Process of M&A Transactions

Strategic Rationale and Due Diligence:

•Three Potential Synergies:

Revenue Synergies through Cross-Referrals: Aarogya Healthcare can leverage Swasth Jeevan Clinics' primary care network to refer patients needing specialized hospital services, increasing patient volume for Aarogya. Swasth Jeevan Clinics can refer patients needing advanced diagnostics or tertiary care to Aarogya.

Example: A patient visiting Swasth Jeevan Clinic for a routine check-up is diagnosed with a heart condition and referred to Aarogya Healthcare's cardiology department.

Cost Synergies through Centralized Procurement: Combining the purchasing

power of both organizations can lead to lower costs for medical supplies, equipment, and pharmaceuticals.

Example: Aarogya Healthcare can negotiate better prices with pharmaceutical companies by leveraging the combined volume of both hospital chains and clinics.

Operational Synergies through Shared Technology and Best Practices: Aarogya

Healthcare can implement its advanced hospital management systems and best practices across Swasth Jeevan Clinics, improving efficiency and patient care. Swasth Jeevan Clinics may have innovative primary care models that can be adopted by Aarogya.

Example: Implementing Aarogya's electronic health record (EHR) system in Swasth Jeevan Clinics to improve data management and patient care coordination.

•Two Key Areas of Due Diligence (Beyond Financial):

Regulatory Compliance and Licensing: Given the highly regulated nature of the healthcare sector, Aarogya Healthcare needs to thoroughly investigate Swasth Jeevan Clinics' compliance with all applicable regulations and licensing requirements. This includes verifying that all clinics have the necessary permits, licenses, and accreditations to operate legally.

Importance : Non-compliance could result in fines, penalties, or even the revocation of licenses, which would significantly impact the value of the acquisition.

Reputation and Brand Image: Swasth Jeevan Clinics' brand reputation is a key asset in this acquisition. Aarogya Healthcare needs to assess the strength of the brand, identify any potential reputational risks (e.g., negative patient reviews, past incidents of malpractice), and develop a plan to protect and enhance the brand post-acquisition.

Importance: A damaged brand reputation could negatively impact patient volume and revenue, undermining the strategic rationale for the acquisition.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 1(a) (Syllabus 2022).

The different types of due diligence conducted during M&A transaction are as follows:

Legal Due Diligence: Legal Due Diligence is used to ensure that there are no legal issues in buying a business or investing in it. In this, the potential purchaser will review the important legal documents of the target firm such as employment contracts, board meeting minutes, articles and memorandum of association and patents and copyrights or any other property related documents, status of the applicable laws etc.

Tax Due Diligence: This is aimed at ensuring that there are no past tax liabilities in the seller firm that might have materialized due to mistakes or deception and could hold the acquirer liable for it.

IP Due Diligence: IP due diligence is focused on establishing what rights the company may have in various intellectual property and where it might rely on the intellectual property of another entity. Typical areas of interest are patent, copyright and trademark filings; descriptions of the company’s IP protection processes; licensing agreements, IP Assignment document, etc.

Operational Due Diligence: Operational due diligence (ODD) is the process by which a potential purchaser reviews the operational aspects of a target company during mergers and acquisitions. The ODD review looks at the main operations of the target company and attempts to confirm (or not) that the business plan that has been provided is achievable with the existing operational facilities plus the capital expenditure that is outlined in the business plan.

Commercial Due Diligence: This aims at understanding the market the target business is operating in. This looks the current market status and the forecast of the market growth in future and the target’s position in the market with relation to its competitors. This also involves interaction with the significant customers of the business to understand their opinion about the business.

Information Technology (IT) Due Diligence: This aims at identifying if there are any IT issues in the target business. This involves matters such as scalability of IT systems, robustness of the IT processes, availability of ERP, IT base and infrastructure, capacity of server, the level of documentation of processes, compliance with the legislation and ability to integrate various systems.

HR Due Diligence: This aims at understanding the impact of human capital on the proposed deal. This involves review of number and type of manpower, skills, employment records, compensation schemes, HR processes, ongoing HR litigations, effectiveness of the sales force and cultural factors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2(c) (Syllabus 2022).

Reverse Acquisition are often pursued for several reasons, applicable in the given case as well:

Quicker Access to Public Markets: It provides a faster and less costly route to becoming a publicly traded company compared to an IPO.

