iMBA (semester 6)

Corporate laws. (2567103)

Module 2

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Contents
❖ Board Meetings ............................................................................................................................. 3
❖ Annual General Meeting .............................................................................................................. 6
❖ Extraordinary General Meeting ........................................................................................ 10
Key Takeaways ............................................................................................................................. 10
Understanding an Extraordinary General Meeting (EGM) ........................................................... 10
An Example of an Extraordinary General Meeting ...................................................................... 11
❖ Winding-Up ................................................................................................................................. 14
❖ Corporate Social Responsibility ................................................................................................ 17
❖ Mergers and Acquisitions ........................................................................................................... 23

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❖ Board Meetings
Board meetings are meetings at the highest level, i.e. a meeting where board members or their
representatives are present. A company is not an actual entity but a legal one so it cannot take
actions and make decisions. The board of directors act as agents through which the company
takes actions as well as makes decisions.

The board of directors is the supreme authority in a company and they have the powers to take
all major actions and decisions for the company. The board is also responsible for managing
the affairs of the whole company.

For the effective functioning and management, it is imperative that board meetings be held at
frequent intervals. For this, Section 173 of Companies Act, 2013 provides –

In the case of a Public Limited Company, the first board meeting has to be held within the first 30
days, since the incorporation date. Additionally, a minimum of 4 board meetings must be held in
a span of one year. Also, there cannot be a gap of more than 120 days between two meetings.

In the case of small companies or one person company, at least two meetings must be conducted,
one in each half of the financial year. Additionally, the gap between the two meetings must be at
least 90 days. In a situation where the meeting is held at a short notice, at least one independent
director must be attending the meeting.

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➢ Notice of Board Meeting

The notice of Board Meeting refers to a document that is sent to all directors of the company. This
document informs the members about the venue, date, time, and agenda of the meeting. All types
of companies are required to give notice at least 7 days before the actual day of the meeting.

➢ Quorum for the Board Meeting

The quorum for the Board Meeting refers to the minimum number of members of the Board to
conduct a valid Board Meeting. According to Section 174 of Companies Act, 2013, the minimum
number of members of the board required for a meeting is 1/3rd of a total number of directors.

At any rate, a minimum of two directors must be present. However, in the case of One Person
Company, the rules of Section 174, do not apply.

➢ Participation in Board Meeting

All directors are encouraged to actively attend board meetings and in case that’s not possible at
least attend the meetings through a video conference. This is so that all directors can take part in
the decision-making process.

➢ Requirements for Conducting a Valid Board Meeting

• Right Convening Authority

The board meeting must be held under the direction of proper authority. Usually, the company
secretary (CS) is there to authorize the board meeting. In case the company secretary is
unavailable, the predetermined authorized person shall act as the authority to conduct the board
meeting.

• Adequate Quorum
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The proper requirements of the quorum or the minimum number of Directors required to conduct
a Board meeting must be present for it to be considered a valid board meeting.

• Proper Notice

Proper notice is one of the major requirements to be fulfilled when planning a board meeting.
Formal notice has to be served to all members before conducting a board meeting.

• Proper Presiding Officer

The meeting must always be conducted in the presence of a chairman of the board.

• Proper Agenda

Every board meeting has a set agenda that must be followed. The agenda refers to the topic of
discussion of the board meeting. No other business, which is not mentioned in the meeting must
be considered.

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❖ Annual General Meeting
Provision for “Annual General Meeting” of a Company Under the Indian Companies Act
1956
(1) Meaning and Purpose:
Annual General Meeting is a regular meeting of the members of a company which is held
annually. This meeting provides an opportunity to the members of the company to review
working of the company and express their views on the management of the company.

The purpose of calling the meeting is to transact the ordinary business of the company. The
ordinary business consists of:

(a) The passing of the annual accounts,

(b) Declaration of dividends,

(c) Election of directors in place of those who are retiring by rotation,

(d) Appointment and fixation of the remuneration of auditors of the company.

(2) Statutory requirement:

It is a statutory requirement on every company to call and hold an annual general meeting every
year. The first annual general meeting of a company must be held within 18 months of its
incorporation.

There can be no extension of this period even by the Registrar. Subsequent annual general
meeting must be held by the company each year within 6 months after the close of the financial
year but the interval between any two annual general meetings must not be more than 15
months.

Registrar may, however, for any special reason, extend the time within which any annual
general meeting (not being the first annual general meeting) shall be held, by a period not
exceeding 3 months. Non- completion of final accounts alone may not be a valid ground for
granting extension.

