INTRODUCTION
The MCA vide notification[1] has notified an amendment to Rule 25 of the Companies (Compromise, Arrangement and Amalgamation ) Rules, 2016 [2], which has strengthen the Fast-Track Merger (FTM) route for M&A, initially introduced under Section 233 of the Companies Act, 2013.[3] This amendment aligns with Finance Minister Budget speech for this financial year and widens the scope of FTM. It will be effective from Sept. 4, 2025 and will play a key role in changing the M&A landscape in India.
The FTM was introduced under Section 233 with the aim of providing a quick and efficient way to the companies to merge. It was designed in order to reduce the burden from the NCLT and allowed certain classified companies to get the approval from the Regional Directors instead of opting the lengthy procedure under NCLT. The FTM includes faster merger process, cost savings, simplified procedure, increased efficiency of the companies. In 2005, the J.J. Irani Committee recommended legal recognition to the contract mergers or non-court based mergers in India, which was later incorporated as FTM in 2016.[4]
PROCEDURE FOR FTM
Both the Transferor and Transferee Company shall be authorized by their respective AOA for the merger. If it is not allowed under AOA, then the companies need to alter their AOA. It should also be permissible under the object clause of the MOA of both the companies. Then a board meeting needs to convened for the approval of the M&A draft scheme. Companies need to declare a financial statement of their assets and liabilities, which highlights the solvency of the firm.
Both the companies need to send a notice to the Registrar of Companies (ROC) and Official Liquidator (OL) of their respective regions inviting suggestions/objections to the scheme, if any within 30 days of issuing the notice.[5] The company needs to convene a general meeting of shareholders and creditors separately and needs to get the scheme approved in both meetings. The result of the meeting needs to filed with the Regional Director for the final approval. In all of the above process, there was no interference of the NCLT, which makes the process more simplified.
TRADITIONAL MERGER AND FTM
Section 230-240 of the Companies Act lays down the provision for the M&A approvals, which is applicable to all the companies. These provisions requires a multi-stage approval from the NCLT, like on filing the application with the tribunal, the tribunal may order a meeting of the creditors or members and it may direct the way these meetings needs to be conducted.[6] Then in pursuance to the meeting, the notice of such meeting needs to be sent to all creditors or members.[7] The tribunal also have the power to enforce the compromise or arrangement ordered by it.[8] All the above mentioned provisions makes the merger process relatively complex.
In order to solve this problem, sec 233 of the Act provides for a fast-track mechanism, available to only certain types of the companies. In the pre-amendment period, it was applied to only two or more small companies or a holding company and its wholly-owned subsidiary.[9] This mechanism do not involve the approval of tribunal, except in cases where government is of opinion that such scheme is not in the interest of the public or creditors, it may file an application before the tribunal within 6 days of receiving the receipt of the scheme. Then the tribunal may direct the companies to opt for the route given under sec. 232 of the Act.
The effect of such registration of the scheme is[10]:
- The transferor company dissolves without winding up process.
- The liabilities on the property will become the liabilities of the transferee company.
- The charges on the property will be enforceable the transferee company.
- The legal proceedings shall be continued by or against the transferee company.
This provision gives a legal route for the inorganic growth of the company. However, cautions need to be followed given the increasing frequency of the killer acquisition in this dynamic market. The efficiency of FTM, while beneficial for the legitimate consolidation, could potentially be used to facilitate such anti-competitive behaviour.
POST-AMENDMENT ELIGIBILITY FOR FTM
One of the reasons behind the introduction of this amendment rests with the failure of FTM for its narrow application. It remained inaccessible to listed companies, and there was no clarity on the demergers to be covered under it or not. Now post-amendment, it has been extended to two or more unlisted companies, holding companies and subsidiaries (listed or unlisted), two or more fellow subsidiaries, and Indian wholly owned subsidiary of foreign companies.[11] Now, we will be dealing with the minor compliances which is required in each of these companies.
- Two or more unlisted companies (excluding section 8 companies)
FTM is allowed between two or more unlisted companies provided that the total outstanding loans, debentures and deposit for each company shall not exceed 200 crores and the company must not have defaulted in the repayment of any borrowings. Both these conditions must be satisfied within 30 days prior to the date of inviting objections from the regulatory authority and on the date of filing of declaration of solvency in the form of CAA-10. The newly introduced certificate from the auditor must be filed in Form No. CAA-10A with the copy of the approved scheme. It enables the unlisted companies to go for mergers without involving NCLT. The threshold of 200 crores is four time of the draft amendment rule, which is a welcome step in light of Indian companies’ status.
