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“malgamation 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.


Where there is business, there is competition. The intensity of competition depends on the demand of the customers and the number of companies serving their needs. In order to survive in the long run, companies try to compete by identifying new opportunities. For survival or even leading the market, one of the most common business strategies being practiced today by many companies is amalgamation.

As we go through this paper, we will learn more about what amalgamation is with examples, and explain why it is practiced, the process of how it is conducted, key issues and the laws affiliated to it.


To maximize a company’s growth and sustainability, strategic decisions like mergers, amalgamation, acquisitions or takeovers are often exercised to enhance production and other operations to compete in an industry. Our main focus in this paper is on amalgamation, which is somewhat similar to a merger and sometimes also used as synonyms, but these two terms do not have the same meaning.[1]

a. Definition:

According to the Halsbury’s Laws of England,[2] in business, the term ‘amalgamation’ is defined as “a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings. There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company”.

In other words, amalgamation takes place when two or more companies get together to form a new business venture.

b. Examples of Amalgamation:

Suppose there are two companies, Company A and Company B. If they practice amalgamation to enhance their business, then Company A may decide to blend with Company B to form a new business venture, which is Company C. Another example could be that Company B may decide to blend with Company A to enhance the operations of Company A, without establishing a separate business venture.

A practical example would be the amalgamation of Air India and Indian (formerly known as Indian Airlines) with National Aviation Company of India. [3] In this example, Air India and Indian are the transferor companies, and National Aviation Company of India is the transferee company.[4] The rationale behind this amalgamation was to synergize the strengths of both the transferor companies, when they realized a huge decline in their market shares due to the fierce competition in the airline industry.

Air India focused mainly on international sectors, and Indian focused on domestic sectors. Through amalgamation, both the companies would be benefited by leveraging their combined assets and capital, reducing their liabilities and generating more revenues by enhancing their operations, and thus build a stronger sustainable business.

c. Forms of Amalgamations:

Internal growth of a company can be improved up by increasing sales, but amalgamations are exercised to enhance external growth. Amalgamation takes place in the nature of merger or in the nature of purchase, and can be attained in either of the following ways:

  1. Vertical Integration: There are two types of vertical integration, that is, backward and forward. It takes place at difference stages of the productive process. In backward vertical integration, a retailer or wholesaler company may amalgamate with the manufacturer company to attain more control over its operations. In forward vertical integration, a manufacturer company may amalgamate with the retailer or wholesaler company to get closer to its ultimate customers by selling directly to them.

2. Horizontal Integration: It takes place at the same stage of productive process. In this business strategy, one company may amalgamate with another rival company in the same industry to synergize their business operations and become strong competitors in the industry. Amalgamation of Air India and Indian is an example of horizontal integration.

3. Conglomerate Amalgamation: It takes place in different lines of business. That is, a company operating in one industry may amalgamate with another company from a different industry, with different interests, products, or services.

d. Motives for Amalgamation:

The root of amalgamation is the concept of synergy.[5] Amalgamations should only be exercised when synergies are realized by the companies or the transferors. It is expected that the transferee company’s value would be greater than the sum of the values of the transferor companies. Achieving economic gains is the rationale behind amalgamation. There are different motives for amalgamations.[6]

  1. Economies of Scale: The amalgamated company will have more resources, which can be used to improve efficiency. The company will have a wider network of distribution, better production facilities, and more. The use of such resources will be the most effective in a horizontal integration.[7]
  2. Financial Strength: Additional costs and expenses from similar operations can be eliminated by amalgamation. The company can experience higher debt capacity and lower borrowing rate, which results in better solvency. The company can also take benefits from the tax-advantage.[8] The value of the transferee company will be more than it would have been individually of the transferor companies, which as a result maximizes the shareholders’ value. Therefore, the company will have a sound financial health as they would have enough funds to operate its business and generate more profits.
  3. Growth: It is the most important where the competition is intense. The position of a company in an industry is determined by it growth rate. Internal growth consumes a lot of time and could be very costly in a well saturated market. Amalgamation would be a better option to consider for such conditions.
  4. Diversification: It is the best way to minimize risk. In mathematical terms, diversification is inversely proportional to risk. Companies can consider conglomerate amalgamation in this regard. In such a situation, companies minimize the degree of risk by adding new product lines of business.
  5. Managerial Effectiveness: Human resource will also be enhanced through amalgamation, resulting in superior management of the transferee company with the combined talents of the transferor companies. Thus, the managerial decisions are likely to be more effective.


