Streamlining Mergers: Proposed Amendments to the Companies Act
The Ministry of Corporate Affairs (MCA) has unveiled proposed amendments aimed at expanding the categories eligible for fast-track mergers under Section 233 of the Companies Act, 2013. This initiative is part of the broader reforms outlined in the Union Budget for 2025-26, as articulated by Union Finance Minister Nirmala Sitharaman.
Overview of Proposed Amendments
During the Union Budget 2025-26 presentation, Nirmala Sitharaman emphasized the need to simplify and expedite the approval process for company mergers. She stated, “Requirements and procedures for speedy approval of company mergers will be rationalized and the scope for fast-track mergers will be widened.”
Current Framework and Expansions
As it stands, fast-track mergers under Section 233(1) are permitted for:
- Merger among small companies
- Merger between a holding company and its wholly-owned subsidiary
- Merger involving two or more start-up companies
- Merger between start-ups and small companies
The new draft seeks to broaden the classification to include:
- Unlisted companies with manageable debt that meet specific criteria
- Merger of subsidiaries with their holding companies
- Inter-company mergers between subsidiaries of the same parent company
Facilitating Business and Intra-Group Restructuring
The proposed changes are expected to make it easier for companies to reorganize internally, thereby saving time for both businesses and regulatory authorities such as the National Company Law Tribunal (NCLT). As noted by Navin Kumar, Partner at Cyril Amarchand Mangaldas, “These proposals will not only provide much-needed flexibility but will also expedite the handling of such matters at the Regional Director level.”
Focus on Small and Mid-Size Enterprises
The MCA is particularly focused on supporting small and mid-size companies through these amendments. The criteria for eligibility in the fast-track merger process now stipulate that unlisted companies must have borrowings of less than INR 50 crore and a clean repayment history. Rishabh Gandhi, Founder of Rishabh Gandhi and Advocates, remarked that the timing and clarity of these draft rules are significant, stating, “They aim to support smaller and mid-sized companies that meet clear financial and compliance benchmarks.”
Incorporating Cross-Border Mergers
The draft amendment also proposes modifications to existing rules to facilitate international mergers. This includes enabling mergers involving foreign entities and their wholly-owned Indian subsidiaries. Pranav Bhaskar, Partner and Head of Corporate Practice at SKV Law Offices, expressed optimism about these changes, stating, “This Draft Amendment is expected to significantly benefit corporate groups seeking to rationalize their organizational structures in a cost-effective and time-efficient manner.”
Next Steps and Consultation
The MCA is inviting feedback on these proposals until May 5, 2025, through its e-Consultation Module. This engagement aims to fine-tune the amendment process and ensure the regulations meet current business needs and challenges.
In conclusion, the proposed amendments represent a proactive approach by the government to enhance regulatory frameworks, encouraging effective consolidation while promoting investor confidence and operational efficiency in the Indian corporate sector.
