INTRODUCTION:

The fusion or absorption of one thing or right into another; generally spoken of a case where one of the subjects is of less dignity or importance than the other. Here the less important ceases to have an independent existence is merger as per black’s Law Dictionary. The terms merger and amalgamation have not been defined in the Companies Act, 1956. Thought its definition had been given in the income tax act.

The provisions relating to merger and amalgamation are contained in sections 391 to 396A in Chapter V of Part VI of the Act.

Merger is a restructuring tool available to Indian conglomerates aiming to expand and diversify their businesses for various reasons whether it is to gain competitive advantage, reduce costs or unlock values. In commercial parlance, merger essentially means an arrangement whereby one or more existing companies merge their identity into another existing company or form a distinct new entity.

In practicality, mergers are not much different from that of amalgamations still they have different meanings under the companies act. The companies act 2013, has renewed the sense and applicability of laws regarding mergers but the sections 230 to 240 are yet to be notified. Until then, this court driven process will continue to be governed by Section 391-396A of the Companies Act, 1956 and the Companies (Court) Rules, 1959.

The concept of merger

In corporate law, the joining together of two corporations in which one corporation transfers all of its assets to the other, which continues to exist. In effect one corporation "swallows" the other, but the shareholders of the swallowed company receive shares of the surviving corporation. A merger is distinguished from a "consolidation" in which both companies join together to create a new corporation. ¹

Examples of mergers:

On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at $12.2 billion.

On February 11, 2007, Vodafone agreed to buy out the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for $11.1 billion.

Aluminium and copper major Hindalco Industries, the Kumar Mangalam Birla-led Aditya Birla Group flagship, acquired Canadian company Novelis Inc in a $6-billion, all-cash deal in February 2007.

Marking the largest-ever deal in the Indian pharma industry, Japanese drug firm Daiichi Sankyo in June 2008 acquired the majority stake of more than 50 per cent in domestic major Ranbaxy for over Rs 15,000 crore ($4.5 billion)

The Oil and Natural Gas Corp took control of Imperial Energy Plc for $2.8 billion, in January 2009, after an overwhelming 96.8 per cent of London-listed firm's total shareholders accepted its takeover offer.

Japanese telecom giant NTT DoCoMo picked up a 26 per cent equity stake in Tata Teleservices for about Rs 13,070 crore ($2.7 billion) in November 2008.

The proposed merger between Bharti Airtel and South Africa's MTN would be India's biggest-ever M and A deal. The potential value of the Bharti Airtel-MTN deal would amount to $23 billion.

The companies act 1956 concerning mergers

Sections 391 to 394 of the Companies Act are a complete code in themselves, as regards corporate law, embodying the entire scope and procedure to be followed for court sanctioned mergers, amalgamations and arrangements. ²

As a corollary, the court would not be allowed to usurp jurisdiction where it has none. For instance, the blessings of the appropriate court cannot substitute approval of the RBI, where required under the provisions of FEMA, or the FDI Regulations. The company itself, its members, its creditors (or class of creditors) or the liquidator (in case of a company in winding up) may make the application to the appropriate court.

Section 391(2) requires that the resolution approving the scheme of amalgamation should be passed by majority in number representing 3/4^th in value of the creditors or members. Both the conditions are cumulative. However, conditions of majority in number and representing 3/4^th in value is to be applied for members or creditors present in person or through proxies at the time of meeting.³

Section 394 of the Companies Act provides that a foreign body corporate or a branch of a foreign body corporate may merge with an Indian company under a scheme of merger or amalgamation sanctioned by the court as per the provisions set out therein. ⁴

The Companies Act precludes an Indian company from merging with a body corporate outside India.

