CS Udbhav Pratap Singh
In this article the writer shall deliberate the provisions of section 233 of the Companies Act, 2013 which deals with the issue of fast track merger, he try to explain the process and procedure involved and also seeks to elaborate the likely benefits of the fast track merger. The article in question contains introduction, historical aspect, definitions of key terms & provision of section and rule involved, steps involved, relevant forms, post-merger impact and conclusion part.
This Article tries to give insight about the fast track merger, as we aware that erstwhile Companies Act, 1956, (1956 Act) had prescribed long and tiresome process of court proceeding for the compromise, arrangement and amalgamation which consume so much time, energy and resources of the parties involved with aim to done away such long haul process a new and unique concept has finds its place under the Companies Act, 2013, which seeks to give speed to the process of merger of specified class of companies, although no such class has been prescribe yet except small companies and holding and its wholly owned subsidiaries are allowed to avail option of fast track merger.
Given the demand of the time the process seems quite ambitious which helps to enables small companies to pool their resources within short span of time to generate synergies which ultimately helps the parties involved to sustain the heat of tough competition posed by the heavy weight, the process also done away the requirement of filing scheme with tribunal so as to make the process less time consuming, now the power has been delegated to the Regional Directors (Powers of Central Government delegated to Regional Director vide Notification No. S.O. 4090(E) dated 19th December, 2016), Registrar of Companies and Official Liquidator are the authorities whose approval is required for the completion of process, the process may take 120 to 150 days for completion, if all the necessary condition met.
Even in the regime of the erstwhile Companies Act, 1956 before the applicability of section 233 of the 2013 Act, The court was often in the favour of quick merger between groups of companies, many a time various high courts had given privileged to the holding company from dispensing with the requirement of initiating separate proceedings with jurisdictional High Court with regard to scheme involving merger or amalgamation or of wholly owned subsidiaries with their holding companies reason being such transaction seldom involve compromise or arrangement between the holding company and its shareholders and creditors.
DEFINITION OF KEY TERMS & SECTION INVOLVED
Language of Bear Act has been reproduce here for reference
Small Company: Section 2(85) of the Companies Act, 2013
“Small company” means a company, other than a public company,-
(i) Paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and
(ii) Turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to-
A. A holding company or a subsidiary company;
B. A company registered under section 8; or
C. A company or body corporate governed by any special Act.
Holding Company: Section 2 (46) of the Companies Act, 2013
“Holding Company”, In relation to one or more other companies, means a company of which such company is a subsidiary.
“Subsidiary Company” Or “Subsidiary”, you have been requested to refer Section 2 (87) of the Companies Act, 2013 for detail.
Section & Rule Involved
Provision of section 233 of Companies Act, 2013 is made applicable from 15th day of December, 2016 to deal with the merger or amalgamation of certain companies, the term certain companies has already been discussed earlier, therefore not necessary to quote again.
Companies (Compromise, arrangements and amalgamations) Rules, 2016 made applicable from 15th day of December, 2016 i.e. rule 25 merger or amalgamation of certain companies.
The steps involved for completion of the fast tract merger has been enumerated as follows.
a. Article of Association (AoA): AoA of the parties involved should contain the clause of merger of company with other companies, and if there is no such clause there in the AoA, therefore AoA required to be alter first.
b. Meeting of Board of Directors (BoD): Any Director or Company Secretary (If any) may call the BoD meeting and prepare the draft of Scheme of Amalgamation or merger.
c. Conduct Meeting of Board of Directors (BoD) and do the necessary:
1. Approved the Draft scheme.
2. Authorised a director or company secretary or any other person to perform such act or duty as may be necessary.
3. Prepare statement of Assets and Liabilities and receive the auditor’s report on the same, statement must reflect the current financial position of the companies.
d. Service of Notice and Other Documents: Send notice of the proposed scheme, under clause (a) of subsection 1 of section 233 of the act, in form CAA-9 invite objection or suggestion of Registrar of Companies (RoC), Official Liquidator (OL) or person affected by the scheme with particulars mention below as attachment. With reference to notice required to serve to RoC and OL medium of hand delivery should be opted and to get the acknowledgement receipt in duplicate or photocopy of form CAA-9, for the rest of the stakeholder postal method should be opted.
