Litigation Chamber In Bangladesh

Amalgamation occurs when two or more companies are joined to form a third entity or one is absorbed into or blended with another.
[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]


The commonly used business jargon “Mergers and acquisitions” is a more familiar word to many of us when compared to the term amalgamation. As a matter of fact though, the terms are often used interchangeably. They basically refer to the external expansion of business when two or more business entities combine and authority rests upon a single entity. As far as the scope of this research is concerned, we will try to strictly define the term amalgamation in the context of law and then discuss about the different forms it has. We will also learn about the advantages and disadvantages of amalgamating and of the different procedures as per law that are to be followed in case of amalgamation.

2.Definitions of related terms

Some terms related to the topic are discussed below.

a.Mergers or amalgamation

In the field of business, the term merger means the combination or reconstruction of two or more companies into one larger company. This is financial tool which is generally used with the ultimate goal of profit maximization. Halsbury’s Laws of England[1] describe amalgamation as a blending of two or more existing undertaking into one undertaking. This combination can be done either by creating a new entity or it can also happen when a company continues to exist but has the authority over one or more companies that it has taken over. The income tax Act, 1961[2] of India uses the term ‘amalgamation’ for merger and in the companies act, 1956, the term includes ‘absorption’. In the case of SS Somayajula v. Hop Prudhommee and co. ltd, the learned judge refers to amalgamation as “a state of things under which either two companies are joined so as to form a third entity or one is absorbed into or blend with another”.


As our topic states, when two or more companies are blended into one, it is called absorption. This is one of the two ways of mergers where all companies but one go into liquidation and ceases to exist as a separate entity.

Example- Absorption of Reliance Polyproplene Ltd. (RPPL) by Reliance Industries Ltd. In this case, RPPL was liquidated and its shareholders were offered 20 shares of RIL for every 100 shares of RPPL.


As the last part of our title states, the joining of two or more companies to form a separate third entity is actually termed as consolidation. This is the second way by which amalgamation occurs. All the existing companies which are combined are liquidated and their assets and liabilities are taken over by the new corporation or company.

3.Forms of amalgamation

Amalgamation can take the following forms. Each is discussed in brief.

  • Horizontal merger – this kind of merger, in general, takes place between two or more companies of similar strength and/or producing similar products and who are operating in the same industry. Example can be that of two transportation companies who run on the same route merging together.
  • Vertical merger – when the company merges with its suppliers is called vertical integration. In this form, backward integration[3] is possible. Example can be of an ice cream maker merging with the dairy farm that they purchase milk from.
  • Market-extension merger – when two or more companies that sell the same products in different markets combine together, they form a Market-extension merger. Examples can be that of a steel manufacturer in India combining with one steel manufacturer in Bangladesh.
  • Product-extension merger – Two companies selling different but related products in the same market. Example can be of a cone supplier merging with an ice cream maker.
  • Conglomeration – Two companies that are completely different in terms of products or markets they serve in, when combine together, this kind of merger is called conglomeration. Example can be a merger between a bank and a leasing company.

4.Two procedures of amalgamation according to the company’s act of 1956[4]

a. Amalgamation by the transfer of shares

It is the simplest method of amalgamation which means the transfer of sales of shares from one company to another one. The approval of the shareholders is necessary. For favoring the amalgamation at least 75% of the shareholders must approve the transfer of their company’s shares.

b. Amalgamation by sale of undertakings

The second method involves a sale of the undertaking as a whole. Any person who is entitled to move to the court might make an application to the court. The court may sanction the theme & make the necessary orders.

5.Advantages of amalgamation

Amalgamation is a form that provides establishing a long term competitive advantage for a firm. Mergers and amalgamations are two main strategic decisions which help maximizing the growth of the company. The advantages and intentions behind amalgamations are:

  • Synergistic[5] operational advantage – Operational advantages are defined as a new or enhanced effect caused by a merger instead of separate effects as it combines two or more companies into one.
  • Economies of scale – As the two companies are combined together and productions increase, the mean cost of production and unit costs are reduced and competitive advantage is gained.
  • Reduction of expenses -The expenses regarding production, administration, selling, legal and professional are reduced in a great extent.
  • Benefits of integration –As the companies are merged and integrated they can of great help in the research or development sectors. Integration of the companies may be horizontal or vertical. Tax advantages – carry forward and set off of losses of a loss-making amalgamating company against profits of a profit-making amalgamated company.
  • Financial constraints for expansion – There are many companies which have the capacity to expand but cannot do so because of financial barriers but this is overcome for mergers.
  • Diversification – Diversification is a form of corporate strategy for a company which can increase the profits by gigantic sales volume got form new products and markets and is done through mergers.
  • Advantage of brand equity – In marketing sector the brand name matters a lot as the sales of a particular product having a well reputed brand name is higher. So a struggling company can combine with a company of greater good will to gain advantage of brand equity.
  • Competitive advantage – This term refers to the factors that give a company an advantage over its rivals and ca be achieved by economies of scale.
  • Revival of a weak or sick company – If a company suffering from heavy losses with low share values and if it merges with a financially stable and successful company then the outcome of merging will tend to let the company prosper to a great extent due to the new reputed brand name and the financial support.

