Merger & Amalgamation

Mergers and amalgamations of companies in India are governed by Sections 230 to 232 of the Companies Act 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules 2016. The National Company Law Tribunal (NCLT) has exclusive jurisdiction to approve schemes of arrangement under Section 230(1), replacing the erstwhile High Court jurisdiction under the Companies Act 1956. For mergers involving listed companies, SEBI's circulars under Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 require prior no-objection from stock exchanges before the NCLT petition is filed. Where the merger is between wholly owned subsidiaries or between a holding company and its wholly owned subsidiary (a 'fast-track merger'), Section 233 of the Companies Act 2013 provides a simplified route without NCLT approval — only the Central Government (Regional Director) sanction is required. Competition Commission of India (CCI) approval under Section 6 of the Competition Act 2002 is separately required if the combination crosses the prescribed asset/turnover thresholds.

The sequence of NCLT merger filings under the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 begins with an application in Form NCLT-1 to the NCLT for directions to convene shareholders' and creditors' meetings, supported by Form CAA-1 (notice of the proposed scheme), a scheme of arrangement document, and latest audited financial statements. Once the NCLT issues directions, the Notice of Meeting is sent to shareholders, creditors, SEBI, stock exchanges, RBI (if applicable), CCI, and other regulatory bodies in Form CAA-2 with at least 30 days' notice. After the meetings vote in favour (majority in number representing three-fourths in value for each class under Section 230(6)), a second petition is filed in Form NCLT-1 along with the certified copies of the meeting proceedings. The NCLT passes the sanction order under Section 232(3), which is then filed with the Registrar of Companies in Form INC-28 within 30 days. Only after ROC filing does the merger become legally effective.

An amalgamation qualifies as a tax-neutral transaction under Section 47(vi) of the Income Tax Act 1961 (for AY 2026-27) — meaning no capital gains arise on transfer of assets by the amalgamating company to the amalgamated company — provided the amalgamation satisfies the definition under Section 2(1B): the transfer must be of all the property of the amalgamating company, at least 75% of shareholders of the amalgamating company must become shareholders of the amalgamated company, and the amalgamated company must be an Indian company. The shareholders of the amalgamating company who receive shares of the amalgamated company are exempt from capital gains under Section 47(vii). The amalgamated company can carry forward the unabsorbed business losses and depreciation of the amalgamating company under Section 72A, but only if the amalgamated company continues the business of the amalgamating company for at least 5 years, the amalgamated company holds at least 75% of the book value of fixed assets for 5 years, and the scheme is approved by the NCLT. Failure to satisfy Section 2(1B) conditions results in full capital gains taxation.

Under Section 7(1A) and Schedule II of the CGST Act 2017, a transfer of business as a going concern — where all assets and liabilities are transferred and the acquirer continues the same business — is exempt from GST per Entry 2 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 (for services) and a corresponding exemption for transfer of going concern as supply under Schedule III Entry (not treated as supply). However, the NCLT sanction order must explicitly confirm that the merger constitutes a 'going concern' transfer; a selective asset transfer in a demerger that does not constitute a going concern does not qualify for this exemption. GST registration of the amalgamating company must be cancelled under Section 29 of the CGST Act 2017 within 30 days of the effective date of amalgamation, and the amalgamated company must file Form GSTR-10 (final return) on behalf of the extinguished entity. Input tax credit of the amalgamating company transfers to the amalgamated company under Rule 41 of CGST Rules 2017 via Form GST ITC-02.

A Chartered Accountant's role in a merger spans financial due diligence, valuation, and statutory compliance. The scheme of arrangement must include an independent valuer's report on the share exchange ratio as required under Rule 5(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 and SEBI's circular SEBI/CFD/CMD1/CIR/P/2018/0000000141 (April 19, 2019) for listed companies — this report is typically issued by a registered valuer under Section 247 of the Companies Act 2013 or a SEBI-registered Category I Merchant Banker. The CA conducts financial due diligence to identify tax exposures (including transfer pricing adjustments under Section 92C, pending assessments, and contingent liabilities) that affect the exchange ratio and post-merger integration. The scheme also includes a Liquidation Value report and an Intrinsic Value report to allow minority shareholders and the NCLT to assess fairness. After the merger, the CA assists in preparing the combined financial statements under Ind AS 103 (Business Combinations), recognising identifiable assets and liabilities of the acquired entity at fair value and computing goodwill or bargain purchase gain.