Demerger Regulations in India

Demerger Regulations in India

Author: Rupa Paul, Amity University, Kolkata.


“Demerger” can be defined as the division or division of a company into multiple companies. New, transferable companies do not have to be parental corporations that have been split or disbanded. The New Oxford Dictionary defines “demerger” as “to divide a large company into two or more entities.”Justice NV Balasubramanam noted that the Dismissal Scheme is a corporate partnership in two or more areas, thus retaining some of it and transferring the rest to the company or companies to which it has led. It is a business plan. The term ‘demerger’ is not defined in the Companies Act, 1956.


The concept of demerger has become possible owing to the following reasons:

(a) The term “adjustment” includes “the reorganization of funds allocated to a company by the combination of shares in different categories, or by the division of shares into shares of different classes or both”;

(b) The sale, lease or other disposal of all done or where the company has more than one complete or complete appointment;

(c) The process of relaxation, restructuring or reconstruction under section 391/394 of the Companies Act, 1956.

The term “Demerger” is defined under subsection (19AA) of section 2 of the Income Tax Act, 1961. The concept of termination under the Income Tax Act of 1961 is the same as that under section 293 (1) (a) of the Companies Act, 1956. However, it must satisfy the requirements of sections 391 and 394 of the Companies Act, 1956.

Demerger is unhappy with the division or division of one or more parts of the company to form a new independent company in the first. The following definition of legislation is provided for in section 2 (19AA) of the Income Tax Act, 1961. The term “Demerger”, in relation to companies, means a transfer, in accordance with the provisions of section 391 to 394 of the Companies Act, 1956 (1 of 1956), by a downgraded company of one or more of its contracts with any emerging company. ”

Demerger is a corporate restructuring approach that companies have undertaken to improve skills. Companies have started the practice of killing down because of the many benefits it offers. Demerger allows the company to expand its operations in a more systematic way. It allows a particular division or unit to grow as a separate and focused business, thus enhancing its efficiency and effectiveness. It benefits shareholders by providing them with better opportunities to participate in the management, operations, decision-making and profits of the applicant company and the outgoing company.


Demerger was made primarily for two reasons. The first is as an organizational re-engineering exercise and the second is to provide assistance in the form of family segregation in the case of family-owned / primarily controlled corporations to enforce the unregulated family separation.

Where demerger is a restructuring function of a company that wants to be demolished it is transferred from the transfer company to the existing transfer company. But when demerger is an exercise in family segregation the distinctive ‘communicators’ of the company are transferred to newly installed transfer companies to facilitate family separation.

In the planning process two family groups will be allocated certain assets to their transit companies from the parent transfer company when they own shares. Generally, all shareholders of a transfer company receive shares in one or more of the two transfer companies. As this form of effective transfer may be challenged by the Central Government and no law may be imposed that may have been contravened by the Court it could be explained. After the distribution of assets in the manner provided in the plan, no assets will be left with the transfer company and are therefore required to be disposed of, which is part of the scheme.


The Companies Act, 1956 does not define ‘demerger’ but covers ‘reconstruction’. The difference between the two terms remains only when the planning process has been postponed for a court order. Demerger is certainly part of a planned or compromised program. In addition, the demerger, may attract some of the provisions of the Companies Act, 1956 which seeks to reduce the reduction of the components involved. The company is required to appeal a special order which may be confirmed by a court on application under section 101 of the Companies Act, 1956. The Articles of Association of this company is required to provide for the reduction of its capital shares by any means and its Memorandum must provide for dissolution, separation or separation of the company in any way. Demerger, therefore, which leads to a reduction in the company’s allocated funds will require the company to reconsider the Memorandum of Association. The reduction will be made to an additional benefit by the transfer of assets or payment from a group or group of members of the company’s promoters. Section 390 (b) of the Companies Act, 1956 defines an arrangement arising from section 391 or 393 of the Companies Act, 1956 and includes a ‘section’ under the word “arrangement”.


The effect of partial dismissal results when the component / department / company division is divided and transferred to one / more company / companies formed by the same shareholders who have shares in the new company in the same way as those of the downgraded company. The consequences of a total collapse in which every business / activity by an existing company is transferred to one / more companies / companies for a purpose and the disposal company is dissolved by a special decision by shareholders [13]. Such a company is voluntarily harassed and then disappears. The shareholders of the molten company are issued and allocated shares in the new company / companies according to the exchange rate allocated under the damaged system.

