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Amalgamation occurs when two or more companies are joined to form a third entity or one is absorbed into or blended with another – Explain and Illustrate.


When we talk about expansion in business which basically refers to business combination where two or more concerns combines and expand their business activities. The ownership and control of the combined concerns may be undertaken by a single agency. Business combination is a method of economic organization by which a common control, of greater or lesser completeness is exercised over a number of firms which either is operating in competition or independently. This control may either be temporary or permanent, for all or only for some purposes. This control over the combining firm can be exercised by a number of methods which in turn give rise to various forms of combinations. In the process of combination, two or more units engage in similar business or in different related process or sages of the same business join with a view to carry on their activities or shape or shape their polices on common or coordinated basis for mutual benefit or maximum profits. The combination may be among competing units or units engaged in different processes. After combination, the constituted firm pursues some common objectives or goals

Amalgamations, Mergers & Takeovers all through the globe have become universal practices in the corporate world covering different sectors within the nations and across their borders for securing survival, growth, expansion and globalization of the enterprise and achieving multitude of objectives.


Basically amalgamation means merger. Halsbury’s Laws of England describe amalgamation as a blending of two or more existing undertaking into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertaking.

Andhra Pradesh High Court held in S.S. Somayajulu v Hope Prudhomme & Co. the word “amalgamation” has no definite legal meaning. It contemplates a state of things under which two companies are so joined as to form a third entity, or one company is absorbed into and blended with another company. Amalgamation does not involve a formation of a new company to carry on the business of the old company.

Madras High Court held in W.A. Beard sells & Co. (P) Ltd. the world ‘amalgamation’ has not been defined in the Act. The ordinary dictionary meaning of the expression is “combination”. Judging from the context and from the marginal note of section 394, which appears in Chapter V relating to arbitration, compromise, arrangements and reconstructions, the primary object of amalgamation of one company with another is to facilitate reconstruction of the amalgamating companies and this is matter which is entirely left to the body of shareholders of the primary company which offers or intends to amalgamate with another. There is indeed an absorption by the company with which it is amalgamated; the latter being statutorily called the transferee company and the former the transferor company. In fact, the company amalgamating and the company with which it is amalgamated are so statutorily defined under section 394(1) (b) of the Companies Act, 1956. On a prima facie examination of the relevant provisions in Chapter V, it is abundantly clear that it is essentially an affair relating to the internal administration of the transferor company. Of course, there should be consensus ad item between the transferor company and the transferee company. The initiative thus lying on the shoulders of the transferor company, it is obligatory that a scheme of arrangement should be proposed by that company and the shareholders put on notice of such intendment and objects, and they being informed of the benefits, facilities and privileges attendant upon such an obligation. Thus, amalgamation being within the scope of the decision of the body of the shareholders, such a decision if made by the body unanimously ought not to be lightly interfered with by Court.

The Companies Act, 1956 vide sections 394 and 396A explains amalgamation which will be discussed separately under Legal Aspects of Merger. However, the term will be used interchangeably with “merger” wherever the circumstances would so require.


There are three types of amalgamations, which are if following types:

1.     Horizontal Mergers: it is a merger which involves the merger of two or more companies which are producing essentially the same products or services, which compete directly with each other.

2.     Vertical Mergers: it is that kind of merger in which backward integration is possible. When the company who is delivering the final product merges with the company who is producing the parts for them, then that merger is called as the vertical merger.

3.     Conglomerate Merger: it is a merger in which two or more companies producing different products are acquired and merged is known as the conglomerate merger.

Legal Provisions (sections under law related to amalgamations/mergers):

The term “amalgamation” is not been defined under the Companies Act 1956. The term is been defined under the Income-Tax Act, 1961. There are references made in relation to the “amalgamations” in section 394, 396 & 396A of the Companies Act.

  • Section 394: discuss the amalgamation while dealing with the powers of the National Company Law Tribunal.
    • Section 396 &396A: deals with the powers of the Central Government to amalgamate companies in public interest and the maintenance of records by the amalgamated companies

The Complete Procedures of Amalgamation

The procedure for the amalgamation of two companies has to be viewed from the Transferor and Transferee Company.

Steps to be followed by Transferee Company is:

1. Memorandum Of Association (M/A):- The Memorandum of Association must provide the power to amalgamate in its objects clause. It M/A is silent, amendment in M/A must take place.

2. Board Meeting:- A Board Meeting shall be convened to consider and pass the following requisite resolutions:

-approve the draft scheme of amalgamation;

– To authorize filing of application to the court for directions to convene a                                         general meeting;

– To file a petition for confirmation of scheme by the High Court.

Through an application under s.391/ 394 of Companies Act, 1956 can be made by the member or creditor of a company, the court may not be able to sanction the scheme which is not approved by the company by a Board or members resolution.

Directors who are given the necessary powers by the AOA may present a petition on behalf of the company without first obtaining the approval of the company in general meeting.

3. Application to the Court: An application shall be made to the court for directions to convene a general meeting by way of Judge’s summons supported by an affidavit. The proposed scheme of amalgamation must be attached to such affidavit.

