The regulatory framework governing the mergers of certain types of companies is set out in Section 233 of the Indian Companies Act, 2013 ("Act") and Rule 25 of the Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 ("Amalgamation Rules").

The types of companies that fall within the ambit of Section 233 of the Act and Rule 25 of the Amalgamation Rules are as follows:

  1. two or more start-up companies;
  2. two or more small companies;
  3. one or more start-up companies with one or more small companies; and
  4. holding companies with their wholly owned subsidiaries.

For the purposes of the Act and the Amalgamation Rules, a "start-up company" means a private company incorporated under the Act or the Companies Act, 1956 and recognized as such as per Notification number G.S.R. 127(E) dated 19th February 2019 issued by the Department for Promotion of Industry and Internal Trade.

For the purposes of the Act and the Amalgamation Rules, a "small company" is defined under Section 2(85) of the Act to mean a company, other than a public company (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: Provided that a small company shall not be (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special act;

The process to be followed is set out in Section 233(1) of the Act and is as under:

  1. A notice of the proposed scheme inviting objections or suggestions, if any, from the Registrar of Companies (ROC) and Official Liquidators (OL) where the registered office of the respective companies are situated or persons affected by the scheme within thirty days is issued by the transferor company or companies and the transferee company.
  2. The objections and suggestions received are considered by the companies in their respective general meetings and the scheme is approved by the respective shareholders or class of shareholders at a general meeting in which the shareholders hold at least 90% of the total number of shares.
  3. Each of the companies involved in the merger files a declaration of solvency, in the prescribed form, with the ROC of the place where the registered office of the company is situated.
  4. The scheme is approved by a majority representing nine-tenths in value of the creditors or class of creditors of respective companies indicated in a meeting convened by the company by giving a notice of twenty-one days along with the scheme to its creditors for the purpose or otherwise approved in writing.
  5. The transferee company must then file a copy of the scheme so approved, with the Central Government, ROC, and the OL where the registered office of the company is situated.
  6. On the receipt of the scheme, if the ROC or the OL has no objections or suggestions to the scheme, the Central Government shall register the same and issue a confirmation thereof to the companies.
  7. If the ROC or OL has any objections or suggestions, he may communicate the same in writing to the Central Government within thirty days. Provided that if no such communication is made, it shall be presumed that he has no objection to the scheme.

Recently1, the Ministry of Corporate Affairs vide the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules 2023 ("Amendment Rules") introduced amendments to the Amalgamation Rules whereby strict timelines were imposed for responses by the ROC, OL and the Central Government.

Under the Amendment Rules, a time limit of 30 days (counted from receipt of the scheme) has been specified within which the ROC and the OL are required to submit their objections (if any) to the Central Government. If no objections to the scheme are received from the ROC or OL within 30 days, then the Central Government may issue an order confirming the scheme within 15 days (from the expiry of the 30 days of receipt of objections from the ROC or OL). If objections or suggestions are received but considered to be unsustainable, and the Central Government is satisfied that the scheme is in the public interest and creditors' interest, then it may issue an order confirming the scheme within 30 days (from the expiry of the 30 days of receipt of objections from the ROC or OL). If the Central Government believes that the scheme is not in the public interest or creditors' interest and should be considered under Section 232 (the standard merger route for large companies), it may file an application before the NCLT stating its objections within 60 days of receipt of the scheme.

The merger route prescribed for the prescribed type of companies under Section 233 of the Act and Regulation 25 of the Amalgamation Rules provides an efficient mechanism for the merger of such companies and enables them to avoid the long-drawn-out merger process prescribed under the traditional route for large companies under Section 232 of the Act. This route is cost-effective and time-saving both critical aspects for smaller companies. The Amendment Rules imposing strict timelines can also be perceived as a proactive step by the Government to facilitate the mergers of these types of companies.

Footnote

1. On 15th May 2023 vide MCA Notification G.S.R. 367(E)

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