A New Chapter in Corporate Restructuring: Ambit of Fast-Track Mergers Widened

Vaibhav Singh Tiwari* | Yash Sharan**

INTRODUCTION

Corporate restructuring through merger and acquisition has been a time-consuming and procedurally challenging process in India, especially when such a scheme must be reviewed by the National Company Law Tribunal ("NCLT"). To address these frictions, Section 233 of the Companies Act 2013 ("Act") introduces a fast track merger ("FTM") route, supplemented by Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The FTM route allows certain eligible classes of companies to bypass the NCLT process.

Recently, the Ministry of Corporate Affairs ("MCA") has notified amendments to the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025 ("CAA Rules"), which have expanded the scope of the FTM under Section 233. This reform is intended to reduce the burden on NCLT and to shift the scheme to the administrative route through the Regional Director ("RD"). With the amendment, several new classes of companies have been brought within the ambit of the FTM route.

This post examines the key changes brought by the amendment and analyses their significance in light of India’s policy push for ease of doing business and reducing NCLT backlogs.

CURRENT FRAMEWORK

Corporate restructuring in India has been a tribunal-centric process, requiring the approval of NCLT under sections 230-232 of the Companies Act. The NCLT was established to streamline the corporate dispute resolution process and expedite merger approval. However, due to the convergence of multiple jurisdictions under NCLT, especially the time-sensitive corporate insolvency resolution process under the Insolvency and Bankruptcy Code 2016, an unexpected bottleneck was created. With over 15000 cases pending before the NCLT by March 2025, the average time for the straightforward mergers has also been expedited.

However, the FTM route under Section 233 was introduced, which allowed certain classes of companies to get the schemes approved by the RDs over the Transferee Company instead of applying before NCLTs. Pursuant to this route, if the RD does not object within the 60 days, the scheme is deemed approved, making it a quicker and cost-effective process. Section 233 of the Companies Act enabled the FTMs without requiring approval from NCLT in cases involving:

(i)             a holding company and its wholly owned subsidiary;

(ii)            two or more small companies; and

(iii)           any other classes of companies as may be prescribed.

In 2021, the MCA expanded the FTM route under section 233 by adding sub-rule (1A) to Rule 25 of the CAA Rules, owing to a boom in India’s startup ecosystem. This amendment extended the eligibility of FTM so that it could also take place between:

(i)             two or more start-ups; and

(ii)            one or more start-ups and one or more small companies.

Furthermore, the MCA introduced additional amendments in 2023 to Rules 25(5) and 25(6) of the CAA Rules to speed up the approval process and reduce the procedural delays. These changes introduced the time-bound approval mechanism and the deemed approval provision.

PROPOSED AMENDMENT TO THE EXISTING FRAMEWORK

The amendment is introduced to extend the benefit of the RD route beyond the presently eligible companies to include additional classes. This section analyses major provisions of the amendment and its broader implications.

Firstly, the MCA has allowed the merger/demerger of subsidiaries and their holding companies under the FTM route. Presently, the merger/demerger was only available between the wholly owned subsidiary and holding company under the existing FTM scheme. However, the FTM route is not available in cases wherein the transferor company is a listed company. This selective exclusion suggests that, due to the stricter regulatory requirements for the listed entities, the FTR route does not apply to listed companies.

Secondly, the MCA has allowed the FTM scheme for two or more unlisted companies, subject to certain conditions:

(i)             none of the companies involved is a section 8 company;

(ii)            total outstanding loans must be less than Rs 200 crore; and

(iii)           There must be no default in the repayment of loans.

Notably, the amendment dispenses with any requirement of common shareholding, promoter group, or common control between the unlisted companies that are seeking a merger under this route. Thus, wholly unrelated, unlisted companies can now opt for the FTM route, provided they fulfil the financial threshold and non-default criteria.

Thirdly, the amendment recalibrates India’s cross-border merger regime by integrating mergers involving foreign holding companies and Indian Wholly Owned Subsidiary (“WOS”) companies into the FTM framework, which traditionally required the NCLT route. While cross–border mergers are governed under Section 234 of the Act and Rule 25A of the CAA Rules, which have been amended to enable inbound mergers between a transferor foreign holding company and its Indian WOS, thereby making the class of companies eligible for the fast-track route complete.

Fourthly, traditionally, inter-group arrangements such as mergers between two or more fellow subsidiaries are excluded from the purview of FTM. However, the 2025 amendment has significantly reshaped the FTM framework by extending Section 233 to include the merger between two or more subsidiary companies of the same holding company, provided that the transferor company is unlisted.

While the amendment has widened the scope of the FTM scheme to include fellow subsidiaries and step-down subsidiaries, it has a regulatory overlap with the SEBI’s Listing Obligations & Disclosure Requirements (“LODR”) Regulations, 2015 framework. Under Regulation 37 of the LODR regulations, listed companies are required to obtain the prior approval of the stock exchange before filing any scheme of arrangement. Thus, this overlap arises because even if the merger meets the eligibility criteria of the FTM scheme, if the transferee company is listed, Regulation 37 of LODR rules still requires the stock exchange approval for the scheme of arrangement; consequently, the listed transferee companies may still face regulatory delay, which the FTM scheme was meant to avoid.

ISSUES AND RECOMMENDATIONS

By broadening the FTM scope, the 2025 Amendment has unlocked efficiency and has also caused severe governance weaknesses. From valuation distortions in unrelated unlisted mergers to veiled compliance loopholes in cross-border schemes, the structure may be prone to minority exploitation and regulatory arbitrage without forceful protection and supportive safeguards.

