MCA expands eligibility for fast track mergers: a big leap forward for corporate restructuring?

INTRODUCTION

The Report of the Expert Committee on Company Law, chaired by Dr Jamshed J. Irani (“Irani Report”) ₁  proposed reforms aimed at making India globally competitive by creating more transparent, simpler and internationally acceptable corporate legal frameworks. One such recommendation of the Irani Report was that the companies act should provide for a “short‐form amalgamation” procedure and impose lesser regulation for mergers among associate companies or between two private limited companies, since no public interest is involved.

This resulted in the introduction of Fast Track Mergers (“FTM”) under Section 233 of the Companies Act, 2013 (“Act”), ₂  which enabled (i) two or more small companies, or (ii) a holding company and its wholly owned subsidiary company (“WOS”), to escape the rigours of Sections 230 to 232 of the Act requiring companies to approach the National Company Law Tribunal (“NCLT”) for mergers. Under the FTM regime, provided there are no objections from the Registrar of Companies (“RoC”), the Official Liquidator (“OL”), and subject to obtaining the approval of shareholder holding atleast 90% (ninety percent) of the total number of shares and the majority representing 90% (ninety percent) in value of creditors, the Regional Director (“RD”) may approve the scheme, thereby offering a quicker and less burdensome alternative to the NCLT process which typically takes around 9 (nine) to 12 (twelve) months.

The eligibility criteria for FTM have also been incrementally expanded to include (i) two or more start-up companies ₃ , or (ii) one or more start-up companies with one or more small companies ₄ , or (iii) a foreign holding company merging into its Indian WOS ₅ , thereby enabling a wider set of companies to undertake corporate restructuring through FTM swiftly.

‘BIG BANG’ ON THE FAST TRACK

The Ministry of Corporate Affairs (“MCA”) has recently notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025 ₆  (“Amendment”), massively expanding the eligibility ambit of FTM, to respond more effectively to the evolving business imperatives and the shifting corporate landscape. This Amendment is in line with the Government’s commitment in the Union Budget.

Under the Amendment, the following additional classes of companies are now eligible for the FTM route:

 I.        Merger between one or more unlisted companies with one or more unlisted companies

Unlisted companies under this eligibility criteria can avail the FTM route, subject to fulfilling certain conditionalities such as:

1. None of the companies should be a Section 8 ’not for profit’ company.
2. The aggregate outstanding loans, debentures, or deposits of each company should not exceed INR 200,00,00,000/- (Indian Rupees Two Hundred Crores) (approximately USD 22.5 million).
3. There should have been no default in repayment of the loans, debentures, or deposits referred to in sub-clause (b) above.

The conditionalities mentioned in sub-clauses (b) and (c) above should also have been satisfied on (i) a day not more than 30 (thirty) days before the date of issuance of notice inviting objections or suggestions from the RoC, OL and sectoral authorities, and (ii) the date on which the scheme, as approved by shareholders and creditors, is filed with the RD, RoC and OL. Additionally, the company shall also be required to obtain and submit a certificate from its auditor confirming compliance with sub-clauses (b) and (c) above.

This is indeed a welcome development as the vast majority of unlisted companies can now avail themselves of the FTM route, thus bypassing the lengthy NCLT process. Only those companies that pose a risk to creditors above the de minimis of INR 200,00,00,000/- (Indian Rupees Two Hundred Crores) need to go through the NCLT.

II.        Merger between a holding company and a subsidiary company

Prior to the Amendment, the FTM route was available only between a holding company and its WOS, however, this has now been amended to include a merger between a holding company and any subsidiary. This effectively means that the subsidiary in question can have its own cap table with investors thereby simplifying merger based dealmaking as opposed to the contractual route currently used in most India deals. Stock swaps will now have greater regulatory and tax certainty.

The holding company and its subsidiary company under this eligibility could be either listed or unlisted, provided that the transferor company shall not be a listed company.

III.        Merger between one or more subsidiary companies of a holding company with one or more other subsidiary companies of the same holding company

Under the revised eligibility criteria, the FTM route may now be adopted by two or more subsidiaries of the same holding company, which was not permitted earlier, provided the transferor company or companies are not listed. When read in conjunction with the eligibility criteria outlined in sub-clause II above, this would enable group companies to expedite corporate restructuring through merger, thereby circumventing the protracted and complex NCLT process.

