Amalgamation or demerger of companies department of goods. Ministry of corporate affairs mergers and acquisitions. Demerger under voluntary winding up and power of liquidator. In india, the definition of demerger is not expressly defined under the companies act 1956 but the transaction is covered by virtue of arrangement as defined as per clause b of section 390 of the said act. Agri business vertical hfl is engaged in the business of sourcing, processing. Companies act, 1956 to reorganize and streamline the business of mastek limited. Notwithstanding the above, in case the proceedings referred to in clause 7. Mergers and amalgamations are regulated under the provisions of the companies act, 1956 whereas takeovers are regulated under the sebi substantial acquisition of shares and takeovers regulations. L17120mh1879plc000037 and having its registered office at neville house, j n heredia marg, ballard estate, mumbai mh 40001. However, the definition of the term demerger is provided in the. To assure its customers about completion of ongoing projects, it also shared the target completion schedules for all.
On the other hand, demerger signifies a movement in the company just opposite to merger. Companies compromises, arrangements and amalgamations rules, 2016, effective from 15122016 have also been notified by the mca. Emaar india communicated to its customers about initiating the process of demerger of the company pursuant to a scheme of arrangement under section 3994 of the companies act, 1956 and filing such scheme with delhi high court. Aug 19, 2015 procedure for merger and amalgamation is different from takeover. The concerned high court before sanctioning the scheme needs to be satisfied that the company moving the application has disclosed by affidavit or otherwise, all material facts relating o the company, such as the latest financial position of the company, latest auditors report on the accounts of the company, the pendency of any investigation proceedings under sections 235 to 251 of the companies act, 1956 or applicable provisions of chapter xiv of the companies act, 20 dealing with. Ensure that the main objects or the incidental objects of the memorandum of association contain the power to amalgamate. So the structure most suitable structure is to be selected after evaluating strategy, financial implications and other objectives of the company. Demerger means the transfer of one or more undertakings to any resulting company pursuant to a scheme of arrangement under sections 391 to 394 of the companies act, 1956 in such a manner that. Restructuring through a scheme of demerger ipleaders.
Demystifying corporate restructuring under companies act. Everything you want to know about for procedure of demerger. Section 219aa of the income tax act, 1961 defines demerger in relation to companies as transfer, pursuant to a scheme of arrangement under section 391 to 394 of the companies act, 1956 by a demerged company of its one or more undertaking to any resulting company demerger is a term coined to reveal some sort of partition or. Scheme or the scheme or this scheme means this scheme of arrangement. Demerger thus, resulting into reduction of companies share capital would also require the co. Composite scheme of arrangement heritage foods limited. Furnish to every member entitled to attend the meeting convened by the concerned high court free of charge and within 24 hours of requisition being made in this behalf a copy of the proposed demerger together with a statement required to be furnished under section 393 of the companies act, 1956 unless the same has already been furnished to the member. Demerger under scheme of arrangement it requires the approval by tribunal us 391 of the companies act.
File copy of the order with the registrar of the companies in e form inc 28 fast track merger process under companies act, 20 14. Short title, commencement and extent 1 this act may be called the companies act, 1956. Merger in public interest under the orders of central government. Prior to december 15, 2016, the relevant provisions under the companies act, 1956 1956 act governed mergers and amalgamations in india. In other words, when a company splits off its existing business activities into several components, with the intent to form a new company that operates on its own or sell or dissolve the unit so separated, is called a demerger. Extension of laws act, 1956 62 of 1956, insofar as banking, insurance and financial. Definition of demerger us section 219aa of the income tax act the definition of demerger as given under section 219aa of the income tax act is unduly restrictive, and subject to various conditions.
A demerger can take place through a spin out by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger. In addition, demerger, is most likely to attract the other provisions of the companies act, 1956 envisaging reduction of share capital comprising sections11. Procedure of demerger and checklist for demerger cakart. The 20 act provides an opportunity to catch up and make our corporate regulations more contemporary, as also potentially to make our corporate regulatory framework a model to emulate for other economies with similar characteristics. Amalgamation or demerger of companies department of. Jul 12, 2014 select the section of the companies act, 1956 or of companies act, 20 under which the order has been passed. Under the 1956 act, companies which have reached a consensus to merge must prepare a scheme of amalgamationmerger scheme. Retail undertaking by the demerged company to future retail limited. Apr 20, 2015 and that the sale of an undertaking is covered under section 2931a of the companies act, 1956 upto 11920 and with effect from 12920 under section 1801a and subsection 4 of the companies act, 20, which speaks of the restrictions of the powers of the board. This scheme of arrangement is presented under sections 391 to 394 read with sections 100 to 104 of the companies act, 1956, section 52 of the companies act, 20 and other applicable provisions of the relevant act as defined hereinafter for. Corporate restructuring demerger company laws ready.
Demerger under section 391 to 394 of the companies act, 1956 the primary purpose while going for a demerger is to have focused attention on both businesses. Corresponding to sections 230 to 232 of the companies act, 20. Section 233 prescribes simplified procedure for merger or amalgamation of. Ensure that what is being sold satisfies the conditions of an undertaking under the incometax act. Demerger under section 219aa of the income tax act means the transfer, pursuant to a scheme of arrangement under section 391 to 394 of the companies act, 1956 by a demerged company of its one or more undertakings to the resulting company in such a manner that. Companies act, 1956 has provided for a set of provisions specially dealing with amalgamation of companies, to. The demerger of the demerged undertaking of demerged company vesting with the. Corporate restructuring merger and amalgamation company. Chapter xv section 230 to 240 of companies act, 20the. Demerger is defined under section 219aa of the incometax act, 1961 in relation to companies can be defined as a transfer pursuant to the scheme of arrangement under sections 3994 of the companies act 1956 old act by a demerged company of its one or more undertakings to any resulting company in a manner by which. It is the converse of a merger or acquisition a demerger can take place through a spinoff by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger.
