The Ministry of Corporate Affairs (“MCA”) vide MCA Notification No. G.S.R. 93(E) dated February 01, 2021 (“Notification”), has notified an amendment to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 by way of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021, which facilitate the mergers and amalgamation of the startup companies.
In line with the Central Government’s Start Up India plan, various regulatory bodies such as Reserve Bank of India, MCA etc., from time to time brought up many changes to boost the growth of the star up initiatives and to build a level playing field for them. As per the MCA notification bearing no. G.S.R. 127(E) dated February 19, 2019 an entity shall be considered to be a start-up company if:
However, an entity shall not be considered as a start-up if it is an outcome of the restructuring or splitting up of an existing business.
The MCA by way of this Notification, a new sub-rule (1A) has been inserted under Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which provides that a scheme of merger or amalgamation, as specified for under Section 233 of the Act, may be entered into any of the following class of companies:
Pursuant to the said amendment, start-up companies have also been made eligible to adopt the “fast-track procedure” for mergers and amalgamations under Section 233 of the Act read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2021. The fast-track procedure for mergers and amalgamations of certain companies under the Act offers a relatively simplified and facilitative process. The erstwhile legal framework in relation to mergers and acquisitions involved the intervention and requirement of the approvals of courts, thereby, making the process highly time-consuming, cumbersome and long-drawn. However, with a time-bound mechanism being prescribed under the fast-track procedure for mergers along with the requirement for only certain specific set of largely internal approvals to be obtained, companies, especially organisations such as start-ups with a small-scale management would be highly benefitted in terms of compliance management and initiation of the business.
Under the fast-track procedure for mergers and acquisitions, there is no requirement for the filing of the scheme before the National Company Law Tribunal (NCLT) as opposed to the regular procedure. Further, the estimated time period for the completion of the process is around 90-100 (ninety to hundred) days. Moreover, the companies eligible for adopting the fast-track procedure for mergers would also be required to obtain the approval of only 03 (three) regulatory authorities, that is, the Registrar of Companies, regional director and the official liquidator, in addition to the approval from the shareholders and creditors of the concerned company. A 30 (thirty) days’ time limit would also be imposed upon the regulatory authorities for provision of their objections/suggestions in respect of the scheme.
The introduction of the abovementioned amendment may be, therefore, viewed as a progressive step towards the introduction of a fast-track process for mergers and acquisitions for start-up companies facilitating the ease in carrying on their business and significant reduction in compliance burden.