[Esha Rathi is an associate at a law firm’s Mumbai office]
Mergers are a common tool for corporate restructuring. However, securing approval from the National Company Law Tribunal (“NCLT”) can often be a lengthy and complex process. To streamline such transactions, section 233 of the Companies Act, 2013 introduces a fast track merger (“FTM”) route, allowing certain classes of companies to bypass the NCLT process.
In April 2025, the Ministry of Corporate Affairs (“MCA”) issued a draft notification and explanatory note proposing amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“CAA Rules”) to widen the scope of FTMs through inclusion of more classes of companies under section 233 of the Companies Act. This proposal follows the Union Budget 2025-26 speech, paragraph 101 of which stated that the requirements and procedures for speedy approval of company mergers would be rationalised and that the scope of FTMs would be widened and the process made simpler. With the window for public comments and suggestions having closed on May 5, 2025, the final notification is now awaited.
Genesis and Current Framework
Corporate restructuring in India can be undertaken through either private or statutory arrangements. Initially, statutory arrangements required approval exclusively through the NCLT, a process considered cumbersome, particularly for intra group transactions such as those between a parent company and its subsidiary or between small companies. The J.J. Irani Committee Report (2005) highlighted these procedural burdens and the significant delays inherent in statutory mergers via court processes. It recommended the introduction of short-form mergers for certain classes of companies. Acting on this recommendation, the MCA introduced section 233 of the Companies Act, along with rule 25 of the CAA Rules. These provisions enabled FTMs without requiring NCLT intervention in cases involving: (i) a holding company and its wholly owned subsidiary; (ii) two or more small companies; and
(iii) any other classes of companies as may be prescribed.
In 2021, following the boom in India’s start-up ecosystem, the scope of section 233 of the Companies Act was expanded through the introduction of sub rule (1A) to rule 25 of the CAA Rules. This amendment allowed FTMs between two or more start-up companies, or between one or more start-up companies and one or more small companies. Additionally, in 2023, the MCA further streamlined the process by amending rules 25(5) and 25(6) of the CAA Rules, introducing a time bound approval mechanism and a deemed approval concept to reduce delays and enhance efficiency.
Proposed Amendment
The MCA has proposed to further widen the scope of section 233 of the Companies Act. The proposal seeks to prescribe additional classes of companies under rule 25 of the CAA Rules, thereby extending eligibility for availing the FTM route. This includes certain unlisted companies, group subsidiaries, and foreign holding companies with wholly owned subsidiaries in India.
The proposed class provides for mergers between two or more unlisted companies with reasonable debt exposure, defined as borrowings from banks, financial institutions, or other bodies corporate not exceeding Rs. 50,00,00,000, provided there are no defaults in repayment of these borrowings. Additionally, an auditor’s certificate confirming the fulfilment of these conditions will be required. It is important to note that section 8 companies (charitable organizations) will not be eligible under this category.
Presently, merger of only a wholly owned subsidiary with its holding company is covered under section 233 of the Companies Act. It is proposed that a subsidiary other than wholly owned subsidiary may also be allowed to be merged with its holding company, with the condition that such subsidiary should not be a listed company.
At present, mergers between fellow subsidiaries, i.e., subsidiaries within the same group with the same holding company, are not covered under section 233 of the Companies Act. The proposal aims to include such mergers, as they are conceptually similar to those between a holding company and its unlisted subsidiary. However, only unlisted fellow subsidiaries would be included under this provision.
Furthermore, the amendment proposes that mergers outlined in rule 25A(5) of the CAA Rules, specifically mergers involving a foreign holding company incorporated outside India and its wholly owned Indian subsidiary, be incorporated within rule 25 of the CAA Rules to create a more self-contained framework.
Implications and Takeaways
While the proposed amendments address key issues, some gaps remain. The FTM route aims to expedite merger approvals by bypassing NCLT, but section 233 of the Companies Act sets high approval thresholds, such as requiring 90% consent from both creditors and shareholders, which means approvals in companies with diverse stakeholders will continue to be cumbersome and time-consuming, something the FTM was designed to avoid. Additionally, the Central Government can refer mergers to the NCLT if they are deemed to be against public or creditor interest, which could delay the process, especially given the broad and undefined term “public interest”. Finally, the MCA has missed the opportunity to facilitate mergers under the fast track route for not-for-profit companies by excluding them from the expanded scope.
Despite these limitations, the amendments respond to industry calls for faster approval times, reduced compliance costs, and more flexibility in group restructuring. From an investment perspective, the simplified process enhances exit flexibility and reorganization options, making India a more attractive destination for both foreign and domestic investors. Another positive inclusion is allowing foreign companies to merge with their wholly owned Indian subsidiaries through the fast track route, paving the way for timely global restructurings.
With the 2021 expansion first and now the latest proposed amendments set to further broaden eligibility, the fast track process is clearly evolving to create a more adaptable merger market that keeps pace with the dynamic business environment.
– Esha Rathi