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Financial year refers only to a period in respect of which any profit or loss account is laid at an
annual general meeting whether that period is a year or not. The financial year of a company
relating to a particular period may be less or more than a calendar year but shall not exceed 15
months [Sec. 166 (1)].

There should be one annual general meeting in every calendar year and, therefore, there must
be as many general meetings as the number of calendar years for which the company had been
carrying on business.

“There is a clear statutory duty on directors to call the meeting whether or not, the accounts,
the consideration of which is only one of the matters to be dealt with at an annual general
meeting, are ready or not.”

Annual General Meeting must be called even if the management of the company is vested in
the Central Government. The directors should hold the meeting at the end of the year in
question and adjourn to some future date early in the following year when the accounts will be
available. The fact that the company did not function is also not excuse for not a calling the
meeting.

(3) Authority to convene the annual general meeting:

The power to convene the Annual General Meeting vests with the Board of Directors.
Individual directors have no such power. Secretary cannot issue any notice for the Annual
General Meeting without the authority of the Board. Courts have no power either to convene
or direct the holding of the annual general meeting or to extend time for holding of the annual
general meeting.

(4) Time and Place of the meeting:

Company must call the annual general meeting on a working day during business hours either
at the registered office of the company or at some other place within the city in which the
registered office of the company is situated. An adjourned annual general meeting can be held
on a public holiday.

(5) Notice requirement:

Company must give at least 21 days’ written notice to call an annual general meeting of the
shareholders. Annual general meeting may be held with a shorter notice if it is so agreed by all

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the members entitled to vote in the meeting (Sec. 171). The notice must expressly specify the
meeting to be Annual General Meeting.

(6) Default in holding the annual general meeting:

If default is made in holding an annual general meeting in accordance with section 166, the
Company Law Board (Central Government w.e.f. date yet to be notified) may, on the
application of any member of the company, call or direct the calling of a general meeting of
the company and give such ancillary or consequential directions as the Company Law
Board/Central Government thinks expedient in relation to the calling, holding and conducting
of the meeting. The directions that may be given include that one member of the company
present in person or by proxy shall be deemed to constitute a meeting.

A general meeting so held shall be deemed to be an annual general meeting of the company. If
default is made in holding a meeting of the company in accordance with section 166, or in
complying with any directions of the Company Law Board/Central Government, company and
every officer of the company who is in default, shall be punishable with fine which may extend
to f 50,000 and in the case of a continuing default, with a further fine which may extend to f
2,500 for every day after the first during which such default continues.

Business to be transacted:-

As per section 102(2) of the Companies Act, 2013,the following business es may be transacted
during AGM:-

1) Ordinary Business [Section 102(2)], i.e.

a. Consideration of financial Statements and reports of board of directors and Auditors.

b. Declaration of any Dividend

c. Appointment of directors in place of retiring one

d. Appointment of and Fixation of the remuneration of the auditors.

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2) Special Business [Section 102(b)], : Apart from the above businesses , the rest are deemed
to be a Special business , transacted during the AGM.

Annual General Meeting is compulsory if,

• Business of the Company was taken over by Government.

• Company did not function.
• Accounts of the Company are not ready.

Defaulting in holding Annual General Meeting:

If a Company not holding an Annual General Meeting as per Section 166 , or not complying
with any direction of the Central Government, then the Company and its every officer come in
the Category under section 168 of the Company Act ,2013 and punishable with fine which may
extend to Rs. 50000 and for regular basis it may extend to Rs.2500 for every day .[ Section
168]

Further , as per section 167 of The Companies Act ,1956 provides for the power of the
Company Law Board (CLB) to call AGM in the following circumstances:

• As per section 94, if Company fails to hold Annual General Meeting, any member of
the company can request to NCLT (powered with CLB) for calling AGM.[ Section
97(1)]
• The CLB can give any ancillary or consequential directions which are expedient in
relation to the calling, holding and conducting the meeting. [ Section 167(1)]
• Apart from the above, CLB also directs that one member of the company present in
person or by proxy, which shall be deemed to constitute a meeting.
• A general meeting held as per the direction of the CLB, deemed to a n annual general
meeting of the company.

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❖ Extraordinary General Meeting
An extraordinary general meeting (EGM) is a meeting other than a company’s annual general
meeting (AGM). An EGM is also called a special general meeting or emergency general
meeting.

Key Takeaways

• An extraordinary general meeting (EGM) refers to any shareholder meeting called by

a company other than it's scheduled annual meeting.
• The extraordinary general meeting is utilized to deal with urgent matters that come up
between annual shareholders' meetings.
• EGMs are often considered for emergency measures such as resolving an immediate
legal matter or the removal of a key manager.

