Merger are nowadays is very common tool for corporate restructuring. However, merging a company through NCLT route is very complex and lengthy task. To streamline the process of merger Companies Act, 2013 come up with Section 233, which allows certain class of companies to bypass the approval of National Company Law Tribunal (“NCLT”). This type of merger is known as Fast Track Merger.
Legal Provision for Fast Track Merger
Section 233 of Companies Act, 2013
- As per Section 233(1) and Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, a scheme of merger or amalgamation may be entered into:
- Two or more small companies
- A holding company and its wholly-owned subsidiary
- two or more start-up companies; or
- one or more start-up company with one or more small company.
The companies involved must issue a notice of the proposed merger scheme in Form CAA.9 to the Registrar of Companies (RoC), the Official Liquidator, and any other persons affected by the scheme. They are given 30 days to raise any objections or suggestions.
The scheme must be considered at a general meeting of each company involved and must be approved by members holding at least 90% of the total number of shares. This ensures that there is overwhelming support from the shareholders
Each company must file a declaration of solvency in Form CAA.10, confirming their ability to pay debts in the normal course of business. This declaration is filed in the prescribed form with the RoC of the company’s registered office.
The companies must either:
- Convene a meeting of their creditors with 21 days’ notice and get the scheme approved by creditors representing 90% in value, or
- Obtain written approval from creditors representing 90% in value, without holding a meeting.
- The notice of members and creditors shall be accompanied by-
- a statement , as far as applicable, referred to in sub section (3) of section 230 of the act read with sub rule (3) of rule 6.
- The declaration of solvency in Form CAA 10
- A copy of the Scheme.s
- As per Section 233 (2), The transferee company must file the approved merger scheme within seven days after the conclusion of the meetings with the following:
- A Copy of Scheme as agreed to by the members and creditors, along with a report of the result of each of the meetings in Form no. CAA.11 with Central Government along with the fees.
- With Registrar of Company in Form GNL-1 alongwith fees.
- With Official Liquidator by hand, registered post, or speed post.
- As per Section 233 (3), Once the scheme is received, if the Registrar or Official Liquidator has no objections or suggestions, the Central Government will proceed to register the scheme and send a confirmation to the companies involved.
- As per Section 233(4), If the Registrar or Official Liquidator has any objections or suggestions regarding the scheme, they must communicate them to the Central Government within 30 days. If no communication is made within this time, it will be assumed that they have no objection to the scheme.
- As per Section 233(5), If the Central Government believes that the scheme is not in the public interest or creditors’ interest, it can file an application in Form CAA 13 with the Tribunal within 60 days of receiving the scheme. The application will outline its objections and request the Tribunal to consider the scheme under Section 232.
- As per Section 233(6), If the Central Government or any person applies to the Tribunal, and the Tribunal believes the scheme should follow the process in Section 232, it may direct so or confirm the scheme. If the Central Government does not object or file an application, it will be assumed that they have no objection to the scheme.
- As per Section 233(7), Once the Tribunal confirms the scheme, a copy of the order is sent to the Registrar of the transferee company. The Registrar will then register the scheme, issue a confirmation to the companies, and send the confirmation to the Registrars where the transferor company or companies are located.
- As per Section 233(8), The registration of the scheme under sub-section (3) or (7) results in the dissolution of the transferor company without the need for winding-up.
- As per Section 233(9) Once the scheme of merger or amalgamation is registered, it triggers the following legal effects:
- Transfer of Property and Liabilities: The property and liabilities of the transferor company are transferred to the transferee company.
- Charges on Property: Any charges on the transferor company’s property remain enforceable as if they are on the transferee company’s property.
- Legal Proceedings: Ongoing legal proceedings involving the transferor company will continue with the transferee company.
- Dissenting Shareholders and Creditors: If the scheme involves purchasing shares from dissenting shareholders or settling debts with dissenting creditors, any unpaid amounts become the liability of the transferee company.
