The Centre has further streamlined the merger approval process for start-ups under the ‘fast track merger’ scheme introduced in 2016, now binding the Corporate Affairs Ministry (MCA) to time-bound decision making on merger proposals filed under the scheme.

The MCA has now through the amendment to the Corporate (Compromises, arrangements and amalgamations) Rules introduced the concept of ‘deemed approval’ so as to address the issue of bureaucratic delays in corporate restructuring, especially the ‘fast track scheme’.

The new dispensation would go live from June 15, MCA has said.

As per the amendments, under the deemed approval concept, if the Central Government does not issue a confirmation order within sixty days of receiving a proposal in the fast track scheme, it will be deemed that there are no objections, and the confirmation order will be issued accordingly. 

Furthermore, if there are no objections to a fast track merger proposal from Registrar of Companies and Official Liquidator within thirty days of filing of scheme, the Centre will be obligated to issue the confirmation order within 15 days after the expiration of the aforementioned thirty days.

Earlier, a timeline of 60 days was prescribed only for referring the matter to NCLT in case any objection was received or if Regional Director deemed it necessary to refer to NCLT. However, in the earlier dispensation, if no objection was received, no timeline was prescribed for issuing the confirmation order.

Amit Aggarwal, Partner, Nangia & Co, said “Overall, the amendment represents a significant step in India’s corporate restructuring arena. These amendments are poised to revolutionize the mergers and amalgamations process, enhancing efficiency and expediency. 

However, it is imperative to note that these changes remain inherently restrictive in nature, focusing primarily on schemes that uphold public interest”.

Yashojit Mitra, Partner, Economic Laws Practice, said the objective of the recent notification, seems to be positive. 

It is clearly identifying timelines within which the government needs to take action. The good part is that there is a deeming provision that if certain decision is not taken within the prescribed time it is a deemed confirmation which situation was not there earlier. 

It is also positive from the perspective that the government is trying to kind of complete this process within a prescribed time frame so as to really fast track the process. “We will still have to wait and see how it is implemented out in the real world but it is definitely a positive step”, Mitra said.

Jyoti Prakash Gadia- Managing Director at Resurgent India, said that the latest MCA rule change would facilitate time-bound decision-making and bring about clarity in the procedure of dealing with comments and objections received, if any, regarding a particular case.

Some experts highlighted that this MCA intervention was long awaited as earlier Startups had to “wait for eternity” to hear from the government even if the proposal was filed under fast track scheme. 

Infact some Registrar of Companies (RoCs) even privately discouraged Startups from filing under the ‘fast track’ route and recommended them to go to the NCLT process itself, which seemed to work faster.

What is fast track merger?

It maybe recalled that Section 233 of the Companies Act, 2013 provides a simplified procedure for Merger and Amalgamation of certain companies wherein these companies need not follow the lengthy and complicated procedure as provided under Sections 230 to 232 of the Act. 

This simplified procedure is called “Fast Track Merger” and Section 233 was notified by the MCA on December 7, 2016. 

Certain classes of companies — Startups, small companies and holding and subsidiary companies were given an alternative option of merger, with fewer legal requirements and a quicker approval and registration process. 

In fact, the fast-track merger mechanism was introduced to offer a cost-effective solution, with no intervention of the National Company Law Tribunal (NCLT); no requirement of a special audit; and no administrative formalities.