MCA Proposes to Broaden Fast-Track Merger Framework, Aims to Ease NCLT Burden and Boost Ease of Doing Business

In a significant move aligned with the Hon’ble Finance Minister’s Budget 2025 speech, the Ministry of Corporate Affairs (MCA) has released a draft notification proposing to expand the scope of fast-track mergers under Section 233 of the Companies Act, 2013. This initiative is a strategic response to the substantial backlog of cases at the National Company Law Tribunal (NCLT), with over 8,000 cases under the Companies Act, 2013 pending as of September 2024, highlighting an urgent need to streamline corporate restructuring processes.

The existing fast-track merger mechanism, while efficient, has had a limited scope. The proposed amendments aim to widen its applicability significantly, thereby reducing the burden on the NCLT and enhancing the overall ease of doing business in India.

Key Proposed Inclusions under the Fast-Track Route

The draft notification outlines several crucial categories of companies that will now be eligible for the fast-track merger process:

• Unlisted Companies with Limited Borrowings and No Default: Unlisted companies (excluding Section 8 companies, which are non-profit entities) will be able to pursue fast-track mergers if their borrowings are less than ₹50 crore and they have no record of default in repayment. This opens the fast-track route to a large segment of the corporate sector that currently has to undergo the longer NCLT-approved merger process.
• Holding Company with Unlisted Subsidiaries: The framework proposes to include mergers between a holding company (whether listed or unlisted) and one or more of its unlisted subsidiaries. Currently, only wholly-owned subsidiaries are explicitly covered under the fast-track route, and this expansion will provide greater flexibility for intra-group consolidations.
• Fellow Unlisted Subsidiaries within a Group: Mergers between unlisted subsidiaries of the same holding company (often referred to as “fellow subsidiaries”) will also be brought under the fast-track mechanism. This is a pragmatic step to simplify internal group restructuring, which typically presents lower risks compared to mergers involving unrelated entities.
• Cross-Border Mergers with Indian WOS: The draft proposes to integrate the merger of a foreign holding company into its Indian Wholly-Owned Subsidiary (WOS) within Rule 25, making it a self-contained fast-track route for eligible cross-border mergers. This is particularly relevant in the context of the growing “reverse flip” trend, where Indian-founded startups, previously domiciled abroad, are looking to shift their base back to India for strategic or investor-driven reasons. This streamlined process will facilitate such re-domestication.

Implications and Way Forward

This expansion of the fast-track merger framework is a welcome development. It is expected to:

• Reduce Regulatory Friction: By allowing more categories of mergers to bypass the lengthy NCLT approval process, the amendments will significantly reduce the time, cost, and complexity associated with corporate reorganizations.
• Improve Ease of Doing Business: The streamlined process will contribute to a more efficient and attractive business environment in India, encouraging both domestic and international companies to consider mergers and acquisitions for growth and consolidation.
• Enable Faster Intra-Group Consolidations: The inclusion of holding-subsidiary and fellow subsidiary mergers will allow corporate groups to consolidate their entities more rapidly, leading to operational efficiencies and better resource allocation.

The MCA has invited stakeholders to submit their comments on this draft notification until May 5, 2025, through its e-Consultation Module. This consultative approach ensures that the final framework is robust and addresses the practical needs of businesses.

This proactive step by the MCA reinforces the government’s commitment to judicial efficiency and creating a more agile and business-friendly regulatory landscape in India.

Source on pending appeals: Parliament Response, DECEMBER 17, 2024 https://sansad.in/getFile/annex/266/AU2450_7V12kR.pdf?source=pqars#:~:text=As%20per%20information%20provided%20by,one%20President%20and%2062%20members

About the Author

Share

• Link copied to clipboard!
  https://treelife.in/news/mca-proposes-to-broaden-fast-track-merger-framework-aims-to-ease-nclt-burden-and-boost-ease-of-doing-business/
  
• 
• 
• 
• 

Dhairya Chaniyara

Senior Associate | Financial Advisory | dhairya.c@treelife.in

Focuses on direct tax and regulatory services with a specialization in GIFT IFSC. Brings experience from various industries, including manufacturing, FMCG, IT-ITES, and healthcare, to deliver impactful tax solutions.