- As per Section 233(10), the transferee company is not allowed to hold its own shares, whether directly, through a trust, or through any subsidiary or associate company. Any such shares must be cancelled or extinguished as part of the merger process.
- As per Section 233(11), the transferee company must file an application with the Registrar in Form INC-28, mentioning its revised authorised capital and pay the applicable fees.
Timeline For Fast Track Merger
| Procedure Timeline Forms required Who shall be required to comply | Procedure Timeline Forms required Who shall be required to comply | Procedure Timeline Forms required Who shall be required to comply | Procedure Timeline Forms required Who shall be required to comply |
| Convene a Board Meeting:
The board meeting shall approve the scheme and pass resolutions for holding and fixing date and time for a shareholder and a creditors meeting. |
NA | NA | Both the transferor and the transferee companies are required to comply |
| Notice of the Proposed Scheme:
The notice of the proposed scheme is to be sent to the Registrar where registered offices of both the companies are situated. The notice shall invite objections/ suggestions, if any, from the respective registrars. |
To be done after the Board meeting. | Form CAA 9 | Both the transferor and the transferee companies are required to comply. |
| Declaration of solvency:
Both the companies are required to file a declaration of solvency with the ROC of the place where their registered offices are situated. |
This is to be done before the meeting of shareholders or the meeting of creditors is convened. | Form CAA 10 | Both the transferor and the transferee companies are required to comply. |
| Convening a Meeting of Members:
A notice convening a meeting of the members or shareholders of the company should be sent to all the members. This notice should contain, the details of the merger, copy of the scheme and a copy of the declaration of solvency. The objections/suggestions received by the company from the registrar would be discussed and voted upon in this meeting. |
Notice should be sent 21 days prior to the meeting. | NA | Both the transferor and the transferee companies are required to comply |
| Convening a Meeting of Creditors:
A notice convening a meeting of the creditors of the company should be sent to all the creditors. This notice should contain, the details of the merger, copy of the scheme and a copy of the declaration of solvency. The scheme is to be approved by a majority that is nine-tenths in value of the creditors or class of creditors of the respective companies. |
Notice should be sent 21 days prior to the meeting. | NA | Both the transferor and the transferee companies are required to comply |
| Filing of the Scheme:
A copy of the scheme along with the results of all the meetings shall be filed with the regional director. A copy of the scheme along with Form CAA 11 is also required to be formed with the ROC and the Official Liquidator. The former shall be filed in Form GNL-1 and the latter shall be hand-delivered or sent through speed post or registered post. |
Within 7 days of the meeting of creditors. | Form CAA 11 Form GNL-1 | Form CAA 11 Form GNL 1 |
| Approval of the Scheme by Regional Director:
If the ROC or the Official Liquidator approves the scheme then the regional director shall register the same and issue a confirmation. If the ROC or Official Liquidator have objections then they may communicate the same to the Regional Director. The Regional Director, if is of the opinion that the scheme is not in public interest then it may file an application in Form CAA 12 before the Tribunal, to consider the scheme under section 232 (regular merger process). If the Tribunal is of the opinion that the scheme should be considered under section 232 it should direct accordingly otherwise the scheme shall be approved |
NA | NA | NA |
| Filing the confirmation order with the ROC:
A copy of the confirmation of the scheme approved by the ROC or the Official Liquidator should be sent to the Registrar where the transferee’s registered office is situated. The registrar shall register the scheme and issue a confirmation which shall then be filed with ROC of the place where the transferor’s registered office is situated. |
Within 30 days of the receipt of the confirmation of the scheme. | Form INC-28 | Both the transferor and the transferee companies are required to comply. |
The fast track merger under Section 233 of Companies Act, 2013, extends a simpler and time efficient alternative apart from the traditional method we follow. By eliminating the need of NCLT approval and involving approval of Central Government it helps to save time, efforts and cost. However Companies must adhere strictly to timely compliance and document requirement to avoid delays.
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