The Ministry of Corporate Affairs (“MCA”) has recently issued the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023 (“Amendment Rules”) with the aim of enhancing the ease of doing business.

These rules, effective from June 15, 2023, streamline and expedite the process of corporate mergers and amalgamations. By introducing new provisions and timelines, the Amendment Rules seek to simplify the amalgamation process outlined in the Companies Act, 2013.

Understanding Amalgamation under the Companies Act, 2013

Under the Companies Act, 2013, amalgamation refers to the legal process of combining two or more companies into a single entity. It involves the merging of assets, liabilities, and operations of the amalgamating companies to form a new company or merge them into an existing company. The Act provides a framework for the amalgamation process, including the preparation of a scheme of amalgamation, approval by the shareholders and creditors of the involved companies, and obtaining necessary regulatory and court approvals. For the purposes of this article, we will limit our understanding to Section 233 of the Companies Act, 2013 (“Act”) read with Rules 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Rules”).

Section 233 of the Companies Act, 2013 and its Applicability

Section 233 of the Act puts in place a universally accepted proposition of a Fast Track Process with respect to mergers and amalgamations. However, it limited its applicability to only certain classes of companies, which are:

  1. Two or more start-up companies;
  2. One or more start-up companies with one or more small companies;
  3. Between two or more small companies;
  4. Between a holding company and its wholly-owned subsidiary company.

However, before we delve further, it is of significance to understand which company is deemed to be a “start-up”[1] for the purposes of this Act.

For a company to be considered as a startup it needs to be registered as a startup under the extant provisions of law, as amended from time to time.

Section 233 of the Act read with Rule 25 gains much significance in today’s time due to the fast-paced economy. As compared to the erstwhile regime, the Act allows companies to merge without acquiring the seal of approval of the National Company Law Tribunal, this reducing further causing delay. Nevertheless, the process today is not without its challenges and thus the need for an amendment. Let us examine the Rules as they exist before understanding the changes brought vide the Amendment Rules.

Amendment to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

Amendment Rules Prior to 2023

Sub Rule 5:

Pursuant to sub-rule 5 of Rule 25, the Central Government had the power to issue an order of confirmation to the scheme of merger or amalgamation if the Central Government was satisfied as one of the following:

  1. No objection or suggestion is received from the Registrar of Companies or Official Liquidator; or
  2. Objection or suggestion received is deemed to be not sustainable.

Sub Rule 6:

In the event objections or suggestions are received from the Registrar of Companies or Official Liquidator and the Central Government is of the opinion whether:

  1. On the basis of such objections or suggestions; or
  2. Otherwise

believes the scheme to not be in the public interest, then the Central Government has the power to file an application before the Tribunal to consider the scheme under Section 232 of the Act. The same must be filed before the Tribunal within a period of sixty (60) days.

Changes Introduced by the 2023 Amendment Sub-rule 5 and 6 of Rule 25 have now been substituted as follows:

Upon receipt of the scheme, the Registrar of Companies or Official Liquidator, may within a period of thirty (30) days (“Notice Period”) submit its objections or suggestions.

Conclusion

To conclude, in both the abovementioned Sub-Rules, the MCA has introduced the provision of deemed approval, and a strict timeline has been adopted to keep the authorities under check. Such deemed approval provisions will promote accountability by holding authorities responsible for timely decision-making.

Author by: Mr. Himanshu Goswami, Partner, and Ms. Prableen Kaur Chandhok, Associate, representing Goswami & Nigam LLP.

Footnotes

[1] G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade

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