Contribution to Political Parties – section 182 of Companies Act, 2013

Section 182 of the Companies act, 2013 which has been notified with effect from 12th September 2013 provides for prohibitions and restrictions regarding political contributions. Salient features of this section are given below:

1. All companies except Government companies and companies in existence for less than 3 years are covered by this section; 
2. The maximum amount that a company can contribute towards a political party in a year shall not exceed 7.5% of its average net profits during the three preceding financial years; 
3. Before making the contribution, the Board should approve of the same by way of resolution passed at its Board meeting;
4. Subscription, donation or payment made to a person who is carrying on such activity which affects public support for a political party shall also be deemed to a contribution to a political party;
5. Expenditure incurred directly or indirectly by a company on a publication, souvenir, journal, pamphlet for or on behalf of a political party shall also be construed as making a contribution to a political party;
6. Every company should disclose in its profit and loss account any amount contributed to a political party in any financial party, giving the particulars of the total amount contributed and also name of the political party;
7. If a company makes a contribution in contravention of the provisions of section 182, then the company shall be punishable with a fine which shall not be less than 5 times the amount so contributed and also every officer in default is liable to imprisonment for a term which may extend to six months and also fine of 5 times the amount so contributed. 
8. Political party means a party registered under section 29A of the Representation of People’s Act, 1951

Ministry of Corporate Affairs has issued a clarification vide its circular no. 19/2013 dated 10/12/2013 that 

1. where companies make contribution to “Electoral Trust companies” rather than directly to political parties then they need not disclose separately the amounts paid to each Electoral Trust company. It would be sufficient if a consolidated figure is mentioned in the accounts as paid to Electoral Trust Company;
2. Companies making contribution directly to a Political Party will be required to make the disclosures as required by section 182(3) of the Act; 
3. Electoral Trust Companies in turn should make disclosures regarding contributions made by them to political parties as required under section 182(3).

Process of merger under Companies Act 1956

Whether merger is allowed?

The Memorandum of Association [MOA] of both the companies must provide the power to amalgamate. If MOA is silent, the first step will be to amend the MOA.

Board Meeting

A Board Meeting shall be convened to consider and pass the following resolutions:

• approve the draft scheme of amalgamation;
• to authorize filing of application to the court for directions to convene a general meeting;
• to file a petition for confirmation of scheme by the High Court.

Application to the Court

An application shall be made to the court for directions to convene a general meeting by way of Judge's summons (in Form No.33) supported by an affidavit (in Form No.34) The proposed scheme of amalgamation must be attached to such affidavit.

The summons should be accompanied by:
- A certified copy of the M&A of both companies
- A certified true copy of the latest audited B/S and P&L A/c of transferee company
- The application to convene meeting under s.391 (1) is required to be made to the respective jurisdictional High Court by the company concerned depending on the location of its registered office. Similarly an application for the scheme of arrangement will have to be made to the concerned High Court [HC] where the company’s registered office is situated.

Submission of copy to Regional Director [RD] of ROC

A copy of application made to concerned HC shall also be sent to the RD of the region. Although, such notice is supposed to be sent by the HC, usually the company sends it without waiting for the H.C. to send it.

Order of High Court

On hearing of the summons, the HC shall pass the necessary orders (in Form No.35) which shall include:

(a) Time and place of the meeting,

(b) Chairman of the meeting,

(c) Fixing the quorum,

(d) Procedure to be followed in the meeting for voting by the proxy,

(e) Advertisement of notice of the meeting,

(f) Time limit for the chairman to submit the report to the court regarding the result of the meeting.

Where the court observes that any of the following circumstances exist in the case of the merger it may not order a meeting when shareholders are few in number; or where the membership is restricted to a single family, HUF or close relatives; or where shareholding pattern of transferor and transferee companies is identical.

