Streamlined Fast Track Merger Process under Section 233 of Companies Act, 2013

Introduction

The Companies Act, 2013 introduced provisions for a Fast Track Merger (FTM) under Section 233, which offers a streamlined and time-efficient process for specific classes of companies. This article explores the key aspects of FTM, including the eligible classes of companies, the timeline, and the procedural requirements.

Eligible Classes of Companies

The FTM scheme, governed by Section 233 of the Companies Act, 2013, in conjunction with the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, applies to the following classes of companies:

1. Merger between two or more Small Companies
2. Merger between a Holding Company and its Wholly-owned Subsidiary Company
3. Merger between two or more start-up companies
4. Merger between one or more start-up companies and one or more Small Companies

For the purpose of this scheme, the following definitions apply:

• Start-up Company: A private company incorporated under the Companies Act, 2013 or the Companies Act, 1956, recognized as such in accordance with Notification number G.S.R. 127(E), dated 19th February 2019, issued by the Department for Promotion of Industry and Internal Trade.
• Small Company: A company, other than a public company, with a paid-up share capital equal to or below Rs. 4 crore or such higher amount specified (not exceeding Rs. 10 crore) and a turnover equal to or below Rs. 40 crore or such higher amount specified (not exceeding Rs. 100 crore).

Fast Track Merger Process

The FTM process offers a cost-effective solution with simplified procedures, eliminating the involvement of the National Company Law Tribunal (NCLT) and the requirement for a special audit. The key steps involved are as follows:

1. Board Approval of the Scheme: The draft merger scheme requires approval from the Board of Directors of both the transferor and transferee companies. Approval from at least 90% of shareholders (in number) and 90% of creditors (in value) is also necessary.
2. Notice to Registrar of Companies (RoC) and Official Liquidator (OL): Both the transferor and transferee companies must send a notice of the proposed scheme, in Form CAA-9, to the RoC and OL, as well as to the persons affected by the scheme. The RoC and OL have 30 days to provide their objections and suggestions, if any.
3. Declaration of Solvency: Both the transferor and transferee companies must file a declaration of solvency with the RoC.
4. Shareholders and Creditors Meetings: Meetings of shareholders and creditors must be held, providing a 21-day notice period.
5. Application Filing: Within 7 days after the shareholders’ and creditors’ meetings, an application must be filed with the Regional Director (RD), with copies sent to the RoC and OL.
6. Report by RoC/OL: The RoC and OL are required to provide a report within 30 days of receiving the application.
7. RD’s Order: The RD will issue an order within 15 days if the report has not been issued by the RoC/OL. If the report has been issued and there are no objections from the RD, or if there are objections, it will be referred to the NCLT. The detailed order issuance process is described in the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.

Conclusion

The Fast Track Merger process introduced under Section 233 of the Companies Act,