1. Copy Draft of Scheme of Merger or Amalgamation
2. Pre and post-Merger Shareholding of the Transferee Company.
3. Copy Last 3 years Audited financial statements with Auditors report thereon filed to ROC (if Applicable)
4. Copy MoA and AoA
5. Copy Board Resolution, passed in the board meeting.
6. Valuations report for Share Exchange ratio obtained from the registered Valuer but in case of WOS Company no such Valuation report is mandatory.
e. Time limit for filing Objection, Suggestion: The objection or suggestion of RoC, OL or other stakeholders whose interest has been affected by the scheme should be filed within 30 days of serving notice to the RD & Authorised representative of Transferor Company to the Central Government (CG). If no objection received with in stipulated time it would be presumed that there is no objection.
f. After getting objection or suggestion board meeting should be call to amend the draft scheme accordingly and fix a day, date, time and place of general meeting & creditors meet. If there is no objection or suggestion then scheme are approved without any modification or alteration.
g. Convening shareholders’ and creditors’ meetings: Company would consider the suggestion or objection received from the RoC, OL or person affected with the scheme in its general meeting. The scheme must be approved by (a) members holding atleast 90% of the total number of shares and; (b) majority in number representing 9/10th in value of the creditors, which should be indicated either in a creditors’ meeting or in writing.
h. Filing of Scheme with CG, ROC and OL:
Within the period of 7 days from the conclusion of the meeting of members or creditors (where applicable), the transferee company is required to file
1. A copy of approved scheme.
2. Report of the conclusion of the members or creditors’ meeting, with the CG and the concerned RoC & OL.
i. Registration of the scheme by Central Government:
1. If no objection or suggestion received. If, CG does not received any objection or suggestion from RoC, OL or person affected with the scheme, with in stipulated time it would be presumed that there is no objection and scheme get registered with the CG. 2.
2. If, objection or suggestion is received or CG takes suo-moto action: this would leads to the emergence of two possible likelihood.
a) Filing of Application before Tribunal: If CG after receiving objection or suggestions or for any reason has come to the conclusion that such a scheme is prejudicial or not in the interest of the public or creditors, it may file an application before the tribunal within a period of 60 days of the receipt of the scheme under sub section (2) placing its objection and request the Tribunal to consider the scheme under section 232.
b) If the CG does not have any objection to the Scheme or it does not file any application before the Tribunal, it shall be deemed that it has no objection to the Scheme.
j. Filing of order with the ROC: The final or confirmation order of CG (Regional Director) or Tribunal, as case may be filed by the transferor and the transferee companies, with the jurisdictional RoC in form no. INC-28 within the period of 30 days from the receipt of the order of confirmation.
1. Form CAA.9: Notice of the Scheme inviting objection or suggestion.
2. Form CAA.10: Declaration of Solvency to be filed by both the companies in said form before convening the meeting members or creditors for approval.
3. Form No. CAA.11: The transferee company shall, within 7 days after the conclusion of Members or Creditors or Class of Creditors Meeting, along with the result of the meetings file in form no. CAA.11 with CG along with fees as provided with Companies (Registration office and fees) Rules, 2014 a copy of scheme is also filed with Form No. CAA.11 with RoC in form no. GLN-1 along with fees provided under the Companies (Registration Offices and Fees) Rules, 2014; and the Official Liquidator through hand delivery or by registered post or speed post.
4. Form CAA.12: Confirmation order of merger or amalgamation issued by the CG (regional director) if no objection or suggestion received of objection or suggestion so received is not sustainable.
5. Form CAA.13: Application by the CG to the tribunal (process explained in para i of the steps involved part of the article) if any objection or suggestion received or CG takes suo-moto action.
6. Form INC-28: confirmation order of CG (Regional Director) or Tribunal, as case may be filed by the transferor and the transferee companies, with the jurisdictional RoC in form no. INC-28 within the period of 30 days from the receipt of the order of confirmation.
Post Merger Impact
1. The registration of the scheme would leads to the dissolution of the transferor company with going into winding-up process.
2. Transferred assets and liabilities of Transferor Company would become the assets and liabilities of Transferee Company.
3. The charges, if any, created on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company.
4. 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 on the merger or amalgamation.
5. The transferee company shall file an application with the Registrar along with the scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital by filing form SH-7 (if required), provided that the fee, if any, paid by the transferor company on its authorised 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 authorised capital enhanced by the merger or amalgamation.
With the introduction of Fast Track Merger and with the delegation of power to the central government for approval and registration of the scheme of amalgamation and merger of certain companies now merger and amalgamation of the small, Ho. Co & So. Co. become an easy process which in on one hand create conducive environment of pooling of resources amongst the prescribed company, it would also help to generate synergies amongst the small companies which seems missing in the erstwhile companies act, 1956. The provision of section 233 also aim to reduce the burden of the NCLT which was vested with the jurisdiction to deals with the mergers of all kinds in erstwhile act, therefore keeping in mind the benefits of the said provision we can conclude it is a welcome legislation.