Less Regulatory Scrutiny: Reverse acquisitions typically involve less regulatory scrutiny and disclosure requirements compared to traditional IPOs.

Enhanced Credibility: Being publicly traded can enhance the credibility and visibility of company, making it easier to raise capital and attract investors.

Tax Benefits: Depending on the structure and jurisdiction, there may be potential tax benefits associated with a reverse acquisition.

However, Reverse acquisition also come with potential challenges and risks, including:

Due Diligence: It’s crucial to conduct thorough due diligence on the target company to assess its financial condition, liabilities and potential risks.

Integration: Integrating the operations and cultures of the two companies can be complex and challenging.

Market Perception: Reverse acquisition may be viewed skeptically by investors, leading to volatility in th e company’s stock price.

Regulatory Compliance: The combined entity must comply with ongoing regulatory requirements and reporting obligations associated with being a public company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2A(iii) (Syllabus 2022).

Merger or amalgamation is undertaken for acquiring cash resources, eliminating competition, saving on taxes or influencing the economies of large-scale operations. Therefore, there are host of factors, which require consideration before initiating a merger or amalgamation exercise. A detailed list of the primary factors requiring consideration before initiating a merger or amalgamation from the economic, commercial and legal perspective is explained as follows:

(i)Identification of Parties

Will one or more businesses be transferred to an existing firm or a newly formed entity? Consider drafting heads of terms, do you require a confidentiality agreement? Do you require an exclusivity agreement? Review financial liability of the parties - undertake appropriate searches and enquiries.

(ii)Due Diligence

Carry out legal, commercial, tax and financial due diligence on the parties entering into the transaction.

This will help in identifying risk areas along with any necessary consent you will need to obtain.

(iii)Any third-party consents required?

Ascertain if any third-party consents or no objections would be required such as from banks, business contracts, partner/shareholder consents. These should emerge from due diligence. Consider also regulatory consents/ licences that may be required.

(iv)Taxation

It will be necessary to ascertain the most suitable tax structure for the transaction and, in particular, the way in which the consideration should be structured, at an early stage, therefore consider consulting tax advisors.

(v)Risk

Sharing of risk – What kind of indemnities/warranties/representations be considered? Should there be a cap on such indemnities and warranties?

(vi)Will the transaction impact on existing loan/finance arrangements?

Check loan documents and constitution documents to see whether any proposed borrowing would be a breach of any existing funding. What will happen in relation to third party funding of the Seller business? Confirm that there are no restrictions on the disposal of the target business or any of its assets. How will the merged business be funded?

(vii)Existing Charges/Modifications over the assets to be acquired

Are there any mortgages, charges or debentures over any of the business assets? If yes, obtain copies and consider how they are to be satisfied/discharged. If there are floating charges, obtain certificates of non-crystallisation / release. Whether there is any pledge on shares? Obtain a Search Report from a Practicing Company Secretary.

(viii)Guarantees and indemnities (bank or other)

Has the Seller given or received any guarantees or indemnities in relation to the business? If yes, then obtain copies (including details of arrangements) and consider in particular, how to ensure the business continues to have the benefit of relevant guarantees.

(ix)Licences

Will the Buyer have all other licences which it needs to operate the business?

(x)Supply contracts

Will supply contracts be transferred or need to be terminated? How will this be done?

(xi)What IP is used in the business?

Obtain a full list of trademarks, service marks, patents, designs, domain names, copyright and other registered and unregistered intellectual property used in the business. Carry out trade mark and patent searches as may be appropriate through an IPR Attorney.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(c) (Syllabus 2022).

The seller in a business combination may contractually indemnify the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses above a specified amount on a liability arising from a particular contingency; in other words, the seller will guarantee that the acquirer’s liability will not exceed a specified amount. As a result, the acquirer obtains an indemnification asset. The acquirer shall recognise an indemnification asset at the same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts.

An indemnification asset represents the acquirer’s contractual right to reimbursement from the seller for certain liabilities. It is recognised at fair value, separately from the liability, under Ind-AS 103, and arises only when there is a contractual indemnity, measurable liability, and enforceable right to reimbursement.

