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Fast Track Merger: One more step towards simplifying law

Published: Jul 12, 2017

By Vandana Goel

An overview :

Merger simply means an arrangement whereby one or more existing companies merge their identity into another existing company or form a distinct new entity.

Fast Track Merger (FTM) is a welcome step provided under Companies Act, 2013. This is the first significant change to merger and amalgamations regime in the last six decades with an option to follow the normal route of merger process, if the company desires.

There was a long felt need to simplify and fast track the procedure for mergers of

i) holding company and its wholly-owned subsidiary Company or

ii) Merger of Two or More Small Companies* or

iii) Such other class or classes of companies as may be prescribed;

Because the abovementioned companies have to follow long and cumbersome procedure like big companies resulting in unnecessary hassle and waste of time.

*As per section 2( 85 ) "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 five crore rupees; AND

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

The Act clarifies that this fast track process shall apply not just to mergers but also to all types of compromise & arrangements involving these companies.

Provisions of section 230 to 232 of the Act for Merger & Amalgamation is very time consuming and cumbersome activity, as it includes clearance from many regulatory bodies and all types of companies have to go through such route. Under the fast track process, the Central government (Regional Director) has the power to approve such scheme and there is no need to approach NCLT.

Section, Rules, Notification and circular involved and forms to be filed

Section 233- Merger or Amalgamation of certain companies. This section came into force w.e.f. 15 th December, 2016.

Rule 25 Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

[1] Notification No. S.O. 3677(E), Dated 7 th December, 2016 (section become effective)

[2] Notification No. S.O. 4090(E), Dated 19th December, 2016 ([3] Delegation of Power)

The Ministry vide its Circular No. 30/2014 dated 17 th July, 2014 clarified that transactions arising out of Compromises, Arrangements and Amalgamations are dealt with specific provisions of Companies Act, 2013/ 1956, thus will not attract the requirements of Section 188 of the Companies Act, 2013.


CAA.9- Notice of the scheme inviting objections or suggestions

CAA.10 – Declaration of solvency

CAA.11 Notice of approval of the scheme of merger

CAA.12 Confirmation order of scheme of merger or amalgamation between

INC.28 Notice of Order of the Court or any other competent authority

GNL-1 Filing of Application with ROC

To whom Scheme for Fast Track Merger will submit: Section 230(2)

Companies shall file application with following below mentioned authorities in whose jurisdiction registered office of the Company is situated.

- Central Government (Powers are delegated to Regional Director)

- Registrar and

- The Official Liquidator


Filing of Notice of Proposed Scheme

i. Issue of Notice of Proposed Scheme: A notice in form CAA-9 of the proposed scheme inviting objections or suggestions, if any, shall be sent to following:

- Registrar of Companies, where registered office of the respective companies are situated

- Official Liquidators, where registered office of the respective companies are situated

- Persons affected by the scheme

Above mentioned all persons send their objections/ suggestions to Company within 30 (Thirty) days of the issue of notice to them, by the transferor company or companies and the transferee company.

ii. Declaration of Solvency: Each of the companies involved in the merger files a declaration of solvency, in form CAA-10 with the Registrar of the place where the registered office of the company is situated.

iii. Approval from Shareholders in General Meeting: The Companies will hold Meeting of shareholders in following manner:

The objections and suggestions received are considered by the companies in their respective general meetings;

The scheme should be approved by members present in the meeting, holding at least 90% of total number of shares in the General Meeting.

The notice of the meeting to the members shall be accompanied by –

A statement disclosing the details of the compromise or arrangement, as far as applicable.

The declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in Form No. CAA.10

A copy of the Scheme.

iv. Approval from Creditors in their Meeting: The Companies will hold Meeting of Creditors. The scheme should be approved by creditors or class of creditors present in the meeting, representing at least 9/10 of value of creditors.The notice of the meeting shall be convened by giving at least 21 days notice to the members and notice shall be accompanied by –

A statement disclosing the details of the compromise or arrangement, as far as applicable.

The declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in Form No. CAA.10;

A copy of the Scheme.

Dispensation from the Meeting

If 90% in value of creditors agree by way of affidavit then meeting of creditors can be dispensed.

Filing of Scheme with Central Government (RD)/ ROC/OL

The transferee company shall within 7 days after the conclusion of the meeting of members or class of members or creditors or class of creditors file -

- A copy of the Scheme so approved by the members and creditors along with

- A report of the result of each of the meetings in Form No. 11 to the Central Government (RD) .

Filing to whom:

- Central Government (RD)- through hand delivery or by registered post or speed post

- Registrar of Companies (ROC) – in Form No. GNL-1

- Official Liquidator (OL)- through hand delivery or by registered post or speed post

Registration of Scheme

On the receipt of the scheme if the Registrar or Official Liquidator has any objections or suggestions he may communicate the same in writing to the Central Government (RD) within a period of 30 days.

Issue of Order:

- Where no objection or suggestion is received to the scheme from the Registrar of Companies and Official Liquidator or

- Where the objection or suggestion of Registrar and Official Liquidator is deemed to be not sustainable and

The Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, the Central Government shall issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12.

Filing of Order

Registrar of Companies:

The confirmation order of the scheme issued by the Central Government shall be filed, within 30 days of the receipt of the order of confirmation, in Form INC-28 with the Registrar of Companies having jurisdiction over the transferee and transferor companies respectively.

Person Concerned:

The confirmation order of the scheme issued by the Central Government shall be filed, within 30 days of the receipt of the order of confirmation, concerned person.

Confirmation by ROC

The Registrar shall register the scheme and issue a confirmation thereof to the companies and such confirmation shall be communicated to the Registrars where Transferor Company or companies were situated.

Miscellaneous- Effect of Registration of Scheme

Dissolution of transferor Companies: The registration of the scheme transferor Companies shall be deemed to have the effect of dissolution without process of winding-up.

Other Effects:

i. Transfer of Property or Liabilities: Transfer of property or liabilities of the transferor company to the transferee company so that the property becomes the property of the transferee company and the liabilities become the liabilities of the transferee company.

ii. Charge: 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.

iii. 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.

iv. Another important 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.

Transferee Company Compliances

Important Condition for Transferee Companies: A Transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished on the merger or amalgamation.

Authorized Capital:

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.

Note on Fee:

The fee, if any, paid by the transferor company on its authorized capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its authorized capital enhanced by the merger or amalgamation.

Conclusion: Hopefully, the procedures ought not turn out to be a stumbling block for the fast track merger!

(Author is a Practicing Company Secretary)