What Is a Fast Track Merger? Section 233

A fast track merger is the route in section 233 of the Companies Act, 2013 that lets certain companies combine without a National Company Law Tribunal sanction order. The phrase is market usage, not statutory language: the Act prints the marginal heading Merger or amalgamation of certain companies, and the fast track merger label describes the effect rather than the words. This page reads section 233 as printed, including the two points at which the Tribunal can be pulled back in.

Who can use a fast track merger?

A closed list, opened by a prescribing power. Sub-section (1) applies notwithstanding the provisions of section 230 and section 232 to a scheme entered into between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed.

Three categories, then. Small companies merging with each other. A holding company absorbing a subsidiary it wholly owns. And whatever else the rules add, which is the limb that lets the category widen without an amendment to the Act.

What has to be approved before the scheme is filed?

Four things, in the same sub-section, and the thresholds differ between members and creditors.

Read clause (b) carefully. The ninety per cent is measured against the total number of shares, not against the shares present and voting, which is a higher bar than the three-fourths in value test that section 230 applies to a Tribunal scheme. Clause (d) allows the creditor approval to be taken otherwise approved in writing, so a creditors' meeting is not compulsory where the consents can be collected.

Who confirms a fast track merger if the Tribunal does not?

The Central Government, with the Registrar and the Official Liquidator as objectors. The transferee files the approved scheme with the Central Government, Registrar and the Official Liquidator. If neither the Registrar nor the Official Liquidator objects, the Central Government shall register the same and issue a confirmation thereof to the companies.

Objections travel on a thirty day clock with a deeming provision behind it. The Registrar or Official Liquidator may communicate the same in writing to the Central Government within a period of thirty days, and if no such communication is made, it shall be presumed that he has no objection to the scheme. The power to object is permissive; the proviso is what turns not exercising it into a presumption. Silence is consent throughout this section.

When does the Tribunal come back into a fast track merger?

At two points, and both lead to the same place. Under sub-section (5) the Central Government may, if it is of the opinion that such a scheme is not in public interest or in the interest of the creditors, apply to the Tribunal within a period of sixty days of the receipt of the scheme asking that the scheme be considered under section 232. Under sub-section (6) the Tribunal, on that application or from any person, may direct that the section 232 procedure be followed, or confirm the scheme itself.

A second deeming provision sits under that: if the Central Government does not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection.

There is also a voluntary exit. Sub-section (14) provides that a company covered under this section may use the provisions of section 232 for the approval of any scheme for merger or amalgamation, so eligibility for the fast track route does not force a company onto it. The full Tribunal machinery is described in a merger under section 232.

What does registration actually do?

It dissolves the transferor and moves everything across, without a winding up. Sub-section (8) provides that the registration of the scheme under sub-section (3) or sub-section (7) shall be deemed to have the effect of dissolution of the transferor company without process of winding-up, which is a different mechanism from the dissolution routes described in dissolution of a company by tribunal.

Sub-section (9) then lists four effects: property and liabilities pass to the transferee; charges on the transferor's property shall be applicable and enforceable as if the charges were on the property of the transferee company; pending legal proceedings continue by or against the transferee; and amounts owed to dissenting shareholders or creditors shall become the liability of the transferee company to the extent unpaid.

Two housekeeping rules sit at sub-sections (10) and (11). A transferee shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust, and such shares are cancelled or extinguished, the same guard section 232 carries. And the fee paid by the transferor on its authorised capital shall be set-off against the fees payable by the transferee company on its authorised capital enhanced by the merger or amalgamation.

Sub-section (12) extends the section mutatis mutandis to a compromise or arrangement under section 230 and to a division or transfer of a company referred to in clause (b) of sub-section (1) of section 232, so an eligible company can use the administrative route for those too. Books of a company that has been amalgamated are not freely disposable afterwards, as preservation of books after amalgamation explains.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.