Amalgamation is an agreement whereby the assets of two or more companies become vested in or under the control of one company, which may or may non be one of the original companies merged in, which will hold, as its stockholders, all or more than 90 % of all the stockholders of all the original companies. Amalgamations in India are dealt by companies Act, 1956 ( subdivisions 390 – 390A ) and to accounting portion by Accounting Standard ( AS ) – 14.
Example of amalgamation is a trade between Bank of Punjab and Centurion Bank and the result concern unit is Centurian Bank of Punjab.
Acquisition merely means purchasing the ownership in a touchable or intangible plus. In the context of concern combinations and acquisition is the purchase by one company, of commanding involvement in the portion capital or in the vote rights of an bing company. In India acquisitions are previewed under SEBI Takeover codification – 1997, which is originated by Justice P.N. Bhagwati Committee study on Takeovers. Example is the acquisition of Associated Cements portion by Holdcem.
Reasons for Mergers & A ; Acquisitions:
Companies can bring forth goods or services more expeditiously if they combine their attempts and installations.
Collaborating or sharing expertness may accomplish additions in efficiency.
Underutilized assets of the company can be used in better manner.
Change in direction may do the company more profitable.
Legal and Accounting facets of M & A ; As:
Amalgamations and acquisitions are strategic determinations taking to the optimisation of a company ‘s growing opportunities amalgamations and acquisitions aim at accomplishing optimal use of all available resources, development of unutilized and under utilised assets and resources including human resources, winning over competitory forces, accomplishing synergisms, accomplishing economic systems of graduated table, organizing a formidable human resources base, put ining an integrated research platform, capitalising complementing chances, take illness, accomplishing nest eggs in administrative costs, cut downing revenue enhancement load and finally maximising the involvement of stakeholders.
However, sometimes it is concluded that M & A ; As bound or restricts competition from the consumer ‘s point of position. Further amalgamations and acquisitions are defined individually and with different significance in different states. Not merely these different footings are used for amalgamations and acquisitions e.g. in India Amalgamation term is used for amalgamations and coup d’etats term is used for acquisitions. In India, there are different accounting processs individually for mergers and coup d’etats. And there are different regulative organic structures to cover those type of instances.
Legal and regulative model for mergers and coup d’etat is as follows:
1. for merger:
COMPANIES ACT, 1956 ( Section 390-396A ) .
Accounting standard – 14.
for Coup d’etats:
– SEBI TAKEOVERS CODE – 1997.
SICA, 1985 ( Sections 15-18 )
INCOME TAX ACT, 1961 ( Section 2 ( 1B ) , 43, 45, 47 and 72A ) .
MRTP ACT, 1969 Sections 27 and 27A.
INDUSTRIES ( DEVT. & A ; REGULATION ) ACT, 1951.
Gross saless AND LAWS
FOREIGN EXCHANGE MANAGEMENT ACT.
Accounting standard – 14 is for merger, which came into consequence on 1 April, 1995 and is compulsory in nature. The standard trades with accounting for mergers with two methods ( The Pooling of Interest Method, Purchase Methods ) and the intervention of end point good will or militias, to safeguard the involvement of public.
The criterion does n’t cover with the instance of acquisitions but the instances of merger in the nature of amalgamation which need to fulfill all the undermentioned conditions:
All the assets and liabilities of the transferor company become, after merger, the assets and liabilities of the transferee company.
Stockholders keeping non less than 90 % of the face value of the equity portions of the transferor company ( other than the equity portions already held in this, instantly before the merger, by the transferee company or its subordinates or this campaigners ) become equity stockholders of the transferee company by virtuousness of the merger.
The consideration for the merger receivable by those equity stockholders of the transferor company who agree to go equity stockholders of the transferee company is discharged by the transferee company entirely by the issue of equity portions in the transferee company, except that hard currency may be paid in regard of any fractional portions.
The concern of the transferor company is intended to be carried on, after the merger by the transferee company.
No accommodation is intended is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the fiscal statements of the transferee company except to guarantee uniformity of accounting policies.
For the intent of Income-Tax Act, 1961, Section 2 ( 1B ) defines Amalgamation, and stipulates three conditions:
and B ) All the belongings and liabilities of mixing Companies should enthrone with the coalesced company.
The stockholders keeping non less than 90 % in value or voting power in the amalgamating company ( other than portions held by the coalesced company or its subordinates ) should go the stockholder of the coalesced company. The definition given in the Income Tax Act is for the intent of that Act merely.
