Compromises, Arrangements and Amalgamations – CA Final Law Study Material

Compromises, Arrangements and Amalgamations – CA Final Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Compromises, Arrangements and Amalgamations – CA Final Law Study Material

Question 1.
A meeting of members of ABC Limited was convened under the orders of the Court to consider a scheme of compromise and arrangement. Notice of the meeting was sent in the prescribed manner to all the 600 members holding in the aggregate 2 5,00,000 shares. The meeting was attended by 450 members holding 15,00,000 shares, 210 members holding 11,00,000 shares voted in favour of the scheme. 180 members holding 3,00,000 shares voted against the scheme. The remaining members abstained from voting. Examine with reference to the relevant provisions of the Companies Act, 2013 whether the scheme is approved by the requisite majority ;
Answer:
Determination of Approval of Scheme of Compromise and Arrangement:

Sec. 230(6) of the Companies Act, 2013 provides that where at a meeting held, majority of persons representing 3/4th in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company.

Requirement as stated u/s 230(6) is dual in nature. On one side, a simple majority of the person who vote is required. On another side, the person who voted in favour must hold 3/4th value. In case of voting by members, value is to be computed with reference to paid-up capital held by members present and voting at the meeting.

In this case out of 600 members, 450 members attended the meeting, but only 390 members voted at the meeting. 210 members holding 11,00,000 shares voted in favour of the scheme. 180 members holding 3,00,000 shares voted against the scheme.

As 210 members voted in favour of the scheme the requirement relating to majority in number [i.e. 196) is satisfied.
Members who voted in favour of the scheme hold 11,00,000 shares, which is more than 3/4th of total shareholding of the members who voted [3/4th of (11,00,000 + 3,00,000) = 10,50,000].

Conclusion: Scheme is approved by requisite majority as requirement of number (Simple majority) as well as value (3/4th majority) both are fulfilled.

Question 2.
A meeting of members of DEF Limited was convened under the orders of the Court for the purpose of considering a scheme of compromise and arrangement. The meeting was attended by 300 members holding 9,00,000 shares. 120 members holding 7,00,000 shares in the aggregate voted for the scheme. 140 members holding 2,00,000 shares in aggregate voted against the scheme. 40 members holding 1,00,000 shares abstained from voting. Examine with reference to the relevant provisions of the Companies Act, 2013 whether the scheme was approved by the requisite majority? [RTP-May 18]
Answer:
Determination of Approval of Scheme of Compromise and Arrangement:

In this case 300 members attended the meeting, but only 260 members voted at the meeting. 120 members holding 7,00,000 shares voted in favour of the scheme. 140 members holding 2,00,000 shares voted against the scheme.

As only 120 members voted in favour of the scheme the requirement relating to majority in number [i.e. (120+140)/2 = 131] is not satisfied.

Members who voted in favour of the scheme hold 7,00,000 shares, which is more than 3/4th of total shareholding of the members who voted [3/4th of (7,00,000 + 2,00,000) = 9,00,000].

Conclusion: Scheme is not approved by requisite majority as requirement of number (Simple majority) is not fulfilled though requirement of value (3/4th majority) is being fulfilled.

Question 3.
How the compromise or arrangement scheme is adopted by the companies entering into any contract under the Companies Act, 2013? [MTP-Aug. 18]
Answer:
Adoption of Compromise and Arrangement Scheme:
Section 230 of the Companies Act, 2013 dealing with the powers of the Tribunal on the filing of application for the compromise or arrangement prescribes the procedure to be followed for compromise or arrangement scheme. Steps to be followed in this regard are:

As per Sec. 230(1), where a compromise or arrangement is proposed between a company and its creditors or any class of them; or a company and its members or any class of them, the Tribunal may, on the application of the company, creditor, member of the company, or liquidator, may order a meeting of the creditors/class of creditors, or of the members/class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

As per Sec. 230(3), where a meeting is proposed to be called in pursuance of an order of the Tribunal, a notice of such meeting shall be sent to all the creditors or class of creditors, and all the members or class of members, and the debenture-holders of the company.

As per Sec. 230(4) notice shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice:

Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than 10% of the shareholding or having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement.

As per Sec. 2 30(6), where, at a meeting held, majority representing 3/4th in value of the creditors / class of creditors, or of the members/class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors/class of creditors, or of the members/class of members, as the case may be, or, in case of a company being wound up, on the liquidator appointed under this Act or under the IBC, 2016, as the case may be, and the contributories of the company.

