Introduction
Whenever we hear the term Merger, Acquisition or Amalgamation, a thought comes to our mind that these things are complex in nature and require significant cost and the approval of the National Company Law Tribunal (NCLT). It’s true that Merger, Acquisition or Amalgamation requires the involvement of experts and NCLT nod, but still there are certain situations or circumstances where the involvement of NCLT should not be required as the proposed transaction either does not that much complex in nature or there are very minimal impacts on the stakeholders of the Company.
In this article we shall be discussing the new route given by Companies Act, 2013 which allows certain type of companies to Merge and Amalgamate easily and without the NCLT approval. We shall be keeping ourselves limited to procedural and legal aspects of the Fast-Track Merger as prescribed in Section 233 of the Companies Act, 2013 read with Rule 25 of the Companies (Compromise and Arrangement) Rules, 2016.
Regulatory Provisions and Related Forms
Section: 233 of the Companies Act, 2013.
Rules: Rule 25 of the Companies (Compromise and Arrangement) Rules, 2016.
Forms: CAA-9, CAA-10, CAA-11. CAA-12, GNL-1, GNL-2, INC-28, RD-1
Definition of Merger: – The term merger is not defined under the Companies Act, 2013 or under the Income Tax Act, 1961.
As a concept, merger is a combination of two or more entities into one entity. The entity(s) which is/are merging into another entity is/are called ‘merging company(s)’ or ‘transferor company(s)’ and the company in which the entity is merged is called the ‘merged company or ‘transferee company’.
The possible objectives of merger are manifold which includes economies of scale, acquisition of technologies, access to varied sectors/market etc. Generally, in a merger the merging entities would cease to exist and would merge into a single surviving entity.
The Income Tax Act does however define the ‘anomalous’ term amalgamation as the merger of one or more companies with another company OR the merger of two or more companies to form one company.
Eligibility of Companies to file application under Section 233 of the Companies Act, 2013
The following Companies are eligible to make an application for merger and amalgamation under Section 233.
1. Small Companies (Private Companies having paidup share capital of upto Rs. 4 crore and Turnover of Rs. upto 40 crore)
2. Companies having relationship of Holding and Wholly Owned Subsidiary (Public or Private Companies irrespective of Turnover)
3. Startup Companies (Private Companies recognized by DIPP as Startup)
Process to be followed as prescribed under Section 233 of the Companies Act, 2013.
1. Inviting Objections from Registrar of Companies (ROC), Official Liquidator (OL) and Person(s) affected by scheme: – The transferor company(s) and transferee company shall file an application to the concerned ROC/OL where the registered offices of the Companies (Transferor and Transferee Company) are situated and invite their objections or suggestions. The same notice shall also be given to each and every person whose interest is affected by the scheme.
The notice inviting objections shall be given in Form No CAA 9 and to be filed with ROC in Form No GNL-1.
2. Consideration of Objections and Suggestions Received: – The Transferor Company(s) and transferee company shall hold a general meeting and consider the objections or suggestions as received from ROC, OL and Person affected by scheme.
3. Approval of Scheme: – The scheme shall be approved by members holding atleast 90% share capital in general meeting.
Report of the Meeting so convened in Form No CAA 11, shall be filed with the Regional Director in Form No RD-1.
4. Filing of Declaration of Solvency: – All the Companies involved in Merger and Amalgamation shall file a declaration of solvency in Form No to their concerned Registrar of Companies.
The declaration of solvency in Form No CAA 10 shall be filed with Registrar of Companies in Form No GNL-2
5. Approval of Creditors: – The scheme of Amalgamation and Merger shall also be approved by the Creditors of all the respective Companies holding 9/10th value of the total creditors. This approval shall either be taken in a class meeting of creditors convened for this purpose by giving at least 21 days’ notice or in writing (in lieu of meeting) from all creditors holding 9/10th value of total creditors of every company.
The notice of meeting shall include the following documents-
1. Copy of the Scheme
2. Copy of latest audited financial statement of each company
3. Copy of declaration of solvency
4. Statement as prescribed in Rule 6 and Section 230(3)
5. Filing of Approved Scheme with RD/ROC/OL: – All the Companies involve in the merger and amalgamation activity shall file the approved scheme with the office of Regional Director, Registrar of Companies and Official Liquidator having the jurisdiction of the place where the registered offices of the respective companies are situated.
The approved scheme in Form No CAA 11 shall be filed with Regional Director in Form No GNL-1 and through speed post or registered post to the Official Liquidator
7. Approval of Scheme by Regional Director: – The Regional Director shall approve the scheme if no objections from ROC and OL is received, or the objections so received are deemed to be not sustainable.
The Regional Director shall issue the order in Form No CAA 12.
8. Filing of Order of Regional Director confirming the Scheme: – The Transferee Company shall order shall file the order with Registrar of Companies within 30 days of receipt of the confirmation order.
The order confirming the scheme of merger and amalgamation shall be fled with the Registrar of Companies within 30 days in Form No INC-28.
9. Effect of the Approval of the Scheme: – After the approval of the scheme the transferor Company shall stand dissolved without following the winding up procedure and all the assets and liabilities of transferor company(s) shall become the assets and liabilities of transferee company.
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 on the merger or amalgamation.
Authorised Share Capital of the Transferee Company shall be increased by the consolidated share capital of transferor company(s), also the transferee company is liable to pay the additional stamp duty on the increased share capital.
Conclusion
Section, 233 of the Companies Act, 2013 is a new provision introduced in the Companies Act on the recommendations of JJ Irani Committee Report and made effective from 15th December 2016. I see Section 233 of the Companies Act, 2013 as a progressive provision which create reasonable classification among companies which subsequently leads to positive discrimination by simplifying the Merger and Amalgamation process between Small Companies, Startup Companies and Holding & Wholly owned Subsidiary Companies without the intervention of NCLT.
“Equals can not be treated unequally, unequals can not be treated equally”
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