Fast Track Merger U/s 233 of Companies Act, 2013

Section 233 of the Companies Act, 2013 read with Rule 25 of The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 came into force w.e.f. 15^th December 2016.It provides the concept of simplified merger. Under Companies Act, 1956 all the mergers and restructurings had to go through with lengthy proceedings, intervention of High Court was mandated thus making the process very time consuming.  The Fast Track merger covered under section 233 of Companies Act, 2013  requires the approval from Shareholders, creditors, Registrar of Companies, Official Liquidator and Regional Director. Under the fast track merger scheme of merger shall be entered between the following types of Companies.

Companies between which fast track merger scheme can be entered

1. Holding Company and its wholly owned subsidiary company-

Holding and Wholly Owned Subsidiary company can be public or private company or it may be section 8 Companies. Further If Holding Company desires to merger with more than one of its wholly owned subsidiary, it has to make more than one application.

2. Merger between two or more small companies

As per section 2(85) of Companies Act, 2013 small company” means a company, other than a public company, 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 10 (ten crore rupees).

3. Such Other class or classes of companies as may be prescribed.

The Rules under Companies (Compromises, Arrangements and Amalgamation) Rules 2016 have been enforced from 15.12.2016, but these do not define the other prescribed class or classes of companies.

Benefits of Fast Track Merger

1. No Mandatory approval of NCLT required.

2. No Need of Issuing Public Advertisement.

3. No Court Convened Meeting.

4. Less Administrative Burden.

5. Series of Hearing may be avoided.

6. Registration of scheme shall deemed to have effect of dissolution of transferor companies without the process of winding up.

7. Comparatively less cost.

Drafting of Scheme of Merger

The scheme may generally be divided into 4 parts as follows

1. Preamble

2. PART-A

(i) definitions

(ii) Pre & Post merger share capital

3. PART- B

            (i) Transfer and vesting of the assets and liabilities.

             (ii)Appointed / Operative date of the scheme.

             (iii)Treatment of the scheme in terms of accounts, tax and dividend.

              (iv)Company staff, workmen and employees their benefits.

              (v)Cancellation of the shares of the transferor company – wholly owned subsidiary.

              (vi)Consolidation of Authorized Share Capital.

              (vii)Dissolution without winding up.

     4. PART -C

              (i)Notice of approval of the scheme of merger.

              (ii)Modification/amendments to the scheme.

Procedure of Fast Track Merger

1. Both the Transferor and Transferee Company shall be authorized by their Articles of Association for merger. If Not they need to alter their Articles of Association.Merger shall be permissible as per the Object Clause of Memorandum of Association of both the Companies.

2. Conducting Board Meeting For approval of Scheme

Under this process, Both the transferor and transferee company shall hold the Board Meeting for approving the draft scheme of merger. Further necessary resolution will be passed in the respective board meeting of each company to authorize someone to do all acts and things as may be considered necessary and expedient in relation thereto.

3. Submission of Notice inviting Objections or Suggestions

Both the transferor and transferee companies shall file the draft scheme proposing the merger with the

(i) ROC where the registered office of respective companies are situated and

           (ii)Official Liquidator

           (iii) or persons affected by the scheme

                   in Form CAA-9 to invite objections or suggestions from them.

Note. The notice inviting objection from ROCs in Form CAA 9 is to be filed in  E-Form GNL-1.

The Objections and Suggestions shall be sent by the Registrar and Official Liquidator and person affected by the scheme to the Regional Director and to companies involved in merger within 30 days from date of notice.

4. Filing Declaration of Solvency

Pursuant to the provision of section 233(1)(C ) of Companies act, 2013 read with Rule 25(2) of The Companies(Compromises, Arrangements and Amalgamation) Rules, 2016, each companies involved in the merger shall file their respective declaration of solvency statement in Form CAA-10 with ROC. The Fees for filing the afore stated declaration shall be as provided under Companies (Registration Offices and Fees) Rules, 2014.

Note. The Declaration of Solvency in Form CAA 10 is be to filed with the ROC in Form GNL-2.

5. Convening General Meeting of Members or Class of Members

Pursuant to the provisions of section 233(1)(b) of the Act read with rule 25(3), both the companies shall obtain approval of members holding at least 90% of total no. of shares for the scheme. The Objections and suggestion received by ROC and OL shall also be considered by the companies in their respective general meeting.