Demerger can be touched by one of these three methods, viz.

(i) Demolition by agreement between clients; or

(ii) Retrenchment under a court order under section 391 of the Companies Act, 1956;

(iii) Demolition under voluntary and liquidator power.


English law works perfectly in the case of ‘demerger’. While the ‘demerger’ was affected by the agreement and the first company was injured after the split, it was held at Cardiff Preservation Coal and Coke Co v. Norton states that the liquidator cannot dispute the authenticity of the transaction and therefore does not require its shareholders to transfer the shares to a new company or companies to sell them and use the money to pay off the company’s initial debt.

In addition, English law supports such cases where the debtor receives something from the purchasing company to honor the original company’s obligation, or if it accepts the profit of the purchasing company that is not entitled to its original contract with the original company, will be released. Section 395 of the Companies Act, 1956 shall be made available to protect the interests of those shareholders who oppose a program or contract approved by the majority even in the case of traders or dividers.

Demerger Under Scheme Of Arrangement On the basis of the power the company has in its Memorandum, it may conduct or subdivide its business in the same manner as it may in the consolidation process under the provisions of the Companies Act, 1956 Procedure set out in Chapter V under the Companies Act, 1956 restructuring and reconstruction were to be followed in the case of corporate separation.

Indian law is silent on the power of the Court to transfer applicable orders in respect of dissenters or subdivisions but English law provides a detailed understanding of the matter which means that the Court has no jurisdiction under section 425 of the UK Companies Act when approving a demerger planning or separation process. to meet.

In demerger original company split into several companies after the financial division could be voluntarily damaged in terms of Section 484 to 498 of the Companies Act, 1956.


There are demerger in the public image and as well as in the private sector. A sensible approach to the current economic situation in India is well managed with Demerger machines.

The downgrading of the trust group is a major issue for company restructuring in the private sector. The split in the group led to the formation of the two independent organizations, Reliance Industries ltd. led by Mr Mukesh Ambani and Anil Dhirubhai Ambani Group led by my younger brother Mr Anil Ambani. RIL proposed demerger “so that we can focus more on investors investing in other key businesses and more focused on the performance of their various businesses”. Also, some of the well-known harassment methods that attracted the public’s attention were the most devastating: Moreover Industries split his tea business from McLeod Russell; Auto ancillary companies Rane Madras transferred its investment to a separate company and the investment company was also listed. The demerger list includes Vardhman Spinning and Morarjee Realities. GTL demolishes its IT infrastructure business GTL infrastructure.

The Public Sector is also well aware of Demerger’s concept. While it is one of the cornerstones of a government-driven global economy, the company’s restructuring approach has never been implemented in the way it should have been. It looks good on government plans and ideas for economic restructuring. Therefore, when fully utilized, the concept of vendors will help rebuild PSUs by allowing them to reduce their overpowering capacity and loss of manufacturing capacity.

With the rise of regional economic power, there has been an increase in so-called nationalism. However, without challenges, demergers (and mergers) are tools that respond to the thirst for Indian unity society and a business that is uncertain of globalization today.


1. As amended by the Finance Act, 1999 w.e.f. 1-4-2000.

2. A.K.Ramaiya, ‘Guide to the Companies Act’, 16th Ed, Reprint 2006, Part 2, p.3203.

3. K. R. Chandratre, ‘Corporate Restructuring’, 1st ed. 2005, at p.865.

4. K. R. Sampath, ‘Law and Procedure for Mergers/ Joint Ventures Amalgamations. Takeovers and Restructure’, 4th ed. 2008, at p.796.

5. Lucas TVS Ltd. in re CP No. 588 and 589 of 2000 (Mad-unreported).

6.  M.C. & M. Corporation Pvt. Ltd., C.P. 105 to 107 of 1999(Mad-unreported).

7. Sridharan & Pandian, ‘Guide to Takeovers & Mergers’, Edition 2002, p.286.

8. Sections 100 to 105 of the Companies Act, 1956.

9. Under Section 390 of the Companies Act, 1956.

10. Under the provisions of Section 293(1)(a) of the Companies Act, 1956.

11. Within the ambit of section 390, 391, 392, 393 and 394 besides section 394A of the Companies Act, 1956.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: