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

Verma Foods Ltd and Nair Spices Ltd are both to be merged into a newly incorporated company, Bharat Agro Ltd, under a Section 232 scheme. How is this merger classified, and which companies are the 'merging companies' for the circulation requirements?

It is a merger by formation of a new company, and only the transferor companies, Verma Foods and Nair Spices, are merging companies. The Explanation to Section 232 treats the transfer of two or more undertakings to a new company this way and limits merging companies to the transferors.

  1. AMerger by absorption; Verma Foods and Bharat Agro are merging companies
  2. BMerger by formation of a new company; only Verma Foods and Nair Spices, the transferor companies, are merging companiesCorrect
  3. CMerger by formation of a new company; all three companies are merging companies
  4. DDivision; Verma Foods and Nair Spices are the companies divided

Explanation

Explanation (i) to Section 232 says that where the undertakings of two or more companies are transferred to a new company, it is a merger by formation of a new company. Explanation (ii) says that in such a merger, merging companies means the transferor companies. So the new company is not a merging company.

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