The summons should be accompanied by: A certified copy of the M&A of both companies A certified true copy of the latest audited B/S and P&L A/c of transferee company

Person entitled to apply: – (i) U/s.391 & 394, members of the company have right to apply to court (ii) A successor to a share of a deceased member has in the normal course, locus stand to maintain an application u/s.391, 395.(iii) An application can also be made by the transferee of shares. (iv)The creditor also have right to apply to court. (v) The liquidator is also empowered to make an application to the court.

4. Copy to Regional Director:- A copy of application made to concerned H.C. shall also be sent to the R.D. of the region. Although, such notice is supposed to be sent by the H.C., usually the company sends it without waiting for the H.C. to send it.

5. Order Of High Court:-On hearing of the summons, the H.C. shall pass the necessary orders which shall include: (a) Time and place of the meeting, (b) Chairman of the meeting, (c) Fixing the quorum, (d) Procedure to be followed in the meeting for voting by the proxy, (e) Advertisement of notice of the meeting, (f) Time limit for the chairman to submit the report to the court regarding the result of the meeting.

Where the court observes that any of the following circumstances exist in the case of the merger it may not order a meeting when shareholders are few in number; or where the membership is restricted to a single family, HUF or close relatives; or where shareholding pattern of transferor and transferee companies is identical.

6. Notice Of The Meeting:-The notice of the meeting shall be sent to the creditors and/or all the shareholders individually (including preference shareholders) by the chairman so appointed by registered post enclosing: (a) A statement setting forth the following: – Terms of amalgamation and its effects – Any material interests of the director, MDs or Manager, in any capacity – Effect of the arrangement on those interests. (b) A copy of the proposed scheme of amalgamation (c) A form of proxy, (d) Attendance slip, (e) Notice of the resolution for authorizing issue of shares to persons other than existing shareholders

Computation: The notice that is required to be given u/s.393 of the Act for the meeting of the members/creditors shall be by 21 clear days notice.

7. Advertisement Of Notice Of Meeting:-The notice of the meeting shall be advertised in an English and Hindi Newspapers as the court may direct by giving not less than 21 clear days notice before the date fixed for the meeting. However in some instances, the 21 days period can be condoned if reasons are found justifiable.

8. Notice To Stock Exchange:- In case of the listed company, 3 copies of the notice of the general meeting along with enclosures shall be sent to the Stock Exchange where the company is listed.

9. Filing Of Affidavit For The Compliance:- An affidavit not less than 7 days before the meeting shall be filed by the Chairman of the meeting with the Court showing that the directions regarding the issue of notices and advertisement have been duly complied with.

10. General Meeting:-The General Meeting shall be held to pass the following resolutions: (a) Approving the scheme of amalgamation by ¾th majority e.g. if a meeting is attended by say 100 members holding 100 shares, the scheme shall be deemed to have been approved only when it is supported by at least 51 members holding together 750 shares amounts themselves; (b) Special Resolution authorizing allotment of shares to persons other than existing shareholders or an ordinary resolution be passed subject to getting Central Government’s approval for the allotment as per the provisions of Section 81(1A) of the Companies Act, 1956, (c) The resolution to empower directors to dispose of the shares not taken up by the dissenting shareholders at their discretion., (d) An ordinary/special resolution shall be passed to increase the Authorized share capital, if the proposed issue of shares exceeds the present authorized capital. The decision of the meeting shall be ascertained only by taking a poll on resolutions.

11. Reporting Of Result Of The Meeting:-The Chairman of the meeting shall report the result of the meeting to the court within the time fixed by the judge or within 7 days, as the case may be. A copy of proceedings of the meeting shall also be sent to the concerned Stock Exchange.

12. Formalities With ROC:- The following documents shall be filed with ROC along-with the requisite filing fees: (i)Form No. 23 of Companies General Rules & Forms + copy of Special Resolution, (ii)Resolution approving the scheme of amalgamation, (iii) Special resolution passed for the issue of shares to persons other than existing shareholders.

13. Petition:-For approval of the scheme of amalgamation, a petition shall be made to the H.C. within 7 days of the filing of report by the chairman.

If the Regd. Offices of the companies are in same state – then both the companies may move jointly to the High Court. If the Regd. Offices of the companies are in different states – then each company shall move the petition in respective High Court for directions.

14. Sanction of The Scheme:- The Court shall sanction the scheme on being satisfied that: (i) The whole scheme is annexed to the notice for convening meeting. (This provision is mandatory in nature)

(ii) The scheme should have been approved by the company by means of ¾th majority of the members present.

(iii)The scheme should be genuine and bona fide and should not be against the interests of the creditors, the company and the public interest.

After satisfying itself, the court shall pass orders in the requisite form. The requirement of law is permission or approval of court to the scheme. The application made by the company is to seek court’s approval to the company scheme of amalgamation and not merely ordering a meeting. The court may order a meeting of members too. The court must consider all aspects of the matter so as to arrive at a finding that the scheme is fair, just and reasonable and does not contravene public policy or any statutory provision.