Notice of the Meeting

The notice of the meeting (in Form No.36) shall be sent to the creditors and/or all the shareholders individually (including preference shareholders) by the chairman so appointed by registered post enclosing:

(a) A statement setting forth the following:
- Terms of amalgamation and its effects
- Any material interests of the director, MDs or Manager, in any capacity
- Effect of the arrangement on those interests.
(b) A copy of the proposed scheme of amalgamation,
(c) A form of proxy (in Form No.37)(d) Attendance slip (e) Notice of the resolution for authorizing issue of shares to persons other than existing shareholders

Computation: The notice that is required to be given u/s.393 of the Act for the meeting of the members/ creditors shall be by 21 clear days notice.

Advertisement of Notice of Meeting

The notice of the meeting (in Form No.38) shall be advertised in English and Hindi Newspapers as the court may direct by giving not less than 21 clear days notice before the date fixed for the meeting. However in some instances, the 21 days period can be condoned if reasons are found justifiable.

Notice to Stock Exchange

In case of the listed company, 3 copies of the notice of the general meeting along with enclosures shall be sent to the Stock Exchange where the company is listed.

Filing of Affidavit for the Compliance

An affidavit not less than 7 days before the meeting shall be filed by the Chairman of the meeting with the Court showing that the directions regarding the issue of notices and advertisement have been duly complied with.

General Meeting
The General Meeting shall be held to pass the following resolutions:

(a) Approving the scheme of amalgamation by ¾th  majority e.g. if a meeting is attended by say 100 members holding 100 shares, the scheme shall be deemed to have been approved only when it is supported by at least 51 members holding together 750 shares amounts themselves;

(b) Special Resolution authorizing allotment of shares to persons other than existing shareholders or an ordinary resolution be passed subject to getting Central Government's approval for the allotment as per the provisions of Section 81(1A) of the Companies Act, 1956,

(c) The resolution to empower directors to dispose of the shares not taken up by the dissenting shareholders at their discretion;

(d) An ordinary/special resolution shall be passed to increase the Authorized share capital, if the proposed issue of shares exceeds the present authorized capital. The decision of the meeting shall be ascertained only by taking a poll on resolutions.

Reporting Of Result Of The Meeting:-

The Chairman of the meeting shall report the result of the meeting to the court (in Form No.39) within the time fixed by the judge or within 7 days, as the case may be. A copy of proceedings of the meeting shall also be sent to the concerned Stock Exchange.

Formalities with ROC
The following documents shall be filed with ROC along-with the requisite filing fees:

a. Form No. 23 of Companies General Rules & Forms along with the copy of Special Resolution,

b. Resolution approving the scheme of amalgamation,

c. Special resolution passed for the issue of shares to persons other than existing shareholders.

Petition

For approval of the scheme of amalgamation, a petition shall be made to the HC within 7 days (in Form No.40) of the filing of report by the chairman. If the Regd. Offices of the companies are in same state - then both the companies may move jointly to the

High Court. If the Regd. Offices of the companies are in different states - then each company shall move the petition in respective High Court for directions.

Sanction of the Scheme
The Court shall sanction the scheme (in Form No.41) on being satisfied that:

(i)The whole scheme is annexed to the notice for convening meeting. (This provision is mandatory in nature)

(ii) The scheme should have been approved by the company by means of ¾th majority of the members present.

(iii) The scheme should be genuine and bona fide and should not be against the interests of the creditors, the company and the public interest. After satisfying itself, the court shall pass orders in the requisite form. The requirement of law is permission or approval of court to the scheme. The application made by the company is to seek court’s approval to the company scheme of amalgamation and not merely ordering a meeting.

The court may order a meeting of members too. The court must consider all aspects of the matter so as to arrive at a finding that the scheme is fair, just and reasonable and does not contravene public policy or any statutory provision.

Stamp Duty
A scheme sanctioned by the court is an instrument liable to stamp duty. The stamp duty will be payable at both the states if the Registered office of the amalgamating companies are located in two different states. however an application will be made to the HC for exemption from either of the states.