Alkasa Lifesciences Limited acquires Debonya Limited in a business combination on 1st April, 2025. Debonya Limited is being sued by one of its customers for allergical nature of its products for Rs. 30,00,000.

The sellers of Debonya Limited provide an indemnification to Alkasa Lifesciences Limited for the reimbursement of any losses greater than Rs. Rs. 12,00,000. At the acquisition date, Alkasa Lifesciences Limited recognises the fair value of the contingent liability of Rs. 30,00,000 in the acquisition accounting.

In the acquisition accounting Alkasa Lifesciences Limited should also recognise an indemnification asset of Rs. 18,00,000 (Rs. 30,00,000 – Rs. 12,00,000).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(d) (Syllabus 2022).

Merger or amalgamation is undertaken for acquiring cash resources, eliminating competition, saving on taxes or influencing the economies of large-scale operations. Therefore, there are host of factors, which require consideration before initiating a merger or amalgamation exercise. Some of the factors requiring consideration before initiating a merger or amalgamation from the economic, commercial and legal perspective is explained as follows:

(i)Identification of Parties

Will one or more businesses be transferred to an existing firm or a newly formed entity? Consider drafting heads of terms, do you require a confidentiality agreement? Do you require an exclusivity agreement? Review financial liability of the parties - undertake appropriate searches.

(ii)Due Diligence

Carry out legal, commercial, tax and financial due diligence on the parties entering into the transaction. This will help in identifying risk areas along with any necessary consent you will need to obtain.

(iii)Any third-party consents required

Ascertain if any third-party consents would be required such as from banks, business contracts, partner /shareholder consents. These should emerge from due diligence. Consider also regulatory consents / licences that may be required.

(iv)Taxation

It will be necessary to ascertain the most suitable tax structure for the transaction and, in particular, the way in which the consideration should be structured, at an early stage, therefore consider consulting tax advisors.

(v)Risk

Sharing of risk – What kind of indemnities / warranties be considered? Should there be a cap on such indemnities and warranties?

(vi)Will the transaction impact on existing loan/finance arrangements?

Check loan documents and constitution documents to see whether any proposed borrowing would be a breach of any existing funding. What will happen in relation to third party funding of the seller business? Confirm that there are no restrictions on the disposal of the target business or any of its assets. How will the merged business be funded?

(vii)Existing Charges / Modifications over the assets to be acquired

Are there any mortgages, charges or debentures over any of the business assets? If yes, obtain copies and consider how they are to be discharged. If there are floating charges, obtain certificates of non-crystallisation / release. Obtain a Search Report from a Practicing Company Secretary.

(viii)Guarantees and indemnities (bank or other)

Has the Seller given or received any guarantees or indemnities in relation to the business? If yes, then obtain copies (including details of arrangements) and consider in particular, how to ensure the business continues to have the benefit of relevant guarantees.

(ix)Licences

Will the Buyer have all other licences which it needs to operate the business?

(x)Supply contracts

Will supply contracts be transferred or need to be terminated? How will this be done?

(xi)What IP is used in the business?

Obtain a full list of trademarks, service marks, patents, designs, domain names, copyright and other registered and unregistered intellectual property used in the business. Carry out trade mark and patent searches as may be appropriate through an IPR Attorney.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(b) (Syllabus 2017).

Cash deal vs. Stock deal for acquisition

In a Cash Deal, the acquiring company pays the shareholders of the target company a predetermined amount of cash per share.

Advantages of Cash Deals are:

Certainty of payment : Shareholders receive a fixed amount of cash, providing certainty and liquidity.

Simplified valuation : The valuation of the target company is straightforward based on the agreedupon cash amount per share.

Minimal dilution : Existing shareholders of the acquiring company are not diluted by issuing additional shares.

In a Stock Deal, the acquiring company offers its own shares to the shareholders of the target company as consideration for the acquisition.

Advantages of a Stock Deal are:

Tax benefits : Depending on the jurisdiction and structure, stock deals may offer tax advantages compared to cash deals.

Flexibility in valuation : Stock deals allow for flexibility in valuation, as the acquiring company’s stock price can fluctuate over time.

Potential for synergies : Aligning interests through stock ownership can foster collaboration and integration between the two companies.