Question 4.
A meeting of members of ABC Limited was convened as per the orders of the Court to consider a scheme of compromise and arrangement. Notice of the meeting was sent to 1000 members holding in aggregate 500000 equity shares. The meeting was attended by 800 members holding 350000 shares. 450 members holding 240000 shares voted in favour of the scheme; 200 members holding 60000 shares voted against the scheme. The remaining 150 mcnibersabstained from voting. Explain with reference to the provisions of the Companies Act, 2013, whether the scheme is approved by the requisite majority. [May 19 – New Syllabus (4 Marks)]
Answer:
Determination of Approval of Scheme of Compromise and Arrangement:

Requirement as stated u/s 23 0 (6) is dual in nature. On one side, a simple majority of the person who vote is required. On another side, the person who voted in favour must hold 3/4th value.
In case of voting by members, value is to be computed with reference to paid-up capital held by members present and voting at the meeting.

In this case out of 1,000 members, 800 members attended the meeting, but only 650 members voted at the meeting. 450 members holding 2,40,000 shares voted in favour of the scheme. 200 members holding 60,000 shares voted against the scheme.

As 450 members voted in favour of the scheme the requirement relating to majority in number (i.e. 326] is satisfied.
Members who voted in favour of the scheme hold 2,40,000 shares, which is more than 3/4th of total shareholding of the members who voted [3/4th of (2,40,000 + 60,000] = 2,25,000].

Conclusion: Scheme is approved by requisite majority as requirement of number (Simple majority) as well as value (3/4th majority) both are fulfilled.

Question 5.
Dragon Copper Limited was facing acute financial difficulty as operations were continuously disrupted due to
(a) non-availability of raw material
(b) successive drought in its marketing areas and loss of demand and
(c) frequent breakdown due to non-replacement of old plant and machinery. On the verge of liquidation, the Management proposes one last arrangement between creditors and the company, whereby the creditors have to forego 50% of their dues to the company. This has evoked strong protest from some of the creditors who may block the arrangement. Examine the arrangement in the light of the Companies Act, 2013 and advise the course of action/procedure to be adopted by the company to implement the same. [RTP-Nov. 19]
Or
RMP Limited was facing acute financial difficulties as operations were Continuously disrupted and the Company was facing the brunt of:
(i) Non-Availability of Raw Materials,
(ii) Loss of demand for the Company’s products,
(iii) Frequent lockdown due to workmen’s unrest.

On the verge of liquidation, the Management proposed one last arrangement between creditors and the Company, whereby, the creditors will have to forego 50% of their dues to the Company, this has evoked strong protest from some of the creditors who may block the arrangement.

Examine the arrangement in the light of the Companies Act, 2013 and advice the course of action/ procedure to be adopted by the company to implement the arrangement. [Nov. 20 – New Syllabus (4 Marks)]
Answer:
Scheme of Compromise or arrangement
As per Sec. 230(1), where a compromise or arrangement is proposed between
(a) a company and its creditors or any class of them; or
(b) a company and its members or any class of them, the Tribunal may, on the application of the company or any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator (whether appointed under this Act or under the Insolvency and Bankruptcy Code, 2016), order a 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 the Tribunal directs.

In the present case, the scheme provides for sacrifice on the part of creditors as they have to forego 50% of their dues to the company. The proposed scheme involves as a compromise or arrangement with creditors and it attracts section 230.

The procedure to be adopted by the company in this regard will involve following steps:

(i) Company must arrange to send notice of meeting to every creditor containing a statement setting forth the terms of compromise or arrangement explaining its effect. Material interest of directors, Managing Director, or manager of the company in the scheme and the effect of scheme on their interest should be fully disclosed.

(ii) Advertisement issued by the company must comply with the requirements of Sec. 230(2).

(iii) At the meetings convened, as per directions of the Tribunal, majority in number representing at least 75% in value of creditors present and voting (either in person or by proxy if allowed) must agree to compromise or arrangement.

(iv) Company must present a petition to the Tribunal for confirmation of the compromise or arrangement. The notice of application made by the company will be served on the Central Government and the Tribunal will take into consideration representation, If, any made by the Central Government.

(v) The Tribunal will sanction the scheme, if it is satisfied that the company has disclosed all material facts relating to the company e.g. latest financial position, auditor’s report on accounts of the company, pendency of investigation of company, etc.