Transportation of Assetss to the transferee company nowadays to a strategy of merger is non a transportation and does n’t pull capital addition revenue enhancement. Section 47 ( six )
Blessing of Central Govt. under HRTP Act no longer required for merger instances, Decision under Hindustan Lever Employee ‘s Union vs. Hindustan Lever Ltd, ( 1995 ) 83 Comp. Case 30 ( 1994 ) 15 CLA 318 ( SC ) .
MRTP Act, 1969 Sec. 27 & A ; 27A
Amalgamation is non defined in Companies Act. Chapter V Sec. 390 -396A of the Companies Act contains commissariats on Compromises, Agreements and Reconstruction periods
Amalgamation is an agreement or Reconstruction
For merger, the transferee company demand to take countenance from the tribunal for such Agreement with the set laid down process under subdivision 390-396. In a good celebrated instance of MIHEER MAFATLAL vs. MIL, SC ( 1996 ) 87, pp. 792-841 Company Case ; SC gave wide guidelines for the Courts to approve merger strategies. Further, which became guidelines to the tribunals in such strategies.
Every Amalgamation, except those which involve ill industrial companies, requires countenance of High Court which has legal power over the state/area where the registered office of a company is situated ( subdivision 391 ) .
Amalgamation Through BIFR Under SICA
If transferor and transferee companies are under the legal power of different High Court, separate blessing is necessary.
1. Amalgamation may be step for rehabilitation of a ill industrial company under SICA.
2. Section 18 of SICA envisages merger of a ill company with any other company or frailty versa i.e. contrary amalgamation.
3. Section 18 ( 2 ) of SICA gives BIFR really broad powers which may be exercised by BIFR in respect to a strategy of merger between a ill industrial company and healthy company.
Scheme of Amalgamation provides for transferor company ‘s project, belongings, assets and liabilities to be transferred by order of High Court to transferee company and disintegration of transferor company ( Section 394 ( 1 ) ) with the first request in High Court, Court will convene meetings of different stakeholders i.e. AGM, Cr. Meeting Director ‘s meeting etc. and with 2nd request in the tribunal the blessing of the strategy and countenance of the tribunal, the tribunal will publish notice to cardinal govt. to regional manager, to ROC, the murderer and will stipulate.
Effective day of the month.
Announcement day of the month
Blessing day of the month
AS-14 trades with amalgamation and merger. The unifying company loses individuality ; hence consolidation of histories is lasting and even minority stockholders become stockholders of the merged company. Sing the same, the criterion on amalgamate fiscal statement ( AS21 ) is non applicable to accounting for mergers, accounting for the Investment in Associates for the intent of consolidating fiscal history, this criterion is besides non applicable to accounting for mergers.
SEBI ( Significant Acquisition of portions of Takeover ) Regulations, 1997.
Regulations sing coup d’etat were originally embodied in the footings of contract of naming between a public limited company Company and the stock exchange. Although listing is non mandatory under the SCRA, under Section 73 of Companies Act, 1956, but/further companies wishful of naming their portions on the stock exchanges had to subscribe a listing understanding.
Section 21 of the Securities Contract Regulation Act, 1956 ( SCRA ) empowers the SEBI with regard to the listing of company ‘s securities on any recognized stock exchange.
Initially there was no ordinance regulating the coup d’etat of a company. Subsequently on, in order to protect the involvement of stockholders and the puting populace at big ; Clause 40A and 40B were incorporated in the listing understanding.
Before the Constitution of Securities and Exchange Board of India ( SEBI ) , on attack paper was prepared for bordering a comprehensive statute law for securities market and the attack paper besides dealt with the lacks in the ordinance regulating coup d’etat as contained in the listing understanding.
A statutory acknowledgment had been accorded to the SEBI under the Securities And Exchange of India Act, 1992. Section 11 of the SEBI Act sets out the maps of the Board. One of the maps is ‘to regulate significant acquisition of portions and coup d’etat of companies ‘ .
Under subdivision 30 of the SEBI Act, the SEBI has noticed on 20.2.1997, “ ( Significant Acquisition of Shares and Takeover ) Regulation, 1997 ” .
Amalgamation and Acquisitions success wholly depends on the people who drive the Business, their ability to Execute, Creativity, and Innovation. There are legal boundaries on amalgamations and acquisitions in India under Companies Act, 1956 and SEBI.A Accounting Standard has besides play a important function in finding the purchase monetary value and its accounting intervention.