Case laws in relation to mergers

Hindustan Lever Employees' Union Vs. Hindustan Lever Limited and others⁵

Facts:

Appeals challenging amalgamation of two companies 'K' and 'L' by employees union appellant contended that amalgamation made in violation of provisions of Act of 1969 and exchange ratio of shares grossly loaded in favour of 'K' and interest of employees were not taken care of –

Judgment and Ratio:

Supreme Court found no irregularity in exchange ratio of shares - explanatory note justified on face of it as no complaint made by any concerned financial institution - no material placed before Court to prove infringement of interests of employees - infringement does not result automatically from amalgamation of companies - unless some illegality of fraud involved in scheme Court cannot decline to sanction merger under Act of 1969 –merger could not be prohibited simply because large share of market would be captured by 'K' - amalgamation valid and justified - appeal dismissed.

Miheer H. Mafatlal Vs. Mafatlal Industries Ltd.⁶

Facts:

Company in amalgamation – Sections 391, 392, 393, 394A, 433 and 643 of Companies Act, 1956 – whether scheme of amalgamation is prejudicial to interests of minority shareholders – scope of Company Court to sanction scheme of amalgamation is limited – Court can intervene in matter only when it is not just and fair or prejudicial to interest of share holders –

Judgment and ratio:

Court cannot intervene if scheme is sanctioned by majority of shareholders and is lawfull – Court can only go through scheme and examine whether it has complied requirements under Section 391 (2) and was passed by requisite majority or not – scheme passed by company with majority is just and fair and no minority interest is affected – individual personal interest of minority share holders is of no concern unless it is affecting class interest of such equity shareholders – no requirement as to before putting scheme to vote meeting of minority shareholders has to be convened – appeal dismissed.

Tata Motors Ltd. Vs. Pharmaceutical Products of India Ltd. and Anr.¹

Facts:
Company Winding up of company Interpretation/ application of the provisions of the Sick Industrial Companies (Special provisions) Act, 1984 (SICA) vis-`-vis the Companies Act, 1956 Held, the provisions of a special Act will override the provisions of a general Act A later of it will override an earlier Act 1956 Companies Act is a general Act and it is prior in point of time to SICA therefore, provisions of SICA will have an overriding effect over provisions of Companies Act in case of conflict

Company Winding up of company Jurisdiction of civil Courts in company matters Held, SICA seeks to give effect to the larger public interest therefore, it should be given primacy over Companies Act because of its higher public purpose Section 26 of SICA bars the jurisdiction of the civil Courts The jurisdiction of civil court is, thus, barred in respect of any matter for which the appellate authority or the Board is empowered

Ratio Dividend:

The provisions of a special Act will override the provisions of a general Act and a latter Act will override the provisions of an earlier Act. The provisions of SICA will override provisions of Companies Act in case of conflict Section 26 of SICA bars the jurisdiction of the civil Courts. Thus civil Court will not have jurisdiction in respect of any matter for which the Appellate Authority or Board is empowered to do so under the Act

CONCLUSION:

The concept of merger and acquisition in India was not popular until the year 1988. During that period a very small percentage of businesses in the country used to come together, mostly into a friendly acquisition with a negotiated deal.

The year 1988 witnessed one of the oldest business acquisitions or company mergers in India. It is the well-known ineffective unfriendly takeover bid by Swaraj Paul to overpower DCM Ltd. and Escorts Ltd.

And slowly through these cases, there was an emergence of merger as a vlid and advantageous concept.

As for mow the scenario has completely changed with increasing competition and globalization of business. It is believed that at present India has now emerged as one of the top countries entering into merger and acquisitions.

REFERENCE:

1. India Negotiated M and A Guide ,Corporate and M and A Law Committee, H. Jayesh

2. http://gtw3.grantthornton.in/assets/Companies_Act-Mergers_and_restructuring.pdf

3. http://www.hcmadras.tn.nic.in/hhist.htm

4. http://www.mergersandacquisitions.in/history-of-merger-and-acquisition-in-india.htm

5. AIR1995SC470

6. AIR1997SC506

Received on 11.12.2014 Modified on 18.12.2014

Int. J. Ad. Social Sciences 2(4): Oct. - Dec., 2014; Page 210-212

The Concept of Merger in the Light of Judicial Rulings