The idea of a fast track merger was introduced to India and found its way into the corporate regime back in 2016. However, how fast tracked the process has actually become is the real moot question. Section 233 of the Companies Act, 20131, (the Act) read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (Companies Rules, 2016)2, envisages the fast track merger model, allowing certain companies to merge without taking the pain of approaching National Company Law Tribunal (NCLT)3, in a comparatively swift and cost-effective manner.4 These provisions, prior to the Notification5, bestowed powers to the Registrar of Companies (RoC) and the Official Liquidator (OL) to raise objections without specifying the date by which they had to revert back.
It is evident from the recent conduct of the corporate institutions that they are not much inclined to opt for this route of merging on account of not only there being unclarity about who all are eligible but also the delay in authorisation from RoC or OL. This has resulted in the defeat of the whole idea of mergers being “fast-tracked” and left the corporate sector struggling.
Introduction of a recent notification cures this problem of unfounded delay in the Indian corporate merger regime, as it imposes a specific timeline that needs to be followed by the RoC or OL. The authors, consequently, submit that the notification is a step in the right direction, however, its success needs to be scrutinised.
Notification of MCA and what does it entail
The Ministry of Corporate Affairs (MCA) issued a Notification dated 15-5-20236, approving an amendment in Rule 25 of the Companies Rules, 2016. The Notification introduces two unique features. First, expedited timelines for RoC or OL to raise objections/offer suggestions. Second, reaffirming the idea of deemed approval.
This is a very crucial reform for the facilitation of fast track mergers as will it help fasten the process and protect the interests of the companies by evading unwarranted delay. Interestingly, Section 233 of the Act and Rule 25 of the Companies Rules, 2016, prescribing an alternate route to the scheme of arrangements to be entered into between specified companies commonly known as fast track mergers7, warrants an application to be filed by the involved company with the Regional Director who would further issue confirmation order based on a report entailing objections/suggestions raised by RoC or OL.
Pre-notification, there did not exist any timeline within which RoC or OL was supposed to revert back. While the entire process of authorisation had to be completed within sixty days of filing the application, the lack of specific due dates for authorities posed a hurdle and led to delays.8 This also yielded in a tussle between different authorities involved and consequently led to a “blame game” between the agencies for such delay.
The notification has now introduced a set timeline for RoC and OL to raise any objections/suggestions. Post-notification, the RoC or OL is required to revert back with any objections/suggestions within 30 days of filing for approval. In case no objection/suggestion is raised, and the scheme is found to be in the public interest, the Central Government is to issue a confirmation order within 15 days after the expiration of thirty days period. Where the RoC or OL notes an objection/suggestion, the Central Government is to issue a confirmation or raise it to the Tribunal within 30 days after the expiration of thirty days period. Furthermore, in any case, if the application is not treated, either approved or referred to the Tribunal, within 60 days, the same shall be deemed to be accepted.
A step in the right direction
Introduction of this notification has been very pivotal on two fronts. First, ushering in a new era of mergers that are not marred by procedural delays; and secondly, it will guarantee and justify the tag “fast-tracked” merger scheme. Indeed, this notification is a step towards striking a balance between facilitating corporate growth and safeguarding the interests of the public and creditors.9
The setting of timeline, implemented with a view to facilitate ease of doing business, eradicates the possibility of any undue delay caused on account of bureaucracy, thereby ensuring that mergers under Section 233 take place in smooth and time-bound fashion.10 Now what we see from this is that companies seeking fast track mergers now are absolved from the plight of any disruptions which affect expediency.
However, this notification is not immune to certain probable obstructions. The Notification shall be implemented from 15-6-2023. In this regard, since it is a settled principle that any law which alters the rights/obligations of parties has to be applied prospectively11, this said notification is no exception. It is no doubt that the companies applying for authorisation on or after 15-6-2023 shall enjoy the fruits of this Notification, however express instructions for companies awaiting authorisation need to be released by the MCA in order to avoid any confusion.
The notification has although been applauded by the experts, simultaneously, has raised doubts among them pertaining to its practical implementation12, and rightly so. The lack of any checks and balances with regard to ensuring strict enforcement of the scheme, and the lack of providing step-by-step updates to the parties for tracking purposes, can discount any advantages of the scheme.
Therefore, this must not be the only pit stop that MCA takes for facilitating fast track mergers, and there are many other improvements which can be made. The primary area where the said scheme raises eyebrows is the power given to the Central Government to adjudge as to what is in public interest and what is not. While the decision has to be based on the principles established by the court of law, one cannot expect the same standard applied by both the Tribunal and the Central Government. Consequently, it is essential to wait and look how the said dicey area pans out in the longer run.
