Fast Track Merger – Companies Act, 2013

September 20, 2019

I. Introduction:

Merger/amalgamation is a restructuring tool which helps companies in expansion and diversification of their business and to achieve their under lying objectives.

In commercial parlance, merger essentially means an arrangement whereby one or more existing companies merge their identity into another to form a new and different entity which may or may not be one of those existing entities.

The Companies Act, 2013 has introduced the ingenious concept of fast track merger for Small Companies and merger of Holding companies with its wholly owned Subsidiary Companies. This is the first significant change to merger and amalgamations regime over the last six decades which has sub-served the need of simplification of procedure.

Section 233 of Companies Act, 2013 read with Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 deals with the procedure of Fast Track Merger.

Section 233: Notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly owned subsidiary company or such other class or classes of companies as may be prescribed.

II. Procedure:

The following is the prescribed procedure for Fast Track Merger:

  1. Issue of notice of Proposed Scheme:

    The notice of the proposed scheme, under clause (a) of subsection (1) of section 233 of the Act, is given to invite objections or suggestions from:

    • Registrar of Companies, under whose jurisdiction the register office is situated.
    • Official Liquidator.
    • Persons affected by the scheme.

    Note: The scheme shall also provide for the effective date of the scheme.

  2. Time period for Objections/ Suggestion:

    The objections/ suggestions if any shall be made within 30 (Thirty) days of the issue of notice, by the transferor company or companies and the transferee company.

  3. Declaration of Solvency:

    The Companies involved in the merger shall file a declaration of solvency separately in Form CAA-10 with the Registrar of Companies under whose jurisdiction the register office is situated.

  4. Notice of General Meeting:

    A notice of general meeting shall be given to the members or class of members and creditors or class or creditors and it should be accompanied by –

    • A statement disclosing the details of the compromise or arrangement, as far as applicable.
    • The declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in Form CAA-10.
    • A copy of the scheme.

    Note:  A mandatory 21 days of notice should be given to creditor or class of creditors as per clause (d) of sub-section (1) of section 233 or the meeting can be dispensed of by according approval in writing.

  5. Approval from shareholders in general meeting:

    The Company shall convene the meeting and consider the objections and suggestions which are received.

    The scheme shall be approved by respective members or class of members, holding 90% of total number of shares.

  6. Approval from creditors in their meeting:

    The companies shall convene the meeting of creditors or class of creditors and the scheme shall be approved by majority holding 9/10th value of creditors.

    The transferee company shall within 7 days of conclusion of the meeting of members or class of members and creditors or class of creditors, file a copy of the scheme so approved by the members and creditors along with a report of the result of each of such meetings in Form CAA-11 with Central Government (Regional Director), Registrar of Companies (ROC) and Official Liquidator (OL).

    On receipt of the scheme, if the Registrar or Official Liquidator has any objections or suggestions, he may communicate the same in writing to the Central Government (RD) within a period of 30 days.

  7. Issue of Order:

    Where no objections or suggestions are received from the Registrar of Companies and Official Liquidator, the Central Government (Regional Director) shall register the same and issue a confirmation order in Form CAA-12.

    Note: If no communication is received, it shall be presumed that there are no objections/suggestions to the scheme from Registrar of Companies (ROC) and Official Liquidator (OL).

    If the Central Government (Regional Director) after receiving the objections or suggestions or for any reason, is of the opinion that the scheme is not in public interest or in the interest of the creditors, it may file an application before the Tribunal within a period of 60 (sixty) days of the receipt of the scheme under sub-section (2) stating its objections in Form CAA- 13.

    Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit.

  8. Filing of Order:

    The confirmation order of the scheme issued by the Central Government shall be communicated to the persons concerned and it shall be filed by the Transferee Company with Registrar of Companies having jurisdiction, in Form INC-28 within 30 days. The Registrar shall register the same and issue a confirmation thereof to the Companies and such confirmation shall be communicated to Registrars where Transferor Company or Companies were situated.

  9. Effect of Registration of Scheme:

    The registration of the scheme shall have the following effects:

  10. Dissolution of transferor Companies:

    Upon The registration of the scheme, Transferor Company or Companies shall be deemed to have the effect of dissolution without process of winding-up.

  11. Transfer of property or liabilities:

    Transfer of property or liabilities of the transferor company to the transferee company so that the property becomes the property of the transferee company and the liabilities become the liabilities of the transferee company.

  12. Charge:

    The charges, if any, on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company.

  13. Legal Proceeding:

    Legal proceedings by or against the transferor company pending before any court of law shall be continued by or against the transferee company.

  14. Additional Liability:

    Where the scheme provides for purchase of shares held by the dissenting shareholders or settlement of debt due to dissenting creditors, such amount, to the extent it is unpaid, shall become the liability of the transferee company.

III. Transferee company compliances

  1. Restrictions on holding shares in its own name by Transferee Companies:

    A transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished post merger or amalgamation.

  2. Authorized Capital:

    The transferee company shall file an application with the Registrar along with the scheme registered, indicating the revised authorized capital and pay the prescribed fees due on revised capital.

  3. Registration Fee:

    The fee, if any, paid by the transferor company on its authorized capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its enhanced authorized capital due to merger or amalgamation balance if any shall be paid.

IV. Conclusion:

The simplification of process will encourage corporate entities to undertake merger/amalgamation activities and help them in achieve their under lying objectives. The time taken to complete the merger/ amalgamation through court process and the cost involved in it, is saved substantially. Fast track merger will help small companies in strengthening their position in the market. Such companies will become more competitive and exhibit a better bargaining power in the market.

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