Amalgamation is a very effective business tool, but initiating it could be a very lengthy procedure for all the companies involved. There are a lot of steps to be followed by the transferor and the transferee companies. The companies must follow the following steps:[9]

  1. Review the Memorandum of Association: The first and the most important step is to check the Memorandum of Association before amalgamation takes place.[10] All the objects must be reviewed and changes should be made accordingly.
  2. Board Meeting: A board meeting is mandatory to evaluate and pass resolutions like approving the draft scheme of the arrangement, authorizing filings of application to the Court for instructions to set up a general meeting, and filing a formal request for confirmation of the scheme by the High Court.
  3. Application to the Court: An application must be made to the Court for instructions on how to conduct the general meeting by the Judge’s summons, which will be supported by an affidavit.[11] The summons shall be in Form No.33 and the affidavit in Form No. 34 of the Companies (Court) Rules, 1959. A copy of the proposed scheme of amalgamation must be attached to the affidavit, which is mentioned in Rule 67 of the Companies (Court) Rules, 1959.[12]
  4. Copy to Regional Director: A copy of the application made to the High Court must also be sent to the regional director of the region. Such a notice is usually sent by the High Court, but companies do not usually wait for the notice to speed up the process.
  5. Order of High Court: While hearing of the summons, the High Court will pass the orders which would include the time and place of the meeting, procedure of how the meeting would be conducted, the deadline for submitting the report, and more. Such orders shall be mentioned in Form No. 35.
  6. Notice of the Meeting: A notice regarding the meeting should be sent to the creditors and shareholders of the company, addressed individually by the appointed chairman. The notice shall be in Form No. 36 and the proxy in Form No. 37.[13]
  7. Advertisement of Notice of Meeting: The notice of the general meeting should be advertised in local newspapers as instructed by the Court. The advertisement shall be in Form No. 38.
  8. Notice to Stock Exchange: If the company is listed in the stock exchange, then three copies of the general meeting notice shall be sent there along with enclosures.
  9. Filing of Affidavit for the Compliance: An affidavit must be filed to the Court by the chairman at least seven days prior to the general meeting, showing that all the instructions of the Court were obeyed.
  10. General Meeting: The general meeting shall be held to pass the proposed resolutions. For example, approval of the scheme from the majority of the voters. All decisions regarding the resolutions in the meeting shall be determined by conducting polls.[14]
  11. Reporting of Result of the Meeting: The report of the meeting shall be sent to the Court within the deadline set by the judge, and if not then within seven days. A copy of the meeting shall also be sent to the stock exchange. The report shall be in Form No. 39.
  12. Formalities with Registrar of Companies: Some documents like Form No. 23 of Companies General Rules & Forms, needs to be filed with the Registrar of Companies, which requires filing fees.[15]
  13. Petition: A petition shall be made to the High Court by the chairman, for the approval of the scheme within seven days of filing the report. Petition shall be in Form No. 40.[16]
  14. Sanction of the Scheme: After being satisfied with the scheme and its proceedings, the Court shall pass the orders in Form No. 41.[17]
  15. Stamp Duty: If the scheme is sanctioned by the Court, it would be an instrument liable to stamp duty.
  16. Filing with Registrar of Companies: A certified original copy of the Court’s order and Form No. 21 of Companies General Rules & Forms shall be filed within thirty days of order.
  17. Copy of Order to be Annexed: The Court’s order copy shall be annexed to every copy of the Memorandum of Association issued, after the certified copy of the order has been filed with the Registrar of Companies.
  18. Allotment of Shares: The allotment of shares to the shareholders in exchange of the shares, which were held in the transferor company, shall be passed in a board resolution. The date of execution shall also be recorded. This step does not apply to the transferee company.


The Companies Act, 1956, is a set of rules that regulates the formation and functioning of companies by the Central Government. Chapter V of the Companies Act, 1956, deals with Arbitration, Compromises, Arrangements and Reconstructions. The following sections deal with issues regarding amalgamation under the Companies Act, 1956:

  1. Section 391 – Power to compromise or make arrangements with creditors and members.
  2. Section 392 – Power of High Court to enforce compromises and arrangements.
  3. Section 393 – Information as to compromises or arrangements with creditors and members.
  4. Section 394 – Provisions for facilitating reconstruction and amalgamation of companies.

These sections are all followed strictly throughout the stages of the amalgamation process.


Amalgamation is a very effective business strategy in today’s business, where the competition is much more intense and fierce. The strategy is most likely to result in synergy, followed by many advantages in its operations. The process of amalgamation could consume a lot of time as resolutions may be called for and changes in the Memorandum of Associations may be required. A lot of legal arrangements also takes place during amalgamation, as it is regulated by the Central Government under the Companies Act, 1956 (Sections 391-394). Amalgamation is well protected by the Law.


1.   Hanif, M & Mukherjee A, (2009). Accounting for CA IPCC Examination and Accounting Technician Course. New Delhi: Tata McGraw-Hill Education Private Limited.

