Fast track merger if not wholly owned subsidiary

Co Act 2013 175 views 1 replies

Dear Respected Members,

This is a query on fast track merger of companies where company A is holding and B is a subsidiary. A has 87% shareholding in Company B. Now, as per the criterion for FTM under section 233 of Comp. Act. both companies should be small-scale and in the case of a subsidiary company it should be wholly owned.

In our case company, both are actually micro-scale and company B is not a wholly owned subsidiary (limited to 87% shareholding only), my query is if we can go with Fast Track Merger or not.

NOTE - None of the companies are important to the Public interest, have No debt, and No Creditors.

Please send a response as soon as possible.

Replies (1)

Hi Kamal,

Regarding your query on Fast Track Merger (FTM) under Section 233 of the Companies Act, 2013, here’s a clear response:


Key Points from Section 233 (Fast Track Merger)

  • Fast Track Merger is allowed only if:

    1. Both companies are small companies (now micro, small, or medium as per definitions, but the Act specifically mentions small companies).

    2. In case of a merger involving a holding company and its subsidiary, the subsidiary company must be wholly owned by the holding company.


Your Situation:

  • Company A holds 87% shares in Company B → Not a wholly owned subsidiary.

  • Both companies are micro-scale.

  • No public interest, no debt, no creditors.


Can You Opt for Fast Track Merger?

  • Unfortunately, since Company B is not a wholly owned subsidiary, the condition for fast track merger under Section 233 is not fulfilled.

  • The provision requires 100% shareholding for a holding-subsidiary fast track merger.

  • Micro or small scale status of companies is not enough to override this condition.


Alternative Options:

  • You may pursue a normal merger under sections 230-232 of Companies Act, following the standard process with NCLT approval.

  • Or consider other restructuring options depending on your business needs.


Summary:

Condition Your Case FTM Allowed?
Subsidiary must be wholly owned 87% ownership only No
Both companies micro/small Yes Condition met
Public interest, creditors etc. None Favorable but not enough


CCI Pro

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