Start-Ups' Merger Approval Process Streamlined with Fast Track Scheme

India's Ministry of Corporate Affairs (MCA) has taken further steps to streamline the merger approval process for start-ups through the introduction of a fast track merger scheme. The scheme, which was initially introduced in 2016, aims to expedite decision-making on merger proposals filed by start-ups. To address bureaucratic delays in corporate restructuring, the MCA has now introduced the concept of "deemed approval" through an amendment to the Corporate (Compromises, arrangements, and amalgamations) Rules.

Fast Track Merger Scheme: An Overview

The new provisions of the fast track merger scheme will go into effect on June 15, according to the MCA. Under the deemed approval concept, if the Central government fails to issue a confirmation order within 60 days of receiving a proposal, it will be assumed that there are no objections, and the confirmation order will be issued accordingly. Additionally, if there are no objections from the Registrar of Companies and Official Liquidator within 30 days of filing the scheme, the Centre will be obligated to issue the confirmation order within 15 days after the expiry of the 30-day period. 

Previously, a timeline of 60 days was only prescribed for referring the matter to the National Company Law Tribunal (NCLT), with no specified timeline if no objections were received.

It is worth mentioning that the simplified procedure for merger and amalgamation, known as the "Fast Track Merger," is provided under Section 233 of the Companies Act, 2013. This provision exempts certain companies from following the lengthy and complicated procedure outlined in Sections 230 to 232 of the Act. The MCA notified Section 233 on December 7, 2016.

Praises and Critiques

Industry insiders view these amendments as a significant step forward for India's corporate restructuring arena. The changes are expected to revolutionize the mergers and amalgamation process, improving efficiency and expediency. However, it is important to note that these changes primarily focus on schemes that uphold the public interest and remain inherently restrictive in nature.

Critics argue that while the fast track merger scheme is a positive step, it may still have limitations. Some concerns have been raised regarding the restriction of the scheme to start-ups and schemes that align with the public interest. Critics suggest that the scheme should be expanded to include a broader range of companies to promote economic growth and encourage corporate restructuring across various sectors.

Despite these criticisms, the fast track merger scheme and the newly introduced concept of deemed approval are expected to bring greater efficiency and transparency to the merger approval process for start-ups. The time-bound decision-making process and reduced bureaucratic delays will likely encourage more start-ups to consider mergers and facilitate smoother corporate restructuring in India's business landscape.

The streamlined merger approval process for start-ups under the fast track merger scheme represents a positive development for India's corporate sector. While there are criticisms and calls for broader inclusion, these amendments are poised to enhance the efficiency and expediency of mergers and amalgamations, ultimately contributing to the growth of start-ups and the overall economy.