Understanding an Extraordinary General Meeting (EGM)

In most cases, the only time shareholders and executives meet is during a company’s annual
general meeting, which usually occurs at a fixed date and time.

However, certain events may require shareholders to come together on short notice to deal with
an urgent matter, often concerning company management. The extraordinary general meeting
is used as a way to meet and deal with urgent matters that arise in between the annual
shareholders' meetings.

An EGM might be called to deal with any of the following:

• The removal of an executive

• A legal matter
• Any matter that can't wait until the next shareholders meeting

Another difference between an annual general meeting and an extraordinary general meeting
is that an annual general meeting can only be held during business hours and not on a national
holiday, while an EGM can be carried out on any day including holidays. Also, while a
company’s board can only call an AGM, an EGM can also be called by the board on the
requisition of shareholders, requisitionist, or tribunal.

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An Example of an Extraordinary General Meeting
Extraordinary general meetings occur for a variety of reasons, but the meeting is usually called
to discuss the potential removal of an executive. In December 2017, the London Stock
Exchange (LSE) held an extraordinary general meeting, regarding claims that its chairman,
Donald Brydon, pushed out former chief executive Xavier Rolet. Rolet stepped down early in
November 2017.

Although some EGMs occur outside of normal business hours, the London Stock Exchange's
EGM took place on a non-holiday Tuesday. The motion was sparked by activist investor The
Children’s Investment Fund Management (TCI), which had gotten 20.9% votes in favor of
removing Brydon. However, the result of the EGM was that Brydon remained in his position.

Extraordinary general meeting may be called under the following circumstances:

(1) By the Board:

When the directors have to transact some immediate and emergent business for which they
cannot wait till the next annual general meeting, i.e. the board of directors of a company may
call this meeting whenever it thinks the need of it.

(2) By the Board on the Requisition:

The board of directors may also call an extraordinary general meeting on the requisition of
given number of members. The given number of members is-

(a) In the case of a company having share capital, member or members holding not less than
1/10 of the paid up share capital of the company carrying voting rights regarding the matter of
requisition.

(b) In the case of a company not having share capital, member or members holding at least
1/10 of the total voting power of all the members at the date of deposit of the requisition
regarding that matter.

Matters, for the consideration of which the meeting is called shall be stated in the requisition
and those matters alone shall be considered at the meeting. Requisition must be duly signed by
the requisitionists and deposited at the registered office of the company.

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Board of Directors must proceed to call a meeting for the consideration of the matters notified
by the requisitionists within 21 days of the deposit of requisition at the registered office of the
company. In all cases the meeting must be held by the directors on a day not later than 45 days
from the date of the deposit of the requisition.

(3) By the Requisitionists:

On default of the directors to call the meeting within 45 days of deposit of the requisition, the
meeting may be called by the requisitionists themselves within 3 months of the date of deposit
of the requisition.

Requisitionists shall not be allowed to hold the meeting after the expiry of three months from
the date of deposit of the requisition except a meeting which was duly convened within three
months of the requisition but was adjourned to some other day which falls after the expAiry of
the said three months.

Requisitionists shall call the meeting in the same manner as nearly as possible in which
meetings are called by the Board of Directors.

Notice of such meeting shall be given in the same manner as for the regular meetings. If the
registered office is not made available to them, they may hold the meeting anywhere else.

Requisitionists shall be entitled to claim all the expenses of calling a meeting from the
company. The company shall be entitled to indemnify itself and to deduct any sums so paid to
the requisitionists to meet out the expenses of calling a meeting out of the fees or remuneration
of those directors who were in default.

Resolution, properly passed at a meeting called by requisitionists, shall be binding upon the
company.

(4) By the Company Law Board (Tribunal w.e.f. date to be notified):

The Company Law Board (the Tribunal) may also under certain circumstances call, hold and
conduct the meeting of a company (Sec. 186)-

(a) When it is impracticable to call a meeting of the company in a manner in which meetings
of the company may be called, or

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(b) When it is not possible to hold or conduct the meeting of the company in the manner
prescribed by the Act or the Articles of Association of the company.

Company Law Board may also give such directions as it thinks expedient modifying or
supplementing the operation of the provisions of the Act or the Articles of Association in
relation to the calling, holding or conducting of the meeting and may direct the company that
even one member of the company present in person or by proxy shall be deemed to constitute
a meeting.

Company Law Board (the Tribunal) may order for the calling, holding and conducting of such
a meeting either (a) of its own motion, or (b) on the application of any director of the company,
or (c) of any member of the company who would be entitled to vote at the meeting.