This approach is also consistent with practices adopted in different jurisdictions as well, for instance under the state laws of Delaware, a parent corporation and subsidiary subject to meeting the requisite requirements, can go for a swifter process known as ‘short-form merger’.

IV.        Merger of the transferor foreign company into the transferee Indian company, being its WOS.

While this eligibility had already been introduced in Rule 25A of the Companies (Compromise, Arrangement and Amalgamation) Rules, 2016, which deals with the merger of a foreign company with an Indian company and vice versa ₇ , however, this has now also been mirrored in the relevant rule for FTM.

Under this eligibility, the FTM route is available for a merger between a transferor foreign company incorporated outside India which is the holding company, with the transferee Indian company, which is its WOS incorporated in India. This provision has already been used by Razorpay to ‘reverse flip’ i.e. bring overseas holding back to India, through the fast-track route. ₈

Furthermore, the Amendment has also: (i) relaxed the timeline for filing the scheme, as approved by the shareholders and creditors, from 7 (seven) days to 15 (fifteen) days after the conclusion of meetings with the RD, and (ii) clarified that the FTM rules are also applicable in respect of a scheme of division or transfer of undertaking of a company 

POTENTIAL SHORTCOMINGS

While the Amendment is a welcome initiative at making corporate restructuring through mergers less cumbersome and time-consuming for eligible entities as compared to the traditional route, where the NCLTs are already overburdened, there may still be some potential shortcomings:

 I.       High Shareholder & Creditor Thresholds:

Under the NCLT route, approval is required from majority of persons representing 75% (seventy-five percent) in value of creditors and members, who are present and voting, respectively. In contrast, the FTM route demands far more stringent thresholds, which are approval by members holding 90% (ninety percent) of the total number of shares, and majority of creditors representing 90% (ninety percent) in value.

These elevated thresholds are also tied to actual holdings in the company, as opposed to only those present and voting as required under the NCLT route. Therefore, for companies with large number of shareholders and creditors, this may create holdout risk in addition to being operationally and logistically problematic.

 II.       Sectoral Regulatory Oversight:

As per the Amendment, a company regulated by any sectoral regulator such as Reserve Bank of India, Securities and Exchange Board, Insurance Regulatory and Development Authority of India or Pension Fund Regulatory and Development Authority, including stock exchanges for listed companies, as the case maybe, shall be required to issue a notice inviting objections or suggestions on the proposed scheme to such regulators.

While requiring regulators’ oversight helps ensure due process and stakeholder protection, the addition of stock exchanges to the stack may also slow down timelines, thereby reducing the efficiency intent under the FTM route.

III.      Regional Directors:

While the FTM route is designed to accelerate mergers, Section 233(5) of the Act empowers the RD, upon receiving objections or suggestions, or if they are of the opinion that the scheme is not in public interest or in the interest of the creditors, to file an application before the NCLT, stating the objections and requesting that the NCLT consider the scheme under Section 232 of the Act (i.e. under the NCLT route). In the event the NCLT accepts this submission, then the entire procedure laid down under Section 232 of the Act would have to be followed, leading to substantially longer timelines and increased costs.

Moreover, while Section 233 of the Act prescribes for ‘deemed consent’, it remains to be seen whether the RDs who already handle multiple activities, such as approving conversion of a public company into a private company and shifting of registered office in specific situations etc., as opposed to multiple benches of the NCLT, can absorb such additional workload without any delay.

CMS INDUSLAW VIEW

The government’s expansion of the eligibility criteria for FTM route represents a decisive and welcome step in facilitating and enabling quicker corporate restructuring by moving away from the protracted and legally intensive NCLT route. The MCA by way of this Amendment, has created a pathway for eligible corporates to pursue more cost-effective and time-efficient consolidation, which is expected to significantly boost restructuring activity across corporate India.

That said, the FTM route has its own shortcomings, which can be resolved by: (i) calibrating shareholder and creditor approval requirements, akin to the NCLT process where only those present and voting are considered for the approval- the aggrieved in any case can complain to the RD, and (ii) allocating additional manpower, capacity and infrastructure with the office of RD to ensure compliance with prescribed timelines and efficacy of the FTM route.

Further, while this framework holds considerable promise for enhancing efficiency, corporates must also remain equally committed to protecting minority shareholders and unsecured operational creditors as with the right safeguards this regime can unlock substantial gains without compromising stakeholder trust.