Mergers & Acquisitions: Fast Track Merger Mode in India

Section 233 of the Companies Act, 2013 (read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016) provides a simplified merger procedure for certain categories of companies — bypassing the National Company Law Tribunal (NCLT).

Traditional mergers under Sections 230–232 take 9–18 months through NCLT. The Fast Track Merger route can be completed in 60–90 days with significantly lower cost and complexity.

Fast Track Merger is available only for:

1. 1Two or more small companies: (paid-up capital ≤ ₹4 crore AND turnover ≤ ₹40 crore)
2. 2A holding company and its wholly owned subsidiary
3. 3Two or more start-up companies: (as notified by DPIIT, within 10 years of incorporation)
4. 4A start-up company and a small company

Advantages over NCLT Route:

• No NCLT approval: required — ROC processes the scheme
• Timeline: 60–90 days vs. 9–18 months
• Cost: Significantly lower — no court fees, simpler legal process
• Less documentation: Streamlined scheme requirements
• No creditor objection process: Creditors get notice but it is managed without court hearings

Step 1: Prepare the Scheme of Merger

A detailed Scheme of Arrangement is drafted covering:

• Share exchange ratio (or treatment of shares, in case of holding-subsidiary merger)
• Treatment of employees, assets, liabilities
• Appointed date (from which the merger is effective)
• Conditions and warranties

The Scheme must be approved by the Board of Directors of all merging companies.

Step 2: Notice to Objectors (Rule 25)

Within 7 days of Board approval, notice must be sent to:

• Registrar of Companies (ROC)
• Official Liquidator (OL): of the High Court
• Income Tax Authorities
• Competition Commission of India (CCI): (if applicable — turnover/asset thresholds)
• SEBI, RBI, IRDA: as applicable to the sector

These authorities have 30 days to raise objections. If no objection is received, the process continues.

Step 3: Shareholder Approval

The Scheme requires approval from shareholders holding at least 90% of the total number of shares (value). This is done by way of postal ballot or at a General Meeting.

Step 4: Creditor Approval

Creditors (holding at least 90% in value) must also approve the Scheme. Dissenting creditors with outstanding debt of more than ₹1 lakh can file objections.

Step 5: Filing with Central Government (ROC)

After shareholder and creditor approval, the companies file the Scheme with the Regional Director (RD) through Form CAA-12. Documents include:

• Scheme of Merger
• Auditor's Report on net worth
• List of creditors and shareholders
• Declarations by directors
• NOCs from secured creditors

Step 6: Central Government Order

The Regional Director either:

• Confirms the Scheme: if no objections → The ROC registers the merger and issues the final order
• Refers it to NCLT: if objections cannot be resolved

Step 7: Effective Date and Post-Merger Compliance

Upon confirmation:

• File INC-28 (Notice of Order) with ROC
• Transfer all assets and liabilities of the transferor company
• Cancel shares of the transferor company
• File revised financial statements
• Update all registrations (PAN, GST, bank accounts, contracts)
• The transferor company is dissolved without winding up

Mergers under Section 2(1B) of the Income Tax Act can be structured as tax-neutral amalgamations if conditions are met:

• At least 75% of shareholders of the amalgamating company become shareholders of the amalgamated company
• All assets and liabilities of the amalgamating company vest in the amalgamated company

Carried forward losses and unabsorbed depreciation of the transferor company can be set off against profits of the amalgamated company (in eligible cases under Section 72A).

Stamp duty on the transfer of assets varies by state and is an important cost consideration.

If the combined entity exceeds the threshold limits (assets > ₹2,000 crore in India or turnover > ₹6,000 crore in India), prior CCI approval is mandatory before implementing the merger — even for fast track mergers.

1. 1Incorrect appointed date: Setting an appointed date in the past without proper tax advice
2. 2Not notifying CCI: Missing CCI filing when thresholds are crossed
3. 3Creditor disputes: Not managing secured creditor consent proactively
4. 4GST implications overlooked: Going concern transfer vs. asset transfer treatment
5. 5Pending litigation not disclosed: Must be disclosed in the Scheme

The Fast Track Merger route is a powerful tool for corporate restructuring — particularly for group companies rationalising their structure, or for acquirers who have completed a 100% acquisition and wish to merge the target into the acquiring entity efficiently.