Fast Track Merger under the Companies Act

Introduction

The provisions of Section 233 of the Companies Act, 2013 (Act) provides a simplified procedure for Merger and Amalgamation of certain companies wherein these companies need not follow the lengthy and complicated procedure as provided under Sections 230 to 232 of the Act. This simplified procedure is called “Fast Track Merger” and Section 233 was notified by the Ministry of Corporate Affairs (MCA) on December 7, 2016. Further, MCA has notified Companies (Compromise, Arrangements and Amalgamation) Rules, 2016 (Rules) on December 14, 2016. The said Rules were further amended in 2021.

Classes of Companies covered under the Fast Track Merger route.

A scheme of merger or amalgamation under section 233 of the Act may be entered into between any of the following class of companies, namely :—

(i) Two or more start-up companies; or
(ii) One or more start-up company with one or more Small Company;
(iii) Merger between two or more Small Companies;
(iv) Merger between a Holding Company and its Wholly-owned Subsidiary Company.

Explanation: For the purpose of this sub-rule “Start-up Company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised 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” 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 ten core rupees and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred 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. (c) a company or body corporate governed by any special Act.

Note: Other types of companies not covered above need to go under the route of Sections 230 to 232 of the Act.

Procedural formalities-Step 1—Board Meeting

Board meeting is to be convened both by the transferor and transferee company to decide and approve the following :—

(a) To approve the Scheme of Merger and authorise a Director/Company Secretary to make an application to the Regional Director.
(b) To fix, time, date and place of meeting of the shareholders.
(c) To appoint valuer for taking certificate for Fair value of share under section 247 of the Act.
(d) To approve latest financial statement, auditor’s report and supplementary financial statements in case the last financial statement is more than 6 months before the date of Board Meeting.
(e) Certificate from Statutory Auditor that the accounting treatment for the proposed Scheme is as per the Accounting Standards.
(f) To approve the Declaration of Solvency by the Directors.
(g) Noting of list of creditors and value of total liabilities towards creditors. Also, to fix time, day and place of meeting of the creditors.

Scheme of Merger should have the following details

(a) Name of the Parties, companies involved, Appointed Date and Effective Date.
(b) Share Exchange Ratio, if applicable and other considerations, if any.
(c) Details of promoters, Directors and KMPs.
(d) Valuation Report received from the Registered Valuer -a summary should be mentioned.
(e) Details of Capital or Debt restructuring, if any.
(f) Amount due to the unsecured creditors.
(g) Rational and benefit derived from the merger and also as perceived by the Board, Members and creditors.
(h) Investigation or proceedings pending, if any against the company.
(i) Disclosure of effect of merger on various KMPs and other Directors/Promoters, if applicable.
(j) Accounting treatment clause as per Accounting Standard 14.
(k) Clause relating to conduct of business by the Transferor company as a Trustee for and on behalf of the Transferee.
(l) Treatment of employees and workers and other contract workers.
(m) Authorised Capital and consolidation of the same upon completion of merger.
(n) Effect of Tax and its consequences.
(o) Date of Board Meetings, Meeting of Member and creditors for approval and its validity.
(p) Dissolution of Transferor Company clause.
(q) Clause stating that the Scheme is conditional and will be effective only after approval.
(r) Provisions for modification.
(s) Effect of non-receipt of approval of the Scheme.
(t) Documents to be listed for Inspection.
(u) Cost of Merger.
(v) Any other matter to be considered for merger.

Notice in Form CAA-9

Pursuant to Section 233(a) of the Act, a notice of the proposed Scheme shall be sent by both the Transferor and Transferee Companies to the Registrar of Companies (RoC) and Official Liquidator (OL) where the Registered office of the respective companies are situated or persons affected by the Scheme, inviting their objections or suggestions on the proposed Scheme. The said Notice shall be in in Form CAA-9. Within 30 days of the issue of the notice of the proposed Scheme, the RoC and OL shall provide their objections and suggestions, if any.

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