Fast Track Mergers in India

“We get talent and scale from mergers”

-Angela Braly

Introduction:

Fast Track Merger (FTM) is defined by Section 233 of the Companies Act of 2013, as well as Rule 25 of the Companies (Compromises, Arrangements, and Amalgamations) Rules of 2016. FTM is a new idea that has been established in India to make doing business easier. The lack of any court intervention has resulted in a significant reduction in the time and expense required for the merger process.

Applicability of FTM:

  • Small companies with a paid-up share capital of less than Rupees 50 lakhs and a turnover of less than Rupees 2 crore as per the most recent accounting books
  • Holding and Wholly Owned Subsidiary Companies, which can be public or private. In addition, if the holding company wants to merge with more than one of its wholly-owned subsidiaries, it must submit multiple applications.
  • Between two or more small companies (not applicable for listed companies).
  • The Companies (Compromises, Arrangements, and Amalgamation) Rules, 2016 may prescribe other classes of companies from time to time.

The below mentioned companies are excluded:

  • Section 8 companies
  • Public companies ( excluding mergers involving holding and wholly owned subsidiary companies)
  • Companies and Body Corporates that are governed by any Special Act.

Parties to the Process:

Two parties are involved throughout the entire merger process:

  • Transferor: The company that is merged or amalgamated with the other company is referred to as transferor company.
  • Transferee: The company into which the transferor company will be merged or amalgamated in the future is referred to as transferee company.

Brief Process of FTM:

  1. The Transferor and the Transferee Company must ensure that their Articles of Association authorize a merger.
  2. A board meeting must be conducted for approval of the draft scheme of merger by the respective companies.
  3. Submitting the proposed merger’s draft plan for public discussion or opposition.
  4. Filing Solvency Declaration with Regional Director or Official Liquidator.
  5. Holding a meeting with the creditors and  members of the company.
  6. Filing the scheme copy and results of the meeting with the Regional Director.
  7. Approval from Regional Director.

Critical Analysis:

The provision for Fast Track Mergers has made the process of merging and amalgamating companies more easier. It has aided in the development of a new restructuring strategy. However, there are some serious concerns and gaps in this area. The involvement of National Company Law Tribunal will be eliminated under this system, and the Registrar of Companies and the Central Government would be given significant powers. If the Regional Director has any reason to believe that the merger is not in the best interests of the public or the creditors, they must file an application with the National Company Law Tribunal and request that the merger be undertaken under Section 232. In this way, the fundamental aim of the ‘fast track merger’ is destroyed. This also lengthens the time it takes to finish the merging process by a factor of several.

Conclusion:

The Fast Track Merger is a positive step because it attempts to complete the procedure as quickly as possible while avoiding the time-consuming judicial processes and regulations. The National Company Law Tribunal was excluded from this scheme, which intended for a quicker resolution. The entire process has also become increasingly cost-effective, with minimal time consumption and almost always uninterrupted operation. The Central Government, on the other hand, plays a crucial role. The success of this initiative will be determined in large part on how innovative and active the Central Government is. The essence of a ‘Fast Track’ Merger will be lost if proposals are simply stacked while waiting for approval.

References:

  1. Divija Kothari, An overview of Fast Track Mergers in India, Blog iPleaders, https://blog.ipleaders.in/overview-fast-track-mergers-india/
  2. Lucy Rana and Rupin Chopra, India: Fast Track Mergers Between Startups & Small Companies, Mondaq, https://www.mondaq.com/india/corporate-and-company-law/1055260/fast-track-mergers-between-startups-small-companies
  3. Jyoti Kohli, Fast track mergers- with all aspects, procedure & difficulties, Taxguru, https://taxguru.in/company-law/fast-track-mergers-aspects-procedure-difficulties.html

Aishwarya Says:

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