Quorum

Quorum for EGM As per Section 103(1) (b), in case of a private company, two members
personally present, shall be the quorum for a meeting of the company. A member can appoint
a proxy in case he is unable to attend however such proxy shall not counted for quorum.

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❖ Winding-Up
Winding up is the process of selling all the assests of a business, paying of creditors,
distributing any remaining assets to the partners or shareholders an then dissolving the
business.

Simply, it means liquidation and closing down of company.

➢ Modes of winding-up
• Winding-up by court
• Voluntary winding-up
• Member voluntary winding up
• Creditor voluntary winding up
• Winding-up under supervision of court
• Winding-up by court
• Winding up of company by court due to following reasons:
• Special resolution
• Default in holding statutory meetings
• Failure to commence business
• Reduction in membership
• Inability to pay debts
• Failure to file balance sheet

➢ Voluntary winding-up
• Members voluntary winding-up
• In this case, directors declares in the meeting of shareholders that company is fit for winding-
up. Through meeting shareholders passes resolution for voluntary winding up and appoints
liquidator.
• Reasons for member voluntary winding-up:
• Expiry of period.
• By special resolution.
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 • Declaration of solvency of company.
• Notice of appointment of liquidator to given to registrar.
• Final meeting and dissolution.
• Creditors voluntary winding-up:
• The procedure in a creditors voluntary winding-up is based upon assumption that the
company is insolvent.

➢ Winding-up under supervision of court

• At any time after passing resolution for voluntary winding-up, the court may make an order
that the voluntary winding-up should continue subject to supervision of the court.
• Application for such supervision order may be made either by a creditor, shareholder, the
company or liquidator.
• The order passed by court due to following reason:
• Resolution for winding-up was obtained by fraud.
• The rules relating to winding-up order are not being observed.
• The liquidator is prejudicial or is negligent in collecting the assets.
• So the court takes all the power as in case of compulsory winding-up and appoints additional
liquidators.

➢ Procedure of Winding-up.-
• On resolving upon the winding-up of a company the Court is to appoint an official
liquidator on whom the powers of the directors are devolved, and whose discretionary
licence is, therefore, almost unlimited; that he may call up the shareholders to the
payment of the sums still due on the amount represented by their shares, collect credits,
sell properties, and in any other way realize the assets of the company, paying out, in
proportion of such assets, the outstanding debts and other liabilities of the company.
• The official liquidator, usually a public accountant, must, of course, be a person wholly
independent and outside the influence neither of the company, nor in any way
connected with its business.
• He is to give sureties for the pecuniary correctness of his proceedings, and is invariably
required to pay into the Bank of England, directly on receipt, any money or security of
any sort passing through his hands.
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 • In the course of the winding-up operation a liquidator usually consults with the
shareholders and the creditors of the company, with the purpose of facilitating his task
or proposing a compromise of arrangement between the parties.
• When the creditors are all paid, or the capital of the company (if limited) is exhausted,
the liquidator is to lay before the Court a complete account, show in the manner in
which the operations have been conducted and the property of the company disposed
of. The Court, upon exhibition of the said account, pronounces the dissolution of the
company.
➢ Private Companies.-
• By the amendment of August, 1907, to the Companies Act, a distinction, already in
practical use, was acknowledged as legal: companies being thereby classified as either
public-to which all rules above described apply-or private, for the formation whereof a
minimum of two members is required, and a maximum of fifty is allowed.
• Like a public company, a private company enjoys the advantage of limitation in the
liability of its members, and is exempt from a part of the formalities prescribed for the
former, but has a restriction imposed on the transfer of its shares, and is not allowed to
invite the public for the subscription of its shares and debentures.
➢ Foreign Companies.-
• Down to 1907 a foreign company, viz. a company established in a foreign country,
although acting in the United Kingdom, was subject to no control on the part of the
British Government: which gave rise to frequent drawbacks owing especially to the
want in such companies of any legal personality under the British law.
• Such a state of things was done away with by the above quoted amendment, whereby
it was enacted that any foreign company having a place of business in the United
Kingdom shall henceforth file with the Registrar of joint stock companies a certified
copy of the instrument whereby the company has been constituted abroad, a list of the
company’s directors, and the name and address of a representative duly authorized to
accept on behalf of the company any legal deed or notice required to be served on the
company.
• Any such company shall moreover conspicuously declare and exhibit the name of the
company, the name of the country where it was incorporated, and the qualification of
“Limited” in the case of limited liability. It shall then be subject to the provisions of the
Companies Acts as regard the control of the Board of Trade over the company’s affairs.

