FAST TRACK MERGER UNDER THE COMPANIES ACT 2013

INTRODUCTION TO FAST TRACK MERGER Restructuring is an important

mechanism and, often, an optimum solution for business overhaul as it strengthens a
company’s market position, increases its profitability, and streamlines its operations.
As economies emerge from the worst of the pandemic, companies across the globe are
aggressively considering realigning their organizational structures to improve
business efficiencies. The term merger has not been defined under the Companies
Act, 2013 (“CA, 2013”) but in commercial terms, a merger is a combination of two or
more existing companies which merge their identities to form a different entity which
can either be one of the existing companies or may not be the existing company but
may form a separate new entity altogether.
Section 233 of the Companies Act, 2013 introduces the globally accepted concept of
Fast Track Merger Process which introduces a slightly simpler procedure for mergers
and amalgamations of certain classes of companies including small companies,
holding and subsidiary companies. Under this process, it enables these companies to
undergo merger and amalgamation procedures quickly, simply and within fixed time
duration.
The Companies Act, 2013 clearly notifies that it applies to all kinds of compromise
and arrangements that involve these companies. The provisions of Section 233 of the
Companies Act, 2013 (Act) provides a simplified procedure for Merger and
Amalgamation of certain companies wherein these companies need not follow the
lengthy and complicated procedure as provided under Sections 230 to 232 of the Act.
This simplified procedure is called “Fast Track Merger” and Section 233 was notified
by the Ministry of Corporate Affairs (MCA) on December 7, 2016. Further, MCA has
notified Companies (Compromise, Arrangements and Amalgamation) Rules, 2016
(Rules) on December 14, 2016. The said Rules were further amended in 2021. With
the objective of promoting the ease of doing business in India, the concept of fast-
track merger was introduced under the Companies Act, 2013. Section 233 of the Act
and Rule 25 of the Companies (Compromises, Arrangements and Amalgamations)
Rules, 2016 offer certain classes of companies an alternative option of merger, with
fewer legal requirements and a quicker approval and registration process. The merger
process set out in the Act, unlike that in the former Companies Act, 1956, is simpler
and swifter. The fast-track merger mechanism offers a costeffective solution, with no
intervention of the National Company Law Tribunal (NCLT); no requirement of a
special audit; and no administrative formalities. Furthermore, the process does not
require any newspaper advertisement or public advertisement announcing the merger.
In comparison to traditional mergers process, the new Act has simplified the
procedures as it no further involves judicial process as concerned with the National
Company Law Tribunal. Now the companies are required to take an approval from
only three regulatory authorities, i.e. Regional Directors, the Registrar of Companies
and Official Liquidator.
WHAT IS THE FAST TRACK MERGER PROCESS?
Section 233 of the Companies Act, 2013 introduces the globally accepted concept of
Fast Track Merger Process which introduces a slightly simpler procedure for mergers
and amalgamations of certain classes of companies including small companies,
holdings, and subsidiary companies. This process enables these companies to undergo
merger and amalgamation procedures quickly, simply, and within a fixed time
duration.
The Companies Act, 2013 clearly notifies that it applies to all kinds of compromises
and arrangements that involve these companies. The draft scheme requires approval
of: -
 Board of Directors of both the companies.
 90% of shareholders (in number) and 90% of creditors (in value). 
Central Government (power delegated to Regional Director) The following are the
mandatory requirements for the facilitation of the fast track merger process: 
The scheme must be filed with the Jurisdictional Registrar of Companies (ROC) as
well as the official liquidator. 
Convening a meeting of members and creditors to obtain approval.
The creditors meeting can be avoided if they readily provide their consent in writing.
The filing of a declaration of solvency by both the involving companies.
Fast Track Merger process has facilitated the procedure by removing the following
requirements: -
 There is no requirement to submit an auditor’s certificate. 
Now, there is no need to file the scheme before the National Company Law Tribunal
(NCLT). 
