The MCA (Ministry of Corporate Affairs) has come up with a Draft Notification on April 6, 2025, proposing key amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. These amendments are oriented towards expanding the fast-track merger route enshrined under Section 233 of the Companies Act, 2013 (hereinafter referred to as the Act) by speeding up the process and reducing the formal procedures involved in the merger or amalgamation of a certain new class of companies, viz. unlisted companies but in exclusion of the companies mentioned under Section 8 of the Act. Under this proposed amendment, unlisted companies can also merge with mergerone or more unlisted companies through the fast-track merger route enshrined under Section 233 of the Act, and the procedure entailed under Sections 230 and 232 of the Act is no longer mandatory, which is often seen as lengthy and coupled with legal complexities. This article commences with a short description of the fast-track merger process and then enumerates the novelties in the proposed amendment. Lastly, it provides an analysis of the proposed amendment and delineates the key issues and apprehensions associated with it.
Understanding Fast-Track Merger
A fast-track merger is a simplified and speedy process provided under Section 233 of the Act that gives certain companies the option to leapfrog the NCLT for the approval of their merger or amalgamation scheme. However, currently only certain companies are eligible to avail of this option, namely holding companies and their wholly-owned subsidiaries, small companies, and start-up companies. So, instead of involvement on the part of NCLT, these mergers or amalgamations are facilitated through an administrative mechanism by the Central Government, thereby reducing the complexities and costs involved in the corporate restructuring. For example, ABC Holdings Pvt. Ltd., a parent company, wants to merge its start-up subsidiary, XYZ Innovations Pvt. Ltd., which develops mobile apps. By using the fast-track merger process under Section 233, they can avoid going to the NCLT, saving 9–12 months of legal time and lakhs in legal fees. Instead, they get quick approval from the Central Government, allowing them to cut costs, combine resources, and launch new products faster.
Notably, this mechanism is beneficia
l for new start-ups in India that are always on tenterhooks to restructure their business and market presence in a cost-effectivFaste and less tiresome way.
What is New in the Proposed Amendment?
The amendment stemming from the Union Budget 25-26 vision seeks to incorporate a new class of companies, viz., unlisted companies (excluding Section 8 companies), under the fast-track merger route enshrined under Section 233 of the Act. Unlisted companies are companies that do not have any of their securities listed on a recognised stock exchange. Presently, under Section 233 of the Act, a fast-track merger or amalgamation scheme can be entered into between any of the following classes of companies, namely:
- two or more small companies;
- a holding company and its wholly owned subsidiary company;
- two or more start-up companies;
- one or more start-up companies with one or more small companies.
With this new amendment, unlisted companies can also avail themselves of the fast-track merger route. Otherwise, they would have to resort to the mechanism provided under Sections 230 and 232 of the Act, which proved to be time-consuming. The key difference between the two procedures is the involvement of NCLT in the merger or amalgamation scheme, which the companies mentioned above can now avoid by resorting to the haven of Section 233 of the Act.
Eligibility Under the Proposed Amendment
Each unlisted company involved in the transaction is required to fulfil the following conditions on a date not more than thirty days before they issue the merger notice:
- The company’s aggregate borrowings from banks, financial institutions, or corporations shall not exceed Rs. 50 crores, and
- There shall be no default on their part regarding the repayment of such borrowings.
In addition to this, a due certificate from an auditor confirming compliance with these conditions is required to be attached to the application filed under Section 233 of the Act.
Analysis
The proposed amendment in Section 233 of the Act simplifies the merger or amalgamation process for unlisted companies, which mostly include booming startups and businesses. This step is welcomed as it would save time and cut legal expenses, and eventually will be a game-changer for companies dreaming of expanding their business without any hectic or tiresome process.
If implemented properly, this amendment would also pave the way for swift execution and lessen the burden on NCLT. It also stands as a testament to the MCA’s commitment to a progressive regulatory regime wherein businesses are given a welcome mat and are not held back by the ever-hanging sword of burdensome compliance.
Further, it will not only ease the M&A activity within Indian companies but will also revitalise India as a top destination for foreign investors and MNC’s having interest in the Indian market. Fields like technology and manufacturing will benefit the most from this reform, as such fields demand agile restructuring to drive competitiveness.
Issues
The point that instigates ambiguity is the term “public interest” used in Section 233 of the Act, as this term has not been given a clear-cut definition. When such key terms remain open to interpretation without any yardstick, potential risks step in, and eventually, the shareholder interest comes at stake because of the unjust interpretations attached to such terms in corporate disputes.
The MCA has expanded the Fast-track route for the unlisted companies, and such a step is duly welcomed. However, this new proposal has failed to bring Non-profit companies within its purview, for whom this fast-track merger scheme would have proved to be a win.
There is also a need to reduce the huge approval threshold, viz., nine-tenths of the creditor value, along with a 90% shareholder approval, especially in terms of internal restructuring. With the same threshold, this amendment would be more of a bottleneck rather than a facilitator in the Fast-track route, as meeting such a threshold is not a facile shot. So, when the government itself is paving the way for swift restructuring, this internal backlash of humongous approval should not become a barrier.
Conclusion
The proposed amendment to Section 233 of the Companies Act is a welcome step towards simplifying mergers for unlisted companies. By allowing them to bypass the lengthy NCLT route, the process becomes quicker, cheaper, and more efficient. This will particularly benefit start-ups and small businesses looking to restructure. However, issues like the dubious term “public interest” and high approval thresholds need to be addressed. If implemented with these improvements, the amendment can significantly boost corporate restructuring and promote ease of doing business in India.
Raghuram Rajan, Former RBI Governor, remarked, “Restructuring is the oxygen that allows failing or stagnant businesses to breathe again and re-enter the economic bloodstream.” Therefore, a well-regulated and fair restructuring boosts confidence in the creditors and other stakeholders, thereby fuelling a robust and sustainable economic growth.
Author Bio
