Easing the Route to Consolidation: Evaluating the Proposed Expansion of India’s Fast-Track Merger Regime

Introduction

The Ministry of Corporate Affairs (MCA) in India has recently proposed significant amendments to the fast-track merger framework under Section 233 of the Companies Act, 2013. These changes, outlined in the draft Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, aim to simplify and expedite corporate restructuring by expanding the categories of companies eligible for fast-track mergers. This initiative aligns with the government’s broader goal of improving the ease of doing business in India, as highlighted in the Union Budget 2025–26.The proposed amendments seek to address long-standing challenges associated with the traditional merger process, which often involves lengthy approvals from the National Company Law Tribunal (NCLT). By widening the scope of fast-track mergers, the MCA intends to reduce regulatory friction, lower costs, and enhance operational efficiency for businesses, particularly start-ups, family-owned enterprises, and corporate groups.

Background and Current Framework

The fast-track merger route was introduced in 2016 as an alternative to the conventional merger process under Sections 230–232 of the Companies Act, 2013. The latter requires NCLT approval, a process that can take between nine to twelve months or longer, creating delays for companies seeking restructuring. In contrast, Section 233 allows eligible companies to bypass the NCLT and obtain administrative approval from the Central Government, significantly reducing the time and complexity involved. Currently, fast-track mergers are permitted only for specific categories of companies, including small companies, holding companies and their wholly owned subsidiaries (WOS), start-ups, and mergers between start-ups and small companies.

The existing framework, while beneficial for these limited categories, has been criticized for its restrictive eligibility criteria. For instance, mergers involving unlisted subsidiaries that are not wholly owned or mergers between fellow subsidiaries of the same holding company are excluded, forcing such entities to undergo the lengthy NCLT route. Recognising these limitations, the MCA’s proposed amendments aim to broaden the scope of eligible companies, thereby facilitating smoother and quicker corporate restructuring.

Key Proposed Expansions

The draft amendment rules introduce several new categories of companies eligible for fast-track mergers, each addressing specific gaps in the current framework.

1. Mergers Between Unlisted Companies

One of the most notable changes is the inclusion of mergers between two or more unlisted companies (excluding Section 8 companies) under the fast-track route. To qualify, the companies must meet two key conditions: their aggregate borrowings from banks, financial institutions, or other corporate bodies must not exceed INR 50 crores, and there should be no defaults in repayment of such borrowings for at least 30 days prior to issuing the merger notice. Additionally, an auditor’s certificate confirming compliance with these conditions must be submitted.

This expansion is particularly significant for mid-sized unlisted companies seeking to consolidate operations or streamline their corporate structure. By excluding Section 8 companies (not-for-profit entities), however, the amendment overlooks a segment that could also benefit from simplified merger processes.

2. Mergers Between Holding Companies and Unlisted Subsidiaries

The proposed rules also extend the fast-track route to mergers between a holding company (listed or unlisted) and one or more of its unlisted subsidiaries, even if the subsidiaries are not wholly owned. Currently, only wholly owned subsidiaries are eligible, which has been a major constraint for corporate groups with diverse ownership structures.

This change acknowledges the practical realities of corporate restructuring, where holding companies often have subsidiaries with minority shareholders. By allowing such mergers to proceed under the fast-track route, the MCA aims to reduce unnecessary regulatory hurdles and promote intra-group consolidations.

3. Mergers Between Fellow Subsidiaries

Another critical expansion is the inclusion of mergers between fellow subsidiaries companies that are subsidiaries of the same holding company provided the transferor companies are unlisted. This amendment addresses a significant gap in the current framework, where such mergers were ineligible for the fast-track route despite their low-risk nature.

For example, if two unlisted subsidiaries under the same holding company wish to merge, they can now do so without NCLT approval, saving time and resources. However, if one of the subsidiaries is listed, the fast-track route remains unavailable, reflecting the government’s cautious approach to protecting public shareholders’ interests.

4. Cross-Border Mergers

The draft rules also integrate provisions for cross-border fast-track mergers, specifically allowing a foreign holding company to merge with its wholly owned Indian subsidiary. This amendment builds on the 2024 notification that permitted reverse mergers under Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

This change is expected to facilitate smoother global restructurings for multinational corporations with Indian subsidiaries. However, the fast-track route is not available for mergers where the Indian entity is not a wholly owned subsidiary, limiting its applicability in more complex cross-border scenarios.

Challenges and Criticisms

While the proposed amendments to the fast-track merger framework are a welcome step toward simplifying corporate restructuring, they are not without their shortcomings. One of the primary concerns is the high approval threshold required under Section 233, which mandates consent from at least 90% of shareholders and creditors by value. For companies with diverse or widely held ownership structures, securing such overwhelming consensus can be a time-consuming and complex process. This requirement, ironically, could slow down mergers that are otherwise eligible for the fast-track route, undermining the very efficiency the amendments seek to achieve.

Another area of ambiguity lies in the Central Government’s discretionary power to refer a merger scheme to the NCLT if it deems the arrangement contrary to public interest or the interests of creditors. The term “public interest” remains undefined in the Companies Act or the accompanying rules, leaving it open to broad interpretation. This lack of clarity could lead to inconsistent decision-making and unintended delays, particularly if authorities adopt a conservative approach in assessing mergers. Without clear guidelines, companies may hesitate to opt for the fast-track route, fearing last-minute referrals to the NCLT that could negate the benefits of the streamlined process.

The exclusion of Section 8 companies from the expanded fast-track framework is another notable limitation. These not-for-profit entities often undergo restructuring to improve operational efficiency or align with evolving objectives, yet they remain bound by the traditional, more cumbersome merger process. By keeping them outside the scope of these reforms, the MCA has missed an opportunity to reduce regulatory burdens for a segment that could significantly benefit from simplified procedures. Similarly, the amendments maintain restrictions on mergers involving listed subsidiaries, even when the holding company is listed. While this cautious approach may be justified to protect minority shareholders, it limits flexibility for corporate groups with listed entities, forcing them to endure the lengthy NCLT route despite the low-risk nature of intra-group mergers.

Finally, while the inclusion of cross-border mergers is a progressive move, the framework remains restrictive by permitting only mergers where the Indian entity is a wholly owned subsidiary. Many multinational corporations operate through partially owned subsidiaries or joint ventures in India, and the current rules offer no fast-track solution for such structures. This narrow applicability could hinder global restructurings that involve more complex ownership arrangements, leaving a gap in the otherwise forward-looking amendments.

Conclusion

The proposed expansion of the fast-track merger framework marks a significant effort by the MCA to align India’s corporate restructuring processes with the needs of modern businesses. By broadening eligibility to include unlisted companies, non-wholly owned subsidiaries, and fellow subsidiaries, the amendments address long-standing inefficiencies in the system. These changes are poised to save time, reduce costs, and encourage smoother consolidations, particularly for start-ups, mid-sized firms, and family-owned enterprises. However, the effectiveness of these reforms will depend on how well the accompanying challenges, such as high approval thresholds, ambiguous public interest criteria, and the exclusion of certain entities, are addressed in implementation.

For the amendments to fully achieve their intended impact, the MCA may need to revisit some of these limitations in future revisions. Providing clearer definitions, relaxing approval requirements for low-risk mergers, and expanding eligibility to include not-for-profit entities and partially owned subsidiaries could further enhance the framework’s utility. Despite these gaps, the draft rules represent a meaningful step toward fostering a more business-friendly regulatory environment. If refined and executed well, they could significantly strengthen India’s position as a dynamic hub for corporate growth and restructuring.