(vi) Copy of Tribunal order must be filed with the Registrar of Companies and then only the order will come into effect. Copy of Tribunal order must be annexed to every Memorandum of Association issued thereafter.

(vii) If the Tribunal sanctions the scheme, it will be binding on all members and creditors even those who were dissenting.

Question 6.
At the meeting of the members of M/s QRS Limited, a scheme of compromise and arrangement was approved by requisite majority. The National Company Law Tribunal (NCLT) after complying the provisions, issued an Order, approving the scheme of compromise and arrangement.

List out the matters to be provided in the Order issued by NCLT under Section 230(7) of the Companies Act, 2013. When shall the Order be filed with ROC? [Nov. 19 – New Syllabus (4 Marks)]
Answer:
Particulars to be stated in the order:
As per Sec. 230(7) of the Companies Act, 2013, an order made by the Tribunal u/s 230(6), shall provide for all or any of the following matters, namely:

(a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value ofthe dividend payable;

(b) the protection of any class of creditors;

(c) if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect to under the provisions of Sec. 48;

(d) if the compromise or arrangement is agreed to by the creditors u/s 230(6), any proceedings pending before the Board for Industrial and Financial Reconstruction (BIFR) established u/s 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall abate;

(e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement.

Filing of order with Registrar:
As per Sec. 230(8) of the Companies Act, 2013, the order of the Tribunal shall be filed with the Registrar by the company within a period of 30 days of the receipt of the order.

Question 7.
Genuine Spares and Accessories Limited has got a good reputation in the market and has loyal customers. Due to the local competition and from unbranded spares, its turnover has gone down over the years and it had ended in red with a loss of ₹ 2.00 crore for the year ended 31.3.2021 and the same trend is expected to continue for the year ended 31.3.2022. It has got a large amount of unpaid trade creditors of ₹ 1,25,00,000 and unpaid dividends for the year ended 31.3.2017 – ₹ 1,50,000 and 31.3.2018 – ₹ 80,000.

Even during the difficult periods of business environment, the company continued the business. One of the directors has suggested in the meeting of the Board of Directors that the company can compromise or make arrangements with creditors. Mr. Magesh is the Chief Accounts Officer of the company for the last two decades. He has been entrusted with the task of finding out the possibility of making compromise with the creditors. Enumerate the formalities to be observed by the company with regard to
(i) filing of compromise application and
(ii) disclosures to be made in the application by the company. [Nov. 20 – Old Syllabus (4 Marks)]
Answer:
Scheme of Compromise with Creditors:

(i) Filing of Compromises application:
As per Sec. 230(1), where a compromise or arrangement is proposed between

(a) a company and its creditors or any class of them; or

(b) a company and its members or any class of them, the Tribunal may, on the application of the company or any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator (whether appointed under this Act or under the Insolvency and Bankruptcy Code, 2016), order a 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 the Tribunal directs.

(ii) Disclosures to be made along with application:
As per Sec. 230(2) of the Companies Act, 2013, the company or any other person, by whom an application is made u/s 230(1), shall disclose-to the Tribunal by affidavit:
(a) all material facts relating to the company, such as

the latest financial position of the company,
the latest auditor’s report on the accounts of the company, and
the pendency of any investigation or proceedings against the company;

(b) reduction of share capital of the company, if any, included in the compromise or arrangement;
(c) any scheme of corporate debt restructuring consented to by not less than 75% of the secured creditors in value, including-

a creditor’s responsibility statement in the prescribed form;
safeguards for the protection of other secured and unsecured creditors;
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;
where the company proposes to adopt the corporate debt restructuring guidelines specified by the RBI, a statement to that effect; and
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.

Question 8.
Long Lasting Ltd. applied to the Tribunal for the approval of proposed merger scheme. State the process to be compiled of proposed merger scheme. State the process to be complied with for the ed merger scheme drawn by
of the Long Lasting Ltd. under the Companies Act, 2013. [MTP-March 18]
Answer:
Process to be complied with for approval of proposed merger scheme applied to Tribunal:
Sec. 232 of Companies Act, 2013 deals with the provisions related to process followed for approval
of scheme of mergers. Accordingly:

Order by Tribunal for meeting of creditors or members: Sec. 2 32(1) provides that where an application is made to the Tribunal under section 230 of the Companies Act, 2013 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal:

(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and

(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred ‘to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies,

the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct.

