Types of Amalgamation of Companies
Types of Amalgamation of Companies
1. What is Amalgamation?
Amalgamation means the merger or consolidation of two or more companies into one company, where the properties, liabilities, and business of the merging companies are combined.
Under the Companies Act, 2013, and as defined in Accounting Standard 14 (AS-14), amalgamation involves the transfer of all assets and liabilities to the resulting company.
2. Legal Definition (Companies Act, 2013)
Section 2(1)(b) defines amalgamation as the merger of two or more companies in which one company absorbs the other(s).
Section 233 of the Companies Act, 2013 deals with merger or amalgamation of companies.
3. Types of Amalgamation
Amalgamation can broadly be classified into two types:
A. Amalgamation in the Nature of Merger
The merging companies are roughly of equal size and strength.
Shareholders of the transferor company (the company being merged) receive shares in the transferee company (the company that absorbs).
The transferee company continues, and the transferor company ceases to exist.
All assets and liabilities are transferred at book value.
There is no cash consideration generally.
The scheme is primarily for business synergy and continuity.
B. Amalgamation in the Nature of Purchase
One company purchases another company's business or assets.
The transferor company may or may not cease to exist.
Assets and liabilities are transferred at fair value or purchase consideration, not necessarily book value.
Shareholders of the transferor company may not receive shares; payment may be in cash or shares.
The primary objective is to acquire assets, not necessarily to merge businesses as equals.
4. Accounting Treatment (AS-14)
Amalgamation in the Nature of Merger: Pooling of interests method; assets and liabilities are recorded at book value.
Amalgamation in the Nature of Purchase: Purchase method; assets and liabilities recorded at fair value.
5. Criteria to Distinguish Between the Two
| Parameter | Amalgamation in the Nature of Merger | Amalgamation in the Nature of Purchase |
|---|---|---|
| Relative Size of Companies | Companies are roughly equal | One company is much stronger |
| Consideration to Shareholders | Shares given to shareholders of transferor company | Cash or shares or both |
| Transfer of Assets and Liabilities | At book value | At fair value or purchase consideration |
| Continuity of Shareholders | Transferor company’s shareholders become shareholders of transferee company | Not necessarily |
| Purpose | Amalgamation for synergy and business continuity | Acquisition of assets |
6. Relevant Case Laws
1. Bombay Dyeing & Manufacturing Co. Ltd. v. Bombay Environmental Action Group (2006)
The Supreme Court dealt with amalgamation in the nature of merger.
The Court held that the purpose of such amalgamation is business continuity, and the assets and liabilities are transferred at book value.
2. S.C. Kothari & Co. Ltd. v. State of Maharashtra (1977)
Clarified the difference between amalgamation and purchase.
Held that when one company acquires another and the transferor company does not continue, it is a purchase, not an amalgamation.
3. Dalpat Kumar & Co. v. Prahlad Singh (1975)
Established the principle that amalgamation in the nature of purchase involves acquisition of assets and liabilities at their fair value.
4. Hindustan Lever Employees Union v. Hindustan Lever Ltd. (1995)
Dealt with the rights of employees post-amalgamation.
Emphasized continuity in amalgamation in the nature of merger.
7. Statutory Procedure for Amalgamation
Under Section 230-233 of Companies Act, 2013, companies must obtain:
Board approval
Approval of shareholders and creditors via meetings or consent
Approval from NCLT (National Company Law Tribunal)
Compliance with regulatory authorities and filing with ROC
The NCLT examines the fairness of the scheme, protection of interests of creditors and shareholders.
8. Practical Examples
Amalgamation in the nature of merger: Two equally strong companies combining for synergy and efficiency, such as a merger between two banks.
Amalgamation in the nature of purchase: A big company acquiring a smaller company primarily for its assets, like a large FMCG company buying a small herbal products company.
Summary
| Aspect | Amalgamation in the Nature of Merger | Amalgamation in the Nature of Purchase |
|---|---|---|
| Nature | Merger of equals | Acquisition of one by another |
| Consideration | Shares to shareholders | Cash or shares or both |
| Valuation of Assets and Liabilities | Book value | Fair value |
| Shareholder Continuity | Yes | Not necessarily |
| Accounting Treatment | Pooling of interests | Purchase method |
| Legal Proceedings | Approval by shareholders, creditors & NCLT | Same |
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