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The term “Merger” can be referred to as combining two or more companies into one. In general, it is a form of arrangement whereby two or more entities decide to merge their identity with another company to form a new entity or company. The company usually undertakes the merger arrangement to support its outstanding liabilities by merging with another who has surplus funds to pay off the debt. It is also done to avail tax benefits, reduce costs, and gain a competitive advantage over other markets. Hence, the merger process requires due diligence so that a detailed plan can be structured for assessing the company’s liability.
The merger is a legal process and hence requires the intervention of NCLT. Accordingly, Section 230, 231, and 232 of the Companies Act 20131 provides for the merger or amalgamation through NCLT. The current article will discuss in detail the process of the merger through NCLT.
Table of Contents
The legislative framework for the merger is carried out under the Companies Act 2013 and the Companies (compromises, Arrangements, and Amalgamations) Rules 2016. According to Section 230 of the Companies Act 2013, the company that is proposing the compromise or arrangement must make an application to the tribunal. Further, a meeting is to be held in the manner and on the dates as directed by the tribunal. The rules in the latter part provide for the manner and the documents to be submitted by the company at the time of making the application and during the process of proceedings for a merger.
Further, Section 230 (1) of the act states that certain other disclosures shall be made while submitting the affidavit in Form No. NCLT-6.
The company willing to merge with the company shall prepare a draft scheme of the merger, which shall be approved through a resolution of the board meeting. A merger through a tribunal protects the rights of the creditors or its members, as the judicial intervention will provide scrutiny over the whole merger process. Moreover, the tribunal will modify the draft scheme of the merger to ensure that the procedure remains transparent at every level. Henceforth, any company willing to enter into an arrangement shall apply to the tribunal.
The NCLT has the authority to hear and rule on cases involving a variety of issues, such as those connected to corporation law, oppression and bad management, company winding up, and other corporate law-related issues.
The NCLT's primary responsibility in a merger is to guarantee fairness and efficient transaction oversight. Additionally, it makes sure that all mergers are carried out in line with the 2013 Companies Act's rules.
Because the merger is a legal procedure, NCLT must get involved. As a result, the Companies Act 2013's Sections 230, 231 and 232 permit mergers or amalgamations through NCLT.
A quasi-judicial body called NCLT was established to handle civil-natured corporate disputes brought about by the Companies Act. pertaining to accusations of exploitation and poor management of a company, firm winding up, and any other authority granted by the Companies Act.
A special majority of each class of shareholders and creditors (in terms of number and value) must accept a plan before the NCLT will approve it. Additionally, SEBI, as well as the appropriate stock exchanges where the securities are traded, must approve any merger involving a listed business.
By ensuring fairness and transparency in share pricing during mergers and acquisitions, SEBI safeguards the rights of minority shareholders.
According to the Companies Act of 2013, a “merger” is the combining of two or more businesses into one, with the intended outcome being more than simply the consolidation of the assets and liabilities of the several entities but also their organisation into a single firm.
The practise area whose transactions you most frequently see on the front page of the business section of the newspapers is probably mergers and acquisitions (M&A) or corporate law. The work involves purchasing, selling, merging, demerging (i.e., splitting) businesses and their assets.
Resolution of Corporate Disputes: The NCLT has the authority to hear and decide corporate disputes, such as those involving oppression and poor management, corporate mergers and acquisitions, compromises and agreements, and company winding up.
According to the NCLT case status, the following are the authorities and obligations: the responsibility to investigate each creditor's claim. The responsibility of taking possession of all assets and protecting any such assets owned by creditors so that the liquidation procedure can maximise value following the sale.
Read Our Article: Merger and Acquisition Process in India
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