This article is written by Uma Shankar Mishra, pursuing a Certificate Course in Intellectual Property Law from Lawsikho.com. Here he discusses “How exactly are fast track mergers carried out and can NCLT intervene in these?”.

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Introduction

The word merger is an important part of Commercial business decisions and legal transactions.  Mergers are a restructuring tool which will help the transferee Company as well as a transferor company to achieve synergy and achieve Consolidation In the market.  There can be many reasons for a merger which may Include exit from a particular business by transferor Company or formation of a Partnership between two Companies to earn greater Profits. In short, merger means losing of the existence of One entity by Combining with Other to form a large unit.

The Chapter XV of Companies Act, 2013 deals with Section Compromises, Arrangements and Amalgamations. Under this Chapter, the need to get approval from many authorities such as National Company Law Tribunal (NCLT) and if the Company is a Listed Company it has to take Permission From SEBI. This takes anyway between 6 Months to 1 year. However, there are cases when the said approval took 2 years because of disputes between the buyers and Regulators. For example, in the case of Tata Docomo and Airtel. The intention of the merger was announced by both the parties in October 2017, However, the merger Completed only on 5th July 2019. It is Important for Companies to achieve their mergers as soon as possible. In case of small companies, they were being subjected to these Provisions (erstwhile section 391–394 of the CA 1956) before the enactment of Companies Act,2013. In order to solve these problems, Section 233 has been added to the Companies Act, 2013.

Application of Section 233 Of Companies Act, 2013

It is pertinent to know that this section only applies to  Small Companies defined under S.2(85) of Act, Holding Company under S.2(46) of the act are eligible for the transactions of Merger, Amalgamations and any type of arrangement under this section.

Reason for Inclusion Of Holding Company-  In case of Subsidiary and a Holding Company, this section has reduced the Cumbersome Process as earlier even there is no ownership Change It used to take 6 months For compliances Under Section 230-232 Of Companies Act, 2013.

Exception 1 – As under S.2(85) it is mentioned that  Small Public Company does not Come under the Expression Small Company therefore they cannot take advantage of section 233 Of Companies Act, 2013.

• Holding Company as defined u/s 2(46) of the Act; and
• Class or class of Companies not defined under the corresponding rule of this section.

Exception 2 – Demerger cannot be done under Section 233 as the section only mentions Merger and amalgamations.

Role of NCLT in enforcing The Provisions Of fast track mergers under Section 233 Of Companies Act, 2013

The Word Notwithstanding Anything Contained in Section 230 to 232 in the Companies Act, 2013 is used which is a NonObstante Clause. The Sections 230 to 232 speak about the role of NCLT but Section 233 does not which means that the Role of NCLT is not mandatory here. 

Q) The question which arises here is that if there is No or limited role of NCLT in enforcing the provisions of this section then who has the power to enforce the provisions of this section?

Ans. Section 233 and Rule 25 Of  Companies (Compromises arrangement and Amalgamation Rules, 2016) gives power to the central government to enforce merger and not NCLT. NCLT will only be a Substantial authority. The central government has delegated its power for enforcing merger to Regional Director who is appointed by Central Government.

Companies shall file an application with below-mentioned authorities in whose jurisdiction registered office of the Company is situated.

• Union Government through Regional Director
• Registrar and
• The Official Liquidator

Difference between Traditional Merger under Section 230, 232 and Fast Track Merger under  Section 233

Particulars	Fast – track merger	Traditional merger
Procedure for making an application to National Company Law Tribunal	Need to put forth your scheme and other documents under Section 233( 1) and Rule 3 of the Companies (Compromises, Arrangement and Amalgamation Rules, 2016)  We need to use NCLT – Form 1 for putting forth the Scheme and Form 2 for filing the affidavit.	No need to make an application to NCLT
Regulatory Authorities	The need of approval from  Sectoral regulators such as RBI, CCI, SEBI etc Shareholders and Creditors	No needfor approval from National Company Law Tribunal. But approval is needed from Shareholders, Creditors and Official liquidator Of the Company
Financial Health of Transferor and Transferee Company	There is a need for a valuation report	There is no need for financial report
Time period for proceedings at National Company Law Tribunal	The procedure for the merger under this section takes more time as one needs to Comply with Company (Compromises, Arrangementandamalgamation Rules, 2016), while undergoing regulatory Filing and various other Procedure before the Tribunal	Only in case of Reconsideration By Central government about the approval of plan one needs to go to National Company Law Tribunal. Otherwise, there is no need for it.
Need for dissolution of the Company	The NCLT may order for Provisions in case of winding up of transferor Company	The filing and entry of the draft scheme will lead to the commencement of Dissolution Of the Company.

