Fast Track Merger of Small Companies under the Companies Act, 2013: A Complete Guide
Mergers and amalgamations have become a strategic tool for businesses to achieve operational efficiency, strengthen market presence, and optimize resources. Recognizing the unique needs of small businesses, the Companies Act, 2013 provides a simplified and time-efficient procedure for the merger of small companies under Section 233. This process, known as the Fast Track Merger, is an alternative to the regular merger process under Sections 230-232 and is designed to ease regulatory compliance for eligible companies.
This article provides a clear and comprehensive guide to the Fast Track Merger process for small companies as per the Companies Act, 2013.
Definition of Small Company
As per Section 2(85) of the Companies Act, 2013, a company qualifies as a small company if:
- Its paid-up share capital does not exceed ₹4 crore, and
- Its turnover, as per the latest profit and loss account, does not exceed ₹40 crore.
These limits are subject to change by notification from the Ministry of Corporate Affairs (MCA). Public companies, holding companies, subsidiaries, and certain other categories are excluded from this definition, irrespective of their capital or turnover.
Applicability of Fast Track Merger
The Fast Track Merger process under Section 233 is applicable to:
- Two or more small companies
- A holding company and its wholly-owned subsidiary company
- Start-ups with other start-ups or with a small company
This route provides a quicker and simpler alternative to the standard merger process involving the National Company Law Tribunal (NCLT).
Procedure for Fast Track Merger of Small Companies
1. Drafting of the Scheme of Merger
Both companies must jointly prepare a draft scheme of merger or amalgamation. The scheme should clearly specify:
- Details of the transferor and transferee companies
- Appointed date and effective date
- Share exchange ratio or terms of consideration
- Transfer of assets, liabilities, and contracts
- Effect on employees, creditors, directors, and other stakeholders
- Accounting treatment and tax implications
An auditor’s certificate confirming that the accounting treatment is in accordance with applicable accounting standards must also be obtained.
2. Approval of the Board of Directors
Each company must hold a Board Meeting to:
- Approve the draft scheme
- Authorize directors or officers to undertake further steps, filings, and representations
The approved scheme should then be circulated to all shareholders and creditors for their approval.
3. Filing of Declaration of Solvency (Form CAA-9)
Both companies are required to file a Declaration of Solvency in Form CAA-9 with the jurisdictional Registrar of Companies (ROC) before convening meetings of shareholders and creditors. This declaration affirms that the companies will be able to pay their debts in full within one year of the merger becoming effective.
4. Approval from Shareholders and Creditors
The scheme must be approved by:
- At least 90% of the shareholders of each company
- Creditors representing at least 9/10th in value of the total debt of each company
Approvals can be obtained either through meetings or by written consent.
5. Filing the Scheme with Authorities
The companies must file a copy of the scheme and the shareholder and creditor approvals with:
- Registrar of Companies (ROC)
- Official Liquidator (OL)
- Jurisdictional Income Tax Authorities
Authorities are given a period of 30 days to submit their objections or suggestions.
6. Filing of Objections, if any (Form CAA-10)
If any objections or suggestions are received from creditors or regulators, the companies must file those with the Regional Director (RD) in Form CAA-10, along with their responses. If no objections are received within the prescribed period, the RD may approve the scheme.
7. Approval by Regional Director
If satisfied, the Regional Director will issue a confirmation order approving the scheme within 60 days of receiving the scheme and related documents. If the RD believes the scheme is against public interest or that objections require detailed examination, the matter may be referred to the NCLT under Section 232 for consideration.
8. Filing of Order with Registrar of Companies
After receiving the confirmation order from the RD, both companies are required to file it with the ROC in Form INC-28. The scheme becomes legally effective on filing of this order, and all the assets, liabilities, and business of the transferor company vest in the transferee company.
Forms Required for Fast Track Merger
| Form | Purpose | When to File |
|---|---|---|
| CAA-9 | Declaration of Solvency | Before shareholder and creditor approval |
| CAA-10 | Filing of objections, if any | If objections are received |
| MGT-14 | Filing resolutions for scheme approval | After Board and shareholder meetings |
| GNL-1 | Filing notices, scheme, and other documents with ROC | After obtaining Board and shareholder approvals |
| INC-28 | Filing of RD’s order | After RD approval |
Key Advantages of Fast Track Merger
- No requirement to approach the National Company Law Tribunal unless objections arise.
- Faster approval timelines, typically within three to four months.
- Reduced compliance burden and legal costs.
- Suitable for start-ups and closely-held businesses seeking to consolidate operations.
Conclusion
The Fast Track Merger under Section 233 of the Companies Act, 2013 provides a practical, efficient, and cost-effective framework for small companies to merge or restructure. By avoiding prolonged regulatory procedures and reducing transactional costs, it offers small businesses a commercially viable mechanism for consolidation and business growth.
However, careful attention must be paid to the eligibility criteria, procedural requirements, and timely filings to ensure seamless implementation. Professional advice is recommended to navigate the legal, financial, and tax considerations involved.