6.Convening Meeting of Creditors or Class of Creditors

Pursuant to the provision of section 233(1)(d) of Act read with rule 25(3),the companies shall obtain the approval of their creditors in any of the below mentioned manner

(i) By Meeting: Such scheme shall also be approved by the majority representing 9/10^th value of creditors or class of creditors of the respective companies.

(ii)Without Meeting: Such scheme shall also be approved in writing by the majority representing 9/10^th value of creditors or class of creditors of the respective companies.

Note. Notice of the Shareholders or Creditors shall be given 21 clear days before commencement of respective meetings and notice shall be accompanies by

(i) Copy of proposed scheme

(ii) Explanatory statement as per Rule 6 (3) of The Companies (Compromises, Arrangements and Amalgamations) rules, 2016.

(iii) Copy of Declaration of Solvency, etc

Note. Both the Transferor and Transferee Companies shall file the special resolution as approved by the members and creditors in E Form MGT-14 with the ROC

7. Filing Copy of Scheme and Results of Meeting with Regional Director

Pursuant to the provisions of Rule 25(4), the transferee company, within 7 days of conclusion of meeting of members or class of members or creditors or class of creditors shall require to file with Regional Director in Form CAA11 the following documents

(i)Copy of scheme as agreed to  by members and creditors  and

(ii)Report of Results of each of the meetings.

Copy of Scheme along with the above mentioned form CAA-11 shall also be filed by transferee company with:

(i)The ROC in Form GNL-1 along with the prescribed fees Companies (Registration Offices and Fees)Rules, 2014  and

(ii)The Official Liquidator through hand delivery or by registered post or speed post.

      Note. Report of meeting in Form CAA 11 is to be filed with the Regional Director in E Form RD-1.

8. Approval of Scheme by the Regional Director

Registrar of Companies and Official Liquidator may give objections or suggestions if any to the Regional director within 30 days of the receipt of the scheme. However where no objections or suggestions have been made, it shall be presumed that they have no objection to the scheme.

Where no objections or suggestions to the scheme are received from Registrar of Companies and Official Liquidator and Regional director is in opinion that scheme is in public interest or in the interest of creditors, the RD shall issue confirmation order in Form CAA12 which shall be deemed to be the order sanction the scheme of merger.

On the basis of Objections or suggestions made by ROC and OL or otherwise, RD is of opinion that scheme is not in public interest, it may file application before Tribunal in Form CAA-13 within 60 days of receipt of the scheme and requesting Tribunal may consider the scheme under section 232 of the Act.

The Order of RD approving the scheme shall be filed in E Form INC-28 with the ROC within 30days having jurisdiction over the transferee and transferor company.

Note. Form CAA9 and Form CAA10 and Form CAA11  are given under chapter XV The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

Effect of Registration of scheme

The Confirmation Order filed in Form INC 28 shall be deemed to have the effect of dissolution of the transferor company without the process of winding up. Effects of Registration of scheme:

1. Transferor of Properties or liabilities of the transferor company to the transferee company.

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

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

4. On merger share capital held by the transferee company in the transferor company would have to be cancelled and cannot be allotted to any trust either on its behalf or on behalf of any of its subsidiary or associate company.

Pooling of the Authorized Share Capital

Fee, if any paid by the transferor company on its authorized capital prior to its merger with the transferee company shall be set off against the fees payable by the transferee company on its authorized capital enhanced by the merger.

Transferee Company shall follow same steps as provided under section 61 of the Companies Act 2013 for increase of the authorized share capital.

Additional Documents required by Regional Director

1. Certified Copy of list of Directors, shareholders and creditors of both the transferor and transferee companies.

2. Verified Facts regarding the subject companies having relationship of Holding and Wholly owned subsidiary company.

3. Shareholding Pattern of pre and post-merger of Transferee Company.

4. Audited Financial Statements and Directors’ reports of both the transferor and transferee companies for preceding three years.

5. Memorandum and Articles of Association of both the companies containing a clause empowering merger and amalgamation.

6. Details of Related Party Transactions entered into by both the companies.

7. Undertaking from the directors of the Transferee company that no employees shall be adversely affected and accounting policies will not be altered.

