The merger provides for a more cost-effective, integrated structure for managing an important body of work - Bruce Perry
Section 233 of the Companies Act, 2013 deals with the fast track mergers and amalgamation. The section provides that the merger of a certain class of companies can be done in accordance with the provision contained in Section 233 of the Companies Act, 2013 as the section provides for the procedure of the fast track merger.
Merger in a corporate world means when two companies whether two altogether different companies or a holding company and a subsidiary company merges into one company. The merger requires a complete restructuring of the company as the two companies are merged into one single entity. As a result of the merger of two companies either a new entity is formed or is merged into the entity of one of the merging company.
Sections 230 to 232 of the Companies Act provides for the cumbersome and time-consuming procedure of merger. The sections provided that all types of companies going through merger have to obtain the clearances from the regulatory bodies. Whereas the section 233 of the Companies Act, 2013 which has been added in the act on 15 December 2016 deals with the fast track mergers of two or more small companies or between a holding company and its wholly-owned subsidiaries.
Thus, under section 233 of the companies act only the small companies and holding companies as defined under the sections 2(85) and 2(46) of the act can go through the process of fast-track merger. All other companies including all the public companies have to follow the procedure under section 230 to 232 of the act for the process of merger.
Procedure of Fast Track Merger
Following is the procedure which the companies have to follow for the fast track merger under the Section 233 of the Companies Act, 2013 -
Step 1 : Convene a Board Meeting : Both the transferee and transferor company has to convene a board meeting to initiate the process of a fast track merger. The board meeting so convened has to pass following board resolutions :
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Approval of the scheme of fast track merger,
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To fix the date, time and place for convening the meeting of shareholders,
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To fix the date, time and place for convening the meeting of creditors.
Step 2 : Notice of Proposed Scheme : The next step in the process of fast track merger after holding the board meeting is to give notice of the proposed scheme of merger. It is required under Section 233 of the Companies Act that a notice inviting objections or suggestions to the fast track merger shall be sent to the office of Registrar of Companies (ROC) or to the office of official liquidators where registered office of the respective companies are situated or persons affected by the scheme along with a copy of the Scheme.
Step 3 : Filing a declaration of solvency with ROC : Both the transferee and transferor company has to a file a declaration of solvency with the office of ROC as the next step in process of fast track merger as provided under the Section 233 of the Companies Act, 2103. The notice has to be filed in a prescribed form and manner before the meetings of shareholder and creditors are convened for the approval of the scheme of fast track merger.
Step 4 : Convening a meeting of shareholders : Both the transferee and transferor company has to convene a meeting of members or shareholders and a notice for the meeting has to be sent to the members. The notice of a meeting must contain the following information :
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A statement disclosing the details of the arrangement or compromise, as referred to in Section 230(3) of the Act read with the sub-rule (3) of rule 6 of the Rules.
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Declaration of solvency made in Form No. CAA 10. The form should be cleared at least 21 days before the date of a meeting, and
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Copy of Scheme.
If any objections or suggestions have been received by the company from the office of ROC or the Official Liquidator or by the persons who are affected by the arrangement of the scheme have to be considered by the company in their respective general meetings and the scheme is approved by the respective members or class of members at a general meeting holding at 90% of the total number of shares.
Step 5 : Convening creditors meeting : The next step in the process of fast track merger under section 233 of the Companies Act, 2013 is that both the transferee and the transferor company have to convene a meeting of creditors for their approval to the scheme of merger. A notice has to be sent to the creditor before convening the meeting and the notice must include :
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A statement disclosing the details of the arrangement or compromise, as referred to in Section 230(3) of the Act read with the sub-rule (3) of rule 6 of the Rules.
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Declaration of solvency made in Form No. CAA 10. The form should be cleared at least 21 days before the date of a meeting, and
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Copy of Scheme.
The scheme of the merger has to be approved by a majority of the creditors representing 9/10 of the creditors or class of creditors present in the meeting.
Step 6 : Filing of the Scheme : Section 233 of the Companies Act, 2013 provides that this step of the fast track merger has to be done only by the transferee company. A copy of the scheme has to be submitted along with the result of each of the meetings with Regional Director. A copy of the scheme along with the form CAA 11 within seven days from the conclusion of the meeting of members or creditors to the office of ROC having jurisdiction in the form GNL 1 and to the office of Official Liquidator through hand delivery or by speed post or registered post.
Step 7 : Approval of Scheme by Regional Director : The next step is to get the approval for the scheme of fast track merger from the Regional Director. Following are the steps involved in getting the approval of regional director :
If on receiving the copy of scheme, the ROC or the official liquidator has no objection or suggestion to the scheme then the same shall be registered by the Regional Director and he will issue the confirmation to the merging companies.
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If on receipt of the scheme the ROC or official liquidator has some objections or suggestions to the scheme he may communicate the same to the Regional Director in writing within a period of thirty days. If no such communication is made by the ROC or the official liquidator it shall be assumed that there is no objection to the scheme.
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If objections or the suggestions have been received by the Regional director in due time and after receiving the same he is of the opinion that the objection or suggestion is not in the public interest or is not in the interest of the creditors then he may file an application before the Tribunal in Form No. CAA.13 within a period of sixty days of the receipt of the scheme under sub-section (2) stating its objections and requesting that the Tribunal may consider the scheme under section 232.
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On receipt of an application from the Regional Director or from any person, if the Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit.
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If the Regional Director does not have any objection to the scheme or it does not file an application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme.
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Where no objection or suggestion is received to the scheme from the ROC and Official Liquidator or where the objection or suggestion of ROC and Official Liquidator is deemed to be not sustainable and the Regional Director is of the opinion that the scheme is in the public interest or in the interest of creditors, the Regional Director shall issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA. 12.
Step 8 : Filing of Confirmation Order with the ROC : For the effective fast track merger both the transferee and the transferor company has to submit a copy of order conforming the scheme of fast track merger from the tribunal or the regional director to the office of the ROC. The persons concerned and the ROC shall register the scheme and issue a confirmation to the companies and such confirmation shall be communicated to the ROC where transferor company or companies were situated.
Exclusion of Demerger
As the heading of this Section says Merger or Amalgamation of certain companies means Demerger is not under the purview of section 233 of the Companies Act, 2103. Section 233 of the Companies Act, 2013 does not contain the word “Reconstruction” which is mentioned in Section 232 of Act.
Prohibition of Treasury Stock
Section 233(10) Act prohibits the maintenance of the Treasury Stock. At the time of Merger shares held by Transferee Company in the Transferor Company have to be cancelled.
Clubbing of Authorized Capital
Section 233(11) of the Act give legal sanctity to this concept. Fee, if any, paid by the Transferor Company (Amalgamating) on its authorized capital prior to its merger or amalgamation with the transferee company (Amalgamated) shall be set-off against the fees payable by the transferee company on its authorized capital enhanced by the merger or amalgamation.
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