This article delves into the recent amendment made in rules regarding of
Fast-Track Mergers (FTM) Regulations in India. Without a prescribed timeline for
regulatory authorities to complete the process causes unnecessary delay and to
remove it Ministry of corporate affairs with its new amendment has prescribed a
timeline for approvals and rejections from regulatory authorities. This article
analyses the process of Fast-Track mergers in India in the light of the changes
made through new amendment.
The author tries to compare the Fast-Track merger
Laws in India with other countries and through the comparison drawn recommend
the steps needed to be taken to reduce the unsettled flaw in the FTM regulations
in India to further expedite and ease the process.
Mergers are essential to the growth and expansion of businesses. They enable
businesses to pool resources, increase efficiency, and realize economies of
scale. The merger process, which involves several legal and regulatory
procedures, may, nevertheless, sometimes be drawn-out and difficult. The
Companies Act of 2013 created the idea of a Fast Track Merger Under Section
233 in order to solve this problem and encourage a more streamlined method.
Recently ministry of corporate affairs has released a notification regarding
amendment of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
(the Merger Rules) through the Companies (Compromises, Arrangements and
Amalgamations) Amendment Rules, 2023.The Amendment Rules modify clauses (5)
and (6) of Rule 25 of the Merger to set out specific time frames for the
activities connected to those taken by relevant regulatory agencies.
Companies may suffer from increased expenses and protracted uncertainty if the
merger process is delayed. The new announcement requiring a 60-day deadline for
fast-track merger applications to be completed demonstrates a clear intention to
avoid irrational delays and set concrete deadlines for the merger process.
government wants to speed up the merger process and encourage efficiency,
therefore it has set these rigid deadlines. This action fits nicely with the
government's overarching goal of encouraging ease of doing business in India's
corporate environment. If the fast-track merger application isn't finished
within the required 60 days, it will be assumed that there are no objections to
Process Of Fast-Track Mergers
Section 233 of CAA 2013 describes process of fast-track merger between:
- Two or more small companies
- A holding company and its wholly owned subsidiary
- Two or more start-up companies; or
- One or more start-up company with one or more small company.
- Any other class of company as may be prescribed
With boom of start-ups in 21st century in India, the mergers or amalgamations
between start-ups has also rose tremendously. Therefore to ease the process the
Ministry Of Corporate Affairs
vide-its notification G.S.R. 93(E) dated 1st
February, 2021 also added start-up company in the bracket of section 233 of The
Companies Act, 2013. As per section 233 of The Company Act 2013 the
transferor company or companies and the transferee company issues notice of the
proposed scheme to Registrar and Official Liquidators where registered office of
the respective companies inviting objections or suggestion.
Any objection or
suggestion has to send within 30 days. After considering the objection or
suggestions so received the scheme gets approved in respective general meeting
which comprises of respective member or class of members holding at least 90% of
the total shares.
The company also has to get the approval of majority
representing nine-tenths in value of the creditors by organising a meeting of
creditors or obtaining written approvals by giving a notice of 21 days along
with scheme to all its creditors. The companies involved in merger has to file a
declaration of solvency before the registrar office where the company is
The transferee company shall, within seven 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 as agreed to by the members and creditors, along with a
report of the result of each of the meeting with the Central Government,
Registrar and the Official Liquidator where the registered office of the company
On the receipt of the scheme, if the Registrar or the Official
Liquidator has no objections or suggestions to the scheme, the Central
Government shall register the same and issue a confirmation thereof to the
companies. If the Registrar or Official Liquidator has any objections or
suggestions, he may communicate the same in writing to the Central Government
within a period of thirty days. If no such communication is made, it shall be
presumed that he has no objection to the scheme.
If objection or suggestion of Registrar and Official Liquidator is deemed to be
not sustainable by Centra Government and it 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. If
the Central Government does not have any objection to the scheme or it does not
file any application before the Tribunal, it shall be deemed that it has no
objection to the scheme.
However if central government is of the opinion that scheme is not in public
interest or in the interest of the creditors, it may file an application before
the Tribunal within a period of sixty days of the receipt of the scheme stating
its objections and requesting that the Tribunal may consider the scheme under
If the Tribunal 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.
tribunal confirms the scheme the order of the tribunal shall be communicated to
the registrar having jurisdiction over the transferee company and the Registrar
will register the scheme and issue a confirmation thereof to the companies.
confirmation order of the scheme issued by the Central Government or Tribunal
under sub-section (7) of section 233 of the Act, shall be filed, within thirty
days of the receipt of the order of confirmation.
