International-humanitarian-law.docx

CORPORATE LAW – II PROJECT

FAST TRACK MERGERS AND PUBLIC INTEREST OF SMALL COMPANIES

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

under the guidance of: Mrs. NANDITA S JHA

project submitted by: ANKIT PANDEY ROLL NO.- 1309 SEMESTER- 8TH SESSION- 2015-2020 COURSE- B.A. LL.B

CERTIFICATE OF DECLARATION

I/We hereby declare that the research paper titled FAST TRACK MERGER AND PUBLIC INTEREST OF SMALL COMPANIES submitted by me is based on actual and original work carried out by me. Any reference to work done by any other person or institution or any material obtained from other sources have been duly cited and referenced.

ACKNOWLEDGEMENT I feel highly elated to present the project Research on “FAST TRACK MERGER AND PUBLIC INTEREST OF SMALL COMPANIES”, which owes its very existence to a number of people without thanking whom, I would fail to do proper justice to its original profounder. Firstly, I would like to thank the Insurance law Subject Faculty, Mrs. NANDITA S JHA for showing her belief in me and considering me potent enough to carry out the research methodology, and thereby assigning the said topic to me. In fact without her continuous exemplary guidance and worm- view criticism the project could never have reached its current stature.

Secondly, I would like to extend my sincere acknowledgement towards the Librarian of CNLU, for making all the reading materials available relevant for my Research Paper, within such short notice. In fact the CNLU Library came up as an excellent source for all the requisite data.

Thirdly, I would like to thank the Managing staff of CNLU, for providing me with the facility of 24 hours/ 7 days a week Internet connection, since the search engines namely, www.google.com, www.bing.com, where an indispensable need to facilitate data access within fractions of seconds.

ANKIT PANDEY ROLL NO. 1309

TABLE OF CONTENTS

introduction .................................................................................................................................................. 5 HYPOTHESIS .................................................................................................................................................. 6 RESEARCH QUESTIONs .................................................................................................................................. 6 Research methodology ................................................................................. Error! Bookmark not defined. applicability of fast track merger provisions................................................................................................. 8 procedure of fast track merger ................................................................................................................... 10 Benefits of fast track mergers ..................................................................................................................... 14 effect of registration of scheme.................................................................................................................. 14 conclusion and suggestions ........................................................................................................................ 16

Chapter One

INTRODUCTION One of the duties of the company towards its shareholders is wealth maximization. In order to survive in fast growing market every company adopts different techniques to maximize its profit. A company has to respond spontaneously towards certain events like-change in market, launching of new product, increasing portfolios etc. To achieve its objective with the changing market a company requires financial resources. These events create problems for small companies who lack and fail to arrange finances. So, they are left with no option but to quit the market or merge with or acquired by some other company. The former companies act, 1956 gives power to High Court to sanction and enforce compromises and arrangements in respect of companies, thus making all the mergers and restructuring time consuming and fairly cumbersome. So, there was a need to bring reform to the procedure for arrangements. Accordingly, the concept of fast track merger (covered under section 233) was introduced under companies act, 2013 which seeks to give speed to the process of merger of specified class of companies and make corporate restructuring smooth and efficient. Section 233 of the Companies Act, 2013 read with Rule 25 of The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 came into effect from 15th December 2016. There is no need of approval from jurisdictional high court in these merger. Now the power has been delegated to the Regional Directors , Registrar of Companies and Official Liquidator whose approval is required for the completion of process, the whole process can take 3-5 months if all the necessary conditions are met. The fast track mergers helps to enables small companies to pool their resources within short span of time to generate synergies which ultimately helps the parties involved to sustain the heat of tough competition. In this project the researcher will deliberate over the provisions of section 233 of the Companies Act, 2013 which deals with the issue of fast track merger and try to explain the process and procedure involved, discuss post-merger impacts, relevant forms and also seeks to elaborate the likely benefits of the fast track merger.

HYPOTHESIS The hypothesis is that, Fast track mergers is a new concept. It is fast, efficient process suitable for small companies. They are executed for specific purposes. Also, these mergers are not mentioned in 1956 act.

RESEARCH QUESTIONS 1. How the fast track merger has helped the small companies? 2. How to initiate fast tracker merger proceeding? 3. What are the procedures involved?

RESEARCH METHODOLOGY AIMS & OBJECTIVES

The objectives of this project are:  To understand the concept of Fast Track Mergers.  To study the relevance of these mergers in the present scenario.  To comprehend the 2013 Act w.r.t Fast Track Mergers along with its provisions.

METHOD OF RESEARCH:

The researcher has adopted a doctrinal method of research. The researcher has made extensive use of the library at the Chanakya National Law University and also the internet sources available.

SOURCES OF DATA

The sources of data for this project are secondary in nature, including books, articles and online resources.

LIMITATION OF STUDY

In spite of best of efforts to minimize all limitations that might creep in course of the research, there were certain constraints within which the research was completed. The project offers a comprehensive study. However due to paucity of time and pages the research paper does not provide a complete understanding of the all the provisions related to it.

