What is amalgamation of companies and fiscal incentives ?

Sickness of industries is a disease and has been attacked by the Government in many ways. Section 72A was inserted by the Finance Act 1977, with a view to encouraging healthy companies to take over the sick ones and give them life. Though section 72A has been explained elsewhere, we propose to give below the scheme once again which will be helpful to readers in understanding the whole gamut.

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Amalgamation of companies and fiscal incentives

1. The right to set off and carry forward and set oil of losses of a sick unit would not be lost, if the sick unit merges with a healthy one provided the scheme of amal­gamation has been approved by the Central Government on the recommendation of the specified authority.

2. The specified authority consists of the following:

• Secretary, Department of Industrial Development, Ministry of Industry, New Delhi as Chairman.
• Secretary, Department of Company Affairs, New Delhi.
• Secretary, Ministry of Labour, New Delhi.
• Secretary, Department of Expenditure, Ministry of Finance, New Delhi.
• Chairman, CBDT, New Delhi.

3. The specified authority will recommend the amalgamation only when the fol­lowing conditions are satisfied:

• The amalgamating company was not financially viable as regards liabilities, los­ses and other relevant factors.
• The amalgamation was in the public interest.

4. The amalgamated company will carry on the business of the amalgamating com­pany without any modification or with such modification as has been approved by the Central Government.

5. In case of MRTP companies, the test of overwhelming public interest has to be satisfied in the following way:

• The amalgamated company should have manufacturing experience in the same line of products which were produced by the sick unit.
• The sick unit belongs to an industry which is suffering from chronic sickness.
• There must be demonstrable gain to public interest.
• The sick unit must be employing minimum of 100 persons with total assets of Rs. 50 lakhs or more.

6. If any of the companies is registered under the MRTP Act, the specified authority would decide the issue only after the approval of the MRTP Commission has been ob­tained.