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❖ Corporate Social Responsibility
Corporate social responsibility can be defined as a Company’s sense of responsibility towards
the community and environment (both ecological and social) in which it operates. Companies
can fulfil this responsibility through waste and pollution reduction processes, by contributing
educational and social programs, by being environmentally friendly and by undertaking
activities of similar nature. CSR is not charity or mere donations. CSR is a way of conducting
business, by which corporate entities visibly contribute to the social good. Socially responsible
companies do not limit themselves to using resources to engage in activities that increase only
their profits. They use CSR to integrate economic, environmental and social objectives with
the company’s operations and growth. CSR is said to increase reputation of a company’s brand
among its customers and society.

The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social
Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for
Companies to fulfil their CSR. This article aims to analyse these provisions (including all the
amendments therein).

Applicability of CSR Provisions:

On every Company including its holding or subsidiary having:

• Net worth of Rs. 500 Crore or more, or

• Turnover of Rs. 1000 crore or more, or
• Net Profit of Rs. 5 crore or more

during the immediately preceding financial year

A foreign company having its branch office or project office in India, which fulfills the criteria
specified above

However, if a company ceases to meet the above criteria for 3 consecutive financial years then
it is not required to comply with CSR Provisions till such time it meets the specified criteria.

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CSR Committee:

Every Company on which CSR is applicable is required to constitute a CSR Committee of the
Board:

• Consisting of 3 or more directors, out of which at least one director shall be an

independent director. However, if a company is not required to appoint an independent
director, then it shall have in 2 or more directors in the Committee.

• Consisting of 2 directors in case of a private company having only two directors on its
Board

• Consisting of at least 2 persons in case of a foreign Company of which one person shall
be its authorised person resident in India and another nominated by the foreign company

Functions of CSR Committee:

The CSR Committee shall—

• Formulate and recommend to the Board, a CSR Policy which shall indicate the
activities to be undertaken by the Company

• Recommend the amount of expenditure to be incurred on the activities referred to in

clause (i)

• Monitor the CSR Policy of the company from time to time

• Institute a transparent monitoring mechanism for implementation of the CSR projects

or programs or activities undertaken by the company.

Responsibility of Board of Directors (BoD):

The BoD of every company on which CSR is applicable shall:

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 • after considering the recommendations made by the CSR Committee, approve the CSR
Policy for the Company and disclose contents of such Policy in Board report.

• ensure that the activities as are included in CSR Policy of the company are undertaken
by the Company

• shall disclose the composition of the CSR Committee in Board Report

• ensure that the company spends, in every financial year, at least 2% of the average net
profits of the company made during the 3 immediately preceding financial years, in
pursuance of its CSR Policy. The CSR projects/programs/activities undertaken in India
only shall amount to CSR Expenditure.

Note: The Company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities and shall specify the reasons
for not spending whole of earmarked amount (if it fails to spend some) in Board Report.

CSR Policy

The CSR Policy of the company shall, inter-alia, include the following namely :-

• A list of CSR projects or programs which a company plans to undertake specifying

modalities of execution of such project or programs and implementation schedules for
the same

• Monitoring process of such projects or programs

• A clause specifying that the surplus arising out of the CSR projects or programs or
activities shall not form part of the business profit of the company.

CSR Activities

• The CSR activities shall be undertaken by the company, as per its CSR Policy,
excluding activities undertaken in pursuance of its normal course of business.

• The BoD may decide to undertake its CSR activities approved by the CSR Committee,
through

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 • a section 8 company or a registered trust or a registered society, established by the
company, either singly or alongwith any other company, or

• a section 8 company or a registered trust or a registered society, established by the

Central Government or State Government or any entity established under an Act of
Parliament or a State legislature

• a section 8 company or a registered trust or a registered society, other than those

specified in clauses (a) and (b) above, having an established track record of 3 years in
undertaking similar programs or projects;

• collaboration with other companies,

for undertaking projects or programs or CSR activities in such a manner that the CSR
Committees of respective companies are in a position to report separately on such projects or
programs.

• The CSR projects or programs or activities not to be considered as CSR Activities:

• Expenses for the benefit of only the employees of the company and their families

• Contribution of any amount directly or indirectly to any political party

Display of CSR Activities on its Website

The BoD shall disclose contents of CSR policy in its report and the same shall be displayed on
the company’s website, if any.

Other Important Points:

• The balance sheet of a foreign company to be filed under section 381(1)(b) of the Act
shall contain an Annexure regarding report on CSR.

• The Board of Directors shall ensure that activities included by a company in its CSR
Policy are related to the areas or subjects specified in Schedule VII (given below) of
the Act.

AIARTI KOTWANI 20
Schedule 7

Activities which may be included by companies in their Corporate Social Responsibility

Policies relating to:

• Eradicating hunger, poverty and malnutrition, promoting health care including

preventive health care and sanitation including contribution to the Swach Bharat Kosh
set-up by the Central Government for the promotion of sanitation and making available
safe drinking water.

• Promoting education, including special education and employment enhancing vocation

skills especially among children, women, elderly and the differently abled and
livelihood enhancement projects.

• Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centers and such other facilities
for senior citizens and measures for reducing inequalities faced by socially and
economically backward groups.

• Ensuring environmental sustainability, ecological balance, protection of flora and

fauna, animal welfare, agroforestry, conservation of natural resources and maintaining
quality of soil, air and water including contribution to the Clean Ganga Fund set-up by
the Central Government for rejuvenation of river Ganga.

• Protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional art and handicrafts;

• Measures for the benefit of armed forces veterans, war widows and their dependents;

• Training to promote rural sports, nationally recognised sports, paralympic sports and
olympic sports

AIARTI KOTWANI 21
• Contribution to the Prime Minister’s national relief fund or any other fund set up by the
central govt. for socio economic development and relief and welfare of the schedule
caste, tribes, other backward classes, minorities and women;

• Contributions or funds provided to technology incubators located within academic

institutions which are approved by the central govt.

• Rural development projects

• Slum area development.

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❖ Mergers and Acquisitions
The Companies Act, 2013 (2013 Act) has seen the light of day and replaced the 1956 Act with
some sweeping changes including those in relation to mergers and acquisitions (M&A).

The new Act has been lauded by corporate organizations for its business-friendly corporate
regulations, enhanced disclosure norms and providing protection to investors and minorities,
among other factors, thereby making M&A smooth and efficient. Its recognition of interse
shareholder rights takes the law one step forward to an investor-friendly regime. The 2013 Act
seeks to simplify the overall process of acquisitions, mergers and restructuring, facilitate
domestic and cross-border mergers and acquisitions, and thereby, make Indian firms relatively
more attractive to PE investors.

The term ‘merger’ is not defined under the Companies Act, 1956 (“CA 1956”), and under
Income Tax Act, 1961 (“ITA”). However, the Companies Act, 2013 (“CA 2013”) without
strictly defining the term explains the concept. A ‘merger’ is a combination of two or more
entities into one; the desired effect being not just the accumulation of assets and liabilities of
the distinct entities, but organization of such entity into one business.

On 7th November, 2016 Central Government issued a notification for enforcement of section
230-233, 235-240, 270-288 etc w.e.f. 15th December, 2016. But still rules were not available
till date for CAA.

MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016. These rules will be
effective from 15th December, 2016. Consequently, w.e.f. 15.12.2016 all the matters relating
to Compromises, Arrangements, and Amalgamations (hereafter read as “CAA”) will be dealt
as per provisions of Companies Act, 2013 and The Companies (Compromises, Arrangements,
and Amalgamations) Rules, 2016.

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Where a compromise or arrangement is proposed for the purposes of or in connection with
scheme for the reconstruction of any company or companies, or for the amalgamation of any
two or more companies, the petition shall pray for appropriate orders and directions under
section 230 read with section 232 of the Act.

Section relating to Merger & Amalgamation Section 230 & 232.

In this article COMPROMISE & ARRANGEMENT (C&A) will be read in relation to Merger
& Amalgamation only.

In Case of application filing u/s 230 for Compromise & Arrangement in relation to
reconstruction of the Company or companies involving merger or the amalgamation of any two
or more companies should specify the purpose of the scheme.

REASON OF M&A TERMS

· Expansion and Diversification Amalgamation – means combination of
· Optimum Economic Benefit two or more independent business
corporations into a single enterprise
· De-risking Strategy
Demerger– means transfer and vesting of
· Scaling up of operation for
an undertaking of a company into another
competitive advantages
company

· Increase the Market capitalization

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 · Cost reduction by reducing overheads Reconstruction- means re-organization of
share capital in any manner; varying the
· Increasing the efficiencies of
rights of shareholders and/or creditors
operations
Arrangement- All modes of reorganizing
· Tax benefits
the share capital, including interference
with preferential and other special rights
· Access foreign markets
attached to shares

Who can file the application for Merger & Amalgamation propose: Section 230(1)

[1]An application for Merger & Amalgamation can be file with Tribunal (NCLT). Both the
transferor and the transferee company shall make an application in the form of petition to the
Tribunal under section 230-232 of the Companies Act, 2013 for the puspose of sanctioning the
scheme of amalgamation.

Joint Application: Rule 3(2)

Where more than one company is involved in a scheme, such application may, at the discretion
of such companies, be filed as a joint-application.

[2]However, where the registered office of the Companies are in different states, there will be
two Tribunals having the jurisdiction over those, companies, hence separate petition will have
to be filed.

Process

• It must be ensure that the companies under amalgamation should have the power in the
object clause of their Memorandum of Association to undergo amalgamation though
the absence may not be an impediment, but this will make matters smooth.

• A draft scheme of amalgamation shall be prepared for getting it approved in Board

meeting of each company.

1. Format of Application

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Application to the tribunal for Merger & Amalgamation will be submitted in form no. NCLT-
1 along with following documents: Rule 3(1)

a) A notice of admission in Form No. NCLT-2

b) An affidavit in form no. NCLT-6

c) A copy of Scheme of C&A (Merger & Amalgmation)

d) A disclosure in form of affidavit including following points Section 230(2)

– All material facts relating to the company, such as

i. the latest financial position of the company,

ii. the latest auditor’s report on the accounts of the company and

iii. the pendency of any investigation or proceedings against the company

– Reduction of share capital of the company, if any, included in the compromise

or arrangement

e) Any scheme of [3]Corporate Debt Restructuring consented to by not less than seventy five
per cent. of the secured creditors in value, including

i. A Creditor’s Responsibility statement in the form No. CAA-1.

ii. safeguards for the protection of other secured and unsecured creditors;

iii. report by the auditor that the fund requirements of the company after the corporate debt
restructuring as approved shall conform to the liquidity test based upon the estimates provided
to them by the Board;

iv. where the company proposes to adopt the corporate debt restructuring guidelines specified
by the Reserve Bank of India, a statement to that effect; and

v. a valuation report in respect of the shares and the property and all assets, tangible and
intangible, movable and immovable, of the company by a registered valuer.

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f) The applicant shall also disclose to the Tribunal in the application, the basis on which each
class of members or creditors has been identified for the purposes of approval of the scheme.

2. Calling of Meeting by Tribunal:

Upon hearing of the application Tribunal shall, unless it thinks fit for any reason to dismiss the
application, give such directions / order as it may think necessary in respect 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 prescribed in rule 5 of CAA Rules, 2016 as follow:

i. Fixing the time and place of the meeting or meetings;

ii. Appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case
may be and fixing the terms of his appointment including remuneration;

iii. Fixing the quorum and the procedure to be followed at the meeting or meetings, including
voting in person or by proxy or by postal ballot or by voting through electronic means;

iv. Determining the values of the creditors or the members, or the creditors or members of any
class, as the case may be, whose meetings have to be held;

v. Notice to be given of the meeting or meetings and the advertisement of such notice.

vi. Notice to be given to sectoral regulators or authorities as required under sub-section (5) of
section 230;

vii. The time within which the chairperson of the meeting is required to report the result of the
meeting to the Tribunal; and

viii. Such other matters as the Tribunal may deem necessary.

3. Notice of Meeting: The Notice of the meeting pursuant to the order of tribunal to be give in
Form No. CAA-2. Rule 6

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Person entitled to receive the notice The notice shall be sent individually to each of the
Creditors or Members and the debenture-holders at the address registered with the company.
Section 230(3)

Person authorized to send the notice:

• Chairman of the Company, or

• If tribunal so direct- by the Company or its liquidator or by any other person

Modes of Sending of notice:

• By [4]Registered post, or by Speed post, orby courier, or

• By e-mail, or by hand delivery, or by any other mode as directed by the tribunal

Documents to be send along with notice: The notice of meeting send with (i) Copy of Scheme
of C&A and (ii) Following below mentioned details of C&A if not included in the said scheme:

a. Details of the order of the Tribunal directing the calling, convening and conducting of the
meeting:-

• Date of the Order;

• Date, time and venue of the meeting.

b. Details of the company including:

• Corporate Identification Number (CIN) or Global Location Number (GLN) of the

company;
• Permanent Account Number (PAN);
• Name of the company;
• Date of incorporation;
• Type of the company (whether public or private or one person company);
• Registered office address and e-mail address;

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 • Summary of main object as per the memorandum of association; and main business
carried on by the company;
• Details of change of name, registered office and objects of the company during the last
five years;
• Name of the stock exchange (s) where securities of the company are listed, if applicable;
• Details of the capital structure of the company including authorised, issued, subscribed
and paid up share capital; and
• Names of the promoters and directors along with their addresses.

c. Relationship in case of Combined Application: if the scheme of compromise or arrangement

relates to more than one company, then the fact and details of any relationship subsisting
between such companies who are parties to such scheme of compromise or arrangement,
including holding, subsidiary or of associate companies.

d. Disclosure about effect of M&A on material [5]interests of directors, Key Managerial