After the registration of the scheme all properties or liabilities of the
transferor company shall be transferred to the transferee company . All the
charges on the property of the transferor company shall shifted to the
transferee company. Any legal proceedings by or against the transferor company
pending before any court of law shall be continued by or against the transferee
Post 2023 Amendment Changes:
In accordance with clauses(5) and (6) of Rule 25 of the Companies
(Compromises, Arrangements and Amalgamations) Amendment Rules, 2023 when the
Objection Period ends, the CG must adhere to the schedules listed below for the
|Timeline And prescribed
Where the scheme is in the public interest
|if Registrar or OL has issued no objection or
suggestion to CG and the Central Government is of the opinion that the
scheme is in the public interest or in the interest of creditors
|CG within a period of fifteen days after the
expiry of thirty days from the receipt of scheme, issue a confirmation
|if the Registrar or OL has any objection or
suggestion and the Central Government is of the opinion that the scheme is
in the public interest or in the interest of creditors
|CG may within a period of thirty days after
expiry of thirty days from the receipt of Scheme issue a confirmation order
Where the scheme is not in public interest
|If the central government is of the opinion that
scheme is not in public interest or in the interest of the creditors
|CG may within sixty days of the receipt of the
scheme file an application before the Tribunal.
NO confirmation issued by CG
|If the CG didn't issue any confirmation of the
scheme or didn't file any application to the tribunal within a period of
sixty days of the receipt
|The scheme shall be deemed to be approved.
Regulatory Approvals In M&A Leading Countries
- Creditors' Approval:
A meeting of creditors must be called or written approval must be obtained based
on notices sent to the creditors, if meeting is not held, in order to obtain the
approval of a significant majority of the creditors (by value) under the FTM
process in India. However getting the approval of creditors involved many
Firstly the concerned entity has to get mandatory approval from
majority of creditors representing 9/10 by value. If any of them fails to attend
the meeting the process becomes futile. Even if the concerned entity instead of organising meeting send 21 days to all its creditors for written approval, then
also the process would be time consuming and cumbersome if the number of
creditors involved are large in number.
The written notice has to send through
speed post to every creditor and thereafter approval needs to be obtained and
recorded from the requisite majority within the prescribed timelines. The
process may cause increased costs and potential delays and the concerned company
might have to re-start the FTM process or opt for the NCLT approved merger
process, thereby defeating the purpose of the FTM.
- Shareholder's approval:
As per section 233 the company Act 2013 for the merger or amalgamation between
concerned entities , the scheme of merger is required to be approved by
shareholder holding at least 90% of the total shares of the concerned entity.
The threshold of approval by persons holding ninety per cent of total share
capital has been considered onerous by stakeholders since the section requires
approval by the persons holding ninety per cent of the company's total share
capital and not ninety per cent of shareholders present and voting in the
It is particularly difficult for public and listed companies to reach this
threshold because they usually have a large number of shareholders.
Consequently, the consent threshold significantly impedes the approval process,
undermining the primary objective of the section, which is to expedite the
process of mergers. Further, such a threshold requirement also means that if the
shareholders present at the meeting hold at least ninety per cent of the share
capital, irrespective of the majority by number voting against the scheme, it
would still be approved. As a result, this framework also does not
sufficiently safeguard the interests of minority shareholders.
To make the fast-track merger approval process under Section 233 more robust and
simultaneously continue to protect minority shareholder interests, the Company
Law Committee Report dated March 21, 2022 ("CLR 2022") had recommended a
modified twin test requiring approval by (i) majority of persons present and
voting at the meeting accounting for seventy-five per cent, in value, of the
shareholding of persons present and voting; and (ii) representing more than
fifty percent, in value, of the total number of shares of the company.
Unfortunately, as of right now, no comparable amendment to Section 233 of the
Act has been proposed.