Circulation of information for the meeting by the merging companies/the companies in respect of which a division is proposed: Sec.232(2) states that where an order has been made by the Tribunal u/s 232(1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:

(a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of
the merging company;
(b) confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) 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;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.

Order of tribunal on the agreement of compromise or arrangement: The Tribunal, after satisfying itself that the procedure specified u/s 232(1) & 232(2) has been complied with, may, by order, sanction the compromise or arrangement.

Question 9.
Pioneer Textiles Limited desired to amalgamate is enterprise with Latex Textiles Limited. A scheme of amalgamation for this purpose was approved by an overwhelming majority of shareholders and all creditors of both companies at meetings held under the provisions of Section 232 of the Companies Act, 2013. Thereupon it was presented to the company law tribunal for Its sanction.

While the scheme was pending in the Tribunal, some of the dissentient shareholders of Pioneer Textiles Limited requisitioned an extraordinary general meeting to negotiate with Latex Textiles Limited as according to the requisitionists the exchange ratio was not fair and reasonable.

Examine whether the directors may refuse to call the extraordinary general meeting. Also discuss the powers of the Tribunal in this respect. [May 18-New Syllabus (5 Marks)]
Answer:
Refusal to call EGM for renegotiation of Exchange Ratio in Scheme of Amalgamation:
Sec. 100(2) of Companies Act, 2013 provides that the Board shall, at the requisition made by:

(a) in the case of a company having a share capital, such number of members who hold, on the date of the receipt of the requisition, not less than 1/10th of such of the paid-up share capital of the company as on that date carries the right of voting;

(b) in the case of a company not having a share capital, such number of members who have, on the date of receipt of the requisition, not less than 1/10th of the total voting power of all the members having on the said date a right to vote,
call an extraordinary general meeting of the company within the period specified in Sec. 100(4).

In the present case, some of the shareholders requisitioned an EGM to negotiate with other company over the exchange ratio in scheme of amalgamation.
Conclusion: Directors cannot refuse calling of EGM, if the requisition is made by prescribed number of members.

Tribunal Power in this respect:

Tribunal cannot prevent shareholders from requisitioning a meeting, discussing and passing a resolution, proposing a modification to amalgamation scheme, even when scheme is pending for sanction before Tribunal. _

However, if the share exchange ratio is challenged before Tribunal, it will not disturb the scheme of amalgamation, unless the person who challenges the valuation satisfies the Tribunal that the valuation is grossly unfair.

Note: Answer given in suggested answer as issued by Board of Studies, ICAI is different. Answer as given in the Suggested answer conclude that it is not mandatory for the directors to call Extraordinary General Meeting. It is assumed that overwhelming majority signified approval by the holders of not less than 9/10th in value of shares.

Question 10.
ABC Limited was amalgamated and merged in XYZ Limited. Some workers of ABC Limited refuse to join as workers of XYZ Limited and claim compensation for premature termination of service. XYZ Limited resists the claim on the ground that their services are transferred to XYZ Limited by the order of amalgamation and merger and, therefore, the workers must join service of XYZ Limited and cannot claim any compensation. According to the provisions of the Companies Act, 2013, examine whether the workers’ contention is correct. [MTP-Oct. 18]
Answer:
Transfer of contract of service in a scheme of compromise or arrangement:

As per Sec. 232(3) of Companies Act, 2013, Tribunal, after satisfying itself that the procedure specified u/s 232(1) and (2) has been complied with, it may by order, sanction the compromise or arrangement or by a subsequent order, make provision for various matters, including there is the transfer of the employees of the transferor company to the transferee company.

However, an order u/s section 232 of the Companies Act, 2013 transferring the property, rights
and liabilities of one company to another does not automatically transfer contracts of personal service, which are in their nature, incapable of being transferred and no contract of service is thereby created between an employee of the transferor company on the one hand and the transferee company on the other.

Conclusion: In accordance with the above provisions, it may be concluded that the workers/ employees and their services cannot be transferred without their consent. Tribunal may by order safeguard the interest of the employees/workers. Therefore, the workers of ABC Ltd. (Transferor) will succeed against XYZ Ltd.

