Regulatory Approvals of Scheme

Procedure for amalgamation of banking companies. —

The Reserve Bank has discretionary powers to approve the voluntary amalgamation of two banking companies under the provisions of Section 44A of the Banking Regulation Act, 1949.

Section 44A provides that:

1.Notwithstanding anything contained in any law for the time being in force, no banking company shall be amalgamated with another banking company, unless a scheme containing the terms of such amalgamation has been placed in draft before the shareholders of each of the banking companies concerned separately, and approved by a resolution passed by a majority in number representing two-thirds in value of the shareholders of each of the said companies, present either in person or by proxy at a meeting called for the purpose.

2.Notice of every such meeting as is referred to in sub-section (1) shall be given to every shareholder of each of the banking companies concerned in accordance with the relevant articles of association indicating the time, place and object of the meeting, and shall also be published at least once a week for three consecutive weeks in not less than two newspapers which circulate in the locality or localities where the registered offices of the banking companies concerned are situated, one of such newspapers being in a language commonly understood in the locality or localities.

3.Any shareholder, who has voted against the scheme of amalgamation at the meeting or has given notice in writing at or prior to the meeting of the company concerned or to the presiding officer of the meeting that he dissents from the scheme of amalgamation, shall be entitled, in the event of the scheme being sanctioned by the Reserve Bank, to claim from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank when sanctioning the scheme and such determination by the Reserve Bank as to the value of the shares to be paid to the dissenting shareholder shall be final for all purposes.

4.If the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of this section, it shall be submitted to the Reserve Bank for sanction and shall, if sanctioned by the Reserve Bank by an order in writing passed in this behalf, be binding on the banking companies concerned and also on all the shareholders thereof.

5.On the sanctioning of a scheme of amalgamation by the Reserve Bank, the property of the amalgamated banking company shall, by virtue of the order of sanction, be transferred to and vest in, and the liabilities of the said company shall, by virtue of the said order be transferred to, and become the liabilities of, the banking company which under the scheme of amalgamation is to acquire the business of the amalgamated banking company, subject in all cases to the provisions of the scheme as sanctioned.

6A. Where a scheme of amalgamation is sanctioned by the Reserve Bank under the provisions of this section, the Reserve Bank may, by a further order in writing, direct that on such date as may be specified therein the banking company (hereinafter in this section referred to as the amalgamated banking company) which by reason of the amalgamation will cease to function, shall stand dissolved and any such direction shall take effect notwithstanding anything to the contrary contained in any other law.

6B. Where the Reserve Bank directs a dissolution of the amalgamated banking company, it shall transmit a copy of the order directing such dissolution to the Registrar before whom the banking company has been registered and on receipt of such order the Registrar shall strike off the name of the company.

6C. An order under sub-section (4) whether made before or after the commencement of section 19 of the Banking Laws (Miscellaneous Provisions) Act, 1963 shall be conclusive evidence that all the requirements of this section relating to amalgamation have been complied with, and a copy of the said order certified in writing by an officer of the Reserve Bank to be a true copy of such order and a copy of the scheme certified in the like manner to be a true copy thereof shall, in all legal proceedings (whether in appeal or otherwise and whether instituted before or after the commencement of the said section 19), be admitted as evidence to the same extent as the original order and the original scheme.

7.Nothing in the foregoing provisions of this section shall affect the power of the Central Government to provide for the amalgamation of two or more banking companies under section 396 of the Companies Act, 1956, [corresponding to Section 237 of the Companies Act, 2013], Provided that no such power shall be exercised by the Central Government except after consultation with the Reserve Bank.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2A(ii) (Syllabus 2022).

Section 37 of the Insurance Act, 1938 deals with the statements required after amalgamation and transfer. It states that:

Where an amalgamation takes place between any two or more insurers, or where any business of an insurer is transferred, whether in accordance with a scheme confirmed by the Authority or otherwise, the insurer carrying on the amalgamated business or the person to whom the business is transferred, as the case may be, shall, within three months from the date of the completion of the amalgamation or transfer, furnish in duplicate to the Authority-

(a)a certified copy of the scheme, agreement or deed under which the amalgamation or transfer has been effected, and

(b)a declaration signed by every party concerned or in the case of a company by the chairman and the principal officer that to the best of their belief every payment made or to be made to any person whatsoever on account of the amalgamation or transfer is therein fully set forth and that no other payments beyond those set forth have been made or are to be made either in money, policies, bonds, valuable securities or other property by or with the knowledge of any parties to the amalgamation or transfer, and

(c)where the amalgamation or transfer has not been made in accordance with a scheme approved by the Authority under Section 36:

(i)balance-sheet in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer, prepared in the Form set forth in Part II of the First Schedule and in accordance with the regulations contained in Part I of that Schedule, and

(ii)certified copies of any other reports on which the scheme of amalgamation or transfer was founded.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(ii) (Syllabus 2022).