While interpreting s.394 r/w s.391, we find that the Tribunal’s power of ordering amalgamation/reconstruction is limited by two provisos of s.394: Firstly, Tribunal has to await the receipt of report from the Registrar of Companies about the manner in which affairs of the Company are conducted. Secondly, when the transferor company is proposed to be dissolved without winding up, the Tribunal shall await.

15. Stamp Duty A scheme sanctioned by the court is an instrument liable to stamp duty.

16. Filing With ROC The following documents shall be filed with ROC within 30 days of order: ” A certified true copy of Court’s Order ” Form No. 21” of Companies General Rules & Forms

17. Copy of Order to be annexed A copy of court’s order shall be annexed to every copy of the Memorandum of Association issued after the certified copy of the order has been filed with as aforesaid.

18. Allotment of shares A Board Resolution shall be passed for the allotment of shares to the shareholders in exchange of shares held in the transferor-company and to fix the record date for this purpose.

Steps To Be Followed By Transferor Company:-

The procedure as given above shall be followed by the transferor company. The only exception is that – there is no need for the transferor company to pass a special resolution for offering shares to the persons other than the existing shareholders and to file Form No. 23 of the Companies General Rules and Forms with the Registrar of Companies.

Objectives of Corporate Amalgamations

Basically there are various reasons for corporate restructuring through amalgamations and acquisitions but some of the main factors or objectives are as follows:[1]

1.   To achieve economies of scale;

2.   To reduce the gestation period for new businesses which would be complementary to the existing business of the company;

3.   To compete globally;

4.   To put to the use the liquidity available with the company for achieving growth through diversification;

5.   To acquire and maximize the available managerial skill to increase the profitability;

6. To take advantage of concession given by tax laws

Method of Amalgamation

Amalgamation may be effected through purchase of assets or shares or a merger through a holding company or by exchange of shares followed by voluntary winding up. However, purchase of assets could be very costly in terms of stamp duty and sales-tax; and purchase of shares would require compliance to Section 372 and in certain cases to Section 108A of the Companies Act. Again by virtue of Section 396, the Central Government may direct companies including foreign companies to amalgamate if public interest so requires. Under Sections 391-394, shareholders of two companies hold meetings under the directions of the company court and may agree to a scheme of amalgamation or merger. The court is empowered to order the transfer of undertaking, properties or liabilities either wholly or in part, allotment of shares or debentures, dissolution without winding up and any consequential or incidental matters necessary to effect amalgamation.

Need for Amalgamation

In a large number of cases, amalgamation of companies is effected when the Central Government is satisfied that amalgamation of two or more companies is essential in the public interest .Then the Central Government may by an order notified in the Official Gazette provide for the amalgamation of those companies into a single company. Amalgamation is also effected as a result of the sanction accorded by the court to the schemes of arrangement and compromise (including amalgamations) contemplated by Sections 391-396 of the Companies Act, 1956. In addition, there are a large number of other reasons on account of which amalgamation of companies is brought about. For example, it is done to achieve long-term economic and financial benefits for both the companies concerned and their shareholders, tax benefits to the amalgamated company and their shareholders and for sound financial position of both amalgamating and amalgamated companies. The amalgamation of a closely-held company with a widely-held company would help to obtain substantial tax benefits which are otherwise available only to widely-held companies. The tax benefits include lower rates of income tax besides exemption from liability to additional income tax. Amalgamation signifies the transfer of all or some part of the assets and liabilities of one or more than one existing company to another existing company or of two or more existing companies to a new company of which transferee company or all the members of the transferor company or companies become, or have the right of becoming, members and generally, such amalgamation is accomplished by a voluntary winding-up of the transferor company or companies. Under an amalgamation, merger or takeover, two (or more) companies are merged either demure by a consolidation of their undertakings or defect by the acquisition of a controlling interest in the share capital of one by the other or of the capital of both by a new company. Amalgamation is a state of things under which either two companies are so joined to form a third entity or one is absorbed into or blended with another.”


Amalgamation has gained importance in recent times. Business consolidation by large industrial houses, consolidation of business by multinationals operating companies, increasing competition amongst domestic companies and competition against imports have all combined to spur mergers and acquisitions activities. It’s a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability.


1.     Avtar Singh, Company Law (15th edition 2007), Eastern Book Company.

2.     Gurminder Kaur, Corporate Mergers and Acquisitions (2005), Deep & Deep Publication Pvt. Ltd.

3.     Gower, The Principal of Modern Company Law, (4th edition)

4.     P. Mohana Rao (editor), Mergers and Acquisitions of Companies (2000), Deep & Deep Publication Pvt. Ltd.

5.     Bank of India Ltd. v. Ahmadabad Mfg & Calico Printing Co., (1972) 42 Comp Case 211.

6.     Industrial Credit & Investment Corps of India v. Financial & Management Services Ltd., AIR 1998 Bom 305



9.     W.A. Beard sell & Co. Ltd, Re (1968) 38 Comp Case 197, 204 Mad.

10.                        Reliance Jute Industries Ltd, Re. (1983) 53 Comp Case 591 Cal







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20.                        Section 394 (4) of the Companies Act provides that “transferee” company does not include any company other than company within the meaning of this Act; but “transferor” company includes anybody corporate whether a company within the meaning of this Act.