Considerations for making a choice:

Market conditions : The choice between cash and stock deals may depend on prevailing market conditions, availability of financing, and the relative valuations of the companies involved.

Shareholder preferences : The preferences of both the acquiring company’s shareholders and the target company’s shareholders play a significant role in determining the structure of the deal.

Regulatory requirements : Regulatory considerations, including antitrust laws and securities regulations, may influence the choice between cash and stock transactions.

Overall, whether a cash deal or a stock deal is preferable depends on various factors, including the strategic objectives of the acquiring company, the financial position of both parties, and the prevailing market dynamics.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(c) (Syllabus 2022).

Yes, the concern of the HR Head is justified as there is a lot of difference in human and cultural aspects of both the companies and both have to be taken care of to make the merger successful.

Human Aspects: The employees of the amalgamated entity at times face secondary treatment in the amalgamating company.

Cultural Aspects: Behavioral patterns get set because of the culture. These patterns create mental blocks for the people in the organization.

Structural Change Considerations

An organizational structure refers to the levels of hierarchy, chain of command, management systems and job structures and roles. In response to a merger, duplicate departments need to be merged or eliminated, and at least some employees from both companies will either get transfer to new positions or leave the company.

Pre-merger survey and summarization of varying cultures of different companies merging, needs to be carried out. People belonging to each defined culture need to be acquainted with other cultures of other merging companies. They need to be mentally prepared to adopt the good points of other cultures and shed the blockades of their own cultures. Such an open approach will make the fusion of cultures and ethos easy and effective.

Important considerations and steps to be taken by HR w.r.t. the above stated aspects are as follows:

Premerger Due Diligence

Review the organizational structures of both businesses to see how well each compares to the mission and long-term objectives for the new company. Analyze hierarchies and reporting relationships to see where the existing structures clash and where they’re synchronized. Once an initial review is completed, appoint an integration team to speak with core employees and get their perspective on what works and what doesn’t work in their respective structures. Make preliminary decisions about which features best support the new business.

Structural Change Options

Organizational structure change options include starting from scratch, eliminating one in favor of the other and combining the best features of both structures into one. Which is the best option depending on the size, complexity and objectives of the new business.

The Three Phases of Change

Changing an organizational structure due to a merger involves much more than creating a new organizational chart. Although the chart will reflect decisions made about how the new business’s employees will communicate with one another and make decisions, this typically occurs in multiple phases. The first phase is awareness, during which employees from both businesses come to understand the new company’s direction and what it will mean to them. The goal of the second phase is acceptance, as the integration team works to build new relationships and employees at every level transition into new roles and new ways of getting work done. In the final phase, the merger is complete and the new organizational structure becomes fully adopted.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(d) (Syllabus 2022).

Due diligence: Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.

Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations.

A common example of due diligence in various industries is the process through which a potential acquirer/ investor evaluates a target company including its assets for an acquisition.

The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate in a reflexive manner on the decision at hand and all its costs, benefits, and risks.

Due diligence is integral to business. It is exercised in a simple over-the-counter transaction or a complicated merger and acquisition transaction. For instance, while acquiring a company, the buyer must do thorough research of the credentials of the company, its market valuation, status of accounts receivables, product and brand involved, position in the debt market, status of legal and statutory compliances, past performance, etc. It is also essential to study the previous financial reports to analyse the company’s performance, to check the company background, its promoters, general reputation, and return to the existing shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(ii) (Syllabus 2017).

The different types of Due Diligence to be conducted by M & A team may be as follows:

Legal Due Diligence : Legal Due Diligence is used to ensure that there are no legal issues in buying a business or investing in it. In this, the potential purchaser will review the important legal documents of the target firm such as employment contracts, board meeting minutes, Articles and Memorandum of Association and Patents and Copyrights or any other property related documents compliance status of the applicable laws etc.

Tax Due Diligence : This is aimed at ensuring that there are no past tax liabilities in the seller firm that might have materialized due to mistakes or deception and could hold the acquirer liable for it.

IP Due Diligence : IP due diligence is focused on establishing what rights the company may have in various intellectual property and where it might rely on the intellectual property of another entity. Typical areas of interest are Patent, Copyright and Trademark filings; descriptions of the company’s IP protection processes; licensing agreements, [P Assignment document, etc.