The estimated period for the fast-track procedure has been allotted to 90-100 days.
The procedural details for the Fast Track Merger process are set down under the
Companies (Compromises, Arrangement & Amalgamation) Rules, 2016. CLASSES
OF COMPANIES COVERED UNDER THE FAST TRACK MERGER ROUTE.
(APPLICABILITY AND ELIGIBILITY) A scheme of merger or amalgamation under
section 233 of the Act may be entered into between any of the following class of
companies, namely:—
1. Two or more start-up companies; or
2. . One or more start-up company with one or more Small Company;
3. Merger between two or more Small Companies;
4. Merger between a Holding Company and its Wholly-owned Subsidiary Company.
Explanation: For the purpose of this sub-rule “Start-up Company” means a private
company incorporated under the Companies Act, 2013 or Companies Act, 1956 and
recognised as such in accordance with Notification number G.S.R. 127 (E), dated 19th
February, 2019 issued by the Department for Promotion of Industry and Internal
Trade.
“Small Company” means a company other than a public company —  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 ten core rupees and  turnover of which as
per profit and loss account for the immediately preceding financial year does not
exceed two crore rupees or such higher amount as may be prescribed which shall not
be more than one hundred crore rupees. Provided that nothing in this clause shall
apply to – a) A Holding company or a subsidiary company b) A Company registered
under Section 8. c) A company or body corporate governed by any special Act. Note:
Other types of companies not covered above need to go under the route of Sections
230 to 232 of the Act.
PROCEDURAL FORMALITIES - STEP 1—BOARD MEETING Board meeting is
to be convened both by the transferor and transferee company to decide and approve
the following:— 1. To approve the Scheme of Merger and authorise a
Director/Company Secretary to make an application to the Regional Director.
2. To fix, time, date and place of meeting of the shareholders.
3. 3. To appoint valuer for taking certificate for Fair value of share under section 247
of the Act.
4. 4. To approve latest financial statement, auditor’s report and supplementary
financial statements in case the last financial statement is more than 6 months before
the date of Board Meeting.
5. Certificate from Statutory Auditor that the accounting treatment for the proposed
Scheme is as per the Accounting Standards.
6. To approve the Declaration of Solvency by the Directors.
7. Noting of list of creditors and value of total liabilities towards creditors. Also, to
fix time, day and place of meeting of the creditors.
SCHEME OF MERGER SHOULD HAVE THE FOLLOWING DETAILS 1. Name
of the Parties, companies involved, Appointed Date and Effective Date. 2. Share
Exchange Ratio, if applicable and other considerations, if any. 3. Details of
promoters, Directors and KMPs. 4. Valuation Report received from the Registered
Valuer -a summary should be mentioned. 5. Details of Capital or Debt restructuring, if
any. 6. Amount due to the unsecured creditors. 7. Rational and benefit derived from
the merger and also as perceived by the Board, Members and creditors. 8.
Investigation or proceedings pending, if any against the company. 9. Disclosure of
effect of merger on various KMPs and other Directors/Promoters, if applicable. 10.
Accounting treatment clause as per Accounting Standard 14. 11. Clause relating to
conduct of business by the Transferor Company as a Trustee for and on behalf of the
Transferee. 12. Treatment of employees and workers and other contract workers. 13.
Authorised Capital and consolidation of the same upon completion of merger. 14.
Effect of Tax and its consequences. 15. Date of Board Meetings, Meeting of Member
and creditors for approval and its validity. 16. Dissolution of Transferor Company
clause. 17. Clause stating that the Scheme is conditional and will be effective only
after approval. 18. Provisions for modification. 19. Effect of non-receipt of approval
of the Scheme. 20. Documents to be listed for Inspection. 21. Cost of Merger. 22. Any
other matter to be considered for merger. NOTICE IN FORM CAA-9 Pursuant to
Section 233(a) of the Act, a notice of the proposed Scheme shall be sent by both the
Transferor and Transferee Companies to the Registrar of Companies (RoC) and
Official Liquidator (OL) where the Registered office of the respective companies are
situated or persons affected by the Scheme, inviting their objections or suggestions on
the proposed Scheme. The said Notice shall be in in Form CAA-9. Within 30 days of
the issue of the notice of the proposed Scheme, the RoC and OL shall provide their
objections and suggestions, if any.