- No clarity on what constitutes as public interest:
There is no clear definition of what comes under the ambit of public interest
and what is not. The Tribunals' and the CG's interpretations of its definition
might differ. This ambiguity might cause unnecessary delay and impede the
process of fast-track mergers which ultimately frustrate the objective of
The primary goal of the fast-track provision is not only to approve
public interest projects but also to promote corporate industry development and
expansion in a variety of industries. Therefore needs to be additional
guidelines under Companies (Compromises, Arrangements and Amalgamations) Rules,
2016 regarding clarity and scope of subjects under public interests.
- No definition of wholly-owned subsidiary:
The Section 233 of the Company Act 2013 does not expressly address whether
step-down subsidiaries are eligible for fast-track mergers. Section 233
addresses "Merger or amalgamation of certain types of companies." There is
ambiguity and confusion because the concept of a wholly owned subsidiary is not
clearly defined and is instead interpreted in accordance with other laws and
The Committee also expressed that Section 233 of CA-13 should
be amended to also permit fast track mergers between a holding company and its
subsidiary company or companies (other than WOSs) if such companies are not
listed and meet such other conditions as may be prescribed.
- Limited applicability:
The section 233 of CAA2013 is limited only to startups or small businesses and
initiatives that are clearly in the public interest. This narrow focus might
leave out additional businesses or industries that might gain from the expedited
procedure but don't meet the specified requirements.
Singapore is the undeniable titan of Southeast Asia's deal market. The
city-state counted 214 deals in the first three quarters of year 2023 (35.8
percent of all transactions in the region) valued at a combined US$34.7 billion
(a 56.7 percent share). Singapore's bustling tech and fintech sectors
continue to deliver steady flows of M&A activity in Southeast Asia, with the
technology, media and telecommunications (TMT) industry providing more deal
volume and value than any other sector in the country in the past five years.
In Singapore section 215(D)(E)&(F) of the Singapore Companies Act, 1967 deals
with short form mergers between company and one or more of its wholly owned
subsidiaries or between two or more wholly owned subsidiary of same corporation.
For the registration and issuance of the certificate of amalgamation, the board
of each amalgamating company has to convene a general meeting of its members for
the approval of the amalgamation proposal.
To secure the interests of the
creditors, the directors of each amalgamating company must, not less than 21
days before the general meeting, send written notice of the proposed
amalgamation to every secured creditor of the amalgamating company and
produce a solvency statement in the form of a statutory declaration, which
- the resulting amalgamated company will be able to pay its debts as they fall due during the period of 12 months immediately after the effective date of the amalgamation;
- the value of the amalgamated company's assets will not be less than the value of its liabilities.
director who votes in favour the making solvency statement must sign a
declaration stating that, in his/her opinion, the solvency tests have been
satisfied and the grounds for that opinion. For the registration of the
approved amalgamation, each amalgamating company has to file the relevant
documents as per section 215 E. Upon the receipt of the relevant documents
and fees, the Registrar issues a notice of amalgamation.
The Registrar as soon
as practicable after the effective date of an amalgamation, remove the
amalgamating companies, from the register and upon the application of the
amalgamated company and payment of the prescribed fee, the Registrar issues to
the amalgamated company a certificate of confirmation of amalgamation.
A parent company and a subsidiary (formerly the target firm) that is not always
fully owned by the parent company combine to form a short form merger, also
referred to as a parent-subsidiary merger. Statutes in most states require that
the parent company owns 90% or more of the subsidiary before a short form merger
can be implemented.
This course of action typically occurs after a tender offer
is accepted and a takeover is completed without requiring an additional
shareholder vote. A buyer can usually use a short-form merger to acquire the
remaining minority interests in a target company if it purchases less than 100%
(but usually at least 90%) of the outstanding stock.
Through the merger, the
buyer can successfully complete the takeover by acquiring those interests
without the need for a vote from stockholders and buying all of the target
In Delaware, US, no such approval/ intimation from/ to the creditors in case of
short form merger between a holding company and its Wholly Owned Subsidiary.
As per section Section 253(a) of the Delaware General Corporation Law, 1899
the parent company may either merger the subsidiary corporation or corporations
into itself or merge itself and one or more of such other subsidiary
corporations, into 1 of the subsidiary corporation.