Operational Due Diligence : Operational due diligence (ODD) is the process by which a potential purchaser reviews the operational aspects of a target company during mergers and acquisitions. The ODD review looks at the main operations of the target company and attempts to confirm (or not) that the business plan that has been provided is achievable with the existing operational facilities plus the capital expenditure that is outlined in the business plan.

Commercial Due Diligence : This aims at understanding the market the target business is operating in. This looks the current market status and the forecast of the market growth in future and the target’s position in the market with relation to its competitors. This also involves interaction with the significant customers of the business to understand their opinion about the business.

Information Technology (IT) Due Diligence : This aims at identifying if there are any IT issues in the target business. This involves into matters such as scalability of systems, robustness of the processes, availability of ERP, IT base and infrastructure, capacity of server, the level of documentation of processes, compliance with the legislation and ability to integrate various systems.

HR Due Diligence : This aims at understanding the impact of human capital on the proposed deal. This involves review of number and type of manpower, skills, employment records, compensation schemes, HR processes, ongoing HR litigations, effectiveness of the sales force and cultural factors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(a) (Syllabus 2022).

The due diligence is an investigation or audit of a potential investment. It seeks to confirm all material facts in regard to a sale. It is a way of preventing unnecessary harm/hassles to either party involved in a transaction. It refers to the investigating effort made to gather all relevant facts and information that can influence a decision to enter into a transaction or not.

Due diligence is a meaningful analysis of the collected information to arrive at some decision about the potential transaction. The due diligence exercise is a crucial task. In this process the financial and non-financial information of the target company is to be collected and analysed in order to derive profitability after acquiring the target company.

Exercising due diligence is not a privilege but an unsaid duty of every party to the transaction. Due diligence is integral to business and the same is exercised in all transactions whether a simple over the-counter transaction or a complicated merger and acquisition transaction. While acquiring a company, the buyer must do thorough research of the credentials of the company, its market valuation, status of accounts receivables, product and brand involved, position in the debt market, status of legal and statutory compliances, past performance, etc. It is also essential to study the previous financial reports to analyse the company's performance, to check the company background, its promoters, general reputation, and return to the existing shareholders.

Different type of Due-Diligence which can be undertaken for any proposed merger are as follows:

1.Financial Due Diligence: The target company's financial performance is one of the most critical elements one must review.

2.Legal Due Diligence: Litigation is one of the most expensive risks a company can undertake. This makes the legal aspects one of the most critical types of due diligence in mergers and acquisitions. It helps to determine the risk level for these and other legal factors.

3.Operational Due Diligence: Operational due diligence examines various aspects of production and workflow.

4.Human Resources Due Diligence: HR due diligence examines employment agreements, compensation packages, labor relations, and salary structure.

5.Intellectual Property Due Diligence: IP due diligence is crucial if the target company has unique products or services that give it a competitive advantage.

6.Environmental Due Diligence: It helps to assess the target company's environmental impact and sustainability practices along with compliance with environmental laws and regulations.

7.IT Environmental Due Diligence: IT environmental due diligence is crucial for any company in today's digital world.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(b) (Syllabus 2017).

Due diligence is a meaningful analysis of the collected information to arrive at some decision about the potential transaction. In order to carry out due diligence with regard to managerial aspect, I would consider the following matters: -

1.Company's HR Policies

2.Assessment of Senior Level Management, resumes of key employees their qualifications and work exposures, previous background, etc.

3.Summary Plan descriptions of qualified and non-qualified retirement plans

4.Business Experience

5.Union Contract, copies of collective bargaining agreements, description of all employees' problems within last five years including the alleged wrongful termination, harassment discrimination, etc.

6.Strike History

7.Labour Relations/ Agreements, grievance procedures, labour disputes currently pending or settled within last five years.

8.Workman's' compensation claim history / unemployment claim history

9.Personnel Schemes, description of benefits of all employees' health and welfare insurance policies

10.Profile of permanent employees

11.Labour dues and settlement history

12.Status of labour law compliances.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(c) (Syllabus 2017).

Reserve Bank of India, being the approving authority for cases of amalgamation of Banking Companies issued Directions in April 2016. According to Paragraph 9 of the said Direction, Boards of Directors of the concerned Banking Companies need to give particular attention on the followings before approving the amalgamation proposal.