6.Legal provisions related to amalgamation

Though the term “amalgamation” has not been directly defined in the Companies Act 1956, it has clearly been defined in the Income Tax act, 1961. Moreover, there is mention of this term in the Companies Act in the sections 394,396 and 396 A.

a.Section 394

Discusses the term amalgamation in relation to The National Company Law Tribunal.

b.Sections 396 and 396 A.

These sections deal with the power of the central government to maintain the records of amalgamated companies and the power it holds to amalgamate companies where they deem shall be favourable for the citizens or publics.

In the English Companies Act[6], there is a specific chapter – part 27 where in the sections 902-941, there is substantial mention of dealing with mergers. In section 904(1) of the English Companies Act, there is definition of the word “merger.” Interestingly, section 900 is very much similar to that of the section 394 of the Companies Act of India.

7.Legal Procedures or steps to be followed

The procedure or steps for the amalgamation of two or more companies can to be viewed from the Transferor and Transferee Company. The steps followed by both the parties are almost similar.

a. In the objects clause of the memorandum of association of the concerned companies, there must be the mention of the power of amalgamation. If not, then it must be amended to make the amalgamation.

b. A Board Meeting shall be held for some requisite resolutions relating to the approval of the amalgamation and confirmation of scheme by the High Court.

c. An application is to be made to the court for directions towards a general meeting which has to be supported by an affidavit. With the affidavit must be attached the proposed scheme of amalgamation.

d. The application to the court talked about above shall be copied and provided to the regional director. Though the high court is supposed to deliver this, usually the act is done by the company.

e. The H.C. shall next pass the necessary orders which shall include time and place, chair, procedure to be followed, advertisement etc. of the meeting.

f. The terms of amalgamation, copy of the proposed scheme for it,a form of proxy, attendance slip etc. shall be sent with the notice of the meeting to the creditors and/or all the shareholders individually by the chairman so appointed.

g. In case of the listed companies, notice to Stock Exchange where the company is listed and 3 copies of the notice of the general meeting along with enclosures shall be sent to the Stock Exchange.

h. The chairman of the meeting shall file an affidavit with the court showing that the procedures of issue of notices and advertisement have been done without delay.

i. General meeting has to be held approving the scheme of amalgamation done by at least 75 % of the majority and decisions relating to an ordinary/special resolution shall be passed to increase the Authorized share capital.

j. The Chairman of the meeting shall also report the results of the meeting to the court within the time fixed by the judge or at least by7 days, considering the case.

k. The following documents shall be filed with ROC and the fees for money requisite filing fees: (i)Form No. 23 of Companies General Rules & Forms + copy of Special Resolution, (ii)Resolution a3. Petition:-For approval of the scheme of amalgamation, a petition shall be made to the H.C. within 7 days of filing the report.

l. The Court, if content, will sanction the scheme on being content. The entire scheme is annexed and the scheme should have been approved by the company by means of 75 %majority of the members present.

m. A scheme sanctioned by the court is an instrument which is liable to stamp duty[7].

n. A certified true copy of Court’s Order,  Form No. 21 of Companies General Rules & Forms is to be filed with ROC by not exceeding 30 days of order.

o. The Memorandum of Association[8] shall have a copy of the courts order in every section when the certified copy of the order has been filed with as mentioned earlier.

p. A Board Resolution must then be passed for the allotment of shares to the concerned shareholders of the company in return of shares held in the existing company.

The only major exception that there is in the process for the transferor and the transferee company is that it is unnecessary for the transferor company to pass a special resolution for offering shares to the people who are not presently shareholders and also not required is to file Form No. 23 of the Companies General Rules and Forms with the Registrar of Companies.


It is evident from our discussions above that amalgamation is an instrument which can be used very skilfully to change the present scenarios of may companies who are struggling or want to change the current position and go for expansion or competitive advantage. The legal aspects relating to using these tools were also discussed. Though the steps and procedures can sometimes be complex to follow, it is worth it as amalgamation provides us with immense benefits if can be used correctly. Historical data shows us the evidence of this if we go into details.

[1] a uniquely comprehensive and authoritative encyclopedia of law

[2] The Income Tax Act, 1961 is the charging Statute of Income Tax in India.

[3] The company produces economical and efficient steel and power through backward integration.

[4] Companies Act 1956 is an Act of the Parliament of India , enacted in 1956, which enabled companies to be formed by registration

[5] It means that 2+2 is more than 4.

[6] The Companies Act 2006 is an Act of the United Kingdom Parliament which forms the primary source of UK company law.

[7] Stamp duty is a tax that is levied on documents.

[8] The memorandum of association of a company often simply called the memorandum, is the document that governs the relationship between the company and the outside.


For: The Lawyers & Jurists

M.L.Hotel Tower Ltd,208,Shahid Syed Nazrul Islam Sarani,

Bijoy Nagar, Dhaka-1000.

Country code+ Ph No.

Ph:0088-02-9571389; 0088-02-9513408,

0088-02-9564329, 0088-02-9564398

Direct cell with country code:

Local Code :