The fast-track merger under Section 233 of the Companies Act, 2013 ("the Act") is not available unless the scheme is approved by members holding at least ninety per cent of the total number of shares and creditors representing ninety per cent in value. The threshold is the defining feature of the fast-track regime, and it is the reason why many companies that are eligible for the route cannot use it.
The Computation: Total Shares, Not Votes Cast
The ninety per cent threshold is computed on the total number of shares, not on the votes cast at a meeting. This is a critical distinction. A resolution that is passed by ninety per cent of the members present and voting may still fail the Section 233 threshold if the members who did not attend the meeting hold more than ten per cent of the total shares. The company must secure the consent of shareholders who hold ninety per cent of the entire issued share capital, not merely ninety per cent of those who choose to participate.
The creditor threshold is computed on the value of the debt, not on the number of creditors. A single large creditor can satisfy the threshold, while a large number of small creditors may not. The consent may be obtained in writing or at a meeting.
The Practical Difficulty
The ninety per cent threshold is difficult to satisfy where the shareholding is dispersed. A listed company with a large public float cannot realistically obtain ninety per cent of the total shares, because the public shareholders are numerous and dispersed. A private company with a small number of shareholders can satisfy the threshold more easily, but even a single dissenting shareholder holding more than ten per cent can block the scheme.
The NCLT route does not have this problem. The NCLT route requires a three-fourths majority in value of the members present and voting, which is a lower threshold and is computed on the votes cast, not on the total shares. A company that cannot meet the ninety per cent threshold can use the NCLT route, but it will incur the time and cost of the tribunal process.
The Strategies
A company that is considering the fast-track route should assess the shareholding pattern before it commits to the route. If the promoters and their allies hold more than ninety per cent, the threshold is achievable. If they hold less, the company must either obtain the consent of the other shareholders or use the NCLT route.
The consent solicitation should be conducted through a formal process, with a clear explanation of the scheme, a proxy form, and, where applicable, an e-voting facility. The consent must be informed, and the company should maintain a record of the solicitation and the responses.
The ninety per cent threshold is not a formality. It is the statutory condition that determines whether the fast-track route is available, and a company that ignores it will find that its scheme cannot be approved under Section 233.
Call to Action
Anuj Desai & Associates advises companies on the Section 233 approval threshold—from the assessment of the shareholding pattern and the creditor profile to the consent solicitation strategy and the choice between the fast-track route and the NCLT route. If you are planning a fast-track merger, we can help you determine whether the ninety per cent hurdle is achievable.
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