The Amendment is a shift in paradigm as it allows FTMs to occur between unrelated unlisted companies without the common control or shareholding requirement. Although this increases the scope of corporate restructuring, it also provides the opportunity of valuation related risks, especially in the scrutiny of NCLT. In valuation of shares in a merger, the ratio to which the shares are swapped is not only determined, but also the final allocation of wealth to shareholders. In Miheer H. Mafatlal v. Mafatlal Industries Ltd., the SC stated that ordinarily, the courts are not to intervene in the commercial wisdom of the shareholders unless such valuation is proven to be unreasonable or patently unfair. Nevertheless, this principle implied NCLT (or former High Court) control, which is not present in the FTM process that is powered by RD.

The threat is especially high in unrelated, unlisted firm mergers. Devoid of shared promoters or stock, parties can rig such inflated prices to favor a superior camp, drain assets, or water down minority holdings. In an FTM structure where the court plays no role in such schemes, these schemes might get away with impunity. Section 247 of the Act already requires that the valuation should be prepared by registered valuers. However, in the real world, the valuation reports can be optional, and RDs are not technical enough to evaluate their soundness. Minority shareholders, who are in most cases locked out when it comes to decision making in closely held, unlisted companies, are particularly susceptible.

An effective protection would be to make it mandatory that all the unrelated FTMs of the unlisted companies seek valuation by the SEBI-registered independent valuers along with a certificate of fairness by a statutory auditor. Additionally, the scheme must also declare in a mandatory manner the valuation methodology, whether it be Discounted Cash Flow, Net Asset Value or market multiples, in order to ensure that the shareholders make their decision. On the same note, the same disclosure provisions apply to listed companies under Regulation 37 of SEBI (LODR) Regulations, 2015and application of the same to FTMs would ensure the unlisted-company mergers are in line with best governance practices.

Therefore, even though the amendment is an expansion of restructuring opportunities, it is imperative to encapsulate valuation protection measures against tunnelling, minority shareholders, and so that FTMs are not used for fairness purposes but to promote efficiency.

Additionally, inbound mergers between a wholly owned subsidiary of the foreign holding company and its Indian subsidiary are now covered by the 2025 Amendment as FTMs. Although such a reform simplifies corporate restructuring, it also leaves huge gaps in regulation as NCLT is not supervised.

The Companies (Amendment) Act, 2016 has introduced a new Rule of 234 that is now under Section 234 of the Companies Act, 2013 with the help of Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which regulates cross-border mergers. These clauses come with the need to have prior permission of the RBI to make sure that the provision is in line with FEMA (Cross Border Merger) Regulations, 2018. Traditionally, such schemes were also vetted by the NCLT, which provided a judicial checkpoint to ensure they adhered to Indian accounting and disclosure standards. The amendment will also place the protective measures against the opaque in jeopardy by transferring the scheme to the position of the RD where the transferor entity might be governed by different accounting standards or data protection regimes that are not necessarily compatible with the Indian laws. An example of such issues can be noticed in the Reliance Industries-Treisteel (Netherlands) merger: regulatory clearances were required by both RBI and NCLT in order to ensure that the Indian law was not violated. There was a risk that the checking of the adherence to the Indian accounting standards and disclosure requirements would not be done had this merger not taken place under the FTM regime without the NCLT supervision.

Moreover, data transfer in a cross-border merger is even more complicated by the fact that the global discussion of data localisation under the laws, including the Digital Personal Data Protection Act, 2023, in India. Inbound mergers may become instruments of regulatory arbitrage without clear scrutiny, as they may allow evading the data protection and disclosure requirements.

To seal such gaps, the amendment should require that any inbound FTM where a foreign holding company is involved should be accompanied by a compliance certificate either by the regulator of the home jurisdiction of the transferor, or by a separate auditor. This must be verified by such certification as compliance with Indian Accounting Standards (Ind AS), disclosure rules under the Companies Act and FEMA/data protection norms. The principle reverberates the argument in Hindustan Lever Employees Union v. Hindustan Lever Ltd., in which the SC pointed out that the amalgamations should have neither disadvantaged the shareholders, nor should they not be meeting the statutory requirements of fairness. Similarly, in SEBI v. Sterlite Industries, transparency and compliance were emphasized as the conditions leading to investor protection. In this way, including a certification system in the FTM process would maintain its efficiency and eliminate the risks of the lack of transparency and regulatory arbitrage across countries.

CONCLUSION

The 2025 Amendment is certainly an omen of a new era in the Indian system of corporate restructuring as it broadens the area of speedy mergers and transfers regulatory obligation to the jurisdiction of the RDs. Although the reform will be efficient, cheaper, and easy to do business, it also brings about the issues of valuation manipulation, minority oppression, and regulatory arbitrage, especially in unrelated unlisted and cross-border mergers. These risks are increased by the lack of judicial scrutiny, which requires firmer protections, including the obligatory usage of independent valuations, the certification of the statutory auditor, and confirmation of compliance by foreign regulators in cross-border deals. The absence of these checks would make the amendment open the gateway to asset tunnelling and transparency instead of attaining a true business synergy. Therefore, it is essential to balance between speed and fairness, FTM should develop as the instruments that should not only minimise procedural burdens but also maintain shareholder confidence and regulatory integrity 

* Vaibhav Singh Tiwari is a third-year law student at Dharmashastra National Law University, Jabalpur.

** Yash Sharan is a third-year law student at Hidayatullah National Law University, Raipur.`1