Filing with ROC
The following documents shall be filed with ROC within 30 days of order:
a) A certified true copy of Court's Order
b)Form No. 21 of Companies General Rules & Forms

Copy of Order to be annexed

A copy of court's order shall be annexed to every copy of the Memorandum of Association issued after the certified copy of the order has been filed with as aforesaid.

Allotment of shares

A Board Resolution shall be passed for the allotment of shares to the shareholders in exchange of shares held in the transferor-company and to fix the record date for this purpose.

Merger and Amalgamation Companies Act 1956 and 2013

What is merger?

In merger two or more existing companies combine into one company. The transferor company merges its identity into the transferee company by the transfer of its business (assets and liabilities). The shareholders of the transferor company receive shares in the merged company in exchange for the shares held by them in the transferor company as per the agreed exchange ratio.

What is Amalgamation?
In amalgamation two or more existing transferor companies merge together to form a new company, whereby all the transferor companies lose their existence and their shareholders become the shareholders of the new company.

Who can object the scheme of merger.

As per the newly introduced Companies Act 2013 an objection to scheme of merger can be raised only by persons holding not less than 10% of the shareholding or persons holding outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement. These provisions are intended to ensure that insignificant minority interest do not hold the majority at ransom. This will also enable a faster approval of scheme with the reduction of number of objections.

The Merger and Amalgamation [M&A] is allowed under the Companies Act [CA] 1956 vide section 391 to 394. The Companies Act 2013 contains 10 clauses i.e. from 230 to 240 regarding M&A whereas Companies Act,  1956 contained  only  7  sections  of  which  only  4  particularly  dealt  with  M&A.

Types of Mergers

Horizontal merger is the merger of firms engaged in the same line of business. 

Vertical Merger is backward or forward expansion. In a Conglomerate, there is a merger of firms engaged in unrelated businesses.

Process

High court of respective state where the registered offices of the companies are located has the jurisdiction to sanction the scheme. 

Merger of Foreign company

By virtue of Sec. 584 of Companies Act 1956 a foreign company having a place of business in India, is eligible to be merged with an Indian Co. U/s 394(4)(b) a foreign incorporated company could be a transferor company in the scheme of merger.

The Companies Act 2013 has opened doors for cross- border mergers by  allowing both ways merger subject to certain  conditions. Permission of Reserve Bank of India shall also be a pre-requisite in cross-border Mergers. The RBI is empowered in to analyze cross border mergers.

It is necessary that the law under which the foreign company is incorporated allow the foreign company to merge with an Indian Company. Merger can’t take place in case the foreign laws do not allow the foreign company to merge with Indian companyIn case a foreign company does not have a place in India the Indian courts have no jurisdiction to sanction the merger. However if the foreign co. has a branch office in India the respective court has the jurisdiction. Ever branch of a foreign company needs to register with ROC and submit returns to ROC at Delhi. Although the foreign company is filing the returns at Delhi ROC the High court of the state where the branch office is located shall have the jurisdiction over the M&A scheme and not the Delhi High court.

The Indian Company can carry forward the losses of the foreign company u/s 72A of the Income Tax act, after the merger of the foreign company with Indian company. 

Before issue of shares to the shareholders of the foreign company under the scheme the Indian company needs to get permission from RBI under FEMA for the issue of shares to NRI and must give declaration that the merged entity will not indulge in the business of Agriculture, plantation, Real estate etc.

Stamp Duty 

Only in the state of Maharashtra the order of the High court sanctioning the M&A attracts Stamp duty at the rate applicable on the Conveyance of Property. When the tranaferor and the transferee companies are located at two different states and if stamp duty is applicable at both the states the double payment of stamp duty can be avoided by applying for exemption in either state.

Income Tax Act 1961

It provides for not only carry forward and set off of accumulated losses but also un-absorbed depreciation allowance of the amalgamating company.