17 May 2023
MCA seeks to Expedite the Merger Process for certain companies
 
The Ministry of Corporate Affairs (MCA) notified the Companies (Compromises, Arrangement and Amalgamations) Amendment Rules, 2023 (Amendment Rules), being effective from 15 June 2023. The Amendment Rules seek to modify the process governing the merger of a certain class of companies popularly known as 'fast-track merger'.

The gist of all Amendment Rules are summarized below:
 
Amendments Comments
Sub-rule 5 of the rule 25 of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016 has been substituted with following rule:

"[(5) Where no objection or suggestion is received within a period of thirty days of receipt of copy of scheme under sub-section (2) of section 233, from the Registrar of Companies and Official Liquidator by the Central Government and the Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, it may, within a period of fifteen days after the expiry of said thirty days, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12:

Provided that if the Central Government does not issue the confirmation order within a period of sixty days of the receipt of the scheme under sub-section (2) of section 233, it shall be deemed that it has no objection to the scheme and a confirmation order shall be issued accordingly.]"
  • This amendment has inserted specific timelines for the Registrar of Companies (ROC) and the Official Liquidator (OL) to object/provide their suggestions on the scheme of merger and to the Central Government (CG) to issue confirmation order of such scheme.
  • Pursuant to this amendment:
    • The ROC and OL are mandated to object/provide suggestions within 30 days of filing of scheme.
    • It has further empowered the CG (power delegated to the Regional Director)] to issue a confirmation order on such scheme in Form CAA.12 within 15 days of the expiry of the said 30 days in case there is no response from the ROC and OL office, and the CG is of the opinion that the scheme is in the public interest or in the interest of creditors.
  • Deemed approval proviso: This amendment has also brought in a 'deemed approval' proviso, pursuant to which, in case the CG does not issue confirmation order/objections within 60 days of the receipt of the scheme, then it shall be deemed that the CG has no objection and the merger scheme shall be deemed to be approved, and the CG is obliged to issue a confirmation order accordingly.
Sub-rule 6 of the rule 25 of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016 has been substituted with following rule:

"[(6) Where objections or suggestions are received within a period of thirty days of receipt of copy of scheme under sub-section (2) of section 233 from the Registrar of Companies or Official Liquidator or both by the Central Government and -

(a) such objections or suggestions of Registrar of Companies or Official Liquidator, are not sustainable and the Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, it may within a period of thirty days after expiry of thirty days referred to above, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12

(b) the Central Government is of the opinion, whether on the basis of such objections or otherwise, that the scheme is not in the public interest or in the interest of creditors, it may within sixty days of the receipt of the scheme file an application before the Tribunal in Form No. CAA.13 stating the objections or opinion and requesting that Tribunal may consider the scheme under section 232 of the Act:

Provided that if the Central Government does not issue a confirmation order under clause (a) or does not file any application under clause (b) within a period of sixty days of the receipt of the scheme under subsection (2) of section 233 of the Act, it shall be deemed that it has no objection to the scheme and a confirmation order shall be issued accordingly.]"
  • In continuation to the above amendment, this amendment provides specific timelines for the CG in case any objection/suggestions are received from the ROC/OL:
    • In case the CG is of the opinion that such objections/suggestions are not sustainable and the scheme is in public interest or of creditors, the CG is empowered to issue a confirmation order of such scheme within 60 days of the receipt of the scheme; and
    • Where on the basis of objections or otherwise, the CG is of the opinion that the scheme is not in public interest or in the interest of creditors, it may within 60 days of the receipt of the scheme, file an application before the Tribunal in Form No. CAA.13 stating the objections or opinion and requesting that the Tribunal may consider the scheme under Section 232 of the Act:
  • Deemed approval proviso: This amendment has also brought in a 'deemed approval' proviso, pursuant to which, in case the CG neither issues a confirmation order nor files an application to the Tribunal within 60 days of receipt of the scheme, then it shall be deemed that the CG has no objection and the merger scheme shall be deemed to be approved, and the CG is obliged to issue a confirmation order accordingly.
Our Comments
The merger of certain classes of companies was considered to be a smooth and shorter process. However, due to dependency on other jurisdictional authorities, it was proving to be cumbersome and lengthy. With the introduction of specific timelines and the concept of deemed approval, it is expected that the process will become more smooth and time-bound. In that sense, it will truly be a 'fast-track merger'.
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