Amendments to the current Fast-track Merger Scheme
On 15 May 2023, the Ministry of Corporate Affairs (MCA) had issued a notification amending (Amendment) Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 ("CAA Rules 2016"), which along with Section 233 of the (Indian) Companies Act 2013 (CA 2013) prescribes the procedure for 'Fast Track Merger' (FTM) in India. This Amendment will be effective from 15 June 2023.
The scheme for FTM under the CA 2013 and the CAA Rules 2016 provides for an expedited process of merger between the following:
- Two or more small companies; or
- Two or more start-up companies; or
- One or more start-up company with one or more small company; or
- Holding companies and their wholly-owned subsidiaries.
The Amendment has significantly reduced the timelines for consummation of an FTM. An overview of the Amendment and its impact on the overall steps required to be undertaken to consummate a FTM, are as follows:
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S. No. |
Relevant FTM steps. |
Position prior to the Amendment. |
Position after the Amendment. |
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1. |
Approval of the scheme by the Official Liquidator (OL) and the Registrar of Companies where registered office of the respective companies are situated (ROC). |
Following approval of the scheme by members and creditors of both transferor and transferee company, the transferee company shall file a copy of the approved scheme with the Central Government, ROC and the OL. In the event the ROC or the OL has any objections / suggestions to the scheme, they may communicate the same to the Central Government within 30 days. Usage of the term "may" posed a hurdle and led to delays amongst the relevant authorities and vis-à-vis the applicant entities |
To streamline the process, a strict time limit of 30 days (counted from receipt of the scheme) has been specified within which the ROC and the OL are required to submit their objections (if any) to the Central Government. |
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Case 1: In the event no suggestions/objections received by the Central Government. In absence of any suggestions or objections from the ROC or OL within 30 days, it will be presumed that they have no objections to the scheme and the Central Government shall thereafter issue an order confirming the scheme. However, no timeline was prescribed for the Central Government to pass a confirmation order, in case objections were not received within 30 days. |
If no objections to the scheme are received from the ROC or OL within 30 days, then the Central Government may issue an order confirming the scheme within 15 days (counted from the expiry of the 30 days of receipt of objections from the ROC or OL). From the language of the legislation, it appears that this is not a strict time-limit but rather a prescriptive one. |
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Case 2: In the event there are suggestions/objections received by the Central Government but deemed to be unsustainable. If objections/suggestions are received within 30 days but are considered to be unsustainable, and the Central Government is satisfied that the scheme is in public interest and creditors' interest, then it shall issue an order confirming the scheme. However, no timeline was prescribed for the Central Government to pass a confirmation order, in case objections were deemed to be unsustainable. |
If objections / suggestions are received but considered to be unsustainable, and the Central Government is satisfied that the scheme is in public interest and creditors' interest, then it may issue an order confirming the scheme within 30 days (counted from the expiry of the 30 days of receipt of objections from the ROC or OL). From the language of the legislation, it appears that this is not a strict time-limit but rather a prescriptive one. |
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2. |
Approval of the scheme by the Central Government. |
If the Central Government is of the opinion that the scheme is not in public interest or in the creditors' interest, then it may apply to the NCLT to consider the scheme under section 232 (the traditional merger route). If the Central Government does not file any application before the NCLT within 60 days (from receipt of the scheme), it is presumed that it has no objections and shall be deemed to have approved the scheme, and the scheme is then registered by the Central Government. Thereafter, the ROC shall issue a confirmation of the scheme to the companies concerned. |
If the Central Government is of the opinion that the scheme is not in public interest or creditors' interest and should be considered under section 232 (the traditional merger route), it may file an application before the NCLT stating its objections within 60 days of receipt of the scheme. |
Comments and Conclusion
The Amendment surely is a welcome move since it eliminates (at least on paper), any possibility for delay in receiving responses from jurisdictional authorities (like the ROC and the OL) and is an encouraging prospect in implementation for applicants. One can be hopeful that the Amendment would facilitate inorganic growth for the MSME sector and start-up companies by striking a balance between regulatory certainty and safeguarding the interests of the public and creditors.
That said, there are certain aspects of the Amendment where more clarity would have been helpful. For instance, there are no directives or instructions from the MCA yet whether this Amendment would serve to extend to companies which are already undergoing fast track merger or would remain confined only to companies applying for authorisation post 15 June 2023. Moreover, the Amendment's practical implementation will need to be observed.
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