8. A Certificate issued by Auditor of the Company to the effect that accounting treatment, if any, proposed in the scheme of merger is in conformity with the Accounting Standards prescribed under section 133 of the Companies Act, 2013.

9. Proof that the Authorized capital of the Transferee company is sufficient to allot shares to the shareholders of the Transferor Company.

(a)Present Paid up Share Capital of the Company

(b)Cross Holdings to be cancelled.

(c)Remaining paid up Capital of the Company

(d)Amount of shares to be allotted to the members of the Transferor Companies by the Transferee Company.

(e)Consolidated Statement of Authorized Capital and Paid up capital of Transferee Company after issuing shares to the members of Transferor Company.

FAQs on Fast Track Merger U/s 233 of Companies Act, 2013

1. What is the Wholly Owned Subsidiary Company?

It means a subsidiary company whose 100% shares are held by its holding company.

The Transferor company needs to be an wholly owned subsidiary of the holding company as on appointed date of the scheme.

2. Is Declaration of Solvency required from the Transferor Company?

Section 233 of Companies Act prescribes that it is to be given by both companies

3. What is the Appointed Date?

Appointed Date means the date from which the scheme shall come into force (specified in the scheme of merger).

4. What is Effective Date?

Effective Date means the date when the amalgamation/merger is completed in all respects and the order has been filed with the Registrar of Companies.

5.How Does the ROC determine the exact date of a company becoming a wholly owned subsidiary of another company?

A company can become a Wholly owned subsidiary through allotment of shares or through transfer of shares.

6.What proofs need to be submitted to prove the holding and Wholly owned subsidiary relationship?

Filing of Forms MGT-4, MGT-5 and MGT-6.

7.Can General Meeting of Members or Creditors be waive?

No waiver for conducting a general meeting for approval of the scheme of amalgamation

8.Is there scope for amalgamating more than 2 companies in one scheme?

No scope for amalgamating more than 2 companies in 1 scheme.

9. Whether Listed Companies can also opt for the Fast Track Merger?

Yes, Listed Companies that fulfils the criteria as mentioned in section 233(1) can also opt for Fast track mode.

10.  Can Class of Companies eligible to opt for Fast track merger, adopt traditional merger route for approval of merger?

Yes class of companies eligible to opt for Fast track merger may at its own discretion opt for traditional  merger route as per provisions of section 233(14) of the Act and Rule 25(8) of Companies Rule.

11. Can the appointed date of the scheme be changed after filing of CAA 11?

It may be changed through an affidavit from the directors of the Company, if allowed by the RD.

12. Can Regional Director suggest changes in the scheme of merger?

RD cannot suggest changes in the scheme, this can be done by ROC and OL alone.

The wording used in the rules say “Confirmation Order”

If the shareholders, creditors, ROC, OL do not have any objection to the scheme, then the RD has to simply “Confirm” the scheme.

13. How the documents and Forms to be provided to the Official Liquidator?

Documents and Forms to be provided to Official Liquidator to through hand delivery or by post.

14.  Is there any scope for Demerger?

Section 233 of the Companies Act, 2013 uses the words notwithstanding anything contained in Section 230 and 232 of Companies Act, 2013.

Section 233 (12) gives a reference of the section being applicable to in respect of a scheme of compromise and arrangement or division or transfer of a company.

15.  Is Stamp Duty applicable on Fast Track Merger?

Stamp Duty is a state subject and its applicability is determined on two grounds

(a) State where Registered office of the company is situated

(b) Status of properties being transferred under the scheme.

Further it is only  where property is involved and when transferee intends to transfer the same in its name comes the question of registration and therefore, payment of duty rises at that stage. In Case where a property may not be situated in the state of passing of order on merger, the stamp schedule of relevant State has to be seen if duty is applicable on immovable property registration in that state where property is located.

