Reconstruction, amalgamation, takeovers and the NCLT

1. Concepts

• Reconstruction is a reorganisation of a company's capital or business in which the undertaking continues substantially in the same hands. It may be internal (an arrangement with members or creditors, a reduction or reorganisation of capital) or external (the undertaking is transferred to a new company formed for the purpose, the old company being dissolved).
• Amalgamation (merger) is the blending of two or more companies into one: either a transferor company merges into an existing transferee company (absorption), or two or more companies merge to form a new company. The transferor is dissolved without winding up, and its members become members of the transferee.
• Demerger is the transfer of one undertaking of a company to another, the shareholders receiving shares in the resulting company.
• Rehabilitation of sick companies, formerly under Chapter XIX of the 2013 Act (and before that the Sick Industrial Companies Act, 1985), is now done through the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016; Chapter XIX was omitted by the Code.

2. Compromise or arrangement: section 230

Where a compromise or arrangement is proposed between a company and its creditors or members, or any class of them, the Tribunal may, on the application of the company, a creditor, a member, or (in a company being wound up) the liquidator appointed under the Act or the IBC, order a meeting of the creditors or members concerned (section 230(1)). The steps:

• The applicant discloses all material facts, the latest financial position, the auditor's report, any pending investigation, and any reduction of capital or debt restructuring involved (section 230(2)).
• Notice of the meeting goes to every creditor and member concerned with the scheme, a valuation report and an explanatory statement (section 230(3)), and also to the Central Government, income tax authorities, RBI, SEBI, the Registrar, stock exchanges, the Official Liquidator, the Competition Commission and sectoral regulators, who have thirty days to make representations (section 230(5)).
• Only persons holding at least ten per cent of the shareholding, or five per cent of outstanding debt, may object (proviso to section 230(4)).
• If a majority of persons representing three-fourths in value of the creditors or members (or class) present and voting agree, and the Tribunal sanctions the scheme, it binds the company, all the creditors or members of the class, and, in a winding up, the liquidator and contributories (section 230(6)).
• The Tribunal may dispense with a creditors' meeting where creditors with ninety per cent in value consent by affidavit (section 230(9)). An auditor's certificate that the accounting treatment conforms to the accounting standards is required (section 230(7) proviso). The order is filed with the Registrar within thirty days (section 230(8)).
• A reduction of capital under a sanctioned scheme does not need the separate section 66 procedure; a buy-back included in a scheme must meet section 68; a scheme may include a takeover offer (section 230(10), (11)).

The Tribunal supervises implementation and may modify the scheme or, if it cannot be worked satisfactorily, order winding up (section 231).

3. Merger and amalgamation: section 232

Where the arrangement is for reconstruction or amalgamation and involves transfer of the undertaking, property or liabilities of a transferor company to a transferee, the Tribunal orders meetings, and the documents circulated must include the draft scheme, confirmation that it has been filed with the Registrar, a report of the directors on its effect on shareholders, creditors, employees and others, the valuation report, and a supplementary accounting statement if the last accounts are more than six months old (section 232(1), (2)).

Vesting of rights and transfer of obligations. On sanction, the Tribunal's order provides for (section 232(3)):

• the transfer to the transferee of the whole or part of the undertaking, property or liabilities of the transferor;
• allotment of shares, debentures or other interests by the transferee;
• continuation of legal proceedings by or against the transferee;
• dissolution of the transferor without winding up;
• provision for dissenting persons;
• transfer of the transferor's employees to the transferee; and
• incidental and supplemental matters to secure that the scheme is fully carried out.

The property and liabilities vest in the transferee by virtue of the order. The scheme becomes effective on filing the order with the Registrar.

Fast-track merger (section 233): between two or more small companies, a holding company and its wholly owned subsidiary, or other prescribed classes, without going to the Tribunal. The scheme is circulated to the Registrar and Official Liquidator for objections within thirty days, approved by members holding at least ninety per cent of the total number of shares and by nine-tenths in value of creditors, supported by a declaration of solvency, and confirmed by the Central Government (the power is exercised by the Regional Director). If the Government thinks the scheme is against public interest or creditors, it may refer it to the Tribunal.

4. The Tribunal's jurisdiction

The leading decision, under the parallel sections 391–394 of the 1956 Act, is Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579, decided on 11 September 1996. The Court held that the sanctioning court does not sit in appeal over the commercial wisdom of the majority. It must see that the statutory procedure was followed and the meeting validly held; that the majority acted bona fide and represented the class fairly, without coercing the minority; that all material facts were disclosed; that the scheme is not unconscionable, illegal or contrary to public policy; and that it is one which a reasonable man of business would approve. In Hindustan Lever Employees' Union v. Hindustan Lever Ltd., 1994 INSC 483, 1995 Supp (1) SCC 499, approving the merger of TOMCO into Hindustan Lever, the Court added that the court must be satisfied the scheme is fair and not against public interest, but it is not for the court to ask whether a better scheme could have been made.

5. Takeover and acquisition of minority interest

• Section 235 (dissenting shareholders): where a scheme or contract for transfer of shares to a transferee company is approved within four months of the offer by holders of nine-tenths in value of the shares concerned (excluding those the transferee already holds), the transferee may within the next two months give notice to dissenting shareholders that it wishes to acquire their shares. It is then entitled and bound to acquire them on the same terms, unless the Tribunal, on a dissenter's application within one month, orders otherwise.
• Section 236 (minority squeeze-out): where an acquirer, alone or with persons acting in concert, becomes the registered holder of ninety per cent of the issued equity share capital, it must notify the company of its intention to buy the remaining shares, and offer the minority a price determined by a registered valuer.
• Takeovers of listed companies are governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

6. NCLT and NCLAT

The National Company Law Tribunal (section 408) consists of a President and judicial and technical members, and sits in benches across the country. The National Company Law Appellate Tribunal (section 410) hears appeals from the NCLT, to be filed within forty-five days (section 421(3)); no appeal lies from an order made with the consent of parties (section 421(2)). An appeal from the NCLAT lies to the Supreme Court on a question of law within sixty days, with a further sixty on sufficient cause (section 423). Civil courts have no jurisdiction over matters the Tribunal is empowered to determine (section 430). The NCLT also acts as the Adjudicating Authority for corporate insolvency under the IBC, and the NCLAT hears appeals in those cases.

The Tribunals' constitution was examined in Union of India v. R. Gandhi, President, Madras Bar Association, 2010 INSC 305, (2010) 11 SCC 1, where a Constitution Bench upheld Parliament's power to create the NCLT and NCLAT under the 1956 Act but required changes in the provisions on qualifications, selection and tenure of members, and in Madras Bar Association v. Union of India, 2015 INSC 410, (2015) 8 SCC 583, which upheld the creation of the Tribunals under the 2013 Act while striking down some provisions on their composition.

How this is examined

January 2026 asked “What do you mean by reconstruction of a company and amalgamation of companies? Briefly explain the form of reconstruction and amalgamation”; June 2025 asked “What are the powers and duties of tribunal with respect to reconstruction and amalgamation of a company?” For the first: concepts and forms (part 1), then sections 230 and 232. For the second: the meeting and sanction process, the section 232(3) orders, section 231 supervision, and Miheer Mafatlal on the limits of the Tribunal's power.