Merger and Amalgamation of companies will bring diversification and expansion of their business, it may also lift a company from inscribed losses in the past. The tedious and time-galloping procedure of merging of two companies of The Companies Act,1956 has been simplified with a fast track merger under Companies Act 2013. Fast track merger under section 233, however, will not apply for all companies.It only applies to a specific class of companies, while other class of companies will remain opted for the older procedure.

Fast track merger applicability:

The class of companies that can avail the benefit of fast track merger:

1. Two small companies

2. Holding company and its wholly-owned subsidiary company.

Fast track merger of small companies:

Since the fast track merger scheme only applies for small companies, it is popularly be known in the corporate world as a fast track merger of small companies. Section 285 categorize small companies on the following criteria:

  • The company should not be a public company.
  • Paid-up share capital(money acquired by the company in exchange for its shares) should not be more than INR 50 lakhs.
  • Turnover less than 2 crores in the last financial year.

Fin-bites: Fast track merger may also be obtained by other prescribed class/classes of companies. In such cases, the paid-up share capital limit is 10 crores and the turnover limit is set as 100 crores.

Fast track merger of Holding companies & its subsidiaries:

  • The company can be public, private or a section 8 company.
  • Merging with multiple wholly-owned subsidiaries requires multiple applications.

Benefits of fast track merger:

  • Non-requirement of approval from NCLT(National Company Law Tribunal)
  • Not mandatory to issue Public Advertisement
  • Reduced administrative burden
  • Avoidance of series of court hearings
  • The court convened meeting has been excluded
  • Lesser costs involved

Preliminary procedure:

The Articles of Association(AOA) of both the transferor and the transferee companies must permit for mergers and amalgamations. If not, a provision has to be created for the same. A draft scheme for a fast track merger to be made.

Fast track merger procedure:

1. Convening of Board Meeting:

A meeting to be convened with the board members to discuss  the following :

  • Approval of the scheme of fast track merger.
  • To schedule the shareholder’s meeting.
  • To schedule the creditor’s meeting.

2. Issuing of Notice:

Post the board meeting, upon agreement of all the board members, a notice of the proposed scheme must be submitted by the transferor and the transferee, along with a copy of the scheme to:

Registrar of Companies(ROC) where the registered office of the corresponding companies are located(and)Official Liquidator(or)Person affected by the scheme

Form CAA-9 must be filed by inviting any objections or suggestions from them.

3. Filing Declaration of Solvency with the ROC:

Both transferor and the transferee must file the declaration of solvency to the Registrar of companies(ROC) in Form CAA-10, before convening the meeting of members and creditors.

4. Convening of the meeting of members or shareholders:

Both transferor and transferee must host a shareholder meeting. A notice for the meeting has to be sent to the members before 21 days of the schedule and it should hold the following information:

  • Copy of the scheme
  • The statement containing details of the merger
  • Declaration of solvency
  • Copy of latest audit statements
  • Copy of valuation report

Any other relevant information shall be added.

The scheme proposes should be approved by the respective members/class of members holding more than 90% of the shares. In some cases, a written agreement from the members holding more than 90% of the shares can be accepted without hosting the meeting.

5.Convening of the meeting of creditors:

A notice of the meeting to be issued before 21 days and the meeting to be held for the consent of the creditors. As before, the notice should contain the following:

  • Copy of the scheme
  • The statement containing details of the merger
  • Declaration of solvency
  • Copy of latest audit statements
  • Copy of valuation report
  • Any relevant information

The scheme proposes should be approved by the respective creditors/class of creditors holding more than 90% of the shares. In some cases, a written agreement from the creditors holding more than 90% of the shares can be accepted without hosting the meeting.

6.Filing the Scheme:

This provision, as governed in Rule 25(4) of the Companies Act, is only applicable to the transferee company. Form CAA-11 is to be submitted to the Regional Director within seven days of the end of members or creditors’ meeting. The following are the documents to be filed:

  • Copy of the scheme
  • Report of the result of all the meetings conducted

Additionally, a copy of the scheme and Form CAA-11 is to be submitted with the Registrar in Form GNL1 and also to the official liquidator through post or in-person delivery.

7. Approval by the Regional Director:

The scheme is to be approved by the regional director.

  • If the registrar and the official liquidator have no objections/suggestions to the scheme the registrar will report the same and will issue a confirmation to the merger.
  • If the registrar or the official liquidator has any objections/suggestions a write-up will be forwarded to the Regional Director by them within thirty days. If no such write-up is communicated it will be assumed as Nil obligations and the merger will be processed.
  • If the regional director deems the objections/suggestions to be not in the interest of the public/creditors. In such a case, the company may apply to the tribunal in Form CAA-13, describing the objections and ask the tribunal to consider the merger scheme.
  • If the regional director deems the objections to be unfit, then he shall issue the confirmation of the scheme with Form CAA-12.

8. Filing of confirmation order:

Both the transferor and the transferee must file a copy of the confirmed order of the scheme of fast track merger to the office of ROC, in form INC-28. The ROC will issue a confirmation and communicate to the ROC where the transferor is registered.

Author Bio

Qualification: MBA
Company: Topfilings India Pvt Ltd
Location: Delhi, New Delhi, IN
Member Since: 21 Mar 2020 | Total Posts: 9
We are a team of CA, CS, MBA, LLB professionals who have more than 20 years experience in the field of Finance, Compliances, Legal and Accounts work with an objective of to provide our experiences and services at a very affordable cost to young and growing entrepreneurs View Full Profile

My Published Posts

More Under Company Law

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031