CS Professional · Corporate Restructuring, Valuation and Insolvency

Fast Track Mergers: formula sheet

Full chapter guide

Key formulas

Eligible companies: Small companies (two or more) | Holding company + its wholly-owned subsidiary | Other prescribed classes; Section 233(1). Both companies need not be small in the holding-wholly-owned subsidiary case.
Notice for objections: Notice inviting objections or suggestions within 30 days, issued by transferor and transferee companies; Sent to the Registrar and Official Liquidators where the registered offices are situated, and to persons affected by the scheme.
Member approval: Approval at a general meeting by members holding at least 90% of the total number of shares; Objections received must be considered in the general meetings of the respective companies.
Declaration of solvency: Each company files a declaration of solvency, in the prescribed form, with the Registrar of its registered office; Section 233(1)(c).
Creditor approval: Majority representing 9/10 in value of creditors or class of creditors, at a meeting on 21 days' notice with the scheme, or approval in writing; Section 233(1)(d). The test is by value, not by number.
Filing of approved scheme: Transferee company files the scheme with the Central Government, the Registrar and the Official Liquidator; Section 233(2).
Registrar/OL objections: Written objections to the Central Government within 30 days; no communication means no objection is presumed; Section 233(4).
Central Government application to Tribunal: Within 60 days of receipt of the scheme; Section 233(5). If it files none, it is deemed to have no objection (proviso to 233(6)).
Effect of registration: Transferor dissolved without winding up; assets, liabilities, charges and proceedings pass to transferee; Section 233(8) and (9).
Cross-holdings: Transferee must not hold shares in its own name or through any trust; such shares are cancelled or extinguished; Section 233(10).
Revised authorised capital: Transferee files application with Registrar with registered scheme; fee paid by transferor is set off; Section 233(11).
Eligible companies: Small companies with small companies, or holding company with its wholly-owned subsidiary, or other prescribed classes; Section 233(1). The Act also allows the Central Government to prescribe other classes.
Notice for objections: Notice inviting objections or suggestions within 30 days, issued by transferor and transferee companies; Addressed to the Registrar and Official Liquidators of the places of the registered offices, and persons affected by the scheme.
Member approval: Members or class of members holding at least 90% of the total number of shares, at a general meeting; The objections and suggestions received must be considered at the general meetings of each company.
Declaration of solvency: Each company files a declaration of solvency, in the prescribed form, with the Registrar of its registered office; Every company in the merger files one, not only the transferor.
Creditor approval: Majority representing nine-tenths in value of creditors or class of creditors, at a meeting on 21 days' notice with the scheme, or approval in writing; It is value-based. The Act does not count heads here.
Filing the approved scheme: Transferee company files the scheme with the Central Government, Registrar and Official Liquidator; Section 233(2).
Time limits after filing: Registrar or Official Liquidator objections: 30 days. Central Government application to Tribunal: 60 days from receipt of scheme; If the Registrar or Official Liquidator does not communicate, no objection is presumed.
Effect of registration: Transferor company is dissolved without winding up; Section 233(8). Property, liabilities, charges and legal proceedings pass to the transferee company under 233(9).
Capital and fees: Transferee files an application with the Registrar with revised authorised capital and pays fees; fees paid by transferor are set off; Section 233(11).
Filing of approved scheme: Transferee company files scheme with Central Government, Registrar and Official Liquidator (registered office); Sub-section (2). Filed in the prescribed manner after member and creditor approval.
Registrar / Official Liquidator objection window: 30 days to communicate objections in writing to the Central Government; Sub-section (4). If no communication is made, no objection is presumed.
Central Government referral window: Application to Tribunal within 60 days of receipt of the scheme; Sub-section (5). Grounds: not in public interest or not in the interest of creditors.
Deemed no objection: No application by Central Government to Tribunal ⇒ deemed no objection; Proviso to sub-section (6).
Tribunal's options: Direct section 232 procedure OR confirm the scheme, with reasons recorded in writing; Sub-section (6). Application may come from the Central Government or any person.
Effect of registration: Transferor dissolved without winding-up; property, liabilities, charges and legal proceedings pass to transferee; Sub-sections (8) and (9). Dissenting shareholder or creditor dues unpaid become the transferee's liability.
Own shares: Transferee holds no shares in its own name or through a trust, subsidiary or associate; such shares are cancelled; Sub-section (10).
Authorised capital: Transferee applies to Registrar with registered scheme showing revised authorised capital; transferor's fee is set off; Sub-section (11).
Regular route: voting majority: Majority of persons representing 3/4 in value of those voting (in person, by proxy or postal ballot); Applies to each class of creditors or members at the Tribunal-ordered meeting. The scheme binds all only after Tribunal sanction.
Regular route: objection threshold: Shareholding ≥ 10% OR outstanding debt ≥ 5% of total outstanding debt (latest audited statements); Only such persons may object to the compromise or arrangement. Voting period in the notice: one month from receipt.
Regular route: notice to regulators: Representations within 30 days of receipt, failing which no representation is presumed; Notice goes to the Central Government, income-tax authorities, RBI, SEBI, Registrar, stock exchanges, Official Liquidator, CCI if necessary, and sectoral regulators.
Regular route: dispensing with creditors' meeting: Creditors holding ≥ 90% in value agree and confirm by affidavit; The Tribunal may then dispense with the creditors' meeting.
Regular route: filing of order: Order filed with the Registrar within 30 days of receipt; The auditor's certificate on accounting standards must be filed before sanction.
Fast track: consent: Members holding ≥ 90% of total number of shares AND creditors representing 9/10 in value; Creditor approval is at a meeting or by consent. Statement of solvency is filed. Check the exact rules for the form and timing.
Fast track: who can use it: Small companies; holding company and wholly owned subsidiary; start-ups; other prescribed classes; Not every merger qualifies. Confirm the company class before choosing this route.
Scope of Section 234(1): Chapter provisions apply mutatis mutandis to schemes between Indian companies and companies in jurisdictions notified by the Central Government; Applies unless any other law provides otherwise. The Central Government may make rules in consultation with RBI.
RBI approval, Section 234(2): Foreign company may merge into Indian company or vice versa, with PRIOR approval of RBI; Subject to other laws in force. Say "prior" in your answer.
Permitted consideration: Cash, or Depository Receipts, or partly cash and partly Depository Receipts; Paid to shareholders of the merging company as per the scheme.
Meaning of foreign company (Explanation): Any company or body corporate incorporated outside India, whether or not it has a place of business in India; Wider than the foreign company concept in Chapter XXII, which concerns a place of business in India.