The approval from
shareholders is not required altogether for a merger between parent corporations
and subsidiary corporation where the parent corporation is the surviving
corporation. Whereas if the parent corporation be not the surviving corporation
proposed merger has to be approved by a majority of the outstanding stock owners
,entitled to votes, of the parent corporation at a meeting duly called and held
after 20 days of 'notice of the purpose of the meeting' given to each such
The Amendment undoubtedly represents a positive development for applicants since
removes any potential for a delay in getting replies from jurisdictional
authorities (such as the ROC and the OL). By achieving a balance between
regulatory certainty and protecting the
interests of the general public and creditors, it is possible to have optimism
that the Amendment will help the MSME sector and start-up businesses expand
As of now, the FTM has been restricted to startups or small enterprises, as well
as initiatives that are obviously in the public interest. This narrow scope may
exclude other companies or sectors that could benefit from the accelerated
process but do not match the requirements. This implies that a larger spectrum
of businesses must be incorporated into the plan. This expansion would balance
both the advancement of the corporate sector and the general welfare of the
The major reasons which may cause delay even after the recent amendment are the
regulatory approvals and the approvals from the shareholders and creditors. In
India different category of companies are eligible for fast-track mergers which
gives an edge to ease of doing business in India however the same set of applies
to all these categories of companies.
For example in case a parent company (holding 90% of the shares of its subsidiary) is merging with its
subsidiary company and the parent company is the resulting company, the
concerned entities have to follow the same sets of rules of FTM as applied to
other categories of company. They have to get the shareholder approvals
,creditors approval and even if both them approve but as per CG opinion the
proposed scheme is not in public interest the matter filed before tribunal. This
entire process causes unnecessary delay and vitiates the purpose of FTM.
Singapore, for instance, companies involved both in short form merger or
standard form merger have the limited obligation to intimate their respective
secured creditors of such scheme at least 21 days prior to the general meeting.
Whereas, in Delaware, US, no such approval/ intimation from/ to the creditors in
case of short form merger between a holding company and its wholly owned
subsidiary.These are some of the factors which the MCA needs to work upon to
further expediate the FTM progress to be at par with countries leading in M&A
Undoubtedly, the Amendment will not only facilitate mergers more quickly in
India, but it may also hasten company restructuring (fast track mergers are
frequently the first step in a restructuring process). The Amendment's
applicability to the current fast-tracks mergers, which have not yet received
approval from the Central Government, the RoC, or the OL, may also need
Although the Amendment is in line with international standards,
it is still a step in the right direction. What remains to be seen, however, is
how "fast" our National Company Law Tribunals ("NCLTs") will permit fast-track
mergers to be implemented, given that the majority of NCLTs are overloaded with
cases involving insolvency and bankruptcy.
Even though there are obstacles in
the way of expediting the FTM process, the 2023 Amendment appears to be a
positive step that will inspire more businesses to take the FTM route and give
much-needed clarity on the timelines related to this process. This will
additionally allow India Inc. to carry out internal restructuring through the
Fast Track Method with greater efficiency.
- The Company Act, 2013, sec. 233
- Ministry of Corporate Affairs, Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023 Noti. No. G.S.R. 367(E) dt. 15-5-2023
- The Company Act, 2013, sec. 233
- The Company Act, 2013, sec. 232
- Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023, rule 25(5) & (6)
- Report of The Company Law Committee (2022)
- A. Ramaiya, Guide to the Companies Act 59 (Lexis Nexis, 2020)
- Report, Supra note 7
- Centre for Business And Commercial Laws, https://cbcl.nliu.ac.in/mergers-acquisitions/fast-track-mergers-in-india-race-towards-success-or-bumpy-ride/ (Last visited 1 January 2024)
- Centre, Supra note 10
- White & Case, https://mergers.whitecase.com/highlights/southeast-asias-star-ready-to-rise#! (Last visited 4 January 2024)
- The Singapore Companies Act, 1967, Sec. 215(D)(3)
- Joyce A. Tan & Partners, https://www.joylaw.com/content/07-news/012-twofive/amalgamation-of-sg-companies-by-op-law-may-2011.pdf (Last Visited 5th January 2024)
- The Singapore Companies Act, 1967, Sec 215(E)
- Cyril Amarchand Mangaldas, https://corporate.cyrilamarchandblogs.com/2023/06/mergers-on-a-fast-track/#_ftn10 (Last visited 5 January 2024)
- The Delaware General Corporation Law, 1899, Sec.253(a)
- The Delaware General Corporation Law, 1899, Sec.253(a)(2)
- Cyril, Supra note 16