Company Law and Practice · Compromise, Arrangement and Amalgamations - Concepts

Merger and Amalgamation of Companies under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

A merger or amalgamation is a scheme in which the undertaking, property and liabilities of one or more companies (transferors) pass to another company (transferee). Under section 232 the Tribunal orders meetings, checks the circulated documents, then sanctions the scheme and makes consequential provisions. Small companies and holding-subsidiary companies may use a simpler fast-track route.

Understand Merger and Amalgamation of Companies

A merger or amalgamation is a form of corporate restructuring. The whole or part of the undertaking, property and liabilities of one company, the transferor company, goes to another company, the transferee company. The Act does not treat the two words differently for section 232. It speaks of a scheme "involving merger or the amalgamation of any two or more companies".

The Act recognises two kinds of merger. In a merger by absorption, one or more companies transfer their business to an existing company. In a merger by formation of a new company, two or more companies transfer their business to a new company, whether or not it is a public company. In the second kind the "merging companies" are only the transferor companies.

A division (demerger) is the reverse. The undertaking, property and liabilities of one company are divided among and transferred to two or more companies. Each of them may be an existing company or a new one.

Section 232 works on top of section 230. A scheme is first proposed as a compromise or arrangement. The Tribunal may then order meetings of creditors or members, and sub-sections (3) to (6) of section 230 apply with the necessary changes. After that, section 232 adds extra documents to circulate, and it lists what the sanctioning order can provide for.

The usual route is slow, because it needs Tribunal meetings and a Tribunal order. For small companies and for a holding company with its wholly-owned subsidiary, the Act gives a fast-track merger. It is faster and cheaper because it is run mainly through the Registrar and the Central Government rather than a full Tribunal hearing. Learn the Tribunal route in detail and the fast-track route in outline.

Key rules to remember

Conditions for section 232 to apply: (a) scheme for reconstruction involving merger or amalgamation of two or more companies AND (b) whole or part of undertaking, property or liabilities of the transferor is to be transferred to the transferee, or divided among two or more companies; Both conditions must be shown to the Tribunal. Only then may it order meetings of creditors or members.
Documents to circulate for the meeting (section 232(2)): Draft scheme adopted by directors; confirmation that a copy is filed with the Registrar; directors' report on effect on each class of shareholders, KMP, promoters and non-promoter shareholders, including the share exchange ratio and any valuation difficulties; expert's valuation report, if any; supplementary accounting statement if the last annual accounts are older than six months before the first meeting; Remember them as: draft scheme, Registrar filing, directors' report, expert valuation, supplementary accounts.
Auditor's certificate: No sanction unless the company's auditor certifies that the proposed accounting treatment conforms to the accounting standards prescribed under section 133; This is a proviso to section 232(3). It is a condition for sanction.
Appointed date: The scheme must clearly state an appointed date. It is effective from that date and not from a later date.; Section 232(6). This is different from the date of the Tribunal's order.
Filing the order with the Registrar: Certified copy of the order to be filed within 30 days of receiving it; Section 232(5). Default: penalty of ₹20,000 on the company and every officer in default. If the default continues, a further ₹1,000 for each day after the first, up to a maximum of ₹3,00,000 (section 232(8)).
Annual compliance statement: Until the scheme is complete, file every year a statement certified by a chartered accountant, cost accountant or company secretary in practice, stating whether the scheme is being complied with as per the Tribunal's orders; Section 232(7).
Treasury shares: The transferee company must not hold shares in its own name, or through a trust, on its own behalf or for a subsidiary or associate. Such shares are cancelled or extinguished.; Proviso to section 232(3)(b).
Listed transferor and unlisted transferee: Transferee stays unlisted until it becomes listed. Dissenting shareholders who opt out get a pre-determined price formula or a valuation. The price must not be less than what SEBI regulations specify.; Section 232(3)(h).

How to solve Merger and Amalgamation of Companies questions

Most questions give you a scheme and ask whether it can be sanctioned, what the Tribunal can order, or what a company must file. Use the same order of thought every time.

1Identify the scheme. Decide whether it is a merger by absorption, a merger by formation of a new company, or a division. Name the transferor and transferee companies.
2Check that both conditions of section 232(1) are met: a reconstruction scheme involving merger or amalgamation, and a transfer of the whole or part of the undertaking, property or liabilities.
3Check whether the fast-track route is available. It applies only to small companies, or to a holding company and its wholly-owned subsidiary. If not, the Tribunal route applies.
4State the Tribunal procedure: it orders meetings, section 230(3) to (6) apply, and the companies circulate the section 232(2) documents.
5Check the facts against the sanction conditions: documents circulated, auditor's certificate on accounting treatment, and a clear appointed date.
6List the matters the Tribunal may provide for in its order that are relevant to the facts, such as transfer of property and employees, allotment of shares, continuing legal proceedings, dissolution without winding-up, and dissenters.
7Add post-order compliance: file the certified copy with the Registrar within 30 days and file the annual statement until the scheme is complete.
8Write a clear conclusion in one or two lines that answers the exact question asked.

Quickest way: Four-box method for section 232 answers

When to use it: Use it when time is short, such as a 5 or 6 mark question on the procedure or the Tribunal's powers.

Box 1, Scheme: type of scheme, transferor, transferee, and the section 232(1) conditions.
Box 2, Meeting papers: the five items in section 232(2).
Box 3, Order: the matters in section 232(3), with the auditor's certificate as a condition.
Box 4, After the order: the 30-day filing, the appointed date, the yearly statement and the penalty.
Close with a one-line conclusion that names the section.

