Fast Track Merger
The provisions of Section 233 of Companies Act, 2013 provide a simplified procedure for the merger of companies by saving them from the rigorous and complicated procedure provided under Section 230 of the Act, 2013. Earlier, all companies shall have to opt for the High Court route.
Eligible Companies:
The merger between the following types of the companies can be possible under section 233 of the Act, 2013:
- Merger between two or more Small Companies; or
Therefore, merger and amalgamation is not possible between Small and Other than Small Companies under this Section. Further, this option is not meant for Public Company, Section 8 Company and the Company or body corporate governed by any special Act as these companies are excluded from the definition of Small Companies under Section 2(85).
- Merger between a Holding Company and its Wholly-Owned Subsidiary Company; or
A holding company may use this section for Merger or Amalgamation with its wholly-owned subsidiary company. Here, holding company and its wholly-owned subsidiary company can be public or private company or it may be Section 8 Companies but does not include Company or Body Corporate governed by any Special Act.
Further, it seems from the text of Section 233 that if the holding company desires to merge with more than one of its wholly-owned subsidiary, it has to make more than one application. The consolidated one scheme cannot be filed under this section.
- Such other prescribed class or classes of Companies.
However, the rules under Companies (Compromise, Arrangement and Amalgamations) Rules, 2016 have been enforced from the 15.12.2016 by the MCA notification dated 14.12.2016, but these does not define the other prescribed class or classes of Companies.
Conditions:
- A notice of the proposed scheme inviting objections or suggestions from the Registrar and Official Liquidators shall be sent by both the Transferor and Transferee Companies.
- Both the Transferor and Transferee Company shall file a Declaration of Solvency in Form CCA-10 with the Registrar of the place where the registered office of the Company is situated.
- Such objection or suggestions received are considered by the Transferor and Transferee Companies in their respective General Meetings.
Such scheme must be approved by the members or class of members the General Meeting holding at least 90% of the total number of shares
On the reading of this clause it seems that 90% of the Total Number of Shares in Capital to be considered which seems confusing. It may also be possible that members holding 90% shares might not be present in the meeting.
The provision also does not consider the majority in the meeting,therefore, a member holding 90% alone may also get the scheme passed. Or the provision is trying to define the quorum of the meeting which shall include members holding at least 90% of the total number of shares.
It is suggested that till the MCA has not given any clarification or any order of Tribunal or High Court or Supreme Court, the 90% of total share should be calculated on the total number of shares held by the members present in the Meeting which gives more clear meaning to the provision.
- Creditor’s Approval:
- By Meeting: Such Scheme shall also be approved by the majority representing 9/10th in value of creditors or class of creditors of the respective companies indicated in a meeting convened by the company by giving a notice of 21 clear days; or
- Without Meeting: Such Scheme shall also be approved in writing by the majority representing 9/10th in value of creditors or class of creditors of the respective companies.
In such a case, no Meeting of Creditor will be required.
Notice
The Notice given to the shareholders or creditors or any class of them, shall be accompanied by:
- Copy of the proposed Scheme;
- Statement disclosing the details of merger or amalgamation;
- Copy of valuation report, if any;
- Explanation stating the effect of the scheme on Creditors, Key Managerial Persons (KMP), Promoters and Non-promoter members and debenture holders and effect on any material interests of the directors of the companies or the debenture trustees;
- A declaration of Solvency in form CAA-10; etc.
Notice shall also be published on the website of the company, if any. In case of listed company, these documents shall be sent to the SEBI and Stock Exchanges where the securities of the company are listed. Such notice shall also required to be published in newspaper.
In case of newspaper advertisement of Notice, it shall indicate the time within which copies of the scheme shall be made available to the concerned persons. The copies of notice shall be made available to the concerned person free of charge from the Registered Office.
Filing of Approved Scheme:
The transferee company shall file a copy of the approved scheme along with the result of each meeting of Shareholders’ Meeting or the Creditors’ Meeting, in form CCA-11 with the Central Government (the power has been delegated to the Regional Director by the MCA notification dated 19th December, 2016) within 7 days from the date of the meeting.
Such scheme shall also be file along with form CAA-11 in form GNL-1 with Registrar of Companies and Official Liquidator through hand delivery or by registered post or speed post.
Approval of Scheme
Registrar of Companies and Official Liquidator may give objections or suggestions, if any, to the Central Government (Regional Director) within 30 days. However, where no objections or suggestions have been made, it shall be presumed that they has no objection to the Scheme.
Where Registrar of Companies and Official Liquidator have not given any objections or suggestions or the objections or suggestions have been given deemed to be not sustainable and Central Government (Regional Director) is of opinion that the scheme is in public interest or in interest of creditors, Central Government (Regional Director) shall confirm the scheme in Form No. CAA-12.
On the basis of objections or suggestions made by the Registrar of Companies and Official Liquidator or otherwise, Central Government (Regional Director) is of opinion that the scheme is not in public interest, it may file an application before the Tribunal in Form No. CAA-13 within 60 days of the receipt of the scheme stating its objections or opinion and requesting that Tribunal may consider the scheme under section 232 of the Act.
Filing of Order:
The order approving the scheme shall be filed inform form INC-28 with the Registrar of Companies within 30 days having jurisdiction over the transferee and transferor company.
Effect of the Scheme:
The registration/confirmation of Scheme shall be deemed to have the effect of dissolution of the transferor company without process of winding up.
All the properties or liabilities of the transferor company shall be transferred and become the properties or liabilities of the transferee company.
The charges, if any, on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company;
The legal proceedings by or against the transferor company pending before any court of law shall be continued by or against the transferee company;
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
On merger, the share capital held by the transferee company in the transferor company would have to be cancelled and cannot be allotted to any trust either on its behalf or on behalf of any of its subsidiary or associate company.
Post Merger:
The transferee company shall file an application with the Registrar along with the approved scheme, indicating revised authorized capital. The transferee company is not required to pay fee on the revised authorized capital to extent of the fee paid by the transferor company before the merger and amalgamation.
The concerned companies may, at their discretion, opt to undertake such schemes under sections 230 to 232 of the Act, including where the condition prescribed in clause (d) of sub-section (1) of section 233 of the Act has not been met.
Conclusion:
Fast Track Merger is a new insertion in the corporate laws lexicon by Section 233 of the Companies Act, 2013. However, demerger is not possible under this Section. Only public companies who enjoy the relation of holding and wholly owned subsidiary, can take the benefit under this Section. Other than that no public companies are allowed to go for Fast Track Merger.
The new provisions of Section 233 of Companies Act, 2013 will surely bring ease in doing business as now, the Regional Director can approve the Merger and companies are not required to apply to Tribunal or Court. However, the approval at multiple level may defeat the meaning of Fast Track Merger.
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