Proposed Amendments to Fast-Track Mergers Under India’s Companies Act
The Indian Ministry of Corporate Affairs has put forth the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, aimed at enhancing the framework for fast-track mergers as highlighted in the Budget for 2025-26. This initiative seeks to streamline approval processes significantly.
Rationalizing Merger Procedures
During a recent budget announcement, Union Finance Minister Nirmala Sitharaman emphasized the need for a more efficient approach to company mergers, stating, “Requirements and procedures for speedy approval of company mergers will be rationalized. The scope for fast-track mergers will also be widened and the process made simpler.”
Current Framework for Fast-Track Mergers
As it stands, Section 233(1) of the Companies Act, 2013, along with Rule 25(1A) of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, outlines specific classes of companies eligible for fast-track mergers:
- Mergers involving two or more small companies
- Merger between a holding company and its wholly-owned subsidiary
- Mergers of two or more start-up companies
- Mergers between one or more start-up companies and one or more small companies
The power to approve these mergers currently resides with the Central Government, specifically through a Regional Director of the Ministry of Corporate Affairs, contrasting with the more protracted process that involves the National Company Law Tribunal as per Sections 230 to 232.
Proposed Expansions to Merger Categories
The new draft proposes additional categories of companies that may qualify for fast-track mergers, including:
- Mergers of unlisted companies with manageable debt levels and no repayment defaults
- Mergers of subsidiaries with their holding companies
- Mergers between subsidiaries of the same holding company
Legal expert Shashank Agarwal noted that the changes aim to simplify merger processes, especially for holding-company and subsidiary mergers. He remarked, “The proposed changes must be welcomed as these aim to simplify the merger processes for certain more classes of companies.”
Concerns and Considerations
While many view these amendments positively, there are apprehensions regarding the categorization of eligible companies. Archana Balasubramanian from Agama Law Associates termed the new classifications “random” and expressed concerns about potential inefficiencies in the streamlined process. She cautioned that unless ministry-level approvals are expedited, the term “fast-track” may be misleading.
Vivekanandh, Managing Partner at SMV Chambers, pointed out the stringent requirements for creditor and shareholder approvals, noting that even proposed reductions would still place India at a higher threshold compared to international standards. “The requirement for 9/10th creditor value approval along with a 90% shareholders’ approval remains one of the most stringent criteria globally,” he stated.
Additionally, he flagged potential issues related to the ambiguous notion of public interest outlined in Section 233, suggesting it could complicate the approval process further. He concluded that while the amendments are a step forward in promoting mergers and acquisitions, they need to be thoughtfully implemented to achieve their intended outcomes.
Future Implications and Feedback
Experts agree that the proposed changes have the potential to facilitate corporate restructuring and revitalize the mergers and acquisitions landscape in India. Tarunya Jain from Tatva Legal recommended that clarifications be made regarding the necessity of RBI approval when complying with FEMA regulations and suggested lowering the thresholds for creditor and shareholder consents, especially for internal restructuring.
Comments on the proposed amendments can be submitted through the Ministry of Corporate Affairs’ e-Consultation Module until May 5, 2025.
