mergers/ amalgamations

Ministry of Corporate Affairs has issued a circular today clarifying the import of section 232(6) of the Companies Act, 2013, which deals with the requirement of indicating an “appointed date” in the scheme of mergers and amalgamations, which would also be the effective date of the merger/amalgamation coming into force.

A view was being taken in some quarters that the “appointed date” in the scheme need always be a definite calendar date, which led to difficulties for companies intending to give effect to their merger at a future/event-linked date, based on business considerations, fulfilling legal requirements such as procurement of license from sectoral regulators, etc. Besides this, IndAS 103 (Business Combinations), which deals with the accounting treatment, uses the expression “acquisition date”, as a date when the acquirer takes control of the acquiree, also required clarification.

The circular clarifies that the companies may choose the “appointed date” of the merger/amalgamation based on occurrence of an event, which is relevant to the merger between companies. This would allow the companies concerned to function independently till such event is actually materialised. The circular further clarifies that the term “appointed date” used in section 232(6) shall be deemed to be the “acquisition date” for the purpose of conforming to IndAS 103 standard dealing with business combinations.

This clarification would lead to harmonisation of practices in ascertaining the “appointed date” of merger/amalgamation and provide due clarity on the accounting treatment, thereby allowing stakeholders to align the “appointed date” of merger/amalgamation in accordance with their business considerations or legal requirements. This would also contribute significantly in the ease of Doing Business.

merger/ amalgamations of foreign co with Indian co and vice versa

The Ministry of Corporate Affairs has vide its notification dated 13th april, 2017 amended the Companies (Compromises, Arrangements & Amalgamations) Rules, 2016 by inserting a rule 25A therein. 

Rule 25A provides for merger/ amalgamation of a foreign company with Indian company and vice versa.  In both cases mergers will take place only after obtaining prior approval of the RBI and after complying with the provisions of sections 230 to 232 of the Companies Act, 2013, which deals with mergers and amalgamations. The transferee company, in both cases has to ensure that valuations are done by valuers who are members of recognised professional body in the respective jurisdictions. The valuation should be in accordance with internationally accepted principles on accounting and valuation. 

After obtaining the RBI approval, the companies shall file an application to the Tribunal