Procedural Aspects of Fast Track Merger

Introduction

Merger and amalgamation are restructuring tool which helps companies in expansion and
diversification of their business and to achieve their underlying objectives. Merger means an
arrangement whereby one or more existing companies merge their identity into another to
form a new entity which may or may not be one of those existing entities.

The Companies Act, 2013 has introduced the concept of ‘Fast Track Merger’ (FTM) for
Small Companies and merger of Holding companies with its wholly owned Subsidiary
Companies. Section 233 of Companies Act, 2013 read with Rule 25 of Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016 deals with the procedure of
FTM.

Applicability of FTM provisions

Notwithstanding the provisions of section 230 and section 232, a scheme of merger or
amalgamation may be entered into between 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.

Section 233 of the Companies Act, 2013 dispenses with the cumbersome and time-
consuming process for mergers and lays down a simple, fast track merger procedure for the
merger of certain companies like holding and subsidiary companies, and small companies.

Small Company [Section 2(85) of the Companies Act, 2013]

'Small Company' means a company, other than a public company, -

i. Paid-up share capital of which does not exceed Rs. 50 lakh or such higher amount as
may be prescribed which shall not be more than Rs. 10 Crore; or

ii. Turnover of which, as per profit and loss account for the immediately preceding financial
year, does not exceed Rs. 2 Crore or such higher amount as may be prescribed which shall
not be more than Rs. 100 Crore:

Provided that nothing in this clause shall apply to –

• A holding company or a subsidiary company;
• A company registered under section 8; or
• A company or body corporate governed by any special Act;
Preliminary Steps before FTM
Check whether each Transferor and Transferee Companies Article of Association permits
for mergers and amalgamation. If not, then alter AOA first.
Appoint at least 2 valuers for valuation of shares of each Transferor and Transferee
Companies. (Not Mandatory Requirement)
Prepare draft scheme of merger, exchange ratio based on valuation,
Steps or Procedural Aspects of Fast Track Merger

1) Convene Board Meeting by each Transferor and Transferee Companies:

• To approve the draft scheme;

• To fix date, time and place for convening of shareholders meeting;
• To fix date, time and place for convening of creditors meeting;

2) Notice of proposed scheme

After the approval of Board of Directors of each Company, the notice of the proposed
scheme inviting objections or suggestions, if any, shall be sent by each transferor and
transferee company in form CAA-9 to the Registrar of Companies ('ROC') and Official
Liquidators where registered office of the respective companies are situated or persons
affected by the scheme along with a copy of the Scheme.

3) Filing Declaration of Solvency with ROC

Each of the transferor and transferee companies involved in merger must file a declaration
of solvency, in form CAA-10, with the ROC where the registered office of the companies are
situated, before convening the meeting of members and creditors for approval of the
scheme.

4) Notice of EGM

The notice of the meeting required to be sent to the members before 21 clear days and it
shall be accompanied by –

• Copy of proposed scheme;

• Statement disclosing the details of merger;
• Declaration of solvency made in Form No. CAA.10;
• Copy of latest audited financial statements of each company;
• Copy of valuation report, if any;
• Any other relevant and material information.

Alternatively, approval in writing from majority representing 90% of the total number of
shares may be taken without conducting general meeting.

5) Members Approval

The objections and suggestions received by the ROC, Official Liquidator and persons
affected by the scheme are considered by the companies in their respective general
meetings and the scheme must be approved by the respective members or class of
members at a general meeting holding at 90% of the total number of shares.

6) Creditors Approval

Both Transferor and Transferee Company required to take approval from creditors either by
way of written approval OR at meeting of creditors specifically called for these purpose.
The notice of the meeting required to be sent to the creditors before 21 clear days and it
shall be accompanied by –

• Copy of proposed scheme;

• Statement disclosing the details of merger;
• Declaration of solvency made in Form No. CAA.10;
• Copy of latest audited financial statements of each company;
• Copy of valuation report, if any;
• Any other relevant and material information.

The scheme is to be approved by majority representing 9/10th in value of the creditors or

class of creditors of respective companies indicated in a meeting.

7) Filing of the Scheme

The draft scheme involving merger must be filled within 7 days of conclusion of meeting of
members and creditors to the following:

• A copy of Scheme and report of the result of each of the meetings with the Regional
Director (R.D) having jurisdiction of Transferee Company.
• A copy of the scheme along with Form CAA 11 shall also be filed with:
• ROC in Form GNL 1;
• Official Liquidator through hand delivery or by registered post or speed post.

8) Approval of Scheme by R.D

On the receipt of the scheme, if the ROC or the Official Liquidator has no objections or
suggestions to the scheme, the Regional Director shall register the same and issue a
confirmation thereof to the companies.

If the ROC or Official Liquidator has any objections or suggestions, he may communicate
the same in writing to Regional Director within a period of 30 days. If no such
communication is made, it shall be presumed that he has no objection to the scheme.

If the Regional Director after receiving the objections or suggestions or for any reason is of
the opinion that such a scheme is not in public interest or in the interest of the creditors, it
may file an application before the Tribunal in Form No. CAA.13 within a period of 60 days of
the receipt of the scheme under sub-section (2) stating its objections and requesting that
the Tribunal may consider the scheme under section 232.

On receipt of an application from the Regional Director or from any person, if the Tribunal,
for reasons to be recorded in writing, is of the opinion that the scheme should be considered
as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may
confirm the scheme by passing such order as it deems fit.

If the Regional Director does not have any objection to the scheme or it does not file any
application under this section before the Tribunal, it shall be deemed that it has no objection
to the scheme.

Where no objection or suggestion is received to the scheme from the ROC and Official
Liquidator or where the objection or suggestion of ROC and Official Liquidator is deemed to
be not sustainable and the Regional Director is of the opinion that the scheme is in the
public interest or in the interest of creditors, the Regional Director shall issue a confirmation
order of such scheme of merger or amalgamation in Form No. CAA. 12.
9) Filing of confirmation order with the ROC

A copy of the order confirming the scheme by the Regional Director shall be filled with the
ROC, within 30 days, in form INC-28, having jurisdiction over the Transferor and Transferee
Company and the ROC shall register the scheme and issue a confirmation to the
companies and such confirmation shall be communicated to the ROC where transferor
company or companies were situated.

Effect of Registration of Scheme:

The registration of the scheme shall have the following effects:

Dissolution of transferor Companies:

Upon The registration of the scheme, Transferor Company shall be deemed to have the
effect of dissolution without process of winding-up.

Transfer of property or liabilities:

Assets and Liabilities of the Transferor Company will be transferred to the Transferee
Company. Any charge created on the properties of Transferor Company will be transferred
to Transferee Company and Transferee Company is liable for repayment of any loans.

Legal Proceeding:

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

Additional Liability:

Where the scheme provides for purchase of shares held by the dissenting shareholders or
settlement of debt due to dissenting creditors, such amount, to the extent it is unpaid, shall
become the liability of the transferee company.

Authorized Capital of Transferee Company:

The Transferee Company shall file an application with the Registrar along with the scheme
registered, indicating the revised authorized capital and pay the prescribed fees due on
revised capital. The fee 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 enhanced authorized capital due to merger or amalgamation.

Conclusion:

The simplification of the process will encourage corporate entities to undertake corporate
restructuring activities and help them in achieve their underlying objectives. The time taken
to complete the merger through court process and the cost involved in it is saved
substantially through these routes.