Fast Track Merger procedure Under Section 233 of the Companies Act, 2013

Section 233 of the Companies Act mentions the concept of Fast Track Mergers which help with M&As of certain companies. These companies include small holdings and subsidiary companies. The MCA has introduced a simplified procedure for carrying out M&As and this article provides a brief analysis of its procedural requirements, advantages and disadvantages.

Thu Jun 02 2022 | Business Law | Comments (0)

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To enhance the value generation, market share, and cost-efficiency of businesses, companies often lead to mergers and acquisitions. Generally, mergers and acquisitions have manifold advantages and have proven their usefulness in numerous complicated situations in the past. However, the Companies Act, 2013 of India involved separate provisions and tedious procedures to deal with them, which also required approval from several regulatory bodies including the central government. In consideration of the same, there was a sincere demand for years to simplify as well as expedite the procedure of mergers, amalgamations, and acquisitions. On 15th December 2016, the Ministry of Corporate Affairs (MCA) notified a novel and welcome concept of Fast Track Merger by introducing Section 233 of the Companies Act, 2013.

What is the fast track merger process?

Section 233 of the Companies Act, 2013 introduces the globally accepted concept of Fast Track Merger Process which introduces a slightly simpler procedure for mergers and amalgamations of certain classes of companies including small companies, holdings, and subsidiary companies. This process enables these companies to undergo merger and amalgamation procedures quickly, simply, and within a fixed time duration. The Companies Act, 2013 clearly notifies that it applies to all kinds of compromises and arrangements that involve these companies.

What are the Important Provisions of Fast Track Merger Process?

The key important provisions of the fast-track merger process are outlined below:

  • that merger & amalgamation (M&A) may be entered between 2 or more small companies having paid-up capital less than Rs. 5 million and turnover less than Rs. 20 million; or
  • that merger & amalgamation may be entered between holding and its wholly-owned subsidiary company;
  • that merger & amalgamation may be entered between other classes or classes of companies as may be prescribed.

The following companies provided below are excluded from the fast-track merger process:

  • Other public companies
  • Section 8 companies under the Act
  • Companies regulated under a special act

The draft scheme requires approval of: -

  • Board of Directors of both the companies.
  • 90% of shareholders (in number) and 90% of creditors (in value).
  • Central Government (power delegated to Regional Director)

Mandatory Requirements

The following are the mandatory requirements for the facilitation of the fast track merger process:

  • The scheme must be filed with the Jurisdictional Registrar of Companies (ROC) as well as the official liquidator.
  • Convening a meeting of members and creditors to obtain approval. The creditors meeting can be avoided if they readily provide their consent in writing.
  • The filing of a declaration of solvency by both the involving companies.

Fast Track Merger process has facilitated the procedure by removing the following requirements: -

  • There is no requirement to submit an auditor’s  certificate.
  • Now, there is no need to file the scheme before the National Company Law Tribunal (NCLT).
  • The estimated period for the fast-track procedure has been allotted to 90-100 days.

The procedural details for the Fast Track Merger process are set down under the Companies (Compromises, Arrangement & Amalgamation) Rules, 2016.

What are the advantages of this process over traditional mergers?

In comparison to the traditional mergers process, the new Act has simplified the procedures as it no longer  involves a judicial process as concerned with the National Company Law Tribunal. Now the companies are required to take approval from only three regulatory authorities, i.e., Regional Directors, the Registrar of Companies, and the Official Liquidator. The merger process is time bound as well as cost-effective. The approximate time is from 90-100 days only and there is a 30 day limit inflicted on the regulatory authorities. The Fast Track Merger process has expedited the procedure of approvals by removing the second opportunity as earlier given to regulatory authorities to raise objections.

What are the disadvantages of the fast-track merger process?

Until now, there are no prominent disadvantages of this novel concept that is expected to bring relief to small holding companies. The consequent effects of this new concept will be overviewed in the future  and enable the experts to draw relative conclusions accordingly.

This new section has been carefully drafted and entails necessary checks to avoid any misuse of fast-track merger procedures. In addition, it has come out as a welcome move for small holdings, and subsidiary companies as the process is  simple, swift, and time bound. The companies are under  no obligation to follow this process and have the option to even choose a traditional route  as per their desirability.

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