It is also important to note that Section 233 of the Companies Act Is governed By Rule 25 Of Companies (Compromises arrangement and Amalgamation Rules, 2016.

Important Terms and Conditions for Fast Track Merger under Section 233 of Companies Act, 2013

Prohibition of Treasury Stock 

Section 233(10) Act prohibits the continuation of any shareholding in transferor Company by transferee Company which means that any shareholding which the transferee Company had in transferor company has to come to Zero At the time of Merger shares held by Transferee Company in the Transferor Company have to be cancelled and extinguished.

Clubbing of Authorized Capital 

Section 233 (1)  of the Act give states that if any Fee was paid by the Transferor Company (Amalgamating) on its authorized capital preceding to its merger or amalgamation with the transferee company (Amalgamated) shall be set-off contrary to the fees payable by the transferee company on its authorized capital improved by the merger or amalgamation.

Shareholder Approval 

Section 233 (1), (b) of Act states that the consent of  shareholders holding at least 90% of the total number of shares is required

Creditors Approval

Section 233 (1), (b) of Act, states that approval of  (9/10th) in value of the creditors or class of creditors is required in small private companies’ creditors are not in large number, so if 90% by value hold by few creditors than it may create problem in taking approval.

Dispensation from the Meeting 

If 90% in value of creditors agree by mode of affidavit then a meeting of creditors can be dispensed.

Not falling under the purview of section 233 of the Act 

If we read section with rule 25(6) of the Act where concerns or recommendations are received from the Registrar of Companies about the flaws of the scheme and if the Central Government is convinced with the Concerns Of Registrar of Companies that scheme is not in the public interest or in the interest of Creditors whose money is involved. Here the Role of NCLT comes which acts as a supervising authority. The Central government may file application before NCLT stating that the said  Companies application for merger and amalgamations under this section should not be entertained and The said company is free to follow the procedure laid down under Section 230 to 232 Of Companies Act,2013. This will help in Due-  diligence and Concerned Creditors during the 6 months will come to know whether their rights and interests are being taken care in this merger which could not be possible if the merger takes place under Section 233

Conclusion

We can say that in case of a Fast track merger there is no Substantial role of National Company Law Tribunal (NCLT) in approving the scheme of arrangement under Section 233 of the Companies Act,2013 read with Corresponding rule i.e. Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. Under the said section and the act, the power is given to Central Government which has delegated it to Regional Director and the Registrar of the Companies. However, the tribunal will have a role has of supervising authority under sec 233(6) of the Act where on receiving an application from the Central Government or any person, if the NCLT thinks that the scheme of arrangement is not clearly saying about how the  Rights and Interests Of the Minority Shareholders or Creditors would be affected in case of merger or amalgamation interests would be protected then it may reject the application Of person for the merger under S.233 by Giving them the reasons of For not accepting the merger in written form. After this order Companies are at liberty to go for the merger under the Section 230-232 Of the Act. 

With the advent of Section 233, the time taken for approval of merger or amalgamation for companies specified in S. 233 has reduced but still, there is scope to further reduce the time of approval by doing away with repeated Procedures.

• https://telecom.economictimes.indiatimes.com/news/bharti-airtel-tata-teleservices-to-merge-consumer-mobile-businesses/61052084
• https://economictimes.indiatimes.com/industry/telecom/telecom-news/bharti-airtel-tata-tele-say-merger-complete-dot-yet-to-formally-clear/articleshow/70030734.cms
• https://www.taxmann.com/filecontent.aspx?Page=ART&isxml=Y&id=105010000000014044&search=”fast+Track+merger”&tophead=true

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