Question 11.
ABC Limited is a wholly owned subsidiary company of XYZ Limited. The Company wants to make i application for merger of Holding and Subsidiary Companies u/s 232. The Company Secretary of the XYZ Limited is of the opinion that company cannot apply for merger as per Sec. 232. The Company shall have to apply for merger as per Sec. 233 i.e. Fast Track Mer ger. Is the contention of Company Secretary being valid as per law? [MTP-May 20]
Answer:
Merger of holding company and its wholly owned subsidiary company:

Sec. 233(1) of Companies Act, 2013 states that, notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed, subject to the certain conditions.

Provisions as stated under section 233 are optional in nature and not compulsory. It means that if a company wants to make application for merger as per Sec. 232, it can do so.

Conclusion: Company Secretary of the XYZ limited has erred in the law and his contention is not valid. Company has an option to choose between normal process of merger u/s 232 or fast track merger u/s 233.

Question 12.
Global Limited, a foreign company proposed to Desi Limited, an Indian company for merger of companies. State the requirement for merger as per the Companies Act, 2013. [MTP-April 18]
Answer:
Merger or Amalgamation of Company with Foreign Company:
Section 234 of the Companies Act, 2013 provides the provisions related to merger of an Indian company with a foreign company.

Accordingly, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in

cash, or
Depository Receipts, or
partly in cash and partly in Depository Receipts, as the’ case may be, as per the scheme to be drawn up for the purpose.

Question 13.
M/s. Unicorn Rubber Sheets Limited was incorporated and registered in the United Kingdom. M/s. Artha Rubber Sheets Manufacturing and Trading Limited is an Indian Company incorporated and registered under the provisions of the Companies Act, 2013. A scheme of compromise between the above two companies provided for an amalgamation of the English Company with the Indian company.

The CFO of the Indian Company is of the opinion that the companies being amalgamated must be companies registered in India and therefore an amalgamation with a company registered outside India is not possible. Explaining the relevant provisions of the Companies Act, 2013, examine the correctness or otherwise of the following with reference to a scheme of amalgamation of Companies:
(i) Whether the contention of the CFO is correct that the companies being amalgamated must be Companies registered in India?
(ii) What is the majority required for approving the scheme of amalgamation in a meeting of members of a company called as per the directions of the Tribunal? [May 19 – Old Syllabus (4 Marks)]
Answer:
(i) Merger or Amalgamation of Company with Foreign Company:

Section 234 of the Companies Act, 2013 provides the provisions related to merger of an Indian company with a foreign company.

Accordingly, a foreign company, may with the prior approval of the RBI, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose.

Conclusion: Considering the provisions of Sec. 234, it may be concluded that contention of CFO that the companies being amalgamated must be Companies registered in India is not correct.

(ii) Majority required for approving the scheme of amalgamation
As per Sec. 230(6) of the Companies Act, 2013 majority required for approving the scheme of amalgamation is simple majority (in number) representing 3/4th in value of the creditors or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot.

Question 14.
In a scheme of reconstruction by a multinational company listed in India, the company wanted the minority shareholders to get out of the company by selling their shares back to the promoters at a price determined by the promoters. The minority shareholders were not given a choice whether they wanted to tender their shares or not.

In the meeting, there were six non-promoter shareholders who voted against the scheme, but Chairman declared that the motion was carried with an overwhelming majority of more than 90% shareholding. However, minority shareholders contended that they had a right to reject the offer. Will they succeed? [Nov. 19 – Old Syllabus (4 Marks)]
Answer:
Purchase of Minority Shareholding:

As per Sec. 236 of Companies Act, 2013, in the event of an acquirer, or a person acting in concert with such acquirer becoming registered holder of 90% or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming 90% majority or holding 90% of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares.

The acquirer, person or group of persons shall offer to the minority shareholders of the company for buying the equity shares held by such shareholders at a price determined on the basis of valuation by a registered valuer in accordance with prescribed rules.

In the given case, in a scheme of reconstruction, the company wanted the minority shareholders to get out of the company by selling their shares back to the promoters at a price determined by the promoters. The minority shareholders were not given a choice whether they wanted to tender their shares or not.

In the meeting, there were 6 non-promoter shareholders who voted against the scheme, but Chairman declared that the motion was carried with an overwhelming majority of more than 90% shareholding. However, minority shareholders contended that they had a right to reject the offer.

Conclusion: Minority shareholder will succeed as Sec. 2 36 requires thatthe price is to be determined on the basis of valuation by a registered valuer in accordance with the prescribed rules.