Overview of Fast Track Merger

S. No.	Steps	Forms to be filed
1.	Check whether the Transferor and Transferee company authorized by Articles of Association of the Company. Check MOA of both the companies- Merger is permissible as per object clause of MOA of both the companies.
2.	Appointed Date to be decided by Board of Directors on mutual consent.
3.	Drafting the scheme of Merger.
4.	Both the transferor and transferee  companies  shall send notice of Board Meeting (at least 7 days before the date of board meeting).
5.	Both the transferor and transferee  companies  shall Conduct their respective Board Meeting 1.  To Consider Scheme of Merger. 2. To authorize someone to do all acts and things as may be considered necessary and expedient in relation thereto.
6.	Both the Transferor and Transferee  companies  shall file Notice of proposed scheme in Form CAA-9 with Registrar, OL or person affected by the scheme to invite their objections & suggestions. (Receipt of Objections & suggestions if any from registrar, Official Liquidator or person affected by the scheme within 30 days from date of filing the notice)	·    E Form GNL-1 to be filed with ROC for filing form CAA-9 along with draft scheme of merger.(Both the companies) ·  Form CAA-9 along with draft scheme of merger to be given to OL through hand delivery or by post.( Both the companies)
7.	Both the transferor and transferee companies  shall file Declaration of solvency in Form CAA-10 with ROC	·   E- Form GNL-2 to be filed with ROC for filing Form CAA-9 ( Both the companies)
8.	Both the transferor and transferee companies  shall Dispatch the Notice of members and creditors meeting (at least 21 clear days before the meeting. Notice shall be accompanied with 1.   Scheme of merger 2.  Declaration of solvency. 3. Explanatory Statement as per Rule  6 (3) of The Companies (Compromises, Arrangements and Amalgamations) rules, 2016
9.	Both the transferor and transferee companies  shall hold the General Meeting of the members and creditors  to consider: 1. To get the scheme of merger approved by the members and creditors. 2. To Consider the suggestions received by ROC, OL, if any	E Form MGT-14 to be filed with ROC within 30 days of passing of special resolution. (Both the companies).
10.	Transferee Company shall file copy of scheme so approved by members and creditors along with report of results of each meeting in Form CAA11 with 1. Regional Director 2. Official Liquidator	1.  E Form RD-1 to be filed for filing form CAA-11 with RD.(Transferee company) 2. Form CAA11 to be provided to Official Liquidator through hand delivery or by post.(Transferee company)
11	Regional Director shall issue a confirmation order in FORM CAA 12 for approval of the scheme, if no objections from Registrar or Official Liquidator received). Provided where objections or suggestions is received from Registrar or Official Liquidator, RD  may file application before Tribunal in Form CAA-13 within 60 days of receipt of the scheme and requesting Tribunal may consider the scheme under section 232 of the Ac
12.	The Confirmation Order of the Regional Director shall be filed with the ROC by transferor and transferee companies along with the prescribed fees.	E Form INC-28 has to be filed within 30 of receipt of the order of confirmation.(Both the Companies).

Forms in Brief related to Fast Track Merger 

S. No.	Form No.	By	Provisions	Particulars
1.	CAA 9	Transferor & Transferee Company	Sec 233(1)(a) r/w 25(1)	Notice of scheme inviting objections & suggestions from competent authorities.
2.	CAA10	Transferor & Transferee Company	Sec 233(1)(c) r/w 25(2)	Declaration of solvency by the transferor & transferee company.
3.	CAA11	Transferee Company	Sec 233(2) r/w 25(4)(A)	Filing scheme of merger approved by the members and creditors with RD(within 7 days of approval of members and creditors)
4.	CAA 12	Regional Director	Sec 233 r/w25(2)	Confirmation order for the scheme of Merger by the RD.

E-Forms related to Fast Track Merger under Companies Act, 2013

S.No.	Form No.	By	Particulars
1.	GNL-1	Transferor & Transferee Company	The notice inviting objection from ROCs in form CAA 9 is to be filed in Form GNL-1.
2.	GNL 2	Transferor & Transferee Company	The Declaration of Solvency in Form CAA 10 is be to filed with the ROC in Form GNL-2
3.	MGT-14	Transferor & Transferee Company	Board resolution and Special resolution passed for approving the scheme.  (Need not be filed for board resolution if the company is a private limited company.)
4.	GNL-1	Transferee Company	Filing of scheme and Form CAA11 with the Regional Director.
5.	RD-1	Transferee Company	Report of meeting in Form CAA 11 is to be filed with the Regional Director in Form RD-1.
6.	INC-28	Transferor & Transferee Company	Confirmation order to be filed with ROCs.

For any queries pertaining to the matter above, the author can be reached at nikitamarwah07@gmail.com