2.   Advocate Rastogi, S (April 16, 2005). Amalgamation, Merger, Acquisition, and Takeover. In India Juris – International Law Firm. Retrieved March 31, 2011 from

3.   Sharma, V.K. Mergers And Amalgamations: An Executive Summary Of Proceedings. In Legal Service India. Retrieved March 31, 2011, from

4.   Reason for Merger and Amalgamation. In Xomba. Retrieved March 31, 2011, from

5.   Why Merge?. In Small Business Notes. Retrieved March 31, 2011, from

6.   Economics or Reasons of Mergers. In MBA Knowledge Base. Retrieved March 31, 2011, from

7.   Consolidation (Business). In Wikipedia. Retrieved March 31, 2011, from

8.   Growing a Business: Mergers and Acquisitions. In Business Knowledge Resource Online. Retrieved March 31, 2011, from

9.   Indraneel (2009, September 20). What is the difference between merger and amalgamation and acquisition related to accounting point of view?. In Companies Profiles. Retrieved March 31, 2011, from

10. The Companies Act, 1956. In Retrieved March 31, 2011, from

[1] Merger is restricted to a case where the assets and liabilities of the companies get vested in another company, the company which is merged losing its identity and its shareholders becoming shareholders of the other company. On the other hand, amalgamation is an arrangement, whereby the assets and liabilities of two or more companies become vested in another company (which may or may not be one of the original companies) and which would have as its shareholders substantially, all the shareholders of the amalgamating companies.

[2] Halsbury’s Laws of England is a uniquely comprehensive and authoritative encyclopaedia of law, and provides the only complete narrative statement of law in England and Wales

[3] Air India Limited is the national airline of India which flies a worldwide network of passenger and cargo services. Indian Airlines or Indian was a major Indian airline based in Mumbai and focused primarily on domestic routes, along with several international services to neighbouring countries in Asia. National Aviation Company of India has renamed itself as Air India Limited in October 2010.

[4] A transferor is someone who conveys a title or property to another, and a transferee is someone to whom a title or property is conveyed.

[5] A synergy is where different entities cooperate advantageously for a final outcome. If used in a business application it means that teamwork will produce an overall better result than if each person was working toward the same goal individually.

[6] The five motives have been collected from the book Accounting for CA IPCC Examination and Accounting Technician Course, section 7.3, “Motive for Amalgamation”, and further explained from “Economics or Reasons for Mergers”, retrieved from

[7] Economies of scale are a reduction in long run unit costs which arise from an increase in production. It occurs when larger firms are able to lower their unit costs.

[8] A tax-advantage is an advantage bestowed by legislation that reduces a tax on some preferred activity

[9] The steps have been collected from the article Mergers and Amalgamations: An Executive Summary of Proceedings by Sharma, V.K. Retrieved from webpage

[10] Memorandum of association is the first constitutional document of a company, which must be submitted to the Registrar of Companies together with its Articles of Association, and which contains company name, address of its registered office, objects and powers, authorized share capital, and statement of limited liability.

[11] An affidavit is a form of evidence (in contrast to verbal testimony given in court) filed and to be considered by the judge in deciding a particular matter.

[12] The Companies (Court) Rules, 1959: In exercise of powers conferred by Sections 643 (1) and (2) of the Companies Act, 1956 the Central Government has made the aforesaid Rules for holding the meetings of creditors and members of companies in connection with proceedings under Section 391 for compromise and arrangement, for all applications to the Court under the provisions of the Act, for holding and conducting meetings to ascertain the wishes of creditors and contributories etc.

These Rules provide the procedure for making applications to the Court and holding meetings of creditors and members in corporate restructuring.

[13] Enclose with the notice a statement setting forth the 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. Also a copy of the proposed scheme of amalgamation, a form of proxy, attendance slip, notice of the resolution for authorizing issue of shares to persons other than existing shareholders

[14] The resolutions are: approving the scheme of amalgamation by ¾th majority; 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; the resolution to empower directors to dispose of the shares not taken up by the dissenting shareholders at their discretion; an ordinary/special resolution shall be passed to increase the authorized share capital, if the proposed issue of shares exceeds the present authorized capital.

[15] The documents required are Form No. 23 of Companies General Rules & Forms plus copy of Special Resolution; resolution approving the scheme of amalgamation; and special resolution passed for the issue of shares to persons other than existing shareholders

[16] A petition is a request to change something, most commonly made to a government official or public entity.

Note: 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

[17] The court must be satisfied with the following: the whole scheme is annexed to the notice for convening meeting. This provision is mandatory in nature; the scheme should have been approved by the company by means of ¾th majority of the members present; the scheme should be genuine and bona fide and should not be against the interests of the creditors, the company and the public interest.


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