PROCEDURE UNDER THE FAST TRACK MERGERS & AMALGAMATION
The procedure under the Fast Track Mergers & Amalgamation may be summarized as
below:
1. There must be power to amalgamate with other companies in the Memorandum of
Association (MOA) of the companies seeking to merge. If not such power provided in
the MOA then as a first step get the MOA to be amended to insert the provision
empowering the company to get itself merged with one or more other companies.
2. Transferor and transferee companies needs to prepare the Provisional Financials
statements as on the date.
3. Transferor and transferee companies needs to prepare the Draft Scheme of Merger.
4. Board Meeting needs to be convened to approve the Merger Scheme. In the same
meeting form CAA 9 needs to be furnished which companies needs to send it to
Registrar of Companies (ROC) and Official Liquidator (OL).
4. As per Rule 25 Sub rule (1), filing of Notice of proposed scheme to ROC &
official Liquidator for Inviting their rejections/Suggestions, if any in Form CAA-9.
5. 6. Revert from ROC on Suggestions/ Objections, if any-Roc will take 30 days to
give objections/ suggestion.
6. 7. Revert from Official Liquidator on Suggestions/ Objections, if any-OL will take
30 days to give objections/ suggestion.
7. 8. If the central government considers that the scheme is not in the public interest
or in the interest of the creditors, it may file an application before the NCLT within 60
days of the receipt of the scheme, stating its objections and requesting that the NCLT
may consider the scheme under section 232 of the Act. If the central government has
no objection or it does not file any application before the NCLT, it is deemed that it
has no objection to the scheme.
8. 9. As per Rule 25 Sub rule (2), Declaration of Solvency CAA-10 to be filed by the
Companies with ROC. (Declaration of solvency has to be filed with ROC before
sending the notice for convening the meeting of creditors & members).
9. 10. The scheme must be approved by the following classes of persons: a)
Shareholders holding 90 percent of the total number of shares at the general meeting
and b) Creditors or class of creditors representing 9/10th in value after a 21- day
notice along with the scheme to the creditors
10. 11. NOC from Creditors (Secured & Unsecured) - NOC to be dated after filing of
CAA-10 and before EGM for final approval of Scheme.
11. 12. Transferor and transferee companies needs to convene the Board Meeting to
call the EGM.
12. 13. As per Rule 25 Sub rule (3), Notice of General Meeting-Notice of the meeting
should be accompanied with Declaration of Solvency & Detailed statement, CAA-10.
13. 14. General Meeting for approval of scheme-The scheme of merger & Objections
or suggestions received from ROC & Official liquidator, if any will be considered in
this meeting & the scheme will be approved. Section 233 does not provide for the
obtainment of consents from the shareholders in writing and therefore, the meeting of
the shareholders is required to be held for all the companies involved in the scheme of
merger, primary for consideration of the objections/suggestions to the scheme raised
by the regulatory bodies/affected persons to whom notice is issued in Form CAA-9
14. 15. As per Section Sec 233 (4), Approval of the scheme by creditors 9/10th in
value of companies either in Meeting or otherwise approved in Writing-Written
consent to be obtained from the creditors in place of convening the meeting of the
creditors. 16. Filing of Form MGT-14 for submission of Shareholders resolution. 17.
Intimation of the approved scheme has to be send to all the regulatory authorities. 18.