Common mistakes in Merger and Amalgamation of Companies

Treating the date of the Tribunal's order as the effective date of the scheme.
Students link the transfer to the sanction order.
Fix: Remember that the scheme must state an appointed date and takes effect from it, not from a later date (section 232(6)). The order sanctions the scheme. The effective date is the appointed date.
Missing the auditor's certificate as a condition for sanction.
It sits in a proviso at the end of section 232(3), so it is easy to overlook.
Fix: State that the Tribunal will not sanction the scheme unless the auditor's certificate on accounting treatment, in line with section 133 standards, has been filed.
Saying the transferee may keep shares it ends up holding in itself.
Students treat it as ordinary investment.
Fix: Under the proviso to section 232(3)(b), such shares, whether held directly or through a trust, are cancelled or extinguished.
Confusing a merger by absorption with a merger by formation of a new company.
Students focus on the names and not on the transferee.
Fix: If the transferee is an existing company it is absorption. If the transferee is a new company formed for the merger it is formation of a new company.
Quoting the wrong filing period or penalty for the Tribunal order.
Numbers are mixed up with other sections.
Fix: Learn: 30 days from receipt of the certified copy. Penalty ₹20,000 plus ₹1,000 per day after the first, up to ₹3,00,000.
Applying the fast-track route to any merger.
Students remember it as the quick method and forget its limits.
Fix: Use it only for mergers between two or more small companies, or between a holding company and its wholly-owned subsidiary. Other mergers need the Tribunal route.

Worked examples

Example 1

Sundaram Ltd is to merge into Kaveri Ltd under a scheme. Sundaram Ltd holds 2,000 equity shares in Kaveri Ltd. Can Kaveri Ltd keep these shares after the merger?

Show the solution

The scheme is a merger by absorption. Sundaram Ltd is the transferor and Kaveri Ltd, an existing company, is the transferee.
Sundaram's investments, including the 2,000 shares in Kaveri Ltd, pass to Kaveri Ltd as part of its property.
The proviso to section 232(3)(b) says the transferee must not, as a result of the scheme, hold shares in its own name or in the name of any trust, whether for itself or for its subsidiary or associate companies.
Any such shares must be cancelled or extinguished.

Answer: No. Kaveri Ltd cannot keep the 2,000 shares. They are cancelled or extinguished under the proviso to section 232(3)(b).

Example 2

The Tribunal sanctioned a merger scheme and the company received the certified copy of the order. The company filed it with the Registrar after the 30-day period, and the default continued for 10 days. What is the penalty on the company under section 232?

Show the solution

Section 232(5) requires a certified copy of the order to be filed with the Registrar within 30 days of receipt.
Under section 232(8), a failure attracts a penalty of ₹20,000 on the company and on every officer in default.
If the failure continues, there is a further ₹1,000 for each day after the first, up to a maximum of ₹3,00,000.
Days after the first = 10 − 1 = 9. Further penalty = 9 × ₹1,000 = ₹9,000.
Total = ₹20,000 + ₹9,000 = ₹29,000, well below the cap of ₹3,00,000.

Answer: The company is liable to a penalty of ₹29,000, and each officer in default is liable to the same amount.

Exam tips

Write the section number with every point. Examiners reward the pattern of provision, facts, conclusion.
For "what can the Tribunal provide for" questions, list the section 232(3) items briefly and tie each one to the facts given.
Learn the definitions of merger by absorption, merger by formation of a new company and division from the Explanation to section 232. Short questions often ask for them.
For fast-track merger, state who can use it, the role of the Registrar and the Official Liquidator, the member and creditor approvals, and the Central Government's confirmation. Check the exact thresholds in your ICSI study material before the exam.
Always end with a conclusion that answers the question asked, for example "the scheme can be sanctioned" or "the shares are cancelled".

Practice questions from Compromise, Arrangement and Amalgamations - Concepts

Merger and Amalgamation of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Merger and Amalgamation of Companies: frequently asked questions

What is the difference between merger and amalgamation for CS Executive?

Section 232 deals with both together as a scheme of reconstruction involving merger or amalgamation of companies. For the exam, focus on the legal forms: merger by absorption, merger by formation of a new company, and division. Do not spend time on an academic distinction between the two words unless the question asks for it.

What is a demerger under the Companies Act, 2013?

The Act calls it a division. The undertaking, property and liabilities of one company are divided among and transferred to two or more companies. Each of those may be an existing company or a new company. Section 232 applies to it in the same way as to a merger.

What is a fast-track merger?

It is a simpler route for mergers between two or more small companies, or between a holding company and its wholly-owned subsidiary. It avoids the full Tribunal meeting process and runs through the Registrar, the Official Liquidator and the Central Government. Study its approval conditions from your ICSI material.

Does the Tribunal need an auditor's certificate before sanctioning a merger?

Yes. Under the proviso to section 232(3), the Tribunal cannot sanction the scheme unless a certificate from the company's auditor has been filed. It must say that the accounting treatment in the scheme conforms to the accounting standards prescribed under section 133.

What happens to employees and pending cases of the transferor company?

The Tribunal's order can provide for the transfer of the transferor company's employees to the transferee. It can also provide that legal proceedings pending by or against the transferor continue by or against the transferee. The transferor can be dissolved without winding-up.