In a significant move aimed at expediting the merger process under Section 233 of the Companies Act 2013 read with Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, the MCA has recently issued the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023 with effect from 15th day of June, 2023 vide notification, numbered G.S.R. 367(E), dated May 15, 2023 (“Rules”). These Rules introduce a new framework to streamline procedure and reduce delays in obtaining approvals for mergers and amalgamation between two or more small companies or between a holding company and its wholly owned subsidiary company under Section 233 of the Companies Act, 2013. Prior to this update, there was no specified time period for obtaining approvals from the Registrar of Companies (“RoC”) and Official Liquidator (“OL”).
According to section 233 of the Companies Act, 2013, read with Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, if a company seeks to initiate process of merger or amalgamation, then it shall submit a copy of the scheme of merger or amalgamation to the RoC and OL for their objections and suggestions. The scheme is then evaluated by the Regional Director of the MCA. (“Regional Director”).
Upon evaluation by the Regional Director, it may be noted that only the following two scenarios may arise, depending on whether objections or suggestions from RoC or OL are received within 30 days of the receipt of the scheme.
Scenario 1: No Objections or Suggestions Received from RoC and OL:
If no objection or suggestion is received within the 30 days’ timeframe, the Regional Director shall proceed with the evaluation. It shall consider the scheme’s alignment with the public interest or the interests of creditors. Thereafter, within the next fifteen days after the expiry of the thirty-days period, the Regional Director shall issue a confirmation order for the merger or amalgamation, in Form CAA.12. In case of no objections or suggestions received from RoC and OL within 30 days it is deemed that RoC and OL has no objection or suggestions to the scheme.
Scenario 2: Objections or Suggestions Received from RoC and OL:
When objections or suggestions are received from the RoC and OL or both within 30 days, the Regional Director shall initiate a detailed assessment. The objections or suggestions put forth are carefully scrutinized. In this case, the following 3 possible outcomes can arise from the aforesaid evaluation:
(a) Unsustainable Objections or Suggestions:
If the objections or suggestions are deemed unsustainable by the Regional Director, and it concludes that the scheme is in the public interest or the interest of creditors, a confirmation order is issued within 30 days after the expiry of the initial 30 days period. The confirmation order shall be in the Form of CAA.12.
(b) Scheme Deemed Not in Public Interest or Interest of Creditors:
In cases where the Regional Director, based on objections or its own assessment, determines that the scheme is not in the public interest or the interest of creditors, it shall have 60 days from the receipt of the scheme to file an application before the Tribunal. The application shall be prepared in the Form of CAA.13, stating the objections or opinion of the Regional Director and requesting the National Company Law Tribunal (NCLT) towards its consideration under section 232 of the Companies Act, 2013.
(c) Deemed No Objection:
If the Regional Director fails to issue a confirmation order under scenario (a) or does not file any application under scenario (b) within 60 days of receiving the scheme, it is deemed that the Regional Director has no objection to the scheme. Consequently, a confirmation order is issued accordingly.
Conclusion:
The introduction of the 60-day time limit ensures that the approval process for mergers and amalgamations under Section 233 of the Companies Act, 2013 does not unnecessarily prolong the process of the respective merger and amalgamation, thus, providing the businesses with a clear and defined timeline. This regulatory change aims to strike a balance between facilitating business transactions and safeguarding the interests of stakeholders.
By encouraging companies to present well-prepared merger schemes and allowing the respective governmental authority sufficient time to review and evaluate them, these rules foster an environment of efficiency and transparency. This move is expected to expedite the approval process, promote ease of doing business, and enhance the overall efficiency of the corporate sector in India.
Author: Arihant Jain, Associate.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at info@samistilegal.in
