Applicability of Fast Track Mergers

Fast Track Mergers are applicable to specific types of companies, which include:

1. Small Companies: A small company is defined as one with a paid-up share capital not exceeding ?50 lakhs and a turnover not exceeding ?2 crores as per the latest financial statements.
2. Holding and Wholly-Owned Subsidiary Companies: This includes public and private companies. If a holding company wishes to merge with more than one wholly-owned subsidiary, it must file separate applications for each merger.
3. Mergers Between Small Companies: Fast Track Mergers are applicable for mergers involving two or more small companies. However, this does not extend to listed companies.
4. Other Classes of Companies: Additional classes may be prescribed under the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016.

Exclusions

Certain entities are excluded from the Fast Track Merger process, including:

• Public Companies: Except in cases involving holding and wholly-owned subsidiary companies.
• Section 8 Companies: These are companies formed for charitable purposes and do not operate for profit.
• Companies Governed by Special Acts: Any company or body corporate regulated by specific legislation is also excluded.

Process of Fast Track Mergers

The Fast Track Merger process involves several key steps. Below is a detailed examination of the procedure.

Key Participants

• Transferor Company: This is the company that is being amalgamated into another company.
• Transferee Company: This refers to the company into which the transferor company is merged.

Steps Involved in the Fast Track Merger Process

1. Board Meeting:
• The first step involves convening a board meeting for the approval of the draft merger scheme.
• The board also passes resolutions to schedule meetings for shareholders and creditors.
2. Filing Draft Scheme:
• After approval from the Board of Directors, both the transferor and transferee companies must file the draft scheme with the Registrar of Companies, the Official Liquidator, and affected parties.
• This is done using Form CAA-9, inviting objections or suggestions.
3. Declaration of Solvency:
• A declaration of solvency must be filed with the Registrar before convening creditor and shareholder meetings.
• This declaration, as stipulated in Section 233(c) of the Act, confirms that the companies can pay their debts.
4. Creditor Meeting:
• A meeting of creditors is convened to obtain their written approval.
• A notice must be sent 21 days in advance, accompanied by essential documents such as:
• Draft scheme of merger
• Declaration of solvency
• Latest audited financial statements
• Valuation report (if applicable)
• Any other pertinent information
5. Approval from Shareholders:
• The scheme must be approved by at least 90% of the shareholders present in the general meeting.
6. Filing with Regional Director:
• Within seven days after the meeting, a copy of the approved scheme, along with the results, must be filed with the Regional Director using Form No. CAA-11.
7. Confirmation from Regional Director:
• If there are no objections from the Registrar or Official Liquidator, the Regional Director will confirm the merger.
• If objections arise, the Regional Director may file an application before the Tribunal within 60 days of receiving the scheme.
8. Tribunal Proceedings:
• Should the Tribunal receive an application regarding objections, it will assess the scheme based on the procedure laid out in Section 232 of the Companies Act.
9. Filing Confirmation Order:
• Once confirmed, the order must be filed within 30 days with the Registrar of Companies, accompanied by a fee as prescribed by the Companies (Registration Offices and Fees) Rules, 2014.

Stamp Duty Implications

Mergers often attract stamp duties, which can significantly impact the overall cost of the transaction. Key points to consider include:

1. State Subject:
• Stamp duty is a state subject, meaning its applicability depends on:
• The location of the registered office of the company.
• The status of properties being transferred under the merger scheme.
2. Stamp Duty Requirements:
• As per the Indian Stamp Act, 1899, every instrument, whether movable or immovable, incurs stamp duty. This requires:
• An instrument of transfer.
• Transfer of property between the parties.
3. Lack of Specific Provisions:
• The Indian Stamp Act does not explicitly mention Tribunal orders related to mergers or amalgamations as instruments.
4. Conveyance:
• Stamp duty is levied on the conveyance (i.e., transfer of property). The respective State Stamp Acts detail the stamp duty on conveyances affected by Tribunal orders.

Conclusion

The introduction of Fast Track Mergers under Section 233 of the Companies Act, 2013, is a significant development aimed at simplifying the merger process for eligible companies. By eliminating the requirement for Tribunal intervention in specific cases, the government has sought to reduce administrative burdens, cut costs, and speed up the merger process.

Key Takeaways

• Fast Track Mergers apply primarily to small companies and holding-wholly owned subsidiaries.
• The process involves several well-defined steps, including board meetings, filing declarations, and obtaining approvals from creditors and shareholders.
• Stamp duty implications are crucial and should be carefully considered during the merger process.

Fast Track Mergers represent a positive step toward making business operations in India more efficient and accessible. However, companies should ensure compliance with the necessary regulations and perform due diligence to mitigate any risks associated with the transaction.