I.The values or revision in values at which the assets, liabilities and the reserves of the amalgamated company are taken;

II. Due diligence of the amalgamated company; III. Swap ratio properly determined by independent valuers; IV. Shareholding pattern, post amalgamation is not contrary to the Reserve Bank guidelines;

V.Profitability impact and maintenance of capital adequacy ratio after amalgamation; and

VI. Changes that may occur in composition of Board of Directors that are not inconsistent with the directions or sanctions by Reserve Bank of India Thus the Directors in the respective Board Meetings need to be particular as well as meticulous.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(a) (Old syllabus).

Due diligence is the process by which confidential, legal, financial and other material information is exchanged, reviewed and appraised by the parties to a business transaction, which is conducted prior to the transaction. It is the analysis and risk assessment of an impending business transaction. It is the careful and methodological investigation of a business or persons, or the performance of an act with a certain standard of care to ensure that information is accurate and to uncover information that may affect the outcome of the transaction. It is basically a "background check" to make sure that the parties to the transaction have the required information that is needed to proceed with the transaction.

Due diligence report should provide information and insight on aspects such as the risks of a transaction, the value at which a transaction should be undertaken, the warranties and indemnities that needs be obtained from the vendor, etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(i) (Old syllabus).

Integration and Change Management

Two Potential Cultural Differences:

•Corporate Culture (Centralized vs. Decentralized): Aarogya Healthcare, as a large, publicly-listed company, may have a more centralized and bureaucratic corporate culture, while Swasth Jeevan Clinics, as a smaller, privately-held chain, may have a more decentralized and entrepreneurial culture.

Mitigation Strategy: Implement a phased integration approach that allows Swasth Jeevan Clinics to retain some of its autonomy and entrepreneurial spirit while gradually adopting Aarogya Healthcare's best practices.

•Patient Care Philosophy (Specialized vs. Primary Care): Aarogya Healthcare, as a hospital chain, may focus on specialized and tertiary care, while Swasth Jeevan Clinics focuses on primary care and preventive medicine.

Mitigation Strategy: Emphasize the importance of integrated care and the benefits of combining specialized and primary care services. Provide training and education to employees from both organizations to promote understanding and collaboration.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 1(d) (Syllabus 2022).

Mergers, amalgamations, acquisitions, takeovers or any other kind of corporate restructuring is undertaken for the purpose of expansion, growth or diversification of business.

•However, corporate restructuring is much more than economic synergies, but it covers other intangible factors as well, such as corporate cultures, practices, policies, and environment etc.

•Thus, timely integration of systems, applications and data provide the corporate information needed to achieve the post-merger objectives

•Post-merger reorganization includes the reorganization of each and every aspect of a company’s functional area for the purpose of achieving the planned objectives of takeover, amalgamation, merger or demerger.

•Every scheme of merger and amalgamation is sanctioned by the Court or Tribunal Postmerger, transferor company is dissolved and all its assets and liabilities are transferred to the transferee company. Further, the companies shall also ensure that the contracts entered by the merging entity shall continue to be transferred in the name of merged entity.

•However, other aspects in the contracts with a third party may require company to inform about merger or may give rise to other party to terminate the contract.

•Normally lease agreements, that contain fixed tenure may release the landlord from such restriction in the event of restructure of lessee entity.

•Further, the merged entity would need to check various rights and obligations mentioned in the contracts with third parties and should allocate teams to identify and ensure compliance of those requirements. In short, all existing contracts with its terms shall be reviewed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(c) (Syllabus 2017).

Legally speaking, orders of Court or Tribunal sanctioning scheme prevails and shall ensure that the contracts entered by the merging entity shall continue to be transferred in the name of merged entity from relevant date. However, other issues in the contracts with a third party may require company to inform about merger or may give rise to other party to terminate the contract. Normally lease agreements, that contain fixed tenure may release the landlord from such restriction in the event of restructure of lessee entity. Further, the merged entity would need to check various rights and obligations spelt out in the contracts with third parties and should allocate teams to identify and ensure compliance of those requirements. In short, all existing contracts with its terms need revisit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(c) (Old syllabus).

The main purpose of a merger or acquisition is to deliver the expected financial results namely earnings and cash flow. However, the criterion to judge a successful merger differs depending upon the conditions. Different factors may be considered for making value judgments such as growth in profit, dividend, company's history, and increase in size, base for growth, etc.

