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BACKGROUND
Section 233 of the Companies Act, 2013 provides a simplified route for merger or amalgamation of specified classes of companies without recourse to the full NCLT process. Considering the objective of ease of doing business, the scope of the fast-track merger scheme has expanded over the last few years. The provision originally covered small companies and the merger of a holding company with its wholly owned subsidiary, and the scheme could proceed only after compliance with the statutory pre-conditions, including filing of a notice of objections, approval by members and creditors, and a declaration of solvency by each company involved. Section 233(c) requires each of the companies involved in the merger to file a declaration of solvency in the prescribed form. Rule 25(2) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 prescribes Form CAA.10 for the declaration of solvency.
The scheme is intended to provide a faster and more efficient merger route, but the structure of the solvency declaration has remained substantially the same even as the scope of eligible transactions has expanded. That creates stiffness between the statutory formality and the commercial reality of a merger, particularly where one company is intended to dissolve without winding up and its liabilities are to be taken over by the transferee.