Before detailing the key changes under the new law, a brief overview of the existing process will be useful. A demerger is a form of corporate restructuring in which the entitys business operations are segregated into one or more components. And that the sale of an undertaking is covered under section 2931a of the companies act, 1956 upto 11920 and with effect from 12920 under section 1801a and subsection 4 of the companies act, 20, which speaks of the restrictions of the powers of the board. The proposed scheme is expected to be beneficial to demerged company and. File copy of the order with the registrar of the companies in e form inc 28 fast track merger process under companies act, 20. Slump sale vs demerger business transfer agreement. Demerger involves transfer of one or more undertakings. Sections 391 to 394 of the companies act, 1956 gave full power to the high courts to sanction any alterations in the corporate structure of the. Select the section of the companies act, 1956 or of companies act, 20 under which the order has been passed. Section 232 deals with mergers and amalgamation including demergers. Demerger is a form of corporate restructuring in which the entitys business operations are segregated into one or more components.
The company is required to pass special resolution which is subject to confirmation by the court by making an application under section 101 of the companies act, 1956. The companies act and demerger process the term demerger is not defined under the companies act, 1956. The checklist for mergers demergers has been prepared as per the provisions of the companies act, 1956 since the relevant provisions of. However, the actual process of separating two companies in a demerger has to a large extent been neglected by previous research and needs further exploration. The 20 act will abolish the practice of companies to hold their own shares through a trust, which could provide them liquidity in future, while still allowing the promoters to retain a controlling stake over the company. If the order has been passed under a section other than the listed down sections then select others and specify the section under which order has been passed. Procedure for merger and amalgamation is different from takeover. This scheme of arrangement and reconstruction demerger is presented under. Procedure for mergers and amalgamations under the companies. As per section 391 to 394 of the companies act, 1956 there is no proper definition of demerger. Case studies and practical aspects of mergers and demergers. Demerger simply means the splitting of the existing company into two or more resultant company. For capital reduction demergers, the insertion of the new holding company is needed if the existing parent company does not have suf.
The companies act, 1956 consolidates provisions relating to mergers and acquisitions and other related issues of compromises, arrangements and reconstructions, however other provisions of the companies act get attracted at different times and in each case of merger and acquisition and the procedure remains far from simple. Section 219aa of the incometax act defines demerger as under. Demerger and voluntary winding up a company, which has split into several companies after division, can be wound up voluntarily pursuant to section 484 to 498 of the companies act. The original company which has split into several companies after division could be wound up voluntarily pursuant to the provisions of sections 484 to 498 of the companies act, 1956. Tax on demerger advisory, tax and regulatory compliance in. The terms merger and amalgamation have not been defined in the companies act, 1956 hereinafter referred to as the act though this voluminous piece of legislation contains 69 definitions in section 2. We provide strategic legal, regulatory, and tax advice coupled with industry expertise in an integrated manner.
Section 230231 deals with compromise or arrangements. In case of listed companies, obtain sebis prior permission. Examine whether a forward merger or a reverse merger is more beneficial. Companies act, 1956 has provided for a set of provisions specially dealing with amalgamation of companies, to facilitate the transactions. Iiolders and creditors under sections 391 to 394 of companies act, 1956 preamble and reconstruction demerger is presented under this scheme ol. In order for a merger to be tax neutral, it must satisfy specific criteria and. This scheme of arrangement is presented for the demerger of the demerged. However, the definition of the term demerger is provided in the income tax act by virtue of section 219aa. Section 233 deals with amalgamation of small companies also called fast. Tax on demerger advisory, tax and regulatory compliance.
Part ii sets out provisions for transfer and vesting of the demerged. Mar 01, 2017 central government may refer the scheme to nclt for considering the scheme under section 232 of the companies act, 20 as a normal merger. Central government may refer the scheme to nclt for considering the scheme under section 232 of the companies act, 20 as a normal merger. Demerger is essentially a scheme of arrangement under section 391 to 394 of the companies.
All the propertyliability of the undertaking becomes the. Procedure of demerger and checklist for demerger, check complete procedure of demerger as per new companies act 20. In the matter of the companies act, 1956 1 of 1956. Demerger is the business strategy wherein company transfers one or more of its business undertakings to another company. Sub section 19aa of section 2 of income tax act, 1961. Sale of the whole or substantially whole of an undertaking in terms section 2931 a of the companies act. Approval of scheme through postal ballot under the 1956 act, scheme of compromise arrangement needs to be approved by. Amalgamation and demerger bombay chartered accountants.
May 14, 2012 the incometax act, 1961 provides the tax reliefs to the demerged company, the shareholders of the demerged company, who are issued and allotted shares in the resulting company in the exchange for the shares held by them in the demerged company and the resulting company which emerges as a result of a demerger. Demerger a tool for value creation for shareholders. The demerger under section 219aa of incometax act, 1961 is defined as follows. Synergies in operational process and creation of efficiencies by reducing time. In india, business restructuring has been typically undertaken through mergers, demergers and capital reduction and a large number of these cases are governed by the provisions of the companies act. No provisions for exemption from court process for corporate reorganisations like amalgamation, demerger, etc under sec 391 to sec 394 of companies act, 1956.
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