The Ministry of Corporate Affairs (MCA) has notified the draft Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, proposing a significant expansion in the scope of fast-track mergers under Section 233 of the Companies Act, 2013.
This progressive move is aimed at simplifying merger processes for a broader class of companies, with a clear emphasis on reducing procedural timelines and transaction costs while maintaining regulatory oversight. Stakeholders may submit comments on the draft rules by May 5, 2025.
Legal Framework and Authority
The draft notification is issued under:
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Section 233: Fast-track mergers for certain classes of companies
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Section 469(1) and (2): Rule-making powers of the Central Government
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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 – Rule 25 & 25A
Key Amendments Proposed
The proposed amendments aim to broaden eligibility under Rule 25(1A) of the 2016 Rules. The following categories of mergers may now fall under the fast-track route, subject to specific conditions:
1. Unlisted Companies with Reasonable Debt Exposure
Unlisted companies (excluding Section 8 companies) may now merge through the fast-track route if:
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Borrowings from banks, financial institutions, or any body corporate are less than ₹50 crore, and
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There is no default in repayment of such borrowings
Mandatory Certification: A certificate from the company's statutory auditor confirming the satisfaction of these conditions must be attached with the application under Section 233(2).
This will encourage sound debt management and facilitate ease of doing business for well-governed private companies.
2. Holding Company and Unlisted Subsidiary(ies)
The fast-track merger mechanism is proposed to be extended to:
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A holding company (listed or unlisted) and its one or more unlisted subsidiaries
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Intra-group mergers between two or more unlisted subsidiaries of the same holding company, provided none of the transferor companies are listed
This move is expected to ease group-level consolidation and internal restructuring with minimal regulatory friction.
3. Cross-Border Inbound Mergers
A new inclusion permits the fast-track merger of:
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A foreign holding company (incorporated outside India) with its wholly owned Indian subsidiary
This is subject to compliance with the provisions of Rule 25A(5), which governs inbound mergers under the Companies Act, 2013.
This step provides greater clarity for cross-border M&A, especially for multinational groups with Indian operations.
Existing vs Proposed Fast-Track Mergers
| Eligible Entity (Existing) | Eligible Entity (Proposed Addition) |
|---|---|
| Two or more small companies | Unlisted companies with borrowings < ₹50 Cr and no default |
| Holding company & wholly owned subsidiary (both small companies) | Holding & unlisted subsidiaries (no limit on borrowings if listed holding) |
| Startups (registered as private limited) | Intra-group mergers between unlisted subsidiaries |
| — | Foreign holding company merging into Indian WOS |
Tips and Key Considerations
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Pre-Merger Preparation: Ensure that borrowings, if any, are within the prescribed threshold and all loan accounts are regular.
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Statutory Audit Role: Engage the auditor early to certify debt and compliance conditions accurately.
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Board Resolutions and Shareholder Notices: Must be carefully drafted in accordance with Section 233(1), and issued in a timely manner.
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Cross-Border Mergers: Coordinate with legal advisors across jurisdictions to ensure that the merger complies with both Indian and foreign corporate laws.
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Avoid Section 8 Entities: Fast-track merger still excludes companies registered under Section 8 (non-profit).
Conclusion
The MCA's proposal marks a progressive shift toward ease of corporate restructuring, especially benefiting private groups and inbound foreign investments. By expanding the scope of fast-track mergers, India reinforces its commitment to a streamlined and modern M&A ecosystem.
Companies and advisors should proactively evaluate eligibility under the new norms and make representations, if any, before the comment deadline of May 5, 2025.
