Fast Track Merger under Companies Act, 2013 possible now

No need to take NCLT approval for prescribed Merger(s)/Amalgmation, FTM is notified now

Today our topic for the discussion is “FTM”. FTM refers to Fast Track Merger. This time again, it could be considered as a part of government’s “Ease of doing Business” scheme.

Earlier whenever we hear the word Merger, it means the High Court Approval and the High Court approval in its own was a big thing.

In the erstwhile Act, application for merger between two or more small companies and for merger between wholly owned subsidiary companies and Holding Company was filed with respective High Court(s) and they will have to wait in long queue for merger approval which generally takes 6-8 months.

But now, after the notification of Section 233 of the Companies Act, 2013 (“the Act”) w.e.f. 15^th day of December, 2016 (as we can say the historical day); the Act comes with the concept of fast track merger of the certain companies which includes small companies. Read- Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

Let us discuss the basic law, applicability, new concepts, procedure and various forms under the “FAST TRACK MERGER”.

(1) SECTION AND RULE COVERED: Section 233 of the Companies Act, 2013 read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

(2) APPLICABILITY:

• 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 and (as of now no such other companies are prescribed)

*As per section 2(85) ‘‘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;

(3) SOME OF THE NEW CONCEPTS UNDER FTM

(A) SEND PROPOSED SCHEME TO ROC AND OL FOR OBJECTIONS OR SUGGESTIONS:

a notice of the proposed scheme inviting objections or suggestions, if any, to

(a) the Registrar and

(b) Official Liquidators

(where registered office of the respective companies are situated) or

(c) persons affected by the scheme shall be send.

(B) DECLARATION OF SOLVENCY

Declaration of solvency shall be filed by each of the companies involved in the scheme of merger or amalgamation in Form No. CAA.10 before convening the meeting of members and creditors for approval of the scheme.

(C) MANDATORY MEETING OF MEMBERS:

Yes, the meeting of Members/class of members is mandatory required to be convened for belowmentioned purposes:

• the objections and suggestions received are considered by the companies in respective general meetings and
• the scheme is approved by the respective members or class of members at a general meeting holding at least 90% of the total number of shares;(i.e. in value)

(D) MEETING OF CREDITORS OR GET THE NOC FROM THEM:

The scheme is to be approved by

• majority representing 9/10 in the value of the creditors (both secured and unsecured) or class of creditors
• of respective companies indicated in a meeting convened by the company

by giving a notice of 21 days along with the scheme to its creditors for the purpose

or

otherwise approved in writing

(4) PROCEDURE: Below mentioned is the procedure for FTM:

STEPS	ACTIVITY	TIME PERIOD	BY
Step 1	Convene a BM to approve the scheme and get the necessary approvals from Board	As per the convenience of the Companies	Both (Transferor and Transferee Companies)
Step 2	Send Notice (in form CAA.9) inviting objections or suggestions AND scheme to ROC OL Person affected	After holding the BM(s)	Both (Transferor and Transferee Companies)
Objections or suggestions to be received within 30 days of Notice to RD/Authorised Representative
Step 3	File Declaration of solvency (in form CAA.10) with ROC	It should be filed before convening the meeting of members and creditors	Both (Transferor and Transferee Companies)
Step 4	Convene General Meeting(s) of Members/Class of Members and following should be taken care: Objections and suggestions received are considered in the General Meeting AND Approval of scheme by those members holding 90% of total no.  of shares Notice of the meeting to the members shall be accompanied by – (a) 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 hereof; (b) the declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in Form No. CAA.10; (c) a copy of the scheme.	–	Both (Transferor and Transferee Companies)
Step 5	Convene Meeting(s) of Creditors/Class of Members and following should be taken care: Approval of scheme by those creditors holding 9/10  in value Notice of the meeting to the creditors shall be accompanied by – (a) 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 hereof; (b) the declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in Form No. CAA.10; (c) a copy of the scheme.	–	Both (Transferor and Transferee Companies)
Step 6	File a copy of Scheme and report of the result of each of the meetings in Form No. CAA.11 and Form No. CAA.9(i.e. notice) with: Central Government (power delegated to RD vide notification dated 19th December 2016) ROC (GNL-1) OL (by had hand delivery or by registered post or speed post)	within 7 days of meetings	Transferee Company
If the Registrar or Official Liquidator has any objections or suggestions, he may communicate the same in writing to the RD within a period of 30 days: If no such communication is made, it shall be presumed that he has no objection to the scheme.
Step 7	The RD shall register the same and issue a confirmation order to the companies in CAA.12 (once he found everything within compliance)	–	–
Step 8	Filling of confirmation order with ROC in INC-28	With 30 days of receipt of order	Both (Transferor and Transferee Companies)

(5) FORMS TO BE FILED: Below mentioned are the forms and their purpose under FTM:

FORM NO.	PURPOSE	RELEVENT SECTION/RULE
Form No. CAA.9	Notice of the proposed scheme to invite objections or suggestions from ROC and OL	As required under clause (a) of subsection (1) of Section 233
Form No. CAA. 10	Declaration of solvency	As required under clause (c) of sub-section (1) of section 233
Form No. CAA.11	Report of the result of each of the meetings	As required under sub-section (2) of section 233 read with Rule 25(4)(a)
Form No. CAA.12	Confirmation order	Rule 25(5)
Form No. CAA.13	Application by RD to NCLT for transfer of case	Rule 25(6)
GNL-1	Copy of the scheme along with Form No. CAA. 11 with ROC	Rule 25(4)(b)
INC-28	Filling of Confirmation order with respective ROC	Rule 25(7)

Conclusion: After reading of above concepts and procedure, whether the above procedure for fast track merger while doing practically will remain fast track? And whether it is really ease of doing business?

Once the Board is done with the preparation of merger scheme, the same needs to be given to various authorities/affected persons for observations/suggestions and thereafter the said observations/suggestions are required to be considered by the Companies in their respective general meetings. After the scheme is approved by the members and creditors, again the same send to authorities for approval.

Keeping the above practical aspects in mind, following provision is also included in the rules:

As per Rule 25(8), it is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233 of the Act, the concerned companies may, at their discretion, opt to undertake such schemes under sections 230 to 232 of the Act.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal views and the author does not take responsibility of the same and this cannot used to be quoted before any authority.