Making Mergers Easier: More Companies To Get On The Express Lane

On April 05, 2025, the Ministry of Corporate Affairs issued a public notice seeking comments on the Draft Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025.This step has been taken by the MCA to achieve the goal set out in the Union Budget 2025-26 for simplification of merger process and expansion of the benefits of fast-track mergers to a wider pool of companies. Currently, Section 233 of the Companies Act and Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) govern the process of fast-track mergers of companies, which bypasses the traditional, time-consuming process involving approval from the National Company Law Tribunal.Fast-track mergers are governed by an alternate three-step process involving a notice of the proposed scheme of merger to Registrar of Companies and Official Liquidator, approval of the proposed scheme by 90% of the shareholders and creditors by value, and submission of the scheme to the Central Government (Regional Director) for confirmation and registration.The absence of NCLT oversight in fast-track mergers was counterbalanced by limiting the scope of fast-track mergers to only four kinds of mergers. These four kinds are mergers between two or more small companies, between a holding company and its wholly owned subsidiary, between two or more start-up companies and between a combination of small companies and start-up companies..The Draft Amendment seeks to introduce two major additions to the classes of companies eligible to undertake the fast-track merger process.First, every unlisted company, save for a company registered under Section 8 of the Act, which has less than Rs 50 crore worth of borrowings from banks/financial institutions/other body corporates and has not defaulted on any of its repayments in respect of the borrowings can undertake a fast-track merger with an unlisted company satisfying the same criteria.As a matter of compliance, a certificate from the auditor of the company certifying that the company meets the applicable criteria shall be submitted. The explanatory note to the draft amendment states that the intent behind this suggestion is to cover companies with reasonable debt exposure.While the intent of the government to include companies having low debt exposure is clear, the basis for characterisation of a debt of Rs 50 crore as reasonable remains unclear. This addition is a curious change as the classification solely relates to the company's debt and covers low-debt unlisted companies irrespective of their size or relation with the other merging entity, which was the earlier basis for classification. Moreover, the definition of debt includes loans from "any other body corporate", which is likely to cover inter-corporate deposits and any other loans, which may not necessarily resemble a traditional credit facility.The proposed move comes as a major relief for companies which are relatively debt-free and satisfy a major chunk of their working-capital requirements through their cash reserves or equity-based funding. At the same time, the scheme leaves out entities, which may be prudent borrowers in respect of their repayment obligations, but the volume of their borrowings exceeds Rs 50 crores due to the scale of their business.An interesting implication of the Draft Amendment would be disinclination of unlisted companies to increase their borrowings beyond Rs 50 crore even if they have a clean repayment history. This may conflict with the Reserve Bank of India's aim to increase lending and investment in the country, which was signalled by the recent reduction in the policy repo rate. The extent of the interaction between these competing objectives may only be apparent after the Draft Amendment is implemented as companies may not always be incentivized to borrow lesser in order to undertake a faster process for mergers.Second, the other addition to class of companies, which can undertake a fast-track merger, relates to group entities. In the current regime, only mergers between holding companies and wholly owned subsidiaries are covered. The draft amendment expands the scope to cover mergers between holding company (listed or unlisted) and one or more of its unlisted subsidiaries and mergers between one or more subsidiary companies of the same holding company, provided the transferor company is unlisted. This proposed change is a welcome move for large corporate groups and would ease restructuring of group companies even when the unlisted subsidiary is not wholly owned..New Age Of Defence: India Unveils Its Defence Technology Stack | Open Interest.The Draft Amendment is intended to bring a broader category of companies within the sweep of fast-track mergers and primarily benefit group companies and companies with low debt. This move is likely to incentivise certain companies to reduce their borrowings below Rs 50 crore to opt for a fast-track merger, which may have a curious interaction with the monetary policy of the government.At the same time, the draft amendment signals prioritisation of ease of doing business over legal oversight and procedure for a larger basket of companies, which may raise concerns relating to protection of the stakeholders affected by the merger.As the government is still inviting comments on the draft amendment, it is likely that there may be certain changes in the proposed regime, but it appears that the government is largely in favour of keeping the express merger process in place for the companies included in the draft amendment to achieve the objectives set out in the Union Budget 2025-26..Smruti Shah is a partner and Sparsh Khosla is an associate at Cyril Amarchand Mangaldas..Geopolitical Turmoil Of US Sanctions On Iran: Strategic Implications On Indian Companies, Trade

Making Mergers Easier: More Companies To Get On The Express Lane

The absence of NCLT oversight in fast-track mergers was counterbalanced by limiting the scope of fast-track mergers to only four kinds of mergers.

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