribunal sanctions the scheme if it is fair, compliant with law and not against public interest, applying the tests in Miheer Mafatlal v. Mafatlal Industries (1996).
After sanction
The order is filed with the ROC in INC-28 within 30 days; the scheme takes effect on filing. Stamp duty on the transfer of immovable property is payable in each state concerned.
Fast-track under Section 233
Mergers between two or more small companies, between a holding company and its wholly-owned subsidiary, or between start-ups, can be approved by the Regional Director without the NCLT, on shareholder approval of 90% and creditor approval of 90% in value.
Frequently asked questions
Is a merger tax-neutral in India?
An amalgamation or demerger that meets the conditions in Section 2(1B) or 2(19AA) of the Income-tax Act is tax-neutral for the companies and shareholders; those conditions should be built into the scheme.
Can a foreign company merge with an Indian company?
Yes, under Section 234 with RBI approval, in both directions, for companies in notified jurisdictions.
Related practice area: Corporate Compliance & Restructuring
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