The concept of fast track mergers, although comparatively new in the Indian context, is well- recognised globally, for instance, in countries like China and Brazil. In the Brazilian context, mergers which are simplistic and competitively sensitive enjoy the CADE’s (Conselho Administrativo de Defesa Econômica/Administrative Council for Economic Defence) facility of fast track process, as per which, the said assessment must be completed within 30 days from the filing of the notification.13 China, on the other hand, generally takes up to 3 months’ time from filing of notification to authorise the merger. However, the pertinent thing to note is that it prohibits less than 0.01% of the cases, thereby clearing the majority i.e. 99%.14
Fast track mergers in the Indian context must take note of the modus operandi of other countries to create a more robust mechanism. While the Brazil model may help to identify areas where the time taken can be reduced, the Chinese model may help to expand the scope of plausible mergers under the scheme. This would assist in ensuring better trust in the process of fast track mergers by the participating companies.
The notification surely is a positive step taken to revolutionise mergers and amalgamation process.15 As observed, so far, the process was proving to be time-consuming and difficult because of its dependence on other jurisdictional bodies. The authors submit that while the notification does not alter the overall time taken with respect to getting authorisation, the setting of time-limit for each agency sure will help a lot to enhance the procedure and ensure speedy outcome.
* Fourth year student, BA LLB (Hons.) at National Law University, Jodhpur.
** Fourth year student, BA LLB (Hons.) at National Law University, Jodhpur. Author can be reached at email@example.com.
3. “Fast Track Merger – The Process made Faster and Simpler” (IC Universal Legal, 22-5-2023) <https://www.linkedin.com/company/universal-legal-the-chugh-firm/posts/?feedView=all> (accessed on 23-5-2023).
4. Barsha Dikshit, “Fast Track Merger – Finally on a Faster Track” (Vinod Kothari Consultants, 18-5-2023) <https://vinodkothari.com/2023/05/fast-track-merger-finally-on-a-faster-track/> (accessed on 23-5-2023).
7. Barsha Dikshit, “Fast Track Merger – Finally on a Faster Track” (Vinod Kothari Consultants, 18-5-2023) <https://vinodkothari.com/2023/05/fast-track-merger-finally-on-a-faster-track/> (accessed on 23-5-2023).
8. BS Reporter, “Ministry of Corporate Affairs Notifies Timelines for Fast-Track M&As” (Business Standard, 16-5-2023) <https://www.business-standard.com/companies/news/govt-sets-timelines-for-submitting-objections-for-fast-track-m-as-123051600964_1.html> (accessed on 23-5-2023).
9. Surabhi, “MCA Proposes Time-Bound Approvals for M&As” (Financial Express, 17-5-2023) <https://www.financialexpress.com/industry/mca-proposes-time-bound-approvals-for-mampas/3090361/> (accessed on 23-5-2023).
10. Nexdigm, “MCA Seeks to Expedite the Merger Process for Certain Companies” (17-5-2023) <https://www.nexdigm.com/data/mailer/nexdigm_regulatory_alert_17_may_2023.html> (accessed on 23-5-2023).
11. Barsha Dikshit, “Fast Track Merger – Finally on a Faster Track” (Vinod Kothari Consultants, 18-5-2023) <https://vinodkothari.com/2023/05/fast-track-merger-finally-on-a-faster-track/> (accessed on 23-5-2023).
12. BS Reporter, “Ministry of Corporate Affairs Notifies Timelines for Fast-Track M&As” (Business Standard, 16-5-2023) <https://www.business-standard.com/companies/news/govt-sets-timelines-for-submitting-objections-for-fast-track-m-as-123051600964_1.html> (accessed on 23-5-2023).
13. Leonardo Canabrava, Lucas Spadano, Bruno Augustin, Andréa Cruz, Bruna Prado and Fialho Salles Advogados, “Merger Control in Brazil: Overview” (Thomson Reuters Practical Law, 1-1-2022) <https://uk.practicallaw.thomsonreuters.com/4-501-1911?transitionType=Default&contextData=(sc.Default)&firstPage=true> (accessed on 24-5-2023).
14. Andrew L. Foster and Julia Zhu, “Demystifying China’s Merger Review Process” (Skadden, 13-12-2022) <https://www.skadden.com/insights/publications/2022/12/2023-insights/more-intense-merger-reviews/demystifying-chinas-merger-review-process> (accessed on 24-5-2023).
15. Surabhi, “MCA Proposes Time-Bound Approvals for M&As”, Financial Express, 17-5-2023 <https://www.financialexpress.com/industry/mca-proposes-time-bound-approvals-for-mampas/3090361/> (accessed on 23-5-2023).