The Corporate Affairs Ministry (MCA) is open to adding more classes of companies to the existing ones covered under the ‘fast track merger process’ under Companies Act, 2013.
“This is something we would like the industry bodies to work out some kind of a comprehensive, detailed proposal and share it with us, and then we would like to extend it to more classes of companies to the 2-3 that are in existence today,” KVRMurty, Joint Secretary, in the Ministry for Corporate Affairs said at an Assocham webinar on ‘Corporate Restructuring, M&A and Joint Ventures’.
Fast tracking mergers
As an alternative to the lengthy and time consuming process of mergers, the Centre, in December 2016, had come up with the ‘Fast Track merger scheme’. This scheme can be availed by two or more small companies and holding company intending to merge with its wholly-owned subsidiary.
The significance of the fast track merger process is that it does not require court intervention — i.e., the mandatory approval of the National Company Law Tribunal (NCLT).
Without court intervention, it requires the approval of the shareholders and creditors, the Registrar of Companies, the official liquidator and the Regional Director. Besides, lower cost, the registration of such a scheme has the effect of dissolution of the transferor company without the process of winding up.
There was no fast track merger scheme in the erstwhile Companies Act 1956. This was brought about in the 2013 Act as part of ease of doing business.
Recovering from Covid-19
Murty also said that Mergers & Acquisitions (M&A) are going to be huge indicator of how Indian economy is going to recover from Covid-19 pandemic.
The MCA had taken a series of proactive steps during Covid-19 pandemic. During the four phases of lockdown, MCA had come up with as many as ten different circulars which have addressed various aspects of the functioning of the corporates. The big ones being how to enable companies to conduct their Extraordinary General Meetings (EGMs), Annual General Meetings (AGMs) and board meetings using digital methods.
NCLT’s ‘extraordinary burden’
On the need to reduce overall timelines of mergers/demergers, Murty said that the overall timelines and steps laid down in those key sections from 230-232 don’t vary vastly across too many jurisdictions.
“Probably what is leading to some lag in timelines in so far as India is concerned, is the extraordinary burden that NCLT is faced with on the IBC cases because of which there have been reports that Companies Act matters are taking longer than what they probably ought to, and the IBC benches seem to be totally inundated with IBC matters across the country,” he said.
It is for this reason that MCA is looking at the option of identifying benches specifically for IBC related and Companies Act related matters. Such a beginning is being made in Delhi and Mumbai, where more than half of the incorporated companies in India are registered.