There are certain measures that serve as key indicators for measuring post-merger efficiency. The indicators may be grouped as:

a)Financial outcomes.

b)Component measures of these outcomes namely revenues, costs, net working capital and capital investments.

c)Organizational indicators such as customers, employees and operations.

There are broadly four possible reasons for business growth and expansion which is to be achieved by the merged company. These are (1) Operating economies,

(2)Financial economies, (3) Growth and diversification, and (4) Managerial effectiveness.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(iii) (Old syllabus).

Some common mistakes that need to be taken care of by Corporates after postmerger are:

(a)Ego problems result in clashes that make bad situations worse;

(b)Sudden and radical changes such as relocating the company's entire production operations should be carefully considered;

(c)While the company is focussed on integration, it furnishes an ideal time for competitors to make a run on the market;

(d)If the acquired business does not belong to the area / field in which the acquiring company operates then different apporaches need to be applied;

(e)A dangerous mistake is laying off crucial employees of the acquired company. It is very complicated, delicate matter and even the seller might not have accurate idea as job titles are normally misleading.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(b) (Old syllabus).

•As per section 230 of the Companies Act. 2013, an application shall be made to Tribunal for sanctioning a scheme of amalgamation.

•The Tribunal has the power to sanction the scheme u/s 231 of the Companies Act, subject to approval in the shareholders meeting(s) and creditors’ meeting(s). The resolution shall be passed in the respective meeting through dual majority as given under section 230(6).

•As per section 230(6) of the Companies Act, 2013, compromise or arrangement would require approval by a majority of persons representing three fourths (75%) in value of the creditors, or class of creditors or members or class of members, as the case may be.

•Once the required approval is received in the members and creditors meeting, the scheme of compromise or arrangement shall be sanctioned by the Tribunal. Once the scheme is approved by the Tribunal the same is binding on the company, all the creditors and members.

•In the given case, the proposed scheme was opposed by two shareholders holding 80% shares. Hence, it does not fulfil requirement of Section 230(6) and will not be approved by the Tribunal based upon the reports received from Scrutinizer and Chairman of the meeting.

•Moreover, it is given that A Ltd. was delisted in 2012 and hence it was not required to submit the scheme with SEBI, so observations, if any, from SEBI or stock exchanges were not required.

•The Board of A Ltd. may review the said scheme of arrangement and prepare a revised scheme of arrangement considering the observations of shareholders, if any, and present it for shareholder’s approval.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(iii) (Syllabus 2017).

As per Section 230(9) of the Companies Act, 2013, the National Company Law Tribunal (NCLT) may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.

In the matter of Scheme of Amalgamation between Jupiter Alloys & Steel (India) Limited vs. Jupiter Wagon Limited, the question of ‘ whether tribunal can grant dispensation of shareholders meeting regarding proposed scheme of amalgamation in case where all the shareholders have given consent and Companies Act provides only for dispensation of meetings of creditors having 90% value agreed and confirmed by way of affidavit?’, was laid before the Court.

The two member Hon’ble NCLT Kolkata Bench held that the word “may” as provided in section 230(9) of the Companies Act, 2013 introduces an element or essence of discretion, and thus vests in the NCLT an inherent power to dispense with the meeting of the member and/or creditors. Finally, the bench, noting that NCLT has inherent power under Rule 11 of National Company Law Tribunal Rules, 2016 read with Rule 24(2) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (CAA Rules) allowed dispensation of the meeting of the shareholders, whilst observing the following:

“It cannot be ignored that almost all the High Courts have exercised this discretion since long and dispensed with the calling of the meetings in appropriate situations. The precedents created by the High Courts to dispense with the requirement of convening the meetings are worth and continuation of such precedents are virtue in the era of ease of doing businesses as well as future course of corporate actions. A settled issue should not be unsettled without proper reasons. Thus, the notion that calling of meetings is mandatory does not stand .

Based on the above-mentioned case law where all shareholders have given their consent and post-merger there shall be positive net worth and the creditors are not compromised, it is advised to the management to get the written consent of all shareholders of transferor and transferee so that the requirement of shareholders meeting can be dispensed with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(a) (Syllabus 2017).

