Measure to Revive Sick Industrial Companies by Mergers and Amalgamation


A financially sound company in a very high corporate tax bracket has a major incentive of saving tax in taking over a sick unit. On the other hand, a sick unit may be made viable through a merger. Such a merger may help in minimizing competition, pooling of resources, affecting general economies in production, distribution, and overheads, and in management and acquisition for the sick unit.

There are various legal provisions regarding merger under the Companies Act, 1956, tax concessions announced by the Government of India under section 72-A of the Income Tax Act, the mechanism for merger approvals, and special provisions for clearance of merger proposals of MRTP companies under the Monopolies and Restrictive Trade Practices Act. Earlier SICA and now the Companies (Second Amendment) Act,2002 provides wide powers to the respective authorities regarding a scheme of amalgamation between a sick industrial company and a healthy company such as Change of constitution, name, memorandum articles, Board of Directors; Alteration, re-organization or reduction of capital; Transfer of property, assets or liabilities; and any other measure necessary to carry out the scheme of amalgamation. On the amalgamation becoming effective, the sick company’s name may be changed to that of the healthy company.


Amalgamation is another successful measure for the restoration of a sick modern organization. It imagines a combination of a sick organization with some other organization or the other way around through the cycle of opposite merger organizations may join to frame another organization, yet there might be assimilation or mixing of one by the other. Both add up to amalgamations.

At the point when two organizations are combined and are so joined to frame a third organization, or one is consumed into one or mixed with another, the amalgamating organization loses its personality without being twisted up. The transferor Company doesn’t bite the dust either amalgamations or on disintegration without twisting up. It just converges into the exchange Company shedding its corporate shell and shaping a piece of one corporate shell and in light of the fact that an organization can’t have two shells and its corporate name being pointless, the disintegration is the demise of its autonomous corporate name and shell however for all reasons staying alive and flourishing as a component of the bigger entire not being ended up on merger as injuring up fundamental.


A portion of the purposes behind the disorder of an organization are;

  1. Issues underway: It might emerge because of a machine breakdown, low-quality materials, absence of arranging, helpless work profitability.
  2. Low demand: It may happen because of competition, recession, and poor marketing efforts.
  3. Expanded overhead cost: It might happen because of wasteful creation, unutilized limit, hefty borrowings, high intrigue charges, expanded organization or selling costs, and spontaneous capital consumption.
  4. Obsolete or out-of-date innovation.
  5. Change in government approaches or some unexpected conditions.


Provisions of the Companies Act regarding mergers are laid down in section 390-396.

In cases where transfer or purchase of shares is approved by not less than 9/10th of the value of a share of the transferor company, merger/amalgamation can be done without recourse to the court.

In case a merger/amalgamation is effected through the court or an application filed by the company, or a creditor, member, liquidator, the court shall direct a meeting wherein, if a three-fourths majority approves the arrangement, it shall be binding on all on approval by the court. The court will make an order only where the transaction appears to be just and fair, and where the court is satisfied that the sanction of a majority has not been obtained by fraud or other improper means .

The scheme is also subject to careful scrutiny in accordance with the standards laid down justifying judicial interference. The court sees to it that the scheme is reasonable and fair to all parties.

Companies ACT, 2013: Mergers/Amalgamation

The term sick organizations were supplanted by ruined organizations, and the states of the affliction test were transformed from the total assets to the liquidity proportion kept up by the organization.

The arrangements under the Companies Act, 2013 from Section 253 to 269 were surrounded to supplant the arrangements under the Companies Act, 1956 yet were not told thus till the hour of IBC, 2016, recovery and restoration of organizations kept on being administered by the Companies Act, 1956 which later was explained to be canceled by Section 255 of IBC by the Insolvency and Bankruptcy Code (Removal of Difficulties) Order, 2017.


Under Section 72-A of the Income Tax Act, a voluntary amalgamation of an amalgamating company (sick unit) with an amalgamated company (sound unit) shall enable the latter to carry forward and set off the accumulated losses and unabsorbed depreciation by granting deductions to the sick unit.

