Fast Track Merger under Companies Act, 2013
Fast Track Merger under Companies Act, 2013
1. Introduction
A Fast Track Merger (FTM) is a simplified procedure for the merger or amalgamation of companies that meet specific criteria. It is designed to reduce procedural delays and make the merger process more efficient and less cumbersome.
2. Legal Provisions Governing Fast Track Merger
The provisions for Fast Track Merger are contained in Section 233(2) of the Companies Act, 2013.
These provisions empower the Central Government (now the National Company Law Tribunal - NCLT) to prescribe a scheme of merger or amalgamation between certain classes of companies without going through the full formalities of a regular merger.
3. Eligible Companies for Fast Track Merger
Section 233(2) applies to mergers or amalgamations between:
Holding company and its wholly owned subsidiary company.
Two or more small companies.
Two or more dormant companies.
Here:
Small Company: As defined under Section 2(85) of the Companies Act, 2013:
Paid-up capital not exceeding ₹2 crores.
Turnover not exceeding ₹20 crores.
Dormant Company: As defined under Section 455, a company that has been formed but has no significant accounting transaction.
4. Procedure for Fast Track Merger
Companies eligible for FTM can prepare a scheme of merger.
The scheme is approved by the Board of Directors of the companies involved.
No need for approval from members or creditors (except dissenting shareholders can approach the NCLT).
The scheme is then submitted to the NCLT for approval.
NCLT may approve the scheme after satisfying itself that the interests of shareholders and creditors are protected.
Once approved, the merger is binding on all shareholders and creditors.
5. Key Advantages of Fast Track Merger
Simplified and speedy process.
Lower procedural cost due to less paperwork.
No requirement for a general meeting of shareholders or creditors.
Facilitates restructuring within group companies or consolidation of small entities.
Helps in better compliance with regulatory requirements.
6. Key Sections Related to Fast Track Merger
Section 233(2): Power to Central Government to provide for class or classes of mergers.
Section 232: Power to compromise or make arrangements with creditors or members (general mergers).
Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016: Details procedure for fast track merger.
7. Important Case Laws on Fast Track Merger
🔹 Sundaram Finance Ltd. v. NEPC India Ltd.
Though not directly on Fast Track Merger, the case highlights the importance of protecting the interests of shareholders and creditors in any merger.
🔹 Sundaram Brake Linings Ltd. v. Dr. J.J. Irani (2011)
The court emphasized the need for the merger process to be fair and transparent, relevant for all types of mergers including fast track ones.
🔹 In re: Videsh Sanchar Nigam Ltd. (VSNL) (2004)
NCLT has the power to approve mergers ensuring that procedural compliance is followed, which extends to fast track mergers.
8. Important Points to Remember
| Aspect | Details |
|---|---|
| Eligibility | Holding company & wholly owned subsidiary, small companies, dormant companies |
| Approval required | Board approval; no shareholder or creditor meetings required |
| Authority | Approval from NCLT |
| Dissenting shareholders | Can approach NCLT if aggrieved |
| Objective | Simplify and speed up mergers within specified classes |
9. Conclusion
The Fast Track Merger mechanism under the Companies Act, 2013 is a beneficial tool for facilitating mergers within specific categories of companies by cutting down procedural delays and compliance costs. It helps group companies and small/dormant companies to reorganize efficiently while ensuring protection of stakeholders' interests through NCLT’s oversight.
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