MCA proposes to widen scope of fast-track mergers – Issues draft for public comments

The Ministry of Corporate Affairs (MCA) has proposed amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (CAA Rules), in line with the announcement made under the Budget 2025-26 to expand the scope of fast-track mergers under Section 233 of the Companies Act, 2013 (CA2013).

Presently, Section 233(1) of CA2013 read with Rule 25(1A) of CAA Rules covers following classes of companies under fast-track mergers:

• merger between two or more small companies;
• merger between a holding company and its wholly-owned subsidiary company;
• merger between two or more start-up companies;
• merger between one or more start-up company with one or more small company.

As per the draft issued by MCA, the following new set of company classes are now proposed to be brought under the ambit of fast-track mergers under Section 233 of CA2013, in addition to the existing aforesaid categories:

• Merger between unlisted companies which have reasonable debt exposure and have no default in repayment: Merger of one or more unlisted company (other than Section 8 company) with one or more unlisted company (other than Section 8 company) where every company involved in the merger meets the following criteria as on a day, not more than 30 days before the date of notice referred to in Section 233(1)(a) of CA2013:
  • the borrowing of the company from banks or financial institutions or any other body corporate is less than fifty crore rupees and
  • such a company has no default in repayment of such borrowings;

In the aforesaid case, a certificate from the auditor of the company that the company meets the conditions referred to in this clause will be required to be attached alongwith the application under Section 233(2) of CA2013.

The above new class will be of those unlisted companies which have reasonable debt exposure and have no default in repayment thereto. It is proposed that section 8 companies would not be covered under this category.

• Merger of a subsidiary with its holding company: A holding company (listed or unlisted) and one or more unlisted subsidiary company or companies.

Presently, merger of only wholly owned subsidiary with its holding company is covered under Section 233. It is proposed that a subsidiary other than wholly owned subsidiary may also be allowed to be merged with its holding company under Section 233 with the condition that such subsidiary should not be a listed company. The Company Law Committee in its 2022 report[1] had also made a recommendation in this regard.

• Merger between subsidiaries of the same holding company: Merger of one or more subsidiary company of a holding company with one or more other subsidiary company of the same holding company where the transferor company or companies are not listed;

Presently, merger between fellow subsidiary companies belonging to the same group (i.e. having same holding company) is not covered under Section 233. It is proposed that such mergers may also be included in Section 233 since these would be similar to mergers between holding company and unlisted subsidiary companies. It is proposed to cover only unlisted fellow subsidiaries under this category.

It is also proposed that the merger provided in Rule 25A (5) of CAA Rules (i.e. merger of the transferor foreign company incorporated outside India being a holding company with the transferee Indian company being its wholly owned subsidiary company incorporated in India) may also be included in Rule 25 to make Rule 25 self-contained.

The Public Notice along with an explanatory note  have been published on MCA website with File No.:2/31/CAA/2013CL-VPART dated April 4, 2025 (available here). Further The MCA has invited comments/suggestions from stakeholders on the draft notification published on April 4, 2025 (available here). Submissions can be made via the e-Consultation Module on www.mca.gov.in by May 5, 2025.

The proposed amendments to the CAA Rules are in line with the announcement made in Budget 2025-26 to broaden the scope of fast-track mergers. This expansion to include additional categories—such as unlisted companies with manageable debt, holding companies with unlisted subsidiaries, and between fellow subsidiaries within the scope of fast-track merger will expediate the approval process for mergers for additional set of companies and allow intra-group restructuring faster and simplified.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

Manendra Singh, Partner – ManendraSingh@elp-in.com ;

Tanvi Goyal, Associate Partner – TanviGoyal@elp-in.com

Ambreen Khatri, Senior Associate, Email – ambareenkhatri@elp-in.com

[1] Report of the Company Law Committee (2022) – available here