The Ministry of Corporate Affairs, vide a notification dated May 15, 2023, notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 20231 ("Amended Rules") to streamline certain parts of extant merger and amalgamation process under the Companies Act, 2013 ("Companies Act"); and consequently amend the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
Currently, companies that are desirous of merging are required to draft and approve a scheme in relation to the same ("Scheme"). Thereafter, an application is required to be made to the National Company Law Tribunal ("NCLT") and notices of the meeting of members/creditors (to accord sanction to the Scheme) are served and advertised. Once such a meeting is conducted, a report of the result thereof is required to be submitted to the NCLT for its consideration and a petition is presented to it for the sanction of the Scheme.
Thereafter, the NCLT fixes a date for the hearing of the petition and advertises a notice of the same. Ultimately, upon consideration of several facets relating to the merger, the NCLT may choose to sanction the merger and include such additional directions regarding any matter as it deems fit to make for the proper working of the compromise or arrangement.
The Companies Act also provides for a slightly altered, 'fast-track' iteration of the aforesaid process in relation to the mergers and amalgamations of certain special classes of companies; namely: (i) two or more start-up companies; (ii) one or more start-up companies with one or more small company; (iii) two or more small companies; and (iv) a holding company and its wholly owned subsidiary company.
This 'fast-track process' may be undertaken subject to: (i) a notice inviting objections/suggestions to the proposed Scheme (from the Registrar of Companies ("ROC"), Official Liquidators and persons affected by the Scheme) being issued by the concerned companies; (ii) the objections/suggestions being considered in the respective general meetings of the companies; (iii) the Scheme being approved by the respective members/class of members (holding at least 90% of the total number of shares) at a general meeting; (iv) declarations of solvency being filed by the companies with the respective ROCs; and (v) the Scheme being approved by a majority representing 9/10th in value of the creditors/class of creditors of the respective companies, indicated in meetings convened by the companies in the stipulated manner or otherwise approved in writing.
Where No Objections/Suggestions are Received from the ROC/Official Liquidator
The aforesaid 'fast-track' process requires that the transferee company file a copy of the Scheme approved in the manner detailed in Section 233 of the Companies Act with the Central Government, the ROC and the Official Liquidator, where the registered office of the company is situated. The Amended Rules will grant the Central Government the power to confirm a Scheme in the event: (i) no objection/suggestion is received from the ROC/Official Liquidator within a period of 30 (thirty) days of receipt of a copy of the Scheme under Section 233(2) of the Companies Act; and (ii) the Central Government is of the view that the Scheme is in the public interest or in the interest of creditors. Such confirmation may be granted by way of a confirmation order (in Form No. CAA 12) within a period of 15 (fifteen) days from the expiry of the aforesaid 30 (thirty) days.
The Amended Rules also provide that in the event the Central Government does not issue the confirmation order within a period of 60 (sixty) days of the receipt of the Scheme, it would be deemed that it has no objections to the Scheme and a confirmation order shall be issued accordingly.
Where Objections/Suggestions are Received from the ROC/Official Liquidator
In the event the Central Government receives objections/suggestions from the ROC and/or the Official Liquidator within a period of 30 (thirty) days of receipt of copy of Scheme and:
- The Central Government finds that the objections/suggestions of the ROC/Official Liquidator are not sustainable, and the Central Government is of the opinion that the Scheme is in the public interest or in the interest of creditors, it may within a period of 30 (thirty) days after the expiry of the 30 (thirty) days referred to hereinabove, issue a confirmation order of such Scheme (in Form No. CAA 12);
- The Central Government is of the opinion, for any reason, that the Scheme is not in the public interest or in the interest of the creditors, it may within 60 (sixty) days of the receipt of the Scheme file an application before the NCLT (in Form No. CAA 13) stating the objections or opinion and requesting that the NCLT may consider the Scheme under Section 232 of the Companies Act.
If the Central Government does not issue a confirmation/file any application in the manner detailed hereinabove within a period of 60 (sixty) days of the receipt of the Scheme, it would be deemed that the Central Government does not object to the Scheme and a confirmation order would be issued accordingly.
While the 60 (sixty) day upper limit is a welcome way to ensure that the 'fast-track process' does indeed remain fast, the determination of what is in the best interest of the public—a discretion more commonly reserved for the judiciary—has largely been delegated to the executive branch. Thus, the efficiency of the 'fast-paced process' would inevitably be linked to the attitude of both present and future governments towards the ease of doing business in India. However, it is also pivotal to note that the NCLT is required to be approached by the Central Government in the event it finds that a Scheme is not in the public interest. Overarchingly, this will reduce both, the expansive case backlog of the NCLT and the average duration that such a merger typically takes currently.
Footnote
1. Notification No. G.S.R. 367(E) dated May 15, 2023.
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