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This article is written by Dewansh Vashishth who is pursuing a Diploma in M&A, Institutional Finance and Investment Laws (including PE and VC transactions) from Lawsikho.


Amalgamation is a combination of two or more entities forming into a new entity. It is, however, different from merger as neither of the entities involved survives as a legal entity but there is formation of an entirely new entity. Assets and liabilities of both the entities are combined into this one entity. The term amalgamation is not been defined under the Companies Act 2013, however as per Section 2(1B) of the Income Tax Act 1961, amalgamation, in context to companies, indicates the merger of one or more companies with other company or the merger of two or more companies to form one company in a way that (i) all property of amalgamated company becomes property of the amalgamated company; (ii) all liabilities of the amalgamated company becomes the liabilities of the amalgamated company; and (iii) shareholders holding not less than 3/4th shares in the amalgamating companies become shareholders in the amalgamated company.

Purpose of amalgamation between companies

Companies can choose to amalgamate with different companies for a number of reasons, included but not restricted to, gaining synergy, avoiding competition in the market, increasing the efficiency of their business, expanding the business, to build up goodwill, to reduce the degree of risk by way of diversification, saving of taxes, and increase shareholders value.

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Types of Amalgamation

Amalgamation in nature of merger

In it is in this category of amalgamation, not only assets and liabilities are transferred from the amalgamating company to the amalgamated company but also, there is transfer of shareholders’ interest and businesses of both the companies.  The business of this amalgamated company commences after the amalgamation is concluded, with no adjustments that are to be made in the book value. Shareholders that hold a not less than 90% of the face value of equity shares of the amalgamating company, become equity shareholders in the amalgamated company.

Amalgamation in nature of purchase

By this mode of amalgamation, one company is acquired by the acquiring company. The shareholders, holding shares in the Target Company (or acquired company) do not continue to have proportionate share in the equity of combined company or business.

Advantages of amalgamation

  • Leads to reduction in competition in the market.
  • Increases the research and development facilities.
  • Reduces the operating costs.

Disadvantages of amalgamation

  • May lead to the elimination of a healthy competition from the market, if monopoly is established.
  • A larger firm might experience diseconomies of scale.
  • There can be less choice available in the market for consumers.

Amalgamation in Public interest – implication of Section 237 of the Companies Act, 2013

For amalgamation, a company can subject itself from refraining to amalgamate with other company; however, this must be conducted in a manner which is not prejudicial to the interest of its member or to the public interest. Essentially, a scheme of amalgamation is beneficial to every shareholders and creditors of the company and also the welfare and interest of public is taken into utmost consideration before entering into any such scheme. 

Public interest, as per Black’s Law Dictionary, is defined as something wherein the public and community have pecuniary or any interest by which the legal rights and liabilities of communities are affected. The definition provides for a broader aspect in the meaning of public interest. As per Companies Act 2013, the term public interest has been recognised in provisions 62(4), 129, 210, 221, 233(5) and 237 in the Act. Under company law, public interest shall be given precedence even though the approval of the management and stakeholders are provided for the scheme of amalgamation.

Section 237 of the Companies Act 2013 (Section 396 of Companies Act 1956) provides the Central Government power to provide for amalgamation of companies in the interest of public. It is through this provision, that the Central Government has power to order for a forced amalgamation of two or more companies if it is satisfied that such amalgamation is essential for the interest of public. If the Central Government is satisfied that it is in the interest of public, where two or more companies shall amalgamate into a single company with such constitution, property, rights, powers, interests, privileges, liabilities and obligations as specified in the order by the government, then such amalgamation is considered to be valid and in the interest of public. Every member of the amalgamating company must be given equal, or near to equal, interest and rights in the amalgamated company as he/she originally held in the amalgamating company. In case any of such condition is not complied by the amalgamated company, the member can claim compensation from the amalgamated company. To enforce the order of amalgamation by Central Government, a copy of order must be provided to the companies concerned; and modifications suggested or objected to by the concerned companies are considered by the government in the draft order.

In order to exercise power provided to the government under Section 237 of Companies Act 2013, the government should be satisfied that two or more companies needs to be merged for interest of the public or in case it becomes an essential requirement. The government cannot force a healthy company to merge with an unhealthy company just to benefit the latter. This does not amount to public interest but a forced merger.

Procedure for Amalgamation

Following are the steps to be followed by the companies for amalgamation under section 237 of the Companies Act 2013-