Question 15.
As a part of amalgamation, Harsha Limited acquired 90% of the issued capital of Ananya Limited. The issued, subscribed and paid up capital of Ananya Limited is ₹ 100 Crores. Out of remaining minority shareholding of Ananya Limited, ₹ 8 Crores are held by Mr. Raju. Mr. Raju was not satisfied with the amount decided under the scheme and therefore negotiated for a higher price.

As a result, he received an extra amount of ₹ 10 Lacs. The other minority shareholders claim that Mr. Raju is not entitled to the entire extra amount of ₹ 10 Lacs. Examine the validity of claim made by other minority shareholders under the relevant provisions of the Companies Act, 2013. [Nov. 20 – New Syllabus (4 Marks)]
Answer:
Sharing of additional compensation:

As per Sec. 236(8) of Companies Act, 2013, where the shares of minority shareholders have been acquired in pursuance of this section, and as on or prior to the date of transfer following such acquisition, the shareholders holding 75% or more minority equity shareholding negotiate or reach an understanding on a higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such negotiation, understanding or agreement, the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata basis.

In the present case, Harsha Limited acquired 90% of the issued capital of Ananya Limited. The issued, subscribed and paid up capital of Ananya Limited is ₹ 100 Crores. Out of remaining minority shareholding of Ananya Limited, ₹ 8 Crores are held by Mr. Raju.

Mr. Raju was not satisfied with the amount decided under the scheme and therefore negotiated for a higher price. As a result, he received an extra amount of 110 Lacs. The other minority shareholders claim that Mr. Raju is not entitled to the entire extra amount of ₹ 10 Lacs.
Conclusion: Considering the provisions of Sec. 236(8), claim made by other minority shareholders seems valid.

Question 16.
Cotton Yarn Ltd., and Country Cotton Blossom Ltd., are two listed companies engaged in the Business of Textiles. The companies are not making profits and as such their share’s market price have gone down. A substantial portion of their share capital is held by Central Government as well as some Public Financial Corporations.

In order to increase the share value, the Central Government wants to amalgamate the aforesaid two companies into a single company. Examine the powers of Central Government to amalgamate the two companies in public interest as per the provisions of the Companies Act, 2013. [RTP-Nov. 18]
Answer:
Power of C.G. to provide for amalgamation of companies in public interest:

As per Sec. 237 of the Companies Act, 2013, where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, the Central Government, may, by order notified in the official gazette, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges and with such liabilities, duties and obligations, as may be specified in the order.

The order may also provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to amalgamation.

Every member or creditor including a debenture holder of each of the transferor companies before the amalgamation shall have, as nearly as may be,

the same interest in or rights against the transferee company as he had in the company of which he was originally a member or creditor and

in case the interest or rights of such member or creditor in or against the transferee company are less than the interest in or rights against the original company, he shall be entitled to compensation to that extent, which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the official gazette and the compensation so assessed shall be paid to the member or creditor concerned by the transferee company.

Question 17.
CPR Ltd. and TJC Ltd. are wholly owned by Government of Tamil Nadu. As a policy matter, the Gov-ernment issued administrative orders for merging TJC Ltd. with CPR Ltd. in the public interest. State the authority with whom the application for merger is required to be filed under the provisions of the Companies Act, 2013. Also state the provisions governing the preservation of books and records of TJC Ltd. after merger under the said Act. [May 18 – New Syllabus (3 Marks)]
Answer:
Powers of C.G. to provide for amalgamation of companies in public interest:

Sec. 237(1) of Companies Act, 2013, provides that where the C.G. is satisfied that it is essential in the public interest that two or more companies should amalgamate, it may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be specified in the order.

In the present case, CPR Ltd. and TJC Ltd. are wholly owned by Government of Tamil Nadu. As a policy matter, the Government issued administrative orders for merging TJC Ltd. with CPR Ltd. in the public interest.

Conclusion: Application for merger is required to be filed with Central Government and it may, by order notified in the Official Gazette, provide for the amalgamation of these companies.

Provisions governing preservation of books and records after merger:
Sec. 239 of Companies Act, 2013 provides the provisions w.r.t. preservation of books and papers of amalgamated companies. Accordingly, the books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission of the C.G. and

before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the transferor company or its amalgamation or the acquisition of its shares.

Compromises, Arrangements and Amalgamations – CA Final Law Study Material

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