A merger is a procedure when two or more businesses join together to form a new business and
increase their operational capacity. In this scenario, the agreement is made after taking consent from
both the parties involved in the merger and thereafter both groups split the profits from the new
company. Through a merger, two businesses can increase their strength, increase their market share and
profit, reduce competition, and introduce new products.

Benefits of Merger: –

 Value Generation
 Lowers operating costs by creating economies of scale
 Avoids duplication
 Expands business into new geographic areas
 Stops an unsuccessful enterprise from closing
 Serves tax Purposes

As per Para 3(e) of AS-14, Companies involved in merger must satisfy all the following
conditions:

 All the assets and liabilities of the transferor companies become, after Merger, the assets and
liabilities of the transferee company.

 Shareholders holding not less than 90% of the face value of the equity shares of the transferor
companies (other than the equity shares already held therein, immediately before the Merger, by
the transferee company or its subsidiaries or their nominees) become equity shareholders of the
transferee company by virtue of the Merger.

 The transferee company fully discharges the consideration for the merger owed to those equity
shareholders of the transferor companies who agree to become equity shareholders of the
transferee company by issuing equity shares in the transferee company, with the exception of
any fractional shares for which cash may be paid.

 The transferee company is designed to continue the transferor firms' operations following the
merger.

 When the assets and liabilities of the transferor Companies are included in the financial
statements of the transferee company, no adjustments are expected to be made to their book
values other than to guarantee consistency of accounting rules. For instance, if Transferor
companies use the weighted average approach to value their inventory the book value of the
inventory of the transferor company will be revised by applying the FIFO method (if the
transferee company follows FIFO method for inventory valuation).

There are three major compliances that should take place after the merger:

ROC Compliances (E-form INC-28, SH-7, PAS-3)

 Both the parties involved in merger need to file INC-28 within a period of 30 days from the date
of receiving the certified copy of order from NCLT;
 The copy of the order, as well as the statement of authorized capital, should be attached to INC
28;
 Once the form is approved, the transferor companies will be dissolved;
 File Form SH-7 within 30 days of receiving the certified copy of order;
 No need of holding any general meeting and the copy of the order should be attached to Form
SH 7 in place of members’ resolution;
 Once the increase is made in the authorized share capital, the board resolution has to be passed
to consider the allotment.

Compliances under regulated authorities

1. Related to Income Tax

Transferor companies must file a copy of the order with the concerned officers to inform them
about the merger. They should ask the concerned officers to give the file to the transferee
company's officers. In addition, transferor companies should hand over their PAN cards, notify
the TDS authorities, and submit an application for the cancellation of the TAN number and
transfer of TDS amount.

The Transferee Company must file a copy of the order, to notify the concerned officer of the
merger. The transferee company must meet the requirements outlined in Section 2(1)(b) and
Section 72A of the Income Tax Act of 1961 in order to get the benefit of any unabsorbed loss
and/or cumulative business loss that the transferor companies may have.

2. Related to GST

The registered person/transferor whose business is to be merged or amalgamated shall furnish
the details of such merger or amalgamation in FORM GST ITC 02, electronically, along with a
request for transfer of unutilized input tax credit lying in his credit ledger to the transferee.
If there is any supply of goods or services or both take place between any two or more of such
companies between the date of effect of such order and date of the order, such supply and
receipt will be included in the turnover or receipt of the respective companies and they shall be
liable to pay taxes.

3. Related to RBI

In case of Banking Companies

Section 44A of the Banking Regulation Act, 1949 also requires that after the scheme of
amalgamation (which is approved by the requisite majority of shareholders), the same shall be
submitted to the Reserve Bank of India (RBI) for sanction along with requisite documents in
Annexure- A.

According to the aforementioned Section, dissenting shareholders of transferor companies are
entitled to compensation from the Transferee Company for the shares held by them at the value
as determined by the RBI, and the transferee company is required to pay the dissenting
shareholders the determined compensation.

To enable the RBIto determine such value, the amalgamated banking company should submit the following: –

a) A report on the valuation of the share of the amalgamated company made for this purpose by the valuers
appointed for the determination of the swap ratio.

b) Detailed computation of such valuation.

c) where the shares of the amalgamated company are quoted on the stock exchange:-

(i) Details of the monthly high and low of the quotation on the exchange where the shares are most widely
traded together with number of shares traded during the six months immediately preceding the date on
which the scheme of amalgamation is approved by the Boards.

(ii) The quoted price of the share at close on each of the fourteen days immediately preceding the date on
which the scheme of amalgamation is approved by the Boards.

In case of NBFC

If both Transferor Company and Transferee Company are NBFCs then a copy of order will be served to the Reserve
Bank of India.

4. Treasury under the Stamp Act

A stamp duty of 0.05% in case of transfer of immovable properties from the transferor companies to the
transferee company.

Accounting Compliances

 Modification of real estate(immovable asset).
 Transfer of assets into the name of the transferee company.
 Transfer of reserve and surplus to the transferee company
 Bank accounts of the transferor companies should be transferred to the transferee company.
 Debtors must be informed of the merger.
 The transferor companies’ arrangements, such as leases and rental agreements, may need to be modified, if
necessary.
 Notified to the Depositories about the transfer of shares, securities or mutual funds in the name of the
Transferee Company.
 License transfers, if any, to the Transferee Company after notifying the appropriate government agency.
 Loan financiers and creditors should be made aware of the merger in terms of liabilities.
 The expenses paid by the transferee company on behalf of the transferor firm is debited to general reserve as
well as keeping track of any ongoing legal proceedings and potential liabilities.

In the modern world, mergers help various organizations to work more efficiently, give them a clear direction,
enable them to grow, and help them accomplish their desired goals, objectives, and economies of scale.

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