  • Board Meeting– initial step is that the company must convene a board meeting where it resolves to amalgamate with the other company.
  • Application is to be filed in the stock exchanges via electronic mode for approval. The company shall obtain approval letter from the stock exchanges.
  • Application to the tribunal– the company shall make an application to the tribunal, which is the National Company Law Tribunal (“NCLT”) of the relevant jurisdiction under Form-1. Such application is to be accompanied with- Form No. NCLT-2 (notice of admission), affidavit in Form no. NCLT-6, a copy of scheme of amalgamation, Fees prescribed in the Schedule of Fees and the companies shall disclose to NCLT the basis on which each class of creditor or member is identified for the approval of scheme. It should be noted that, it is upon the concerned companies’ discretion if they want to make a joint application.
  • Notice of meeting– a notice shall be sent to all the members or class of members and creditors or class of creditors and debenture holders of the company in prescribed Form no. CAA 2, by the chairperson appointed for the meeting. The notice shall be accompanied by a copy of scheme of amalgamation and a statement disclosing the details of order of NCLT; details the company; date of board meeting; disclosure of effect of amalgamation upon the directors, key managerial personnel and debenture trustee; investigation of proceedings; details of prescribed documents of and for inspection by members and creditors; details of sanctions, approvals and NOCs from regulatory or other authorities required for the scheme of amalgamation; and a statement to the effect about the persons voting or in the meeting either in person or proxy.
  • Advertisement for notice of meeting as per Form No. CAA 2 in one English newspaper and one vernacular newspaper. A copy of notice shall also be provided in the website of the company. Also, it is upon the discretion of the companies to give a joint advertisement of notice.
  • Notice to statutory authority– notice along with copy of the scheme shall be sent to the Central Government, IT authorities, RBI, Registrar of Companies (Form GNL- 1), Official Liquidator, Competition Commission of India and other relevant authorities. This notice is sent under Form No. CAA 3.
  • Affidavit of service– an affidavit shall be filed before NLCT in not less than seven days before the date fixed for the meeting o date of first meeting, stating that the directions with respect to the issue of notice and advertisement shall be complied to.
  • A meeting of members and creditors shall be convened to accord the sanction of the scheme. The scheme shall be approved if three-fourths of the persons, comprising of creditors or class of creditors and member or class of members agree to it. The chairperson must file the Report in Form No. CAA 4 with NCLT within 3 days from the conclusion of the meeting.
  • Order on petition– upon the agreement over the scheme by the members and creditors, company shall file Form No. CAA 5 before NCLT within 7 days from the Chairperson’s report. NCLT shall fix the final date of hearing. The advertisement should be made in the same newspaper as notice in Form No. CAA 2. Approval from RBI and other authorities shall be obtained. The NCLT will pass a final order in Form no. CAA 7.
  • Post-Final order compliances– stamp duty as affirmed in the State Stamps Duty Acts shall be complied with. On receiving of final order’s certified copies, the company shall file such certified copies before ROC within 30 days from its receipt in Form INC-28 along with acknowledgement of Fees payment to Official Liquidator and Regional Director. Shareholders shall be allotted shares as per the scheme; application must be made to stock exchanges about the listing of new shares issued as consideration; and intimation should be made to stakeholders regarding the effectiveness of Scheme of amalgamation.

Case Laws

63 Moons Technologies Ltd. v. UOI & Ors.

The National Spot Exchange Limited (“hereinafter referred to as “NSEL”), which was 99.99% subsidiary of 63 Moons Technologies Limited (then Financial Technologies India Limited) (hereinafter referred to as “FTIL”) shut down its operations on grounds of payment default and was ordered that it cannot enter into any new contracts by SEBI. After the crisis, Ministry of Corporate Affairs directed NSEL and 63 Moons for merger under Section 396 of Companies Act 1956. The company challenged the order which was dismissed by Bombay HC. The dismissal order by Bombay HC was challenged by the company in Supreme Court. The Supreme Court set aside the order of the Government order of merger and stated that the merger did not satisfy the “public interest” criteria and therefore there should be no compulsory amalgamation.

The term public interest was defined by the court as the greatest interest of the public and at large when compared with individual or private group of individuals. It was further held by the court, that an amalgamation will be considered in the interest of public if it shows a positive impact over the community in terms of employment, production and consumption of goods and services. On the other, if any amalgamation between companies leads to the obstruction of promotion and growth of the communities, then such amalgamations are not considered in the interest of public. The court held that the merger would not provide any compensation to the debtors and shareholders of FTIL, and further held that there was complete non- application of mind by the authority that was assessing compensation to the interests of the creditors and shareholders.

The government contended that- (i) the amalgamation will restore faith of public in the contract; (ii) business realities will be effective on combination of NSEL and FTIL assets; and (iii) NSEL will be facilitated to recover its dues from its defaulters. For contentions (i) and (ii) made by the government, the court held that these contentions were not mentioned in the draft amalgamation order and the only intention of the amalgamation of the company was to clear the dues of NSEL, thereby reviving the exchange commodities of NSEL.

Court stated that there was neither public interest involved nor did the amalgamation order satisfy the essentiality test. The court stated that the amalgamation order was violative of Section 396 of the Companies Act 21956 and Article 14 of the Constitution of India.

Wiki Kids Ltd. and Avantel Ltd. v. Regional Director, South East Region and Others

In this case, Transferor and Transferee Company proposed a scheme of amalgamation which was rejected by the tribunal on the grounds that there will be undue advantage to the common promoters of both the companies as per the valuation report. Both the companies filed appeal as they had complied with all requirements and there were no objections from any authorities or general public at large. The court held that although there were no objections and all the compliances were met, however, as per the valuation report there was undue advantage to the common promoters. Further assets were created in the book by the Transferor Company but had neither generated any revenue nor were a single product sold from the very inception. The financial benefit was to be made by few promoters. The objective of the scheme is that interests of all the shareholders are met and not a particular group take any undue advantage, which was clearly not the case here. The court held that the entire scheme was created to provide benefit to the promoters and benefits to other shareholders are subject to contingency upon realisation of revenue in future. Appeal was thus rejected and decision of tribunal was upheld for rejection of the scheme.


Public interest is given a very wide understanding under the company law and comprehends that there should be welfare for all the members of the company and the public. The tribunal and courts in India have proven that just because the scheme of amalgamation is beneficial for or in the interest of a particular group of members, it does not mean there is public interest involved in such scheme. There is a difference between exercising powers provided under Section 237 of the Companies Act 2013 for forced merger and for merger in public interest; such difference needs to be the primary focus for the government for exercising its power under the aforementioned provision.

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