[Opinion] Fast Track Merger – Finally on a Faster Track

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  • 3 Min Read
  • By Taxmann
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  • Last Updated on 20 May, 2023

Fast Track Merger

Barsha Dikshit – [2023] 150 taxmann.com 331 (Article)

The objective of promoting ‘ease of doing business in India’ had made the Ministries introduce some really momentous concepts and corresponding changes in the law. One of such move taken by the Ministry of Corporate Affairs (‘MCA’), was the introduction of section 233 of the Companies Act, 2013 (‘Act‘) dealing with the “Merger and amalgamation of certain types of companies” vide notification dated 7th December, 2016, thereby offering an alternative mode to certain classes of companies for entering into scheme of merger or amalgamation.

The idea was to process the scheme of arrangements involving wholly owned subsidiaries or small companies in a cost-effective and comparatively swift way. However, upon the practical implementation of the provision, it was seen that the time taken by the authorities for disposal of such applications and issuing confirmation orders to the schemes was longer than expected and therefore, the provision was losing its relevance.

It is in the backdrop of such delays, MCA, vide notification dated 15th May, 2023 (yet to be published in e-gazette) has introduced certain amendments in the Companies (Compromise, Arrangements, and Amalgamations) Rules, 2016 (‘CAA Rules‘) ensuring faster disposal of applications u/s 233 of the Act. The amendments shall be effective w.e.f. 15th June, 2023.

This article intends to discuss the amendments introduced by MCA and to gauge the effectiveness of the same.

Drawbacks in the pre-amendment provision dealing with fast track mergers

Section 233 of the Companies, 2013 read with rule 25 of the CAA Rules provides an alternate route to the scheme of arrangement(s) to be entered into between the following companies-

(a) two or more small companies;
(b) holding company and its wholly-owned subsidiary
(c) two or more start-up companies; or
(d) one or more start-up companies with one or more small company

Earlier, the companies involved in the scheme of the arrangement were required to invite objections/suggestions, if any from their respective Official liquidator, Registrar of Companies, and from the persons affected by the scheme, within thirty days of sending the notice and thereafter, to hold meeting(s) of their respective members or class of members and creditors or class of creditors, as the case may be, for the purpose of seeking their approval on the proposed scheme.

Within 7 days of getting the requisite approvals from the shareholders and creditors, an application u/s 233 was required to be filed by the transferee company with the Regional Director, having jurisdiction over the transferee company, alongwith the Official liquidator and the Registrar of companies having jurisdiction over the respective transferee and transferor companies. The Regional Director, after receiving objection or suggestion from the Registrar of Companies and official liquidator, if any, was required to issue a confirmation order or file the scheme with the tribunal within 60 days for considering the scheme in terms of section 232 of the Act.

However, since the law did not provide any specific timeline for the Official liquidator and Registrar to issue their reports, it was seen that the time taken by the Official liquidator and Registrar for issuing their report on the scheme to the Regional Director, was comparatively longer than expected, which lead to delay in processing the application and issuing confirmation order by the Regional Director. The chart below shows the status of pending applications u/s 233 of the Act before the Regional Directors as on 31st March, 2022.

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