Regulation 37of the SEBI of the (Listing Obligations and Disclosure Requirements) Regulations provides that the listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement, proposed to be filed before Tribunal under Sections 230-234 and an scheme of arrangement by way of reduction of capital under Section 66 of the Companies Act, 2013, along with a non- refundable fee as specified in Schedule XI, with the stock exchange(s) for obtaining Observation Letter or No- objection letter, before filing such scheme with any Court or Tribunal, in terms of requirements specified by the Board or stock exchange(s) from time to time.

The listed entity shall not file any scheme of arrangement under sections 230-234 and scheme of arrangement by way of reduction of capital under Section 66 of the Companies Act, 2013, with Tribunal unless it has obtained observation letter or No-objection letter from the stock exchange(s).

The listed entity shall place the Observation letter or No-objection letter of the stock exchange(s) before the Tribunal at the time of seeking approval of the scheme of arrangement. The validity of the ‘Observation Letter’ or No -objection letter of stock exchanges shall be six months from the date of issuance, within which the draft scheme of arrangement shall be submitted to the Court or Tribunal.

The listed entity shall ensure compliance with the other requirements as may be prescribed by the Board from time to time.

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

While according approval to the scheme of amalgamation to two banking companies, Board of Director need to give careful and particular consideration of following matters:

a.The value at which the assets, liabilities and the reverse of the amalgamated company are proposed to be incorporated in the books of the amalgamating banking company and whether such incorporation will result in a revaluation at assets upwards or credit being taken for unrealized gains.

b.Ensure due diligence of the amalgamating companies

c.The nature of the consideration, which, the amalgamating banking company will pay to the shareholders of the amalgamated company.

d.Whether the swap ratio has been determined by independent values having required competence and experience and whether in the opinion of the Board such swap ratio is fair and proper.

e.The shareholder pattern in the two banking companies and whether as a result of the amalgamation and swap ratio the shareholding of any individual, entity or group in the amalgamating banking company will not be violation of the Reserve

Bank guidelines or require it specific approval.

f.The impact of the amalgamation on the profitability and the capital adequacy ratio of the amalgamating banking company.

g.The changes which are proposed to be made in the composition of the board of directors of the amalgamating banking company, consequent upon the amalgamation and whether the resultant composition of the Board will be in conformity with the Reserve Bank guidelines and shall be submitted to RBI for sanction.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(b) (Old syllabus).

Any listed company desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement, shall file the draft scheme of arrangement, proposed to be filed before Tribunal under Sections 230-234 and Section 66 of Companies Act, 2013, along with a non-refundable fee as specified in Schedule XI, with the concerned stock exchange for obtaining Observation Letter or No-Objection letter, before filing such scheme with any Court or Tribunal, in terms of requirements specified by the Securities & Exchange Board of India or concerned Stock Exchange from time to time.

The listed entity shall place the letter of the stock exchange before the Tribunal at the time of seeking approval of the scheme of arrangement. The validity of such letter is six months from date of issue. On sanction of the scheme by the Tribunal, order needs to be filed with the Stock exchange.

The listed entity shall ensure compliance with the other requirements as may be prescribed by the Securities & Exchange Board of India from time to time.

MNP Ltd is advised to comply the requirements as suggested.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(ii) (Syllabus 2017).

In cases of scheme of merger by the Non-Banking Financial Company, approval needs to be obtained from National Company Law Tribunal, whereas the scheme by Banks need to obtain approval from Reserve Bank of India in accordance with the Master Directions by RBI, the banking Company need to ensure:

(a)The NBFC has not violated any RBI/SEBI norms;

(b)The NBFC complied with KYC of all its accounts holders;

(c)If it is found that the NBFC has any credit facilities from banks or financial institutions, whether the loan agreement mandate the NBFC to seek consent of the lending bank/financial institution for merger/amalgamation.

As per paragraph 17 of the Master Direction, to enable the Reserve Bank of India to consider the application for approval, the banking company shall furnish to the Reserve Bank of India, information as specified in the schedule to the direction (except certificate in respect of names of shareholders who gave notice in writing at or prior to the meeting to the NBFC that they dissented from the scheme of amalgamation) and also the information and documents relating to the valuation along with its computation and the quoted price details.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(d) (Old syllabus).