(First published on Linkedin)
In an interesting judgment, recently, the Bombay High Court observed that under the Fast Track Merger Route, which is subject to Regional Director’s approval, and not the NCLT, in a case which involves wholly owned subsidiaries or small companies (as defined), the RD (i.e., Regional Director) does not have powers to reject a scheme of amalgamation, but can only refer it to the NCLT for further consideration.
Couple of issues on the above:
1. This was a matter decided upon by the RD in November 2018 – we are in 2024. Wouldn’t such prolonged litigation undermine the fast track merger route in the first place?
2. The primary reason for the rejection of the scheme was the lack of solvency of the subsidiaries, a precondition under Section 233 of the Companies Act, 2013. However, doesn’t this raise an important question: if the combined transferee company has a positive net worth post-amalgamation, should the solvency of individual subsidiaries really be a disqualifying factor? Wouldn’t the creditors potentially be better protected and more secure if the transferee company emerges with a stronger financial position post-amalgamation?
3. Given that timelines are crucial for both fast track mergers and NCLT-driven mergers, doesn’t this case highlight the need for greater clarity regarding the limitations of the RD’s powers? Wouldn’t clear guidelines on the RD’s role and powers contribute to more stability and predictability in the merger process, thereby avoiding unnecessary delays?
4. How does this judgment set a precedent for future cases involving the powers of the RD in fast track mergers? Could this lead to more challenges to RD decisions, thereby further complicating and lengthening the merger process?
5. How might this prolonged litigation and the uncertainty surrounding the RD’s powers affect stakeholder confidence in the fast track merger process? Could it deter companies from opting for this route due to fears of similar delays and complications?
6. In cases where the RD refers the matter to the NCLT under Section 233(5), what is the expected timeline for the NCLT to adjudicate on such matters? Should there be statutory time limits imposed to ensure that the fast track nature of the process is maintained?
7. Does this case indicate a need for reforms in the fast track merger process, particularly regarding the RD’s role and the timelines for resolution? What specific reforms could be introduced to make the process truly fast and efficient?