Chapter Two

APPLICABILITY OF FAST TRACK MERGER PROVISIONS Notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed.1 “Small Company” means a company, other than a public company,— i. Paid-up share capital of which does not exceed 50 lakh or such higher amount as may be prescribed which shall not be more than Rs. 5 Crore; or ii. Turnover of which, as per its last profit and loss account does not exceed 2 Crore or such higher amount as may be prescribed which shall not be more than Rs. 20 Crore: Provided that nothing in this clause shall apply to— 

A holding company or a subsidiary company;



A company registered under section 8; or



A company or body corporate governed by any special Act;2

“Holding Company”, In relation to one or more other companies, means a company of which such company is a subsidiary.3 “Subsidiary Company” or “Subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company— (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies: 1

Clause 1, Sec 233, Companies Act 2013. Clause 85, Sec 2, Companies Acr 2013. 3 Clause 46, Sec 2, Companies Act 2013. 2

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. Explanation.—For the purposes of this clause,— a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company; b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors; c) the expression “company” includes any body corporate; d) “layer” in relation to a holding company means its subsidiary or subsidiaries;4

Companies (Compromise, arrangements and amalgamations) Rules, 2016 made applicable from 15th day of December, 2016 i.e. rule 25 merger or amalgamation of certain companies.

4

Clause 8, Sec 2, Companies Act 2013.

Chapter Three

PROCEDURE OF FAST TRACK MERGER Preliminary steps :a) First of all check Articles of Association of both the Transferor and Transferee Company whether there is clause to merge the business of company with other companies, if not then they need to alter their Articles of Association. b) Secondly, Call a Board Meeting and prepare a draft scheme of merger. The procedure for the fast track merger process is prescribed under Section 233 of the 2013 Act read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and broadly envisages the following steps: 1) Convene Board Meeting by each Transferor and Transferee Companies: a) To approve the draft scheme; b) To fix date, time and place for convening of shareholders meeting; c) To fix date, time and place for convening of creditors meeting; 2) Notice of proposed scheme After the approval of Board of Directors of each Company, the notice of the proposed scheme inviting objections or suggestions, if any, shall be sent by each transferor and transferee company in form CAA-9 to the Registrar of Companies (“ROC”) and Official Liquidators where registered office of the respective companies are situated or persons affected by the scheme along with a copy of the Scheme. 3) Filing Declaration of Solvency with ROC Each of the transferor and transferee companies involved in merger must file a declaration of solvency, in form CAA-10, with the ROC where the registered office of the companies are situated, before convening the meeting of members and creditors for approval of the scheme. 4) Notice of EGM

The notice of the meeting required to be sent to the members before 21 clear days and it shall be accompanied by – a) Copy of proposed scheme; b) Statement disclosing the details of merger; c) Declaration of solvency made in Form No. CAA.10; d) Copy of latest audited financial statements of each company; e) Copy of valuation report, if any; f) Any other relevant and material information. Alternatively, approval in writing from majority representing 90% of the total number of shares may be taken without conducting general meeting. 5) Members Approval The objections and suggestions received by the ROC, Official Liquidator and persons affected by the scheme are considered by the companies in their respective general meetings and the scheme must be approved by the respective members or class of members at a general meeting holding at 90% of the total number of shares. 6) Creditors Approval Both Transferor and Transferee Company required to take approval from creditors either by way of written approval OR at meeting of creditors specifically called for these purpose. The notice of the meeting required to be sent to the creditors before 21 clear days and it shall be accompanied by – a) Copy of proposed scheme; b) Statement disclosing the details of merger; c) Declaration of solvency made in Form No. CAA.10; d) Copy of latest audited financial statements of each company; e) Copy of valuation report, if any; f) Any other relevant and material information.

The scheme is to be approved by majority representing 9/10th in value of the creditors or class of creditors of respective companies indicated in a meeting. 7) Filing of the Scheme The draft scheme involving merger must be filled within 7 days of conclusion of meeting of members and creditors to the following: a) A copy of Scheme and report of the result of each of the meetings with the Regional Director (R.D) having jurisdiction of Transferee Company. b) A copy of the scheme along with Form CAA 11 shall also be filed with: i.

ROC in Form GNL 1;

ii.

Official Liquidator through hand delivery or by registered post or speed post.

8) Approval of Scheme by R.D On the receipt of the scheme, if the ROC or the Official Liquidator has no objections or suggestions to the scheme, the Regional Director shall register the same and issue a confirmation thereof to the companies. If the ROC or Official Liquidator has any objections or suggestions, he may communicate the same in writing to Regional Director within a period of 30 days. If no such communication is made, it shall be presumed that he has no objection to the scheme. If the Regional Director after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in public interest or in the interest of the creditors, it may file an application before the Tribunal in Form No. CAA.13 within a period of 60 days of the receipt of the scheme under sub-section (2) stating its objections and requesting that the Tribunal may consider the scheme under section 232. On receipt of an application from the Regional Director or from any person, if the Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit.

