MCA Amends Rules for Fast Track Mergers

The Ministry of Corporate Affairs (“MCA”) recently issued a notification dated May 15, 2023, to amend the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, in relation to the fast track merger process under section 233 of the Companies Act, 2013 (“Act”). The notification, numbered G.S.R. 367 (E), introduces changes to sub-rules (5) and (6) of rule 25 of the Rules, which deal with the objections, suggestions and confirmation orders related to the schemes of merger or amalgamation between certain classes of companies. The amendment has come into effect from June 15, 2023.

No Approval required from the NCLT

The fast-track merger process now envisaged under section 233 of the Act permits two or more small companies, holding companies and their wholly-owned subsidiaries, or such other class of companies as may be prescribed by the Central Government, to merge or amalgamate by following a simplified procedure that does not require the approval of the National Company Law Tribunal (NCLT).

The process would work as under

•  The companies send a plan of how they want to merge or join together to the ROC and OL. They ask them and others who may be affected to give their views within a month. They also show that they have enough money to pay their debts. They hold meetings with their owners and lenders to get their approval for the plan.
• They need at least 90% of them to agree. They send the plan and the meeting results to the Central Government. The Central Government then says yes to the plan or asks the NCLT to look into it.

Process of expediting objections

The amendment made by the MCA aims to streamline and expedite the fast track merger process by clarifying the role and timeline of the Central Government in issuing confirmation orders or filing applications before the NCLT. The amendment provides that:

• If no objection or suggestion is received from the ROC and OL within thirty days of filing the scheme, and if the Central Government is satisfied that the scheme is in public interest or in the interest of creditors, it shall issue a confirmation order within fifteen days after the expiry of the thirty-day period. If no confirmation order is issued within sixty days from the date of filing the scheme, it shall be deemed that there is no objection to it.
• If any objection or suggestion is received from the ROC or OL or both within thirty days of filing the scheme, then:
  • If such objection or suggestion is not sustainable and if the Central Government is satisfied that the scheme is in public interest or in the interest of creditors, it shall issue a confirmation order within thirty days after the expiry of the initial thirty-day period.
  • If such objection or suggestion is sustainable and if the Central Government is of the opinion that the scheme is not in public interest or in the interest of creditors, it shall file an application before the NCLT within sixty days from the date of receipt of the scheme, stating its objections or opinion and requesting NCLT to consider it under section 232 of Act. If no confirmation order is issued or application is filed within sixty days from the date of receipt of scheme, it shall be deemed that there is no objection to it.
• If such objection or suggestion is not sustainable and if the Central Government is satisfied that the scheme is in public interest or in the interest of creditors, it shall issue a confirmation order within thirty days after the expiry of the initial thirty-day period.
• If such objection or suggestion is sustainable and if the Central Government is of the opinion that the scheme is not in public interest or in the interest of creditors, it shall file an application before the NCLT within sixty days from the date of receipt of the scheme, stating its objections or opinion and requesting NCLT to consider it under section 232 of Act. If no confirmation order is issued or application is filed within sixty days from date of receipt of scheme, it shall be deemed that there is no objection to it.

Observations

On paper, the amendment is expected to reduce ambiguity and delay in obtaining confirmation orders for fast track mergers and provide certainty to companies opting for this route. It will also ensure that only genuine objections or suggestions are considered by the Central Government and that frivolous ones are rejected. The amendment will also enable faster resolution of disputes by transferring them to NCLT in appropriate cases. We will now have to see how these fast track mergers are implemented by the NCLTs and the efficacy of notification hinges on effective implementation.

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