Expanded Scope of Fasttrack Merger & Reverse-Flip
In India, a Fast Track Merger (“FTM”), is a simplified and expedited procedure for the merger or amalgamation of certain classes of companies. Unlike the conventional merger route, it does not require the sanction of National Company Law Tribunal (“Tribunal”). Instead, the scheme is approved by the members and creditors of the merging companies which is then confirmed by the Central Government of India (through the Regional Director).
A recent notification by the Ministry of Corporate Affairs has significantly expanded the scope of this regime by broadening the classes / categories of companies that can utilize FTM route. As a result of these changes, your next arrangement or compromise may now be eligible for this more certain, time efficient, and cost effective route.
Advantages of FTM
The primary advantages of opting for a FTM over the normal process are:
i. Time efficient and cost effective
It significantly reduces the time and legal / associated cost required for a merger, since Tribunal approval is not required.
ii. Simplified procedure
The process is more straightforward, relying on approvals from shareholders, creditors and administrative bodies rather than judicial authority.
iii. Deemed Approval
If the Central Government does not act on the scheme within 60 days of receipt of the scheme, the law grants deemed approval.
Differences between Tribunal driven merger & FTM
| Merger through tribunal | FTM | |
|---|---|---|
| Approving Authority | Tribunal | Central Government (Regional Director) |
| Timeline for approval | No fixed timeline is prescribed for the Tribunal to approve the scheme, however on an average takes around 12 – 15 months. | If the Central Government does not issue an order or file an application with the Tribunal within 60 days of receiving the scheme, the scheme is deemed to be approved. |
| Objections | Any person holding not less than 10% of the shareholding or having outstanding debt of not less than 5% of the total outstanding debt can object. | Objections are primarily invited from the registrar of companies, liquidators and other administrative bodies. |
| Approvals by merging entities | A majority of persons representing 3/4th in value of the members or class of members or creditors or class of creditors. | Members holding at least 90% of the total number of shares and 9/10th in value of the creditors or class of creditors. |
Reverse flip
Reverse flip means mergers and amalgamations between a foreign holding company incorporated outside India and an Indian company, being a WOS or subsidiary company incorporated in India, i.e., an inbound cross-border reverse merger.
Prior to September 2024, reverse flip into India was allowed only through Tribunal-driven process. From September 2024, reverse flip has been allowed through the FTM, however only between foreign holding company and an Indian WOS. In case Indian transferee Company is not a WOS, then the reverse flip has to be in compliance with the Tribunal driven process. The expansion is particularly
significant for the start-up ecosystem, as start-ups can use the faster route to move overseas parent companies to India, by bypassing the lengthy Tribunal process. Recently, Razorpay, and Dream 11 have merged their foreign holding companies with their India WOS through FTM process.
Conclusion
The evolution of the FTM regime, particularly with the latest amendments, marks a significant step towards improving the ease of doing business in India. By expanding the list of eligible companies, the government has created a more certain, efficient and attractive framework for M&A activities. This saves considerable time and resources that would otherwise be spent in the conventional
Tribunal-driven process.