If the Regional Director does not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme. Where no objection or suggestion is received to the scheme from the ROC and Official Liquidator or where the objection or suggestion of ROC and Official Liquidator is deemed to be not sustainable and the Regional Director is of the opinion that the scheme is in the public interest or in the interest of creditors, the Regional Director shall issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA. 12. 9) Filing of confirmation order with the ROC A copy of the order confirming the scheme by the Regional Director shall be filled with the ROC, within 30 days, in form INC-28, having jurisdiction over the Transferor and Transferee Company and the ROC shall register the scheme and issue a confirmation to the companies and such confirmation shall be communicated to the ROC where transferor company or companies were situated.

Chapter Four

BENEFITS OF FAST TRACK MERGERS 1. No Mandatory approval of NCLT required. It will help remove the bureaucratic barriers involved in court proceedings and in turn simplify the process. Also it will help remove the bureaucratic barriers involved in court proceedings and in turn simplify the process. 2. No need to obtain auditor’s certificates of compliance with applicable accounting standards. This is a welcome step that will result in reduction in the administrative burden, timelines and costs of smaller companies that fall within threshold limits.

3. Registration of scheme shall deemed to have effect of dissolution of transferor companies without the process of winding up. 4. Comparatively less costly.

Chapter Five

EFFECT OF REGISTRATION OF SCHEME 1. The registration of the scheme would leads to the dissolution of the transferor company with going into winding-up process.

2. Transferred assets and liabilities of Transferor Company would become the assets and liabilities of Transferee Company.

3. The charges, if any, created on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company.

4. Where the scheme provides for purchase of shares held by the dissenting shareholders or settlement of debt due to dissenting creditors, such amount, to the extent it is unpaid, shall become the liability of the transferee company.

5. A transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished on the merger or amalgamation.5

The transferee company shall file an application with the Registrar along with the scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital by filing form SH-7 (if required), provided that the fee, if any, paid by the transferor company on its authorised capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its authorised capital enhanced by the merger or amalgamation.6

5 6

Sub-sec (9), Sec 233, Companies Act, 2013. Sub-sec (10), Sec 233, Companies Act, 2013.

Chapter Six

CONCLUSION AND SUGGESTIONS The fast track merger has helped small companies, holding company & subsidiary company and all other prescribed companies to have speedy merger when proposed. It creates a conducive environment of pooling of resources among certain companies which lack resources. It generates synergies amongst the small companies. Also the simplification of the process encourages corporate entities to undertakes corporate restructuring activities and help them to achieve their underlying objectives. With the delegation of power to central government for approval and registration of scheme of merger the FTM has reduced the burden on NCLT, thereby resulting in speedy disposal of schemes and substantial reduction of cost and resources of companies involved. Therefore keeping in mind the benefits of the said provision we can conclude it is a welcome provision. However, the success of this route primarily depends on how proactive the CG is in its approach to fast track mergers The fast track merger facilitates the restructuring of certain companies, yet there are some lacunae. Some possible issues and there solutions arei.

To access the fast track merger route a holding company must have 100% shareholding in its wholly owned subsidiary which should be reflected in the annual return in respect of the immediately preceding financial year. So there might be a situation when a companies may have to wait for upto a year to access the fast track merger process, and in such circumstances, a Tribunal approved merger process under Sections 230- 232 of the 2013 Act may actually be faster than the fast track merger process.

ii.

Sec 233 requires the scheme to be approved by majority in number representing 9/10th in value of the creditors indicated in a meeting or otherwise approved in writing. The term 'indicated in a meeting' suggests that if the approval of the creditors by way of a meeting is sought for, then approval by the requisite number and majority of the creditors present and voting in a meeting may suffice. However, in the event approval to the Scheme is

sought for by way of written consents, then approval by the requisite number and majority of the all the creditors may be required.

BIBLIOGRAPHY

BOOKS 1. Corporate Law by A. K. Majumdar & G. K. Kapoor

WEBSITE REFERRALS

1. http://indiacp.blogspot.in/2014/02/Fast-Track-Merger-Companies-Act-2013.html 2. http://blog.mylaw.net/companies-bill-brings-in-changes-to-mergers-and-amalgamationsregime/ 3. http://forbesindia.com/article/real-issue/key-implications-of-the-companies-act-2013-onboard-room-decision-making/38170/1 4. http://www.caclubindia.com/experts/fast-track-merger-scheme-under-companies-act-20131716499.asp 5. http://cn.lakshmisri.com/News-and-Publications/Publications/Articles/Corporate/Changingcontours-of-mergers-and-acquisitions-under-Companies-Act-2013 6. http://www.lexology.com/library/detail.aspx?g=e55e05ba-1363-4300-a981-64c6fafe186a

7. http://www.companiesact.in/PgKnowledge/ClassRoomSeries_6.aspx