The Income Tax law contains specific provisions for granting deductions to the amalgamated companies in respect of depreciation allowance, development rebate, investment allowance, development allowance, capital expenditure on scientific research, amortization of the cost of patents and copy-rights, amortization of preliminary expenses, etc. in addition to the amalgamating company and for its shareholders.


In order to urge sound units to converge with sick units, a revision was made to the Income Tax Act in 1977. With this correction, where a merger is acknowledged by the Central Government in the public intrigue, the amassed misfortunes and unabsorbed deterioration of the consolidating organization are permitted to be stolen forward and set away in the possession of the amalgamated organization.

As indicated by the rules given in February 1978 parties keen on converging with different units can benefit themselves from the personal expense concession under segment 72-An even before applying to the pre-defined expert for real mergers.

The re-examined rules indicate that the amalgamating unit ought to have utilized at any rate 100 laborers during the bookkeeping year in which the amalgamations is influenced and in every one of the two bookkeeping years promptly going before that year.

Anyway, these two measures would be mitigated on the off chance that one of the accompanying conditions is satisfied:

1. If a sick modern unit is occupied with the assembling of mass utilization products which have a high need or if a new mechanical limit is required for the production of such merchandise.

2. Special thought would be given in cases in which a sick modern unit is situated in any provincial or in the reverse territory or in any city or town, with a populace not surpassing one million.

3. So as to encourage restoration of sick industrial undertaking with sound ones, another part 72-A was embedded in the Income Tax Act, 1961 by the Finance Act, 1977 loosening up the arrangements contained in the demonstration identifying with taking forward and set away collected business misfortunes and unabsorbed deterioration remittance in specific instances of amalgamations. Subsection (I) of segment 72-A gives that where there has been a combination of an organization, possessing an industrial undertaking or ship, with another the organization, and the focal government on the suggestion of the predetermined position is fulfilled that specific conditions indicated for this sake are satisfied the focal government may make an announcement with that impact and immediately despite anything contained in some other arrangement of the Income Tax Act, the collected misfortunes and unabsorbed deterioration of the amalgamating organization will be esteemed to be the misfortunes or devaluation remittance of the amalgamated organization for the earlier year in which the mixture was affected, and different arrangements of the Income Tax Act identifying with cart forward and set away of the misfortunes and deterioration recompense will apply appropriately. Mechanical affliction is common in India since the pre-freedom period and has influenced both little scope and huge scope businesses just as its partners like investors, representatives, loan bosses, and financial specialists. It tends to be characterized into:
A. Genuine sickness – It is outside the ability to control of the advertisers, notwithstanding
their genuine efforts.
B. Incipient sickness – It happens in view of the essential non-reasonability of the undertaking.
C. Induced sickness – It happens as a result of administrative wrong and The segment 72-A necessitates that the announcement alluded to in the former passage will be made by the focal government just if the accompanying conditions are satisfied :
[i] The amalgamating organization was not quick before such amalgamations monetarily suitable by reason of its liabilities, misfortunes, and other important variables.
[ii] The combination was in the public intrigue.
[iii] Such other conditions as the focal government may by notice in the authority gazette specify to guarantee that the advantage under this segment is confined to amalgamations which could encourage the restoration recovery of the matter of the amalgamating organization.

Keeping in see the goal fundamental of this expense concession and the necessities of the legal arrangement, the charge focal government advanced certain target rules to decide if a plan of the mixture would satisfy the above condition or not. These rules were given in February 1978.

Survey of mixture endorsed under section 72-An of the Income Tax Act, 1961, shows that the utilization of this instrument to recover sick units has not been empowering true to form prior. The announcement on Industrial Policy made by the Minister of Industry in July 1980 accentuated the function to be played by the merger of conceivably suitable sick units with solid units, which are fit for dealing with the sick units and re-establishing their suitability. It was expressed that the current duty concessions under section 72-An of the Income Tax Act, would be made more liberal.Act


The growth of an economy is dependent on its industrial undertakings, which helps to increase the GDP of a country by converting opportunities into resources, either finished goods or services, for the betterment of the people in the society by increasing their standard of living.
There should be a strong mechanism in place to check the sick industries and to take proper measures for its revival or rehabilitation so that there is optimum utilization of resources and maximum welfare.

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