As per Rule 25 Sub rule 4(a), Submission of Form CAA -11 (Notice of approval of
the scheme of merge) in Form GNL -1 to ROC-Within 7 days after Conclusion of
General Meeting, and Should contain a detailed statement as required in GNL-1. (This
has to be submitted only by the transferee company for both the companies). 19.
Submission of Form CAA -11, manually to Official liquidator and Regional Director-
Within 7 days after Conclusion of General Meeting (This has to be submitted only by
the transferee company for both the companies). 20. Regional Director will send the
questionnaire which needs to be answered within 7 days by the transferee company.
21. Upon the receipt of the scheme, and in the event of any objections or suggestions,
the ROC or the OL shall intimate the same to the RD, within 30 days. 22. After
consideration of the submissions made by the company Regional director may reject
or approved the scheme. 23. As per Rule 25 Sub Rule (6), Order for approval of the
scheme will be received in Form CAA12. (Order has to be expected within 60 days as
the time limit for filing application with Tribunal for rejection of application is 60
days.) 24. As per Section 233(7), Filing of INC-28 for the order received-Within one
month of Order received for the approval of the scheme. ORDER: If the ROC or the
OL has not raised any objections, the scheme shall be registered and confirmation of
the scheme in Form CAA-12 shall be issued by the RD. However, in the event of such
objections or suggestions being raised and the RD is of the opinion that the scheme is
against public interest and the interest of the creditors, in such a case, the RD shall
make an application before the NCLT within 60 days from the date of receipt of the
scheme, expressing the objections. The NCLT shall based on the objections, decide as
to whether the scheme shall be considered and approved according to Section 232,
i.e., through NCLT route or may pass an order confirming the scheme, as the NCLT
may deem fit. The transferee company shall file the confirmation within 30 days from
the date of receipt of the order of confirmation in Form INC-128, along with the
applicable fees, with the jurisdictional ROC. EFFECTS OF REGISTRATION OF
SCHEME The registration of the scheme has the following effects: a. Property or
liabilities are transferred to the transferee company and become properties and
liabilities of the transferee company. b. The charges (if any) on the property of the
transferor company are applicable and enforceable as the charges on the property of
the transferee company. c. Legal proceedings by or against the transferor company are
continued by or against the transferee company. d. Where the scheme provides for
purchase of shares of the dissenting shareholders or settlement of debt due to
dissenting creditors, such amount, to the extent unpaid, becomes the liability of the
transferee company.
POST-MERGER EFFECTS & COMPLIANCES
The registration of the scheme shall have the following effects, namely:
a) Transfer of property or liabilities of the transferor company to the transferee
company;
b) 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;
c) Legal proceedings by or against the transferor company pending before any court
of law shall be continued by or against the transferee company;
d) Surrender of PAN, IEC, GST, ESI, and PF of the transferor company to the
concerned Authorities.

CONCLUSION The introduction of fast-track merger and the various amendments to

expand its scope have provided much-needed relief to small companies and startups.
However, clarity is still required on some provisions of this mechanism. Section 233
of the Act does not specifically prescribe whether a step-down subsidiary can fall
under the ambit of fast-track merger. Further, in the absence of any definition of
wholly owned subsidiary, the interpretation is driven from other statutes and judicial
pronouncements, which causes ambiguity. Further, clarity is needed on the wider
applicability of the mechanism to associate companies or indirect holding companies
and Section 8 companies. The framework governing the corporate restructuring of
companies has been simplified and has been made facilitative with the introduction of
the concept of fast track mergers and is a welcome move. The erstwhile legal
framework, with respect to mergers and acquisitions, required the intervention of
courts and was a long drawn and expensive procedure. However, the inability of the
regulators to adhere to the timeline of 30 days prescribed under Section 233 of CA,
2013 and lack of consensus, different interpretations of Section 233 by different RDs
may make the fast track mergers unattractive as due to which the time taken for a
merger under fast track route is at times similar to the time taken by NCLTs under
Section 232 of the CA, 2013.