Quick revision

Section 233 applies notwithstanding Sections 230 and 232.
Eligible: two or more small companies, or a holding company and its wholly-owned subsidiary, or prescribed classes.
Notice inviting objections or suggestions: thirty days, to Registrars, Official Liquidators and affected persons.
Members' approval: general meeting, holders of at least ninety per cent of total number of shares.
Each company files a declaration of solvency with its Registrar.
Creditors: majority representing nine-tenths in value, meeting on twenty-one days' notice or written approval.
Transferee company files the approved scheme with the Central Government, Registrar and Official Liquidator.
Registrar or Official Liquidator may object in writing within thirty days; silence means no objection.
Central Government may apply to the Tribunal within sixty days if the scheme is against public interest or creditors' interest.
Registration dissolves the transferor company without winding-up.
Transferee company cannot hold its own shares after merger; they are cancelled.
Section 234: foreign merger needs prior RBI approval; consideration may be cash, Depository Receipts, or both.

Common mistakes

Saying the Tribunal sanctions every fast track merger. Fix: Under Section 233 the Central Government registers the scheme. The Tribunal acts only if the Central Government applies or the Tribunal chooses to hear the matter on an application.
Stating the member approval as 90% of those present and voting. Fix: The text requires members holding at least ninety per cent of the total number of shares.
Saying the Tribunal sanctions every fast track merger. Fix: State that the Tribunal is bypassed, and enters only if the Central Government applies to it or a person applies and it decides to consider the scheme.
Writing 75% in value or three-fourths for members and creditors. Fix: Remember the fast track numbers: members holding at least 90% of the total number of shares, creditors nine-tenths in value.
Mixing up the 30-day and 60-day periods. Fix: 30 days is for the Registrar and Official Liquidator to write to the Central Government. 60 days is for the Central Government to apply to the Tribunal.
Saying the Tribunal sanctions every fast track scheme. Fix: The Central Government registers the scheme if there is no objection. The Tribunal enters only on referral or on an application.
Saying fast track is open to every merger. Fix: Start every answer by checking whether the companies fall in a prescribed class.
Stating the same voting threshold for both routes. Fix: Regular: three-fourths in value of those voting. Fast track: 90% of total shares and nine-tenths creditors in value. Note that 90% in value also appears in the regular route, but only to dispense with the creditors' meeting.
Saying section 234 covers only foreign companies merging into Indian companies. Fix: State that the section works in both directions: inbound and outbound.
Writing that RBI approval can be taken after the scheme is sanctioned. Fix: The section says "prior approval" of the Reserve Bank of India. Use that word.

Exam tips

Write the section number and the sub-section for each step. Examiners reward the provision, analysis, conclusion pattern.
Keep a one-line list of 30, 90, 21 and 60 with their meanings.
In case facts, check eligibility first: small company status, and whether the subsidiary is wholly owned.
Mention that Section 233(14) lets an eligible company use Section 232 instead.
List the effects of registration in a numbered form to score on a six or eight mark question.
Start every answer with eligibility. Examiners often test whether the companies qualify at all.
Memorise the numbers: 30 days, 90% of shares, nine-tenths in value, 21 days, 30 days, 60 days. Write them exactly.
In case questions, spot which step is missing in the facts, such as no solvency declaration, or creditor approval below nine-tenths, and say the scheme fails.