Yes, it is permissible as was held in the Matter of Scheme of Amalgamation between Real Image LLP v. Qube Cinema Technologies Private Limited .

The National Company Law Tribunal, Chennai Bench in the order dated 11.06.2018 held that,

“…the legislative intent behind enacting both the LLP Act, 2008 and the Companies Act, 2013 is to facilitate the ease of doing business and create a desirable business atmosphere for companies and...

“For this purpose, both the Acts have provided provisions for merger or amalgamation of two or more LLPs and companies,” noted the NCLT bench.

“If the intention of Parliament is to permit a foreign LLP to merge with an Indian company, then it would be wrong to presume that the Act prohibits a merger of an Indian LLP with an Indian company.

“Thus, there does not appear any express legal bar to allow/ sanction merger of an Indian LLP with an Indian company,”

National Company Law Tribunal, Chennai Bench taking such view decided by order dated 11th June 2018. The counsels submitted that Sections 60 to 62 of LLP Act and Sections 230 to 234 of the Companies Act, empowers National Company Law Tribunal to sanction a scheme put by the applicant entities. The Bench noted that there is no express legal bar to permit or sanction merger of Indian LLP with an Indian Company

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(e) (Syllabus 2017).

Section 230(6) of the Companies Act, 2013 requires the approval by members, creditors (separately for each class) of the company to a scheme of compromise or arrangement. The required majority need to be three-fourth in value present in person or through proxy or by postal ballot. The Tribunal may dispense with conducting a meeting; if affidavits of consent are given by the persons concerned having stake more than 90% of total stake in each class. While counting for approval the persons who did not attend and those do not wish to vote shall be excluded so also in invalid votes. In the given case, as each share is considered as a vote, 6 lakh votes are in favor and 1 lakh votes are against, thus more than 3 times and hence the resolution is considered passed. Counting of Members present to vote or not to vote is only for statistical purpose only.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(ii) (Syllabus 2017).

Mergers and amalgamations are not defined under the Companies Act, 2013, but the schemes submitted are in the nature of compromise and arrangement. Section 231(1) of the Act empowers the Tribunal to supervise the implementation of any such scheme of compromise or arrangement. The Tribunal may at the time of order or at any time, thereafter, may give such directions in regard to any matter, or make such modifications in the compromise or arrangement as it may consider necessary, for the proper implementation of the compromise or arrangement.

On the other hand, if the Tribunal finds to its satisfaction that the scheme could not be implemented even with modifications and the company is unable to pay its debts, the Tribunal may order winding-up of such company. Thus, dissatisfactory implementation of any scheme of compromise or arrangement may lead to the winding-up or liquidation and such an order shall be deemed to be an order made under section 273 of Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(c) (Old syllabus).

In terms of section 232(8) of the Companies Act, 2013, if a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than rupees one lakh but which may extend to rupees twenty-five lakh and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than rupees one lakh, but which may extend to three lakh rupees, or with both.

Hence, a meticulous compliance needs to be undertaken in any proposal for a scheme of merger or amalgamation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(d) (Old syllabus).

Broad steps involved in the amalgamation of Government companies are as under:

1.Government companies applying for amalgamation should obtain approval of Cabinet i.e. Union Council of Ministers. In case of State Undertakings approval of State Council of Ministers is required.

2.In case of amalgamation of Joint Holding of State and Central Government in companies, approval of both Central and State government is to be obtained.

3.Government companies intending to amalgamate should pass resolution at a general meeting of members of both the companies with all necessary compliances.

4.Every resolution of a government company should be passed at the general meeting by members holding 100% of the voting power and such resolution should contain complete details showing assets and liabilities of amalgamating companies.

5.Before passing resolution as above, 30 days’ notice in writing together with a copy of proposed resolution should be given by the Government company to all the members and creditors.

6.A resolution passed by the Government company is not valid and does not take effect, unless (i) the assent of all creditors has been obtained, or (ii) assent of 90% of the creditors by value has been received and the company certifies that there is no objection from any other creditor.

7.Resolution passed by both the amalgamating companies along with approval of Cabinet should be sent to the Central Government. On being satisfied, the Central Government may order by notification in the Official Gazette, that the said amalgamation shall take effect.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(d) (Old syllabus).