Personnel (KMP) and debenture trustee

e. Details of Board Meeting:

• The date of the board meeting at which the scheme was approved by the board of
directors
• The name of the directors who voted in favour of the resolution,
• The name of the directors who voted against the resolution and
• The name of the directors who did not vote or participate on such resolution

f. Explanatory Statement disclosing details of the scheme of compromise or arrangement

including:

• Parties involved in such compromise or arrangement;

• Appointed date, effective date, share exchange ratio (if applicable) and other
considerations, if any;
• Summary of valuation report (if applicable) including basis of valuation and fairness
opinion of the registered valuer, if any, and the declaration that the valuation report is
available for inspection at the registered office of the company;
• Details of capital or debt restructuring, if any;

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 • Rationale for the compromise or arrangement;
• Benefits of the compromise or arrangement as perceived by the Board of directors to
the company, members, creditors and others (as applicable);
• Amount due to unsecured creditors.

g. Disclosure about the effect of the Merger & Amalgamation (C&A) on: Section 230(3)

• Key Managerial Personnel;

• Directors;
• Promoters;
• Non-Promoter Members;
• Depositors;
• Creditors;
• Debenture holders;
• Deposit trustee and debenture trustee;
• Employees of the company:
• Share holders of the Company

h. A report adopted by the directors of the merging companies explaining effect of compromise
on each class of shareholders, key managerial personnel, promoters and non-promoter
shareholders laying out in particular the share exchange ratio, specifying any special valuation
difficulties;

i. Below Mentioned Details: Following below mentioned details

• Investigation or proceedings, if any, pending against the company under the Act.
• Details of approvals, sanctions or no-objection(s), if any, from regulatory or any other
governmental authorities required, received or pending for the proposed scheme of
compromise or arrangement
• A statement to the effect that the persons to whom the notice is sent may vote in the
meeting either in person or by proxies, or where applicable, by voting through
electronic means
• A copy of the [6]valuation report, if any Section 230(3)

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j. Details of avaibility of documents: Details of the availability of the following documents for
obtaining extract from or for making or obtaining copies of or for inspection by the members
and creditors, namely

• Latest audited financial statements of the company including consolidated financial

statements;
• Copy of the order of Tribunal in pursuance of which the meeting is to be convened or
has been dispensed with;
• copy of scheme of Merger & Amalgamation ( C&A);
• Contracts or agreements material to the Merger & Amalgamation ( C&A);
• The certificate issued by Auditor of the company to the effect that the accounting
treatment, if any,
• Proposed in the scheme of Merger & Amalgamation ( C&A) is in conformity with the
Accounting Standards prescribed under Section 133 of the Companies Act, 2013; and
• Such other information or documents as the Board or Management believes necessary
and relevant for making decision for or against the scheme;

k. Some Other documents: Where an order has been made by the Tribunal under section 232(1),
merging companies or the companies in respect of which a division is proposed, shall also be
required to circulate the following:

• The draft of the proposed terms of the scheme drawn up and adopted by the directors
of the merging company;
• Confirmation that a copy of the draft scheme has been filed with the Registrar;
• The report of the expert with regard to valuation, if any;

[1] In the case of Kirloskar Electricals Co. Ltd., the Court held that various clauses of Section
394(1) of the Companies Act suggest that both the transferor and the transfer company shall
make an application to the Court and under section 391-394 of the Companies Act, 1956 for
sanction of the scheme of Compromise or arrangement involving amalgamation of the
Companies.

[2] In the case of Mohan Exports Ltd. V/s Tarun Overseas Pvt. Ltd., it was held that if both
the Companies are under the jurisdiction of the same High Court, Joint petition may be made.

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[3] Scheme of Corporate Debt restructuring as referred in section 230(2)(c) means “a scheme
that restructures or varies the debt obligation of a company toward its creditors”.

[4] It is hereby clarified that the service of notice of meeting shall be deemed to have been
effected in case ofdelivery by post, at the expiration of forty eight hours after the letter
containing the same is posted

[5]Explanation – For the purposes of these rules it is clarified that-

(a) the term ‘interest’ extends beyond an interest in the shares of the company, and is with
reference to the proposed scheme of compromise or arrangement.

(b) the valuation report shall be made by a registered valuer, and till the registration of persons
as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an
independent merchant banker who is registered with the Securities and Exchange Board or an
independent chartered accountant in practice having a minimum experience of ten years.

[6] the valuation report shall be made by a registered valuer, and till the registration of persons
as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an
independent merchant banker who is registered with the Securities and Exchange Board or an
independent chartered accountant in practice having a minimum experience of ten years.

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