Fast Track Merger

Acquisition
CA Vinay Tiwari
 The objectives of mergers could be many – economies of scale, acquisition of
knowhow, technology and people, access to territories, savings in costs and
taxes etc.
Companies Act 1956:
• High Court Driven Process
• sections 391 to 394
Companies Act 2013:
• The National Company Law Tribunal (‘NCLT’)
• Sections 230 to 234
Concept of Fast track Merger

• The concept of Fast Track Merger has been introduced u/s 233 of the
Act
• Applicable to a particular set of companies
 Small Companies
 Mergers between Holding Companies and its wholly owned subsidiary
companies
• This process does not require any intervention or approval of a Court
or NCLT
Cont.

• Provides a mechanism of a merger with the approval

Shareholders,
Creditors,
The Registrar of Companies (‘RoC’)
The Official Liquidator (‘OL’) and the Regional Director (‘RD’).
• Schemes involving listed company(ies) are required to file with stock
exchanges for the purpose of disclosure as per SEBI.
Small Companies

• The new amended definition of a small company is provided under

Section 2(85) of the Companies Act, 2013. The Act defines a small
company as a company that is not a public company and has:
• A paid-up share capital equal to or below Rs.4 crore or such a higher
amount specified not exceeding more than Rs.10 crores.
• A turnover equal to or below Rs.40 crore or such a higher amount
specified not exceeding more than Rs.100 crore.
Small Companies

However, the concept of small companies does not apply to the

following companies:
• A holding or a subsidiary company.
• A company registered under section 8 of Companies Act.
• A body corporate or company governed by any special act.
Steps involved in a Fast Track Merger
Step 1:Memorandum of Association
A Board meeting is convened for approving the draft scheme of the merger. Apart
from approving the scheme of merger, the board also passes a resolution to
schedule a shareholders’ meeting and a creditors’ meeting

Step 2: Structure and Draft the Scheme

After the Board of Directors of each of the companies assent to the merger, the
transferor and the transferee file the draft scheme proposing the merger, with the
Registrar of Companies, the Official Liquidator, and the Persons affected by the
scheme (along with a copy of the scheme). The filing must be done in Form CAA-9
by inviting any objections or suggestions from them.
Cont…..
Step3: Declaration of Solvency
A declaration of solvency is filed by the company to the respective Registrar of
Companies before a meeting of the creditors and shareholders is convened. This is
done pursuant to Section 233(c) of the Act read with Rule 25(2) of the rules. This
declaration is filed along with a fee, that is to be submitted to the registrar as per
the Companies (Registration Offices and Fees) Rules, 2014

Step: 4 Meetings - Members’ and Creditors’

Cont….
Step: 4 Meetings - Members’ and Creditors’
A meeting of creditors is convened in order to obtain their approval in writing. It is
necessary that a 21-day notice is given in advance and a copy of a list of documents (as
provided in Rule 6(3)) should be provided to the creditors. Some of the important
documents;
• A copy of the draft scheme of merger;
• The declaration of solvency;
• Copy of the latest audited financial statement of each company;
• Copy of valuation report, if any;
• Any other relevant and material information
Contd…
The scheme needs to be approved by the respective members or class of members
at a general meeting holding at least 90% of the total number of shares;
Step 5: Filing the Scheme
The copy of the scheme as approved by the members and creditors of the
respective companies shall be filed by the transferee company with the following
a. Regional Director – along with Form CAA. 11 and a report of the result of members’ and
creditors’ meetings – in e-Form in RD-1 along with requisite fees;
b. Registrar of Companies – along with Form CAA. 11 – in e-Form GNL-1 along with requisite
fees; and
c. Official Liquidator – along with Form CAA.11 - through hand delivery or by registered post or
speed post
d. within 7 days of conclusion of meeting of members’ and creditors.
Contd…
Step 6:Approval of Scheme
In case, the ROC and/ or OL have any objections or suggestions, they may communicate the same in
writing to the RD (Regional Director) within a period of 30 days from the receipt of the scheme. In
case of no such communication is made, it shall be presumed that ROC and/ or OL have no
objection to the scheme In case the RD is of the opinion, whether based on objections from ROC
and/or OL(Official Liquidator) or otherwise, that the scheme is not in public interest nor in the
interest of creditors, it may file an application before the Tribunal in Form CAA.13 within 60 days of
the receipt of the scheme stating its objections or opinion and requesting the Tribunal to consider
the scheme under section 232 of the Act
No objection or suggestion received from ROC and/or OL
In case the RD is of the opinion that the scheme is in public interest and in the interest of creditors,
it shall issue a confirmation order of such scheme in Form CAA.12.
Contd….
Step 7: Registering the Scheme
• The confirmation order of the scheme as issued by the RD or NCLT is required to be filed with the
jurisdictional ROC in e-Form INC-28 along with requisite fees by both the companies, within 30
days of the receipt of such order of confirmation
Taxation Aspect of
Merger & Acqusition
Income Tax Act 1961
Section 2(1B) of Income Tax Act defines ‘amalgamation’ as merger of one or more companies
with another company or merger of two or more companies to from one company in such
All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation.
All the liabilities of the amalgamating company or companies immediately before the
amalgamation becomes the liabilities of the amalgamated company by virtue of the
amalgamation
Shareholders holding at least three-fourths in value of the shares in the amalgamating
company or companies (other than shares already held therein immediately before the
amalgamated company or its nominee) becomes the shareholders of the amalgamated
company by virtue of the amalgamation.
Income Tax Act defines ‘amalgamation’ as merger of one or more companies
with another company or merger of two or more companies to from one
company. Let us take an example of X Ltd and Y Ltd. Here following situations
may emerge:
(a) X Ltd Merges with Y Ltd. Thus X Ltd goes out of existence. Here X Ltd is
Amalgamating Company and Y Ltd is Amalgamated Company.
(b) X Ltd and Y Ltd both merges and form a new company say, Z Ltd. Thus both
X Ltd and Y Ltd goes out of existence and form a new company Z Ltd. Here X
Ltd and Y Ltd are Amalgamated Company and ZLtd is Amalgamated Company .
Tax Relief to the Amalgamating Company
Tax Relief to the shareholders of Amalgamating Company