- Holding company (listed or unlisted) and subsidiaries (listed or unlisted)
Earlier, FTM was allowed only for the holding company and its wholly owned subsidiaries. Now, subsidiaries need not to be wholly owned, provided that the transferor (whether holding or subsidiary) is not listed. This change was recommended by the company law committee report of 2022.[12] It recommended fast track merger between a holding company and its subsidiary company or companies (other than WOSs), if such companies are not listed and meet such other conditions as may be prescribed.
- Fellow subsidiaries under the same holding company
The subsidiaries of the same holding company can go for merger through FTM, provided the transferor company is unlisted. The transferee can be either listed or unlisted. It will promote intra-group consolidations. This amendment brings a regulatory overlap with SEBI LODR. Under regulation 37 of SEBI LODR[13] read with Master circular, the listed companies have to obtain the approval of stock exchanges before filing of such scheme. Now, this mandatory provision was waived only for the holding company and its WOS, which was the case earlier. The SEBI has earlier clarified also that this exemption is not allowed in the cases of fellow subsidiaries, thereby the listed transferee company needs to abide by the regulation. Therefore, there is a need that the SEBI extend its exemption in light of this new amendment and avoid any regulatory overlapping.
- Foreign holding company and its Indian WOS
This deals with the cross border mergers which is primarily governed under section 234 of the Act read with 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, which already covered mergers between a foreign holding company and an Indian wholly-owned subsidiary company. This amendment to Rule 25A have not altered the eligibility, instead, government has introduced significant procedural simplifications to make the process smoother. Under Rule 25A, sub-clause 5, when the transferor (Foreign holding company) enters into merger with transferee (Indian WOS), both the companies shall obtain the prior approval of RBI, the transferee Indian Company must comply with section 233, and in pursuance to this section an application should be made to central government.[14]
Now, the transferee companies have to file a copy of the scheme within 15 days (previously 7 days) as agreed by the member and creditors in Form no. CAA. 11 with central government.[15] This amendment will make merger process easier in India by making FTM more accessible. One of the most highlighting amendment is the inclusion of the sub rule 9 in Rule 25, which states that the provisions of this rule will apply mutatis mutandis in cases of scheme of division or transfer of undertaking, popularly known as demergers. Before this amendment, the demerger process required to go through the traditional route and take the approval from the NCLT, now this process has been made quicker by its inclusion with FTM.
WAY FORWARD:
This amendment has made the process for simplified, however, challenges exist in cases like requirement of approval of members holding at least 90% of the total number of share[16], this become problematic particularly in the publically listed companies for whom meeting such high threshold becomes almost impossible. It was recommended that a modified twin test model for approval should be adopted consisting of (i) majority of persons present and voting at the meeting accounting for seventy-five per cent, in value, of the shareholding of persons present and voting; and (ii) representing more than fifty per cent, in value, of the total number of shares of the company.[17] Moreover, the amendment requires objection to be filed by sectoral regulators or stock exchanges who are going to be impacted by the approval of the scheme, which increases the number of objections needs to be obtained from different regulators, thereby making the process lengthier. Furthermore, the procedural overlap needs to remove in the case of fellow subsidiaries of the same holding company.
The FTM procedure in India still restricts a listed transferor from taking this route. The restriction is considered to be protection of the public in case of listed company. However, SEBI itself evaluates FTM scheme from the investors perspective even before the scheme is filed with the regional director under section 233. Now, this amendment rather permits the listed companies to be transferee and allow them to go for FTM, which reflects upon inconsistencies embedded in the provision.
Notes:
1 Ministry of Corporate Affairs, Notification S.O. 3513(E) (Issued on September 4, 2025) (India).
2 The Companies (Compromise, Arrangement and Amalgamation) Rules, 2016, Rule 25.
3 The Companies Act, 2013, §233 (India).
4Ministry of Corporate Affairs, Chairman, Expert Committee on Company Law, Dr. JJ Irani (Issued on May 31, 2005) (India).
[6] The Companies Act, 2013, §230 (India).
5 The Companies Act, 2013, §230 (3) (India).
6 The Companies Act, 2013, §231 (India).
7Ministry of Corporate Affairs, Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 (Notified on February 1, 2021) (India).
8 The Companies Act, 2013, §233 (9) (India).
9Ministry of Corporate Affairs, Notification S.O. 3513(E) (Issued on September 4, 2025) (India).
10Ministry of Corporate Affairs, Report of the Company Law Committee, (2022) 58 (India).
11 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Reg. 37.
12 The Companies (Compromise, Arrangement and Amalgamation) Rules, 2016, Rule 25.
13 The Companies (Compromise, Arrangement and Amalgamation) Rules, 2016, Rule 25(4).
14The Companies Act, 2013, §233(1)(b) (India).
15 Ministry of Corporate Affairs, Report of the Company Law Committee, (2022) 58 (India).
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