Govt Simplifies Approval Process for Startup Mergers and Acquisitions

The government has implemented new regulations, streamlining the approval process for mergers and acquisitions (M&As) within the start-up sector and MSMEs. The move aims to expedite and simplify the process, making it faster and more efficient for businesses.

What is the time-duration for approval for M&As for Startups?

According to a notification by the Ministry of Corporate Affairs (MCA), M&As in start-ups and Micro, Small, and Medium Enterprises (MSMEs) can now obtain approval within a maximum of 60 days, with a target timeframe of 15 days. These revised rules come into effect on June 15, 2023.

Why did the Government Implement New Regulations for M&As?

The revamped regulations aim to reduce the bureaucratic hurdles faced by start-ups and MSMEs, enabling them to proceed with mergers and acquisitions swiftly. This move aligns with the Indian government's ongoing efforts to improve the ease of doing business and foster an environment conducive to entrepreneurial growth in the country.

The amendments to the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023 have been introduced to address the issue of bureaucratic delays in corporate restructuring. The government aims to enhance the ease of doing business by implementing specific timelines for the approval process.

What does the New Regulation for M&A say?

Under the new regulations, if no objections or suggestions are received from the Registrar of Companies (RoC) and the official liquidator within 30 days of receiving the scheme, the Centre can issue a confirmation order within 15 days. This is subject to the condition that the scheme is in the public interest or the interest of creditors.

In cases where objections or suggestions are received and subsequently deemed unsustainable by the Centre, and if the scheme is determined to be in the public interest, a confirmation order can be issued within 60 days. However, if the merger or amalgamation is not considered beneficial to public interest, the Centre has the option to file an application before the Tribunal for a review.

Additionally, if the Centre fails to issue a confirmation order within 60 days, the merger or amalgamation scheme will be automatically approved.

What is the Current provision for Mergers & Amalgamations?

According to experts, presently there is no specified timeframe for approval from the RoC, official liquidator, and the Centre when the transferee company submits a copy of the scheme for merger or amalgamation approval.

What Does the MCA Notification say?

The notification by the Ministry of Corporate Affairs (MCA) says “When no objection or suggestion is received within a period of thirty days of receipt of copy of scheme under sub-section (2) of section 233, from the Registrar of Companies and Official Liquidator by the Central Government and the Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, it may, within a period of fifteen days after the expiry of said thirty days, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12: Provided that if the Central Government does not issue the confirmation order within a period of sixty days of the receipt of the scheme under sub-section (2) of section 233, it shall be deemed that it has no objection to the scheme and a confirmation order shall be issued accordingly.

“Where objections or suggestions are received within a period of thirty days of receipt of copy of scheme under sub-section (2) of section 233 from the Registrar of Companies or Official Liquidator or both by the Central Government and - such objections or suggestions of Registrar of Companies or Official Liquidator, are not sustainable and the Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, it may within a period of thirty days after expiry of thirty days referred to above, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12," the notification adds.

Furthermore, the MCA Notification says, “..the Central Government is of the opinion, whether on the basis of such objections or otherwise, that the scheme is not in the public interest or in the interest of creditors, it may within sixty days of the receipt of the scheme file an application before the Tribunal in Form No. CAA.13 stating the objections or opinion and requesting that Tribunal may consider the scheme under section 232 of the Act: Provided that if the Central Government does not issue a confirmation order under clause (a) or does not file any application under clause (b) within a period of sixty days of the receipt of the scheme under sub-section (2) of section 233 of the Act, it shall be deemed that it has no objection to the scheme and a confirmation order shall be issued accordingly".