HSA | Corporate & Commercial Monthly Newsletter | October 2025

Fast-Track Mergers and Demergers under the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2025: The Much-Needed Expansion of the Scope of Fast-Track Mergers and Demergers

Background

Corporate restructuring in India is governed by Sections 230 to 232 of the Companies Act, 2013 (hereinafter referred to as the "Companies Act"). These provisions establish the legal framework for compromises, divisions, arrangements, mergers and amalgamations. The conventional route under the aforementioned sections requires the company, or any of its creditors or members to make an application to the Hon'ble National Company Law Tribunal ("NCLT"), which entails multiple hearings, detailed disclosures, and often results in prolonged timelines. While the NCLT's oversight ensures judicial scrutiny, the process often proves cumbersome and time-consuming, particularly for smaller entities or group companies seeking internal reorganisations.

These challenges were dealt with by enforcing Section 233¹ of the Companies Act, read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (the "CAA Rules") which created a fast-track mechanism for mergers and amalgamations. The objective was to provide a simplified, cost-effective, and time-efficient alternative to the aforementioned conventional route under Sections 230 to 232, enabling certain classes of companies, such as small companies² , start-up company³ and wholly owned subsidiaries⁴ to pursue restructuring directly through the jurisdictional offices of the Regional Director⁵ who enjoys jurisdiction over the transferee company, and thereby ensure minimal judicial intervention.

The Ministry of Corporate Affairs ("MCA") periodically refines the framework of corporate restructuring, to keep pace with evolving business needs. Notably, the amendments to the CAA Rules dated February 01, 2021 and September 09, 2024, further expanded the scope of eligible companies and streamlined procedures in line with the Government's "Ease of Doing Business" agenda. For example, the amendment to the CAA Rules introduced on February 01, 2021 allowed for expansion of the fast-track route to include mergers or demergers between two or more start-up companies, and between a start-up company and one or more small companies. Similarly, the amendment to the CAA Rules introduced on September 09, 2024 provided procedures for a foreign holding company (incorporated outside India) to merge with its Indian wholly owned subsidiary, under the fast-track procedure.

Introduction

On September 04, 2025, the MCA notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025 (the "CAA Amendment Rules"), amending Rule 25 of the CAA Rules. This change gives effect to announcements made in the speech of the Union Budget 2025-26, where the Finance Minister highlighted the Government's commitment to simplify corporate reorganisation processes as part of its broader ease of doing business initiative.₆

Accordingly, the CAA Amendment Rules expand the categories of companies eligible to use the fast-track merger and amalgamation process under Section 233 of the Companies Act and updates procedural aspects.

The following section sets out the key amendments in detail, highlighting the position prior to 2025 and the corresponding changes introduced by the CAA Amendment Rules.

Key Amendments

1. Expansion of Eligible Classes of Companies for fast-track mergers and amalgamations
   Prior to the CAA Amendment Rules mergers and amalgamations through the fast-track route under Section 233 of the Companies Act was limited between: (a) two or more small companies⁷ ; (b) a holding company and its wholly owned subsidiary⁸ ; (c) two or more start-up companies⁹ and (d) one or more start-up company with one or more small company¹⁰ .
   The CAA Amendment Rules broaden the eligibility for companies seeking to undertake mergers and amalgamations through the fast-track route. Specifically, Rule 25(1A) of the CAA Rules has been amended to recognize mergers and amalgamations between the following additional classes of companies:
   1. Among Unlisted Companies:
      Previously unlisted companies could only opt for merger or amalgamation under section 233 if they were classified as 'small company' or a 'start-up company'.
      
      The CAA Amendment Rules have introduced Rule 25(1- A)(iii), which allows one or more unlisted companies to apply for a scheme of merger or amalgamation under Section 233 with one or more unlisted companies. This is subject to the companies, which are not Section 8 companies, satisfying the following conditions:
      1. The aggregate outstanding loans, debentures or deposits of the companies do not exceed two hundred crore rupees and;
      2. They are not defaulting in repaying such outstanding loans, debentures or deposits.¹¹ The meeting of the above conditions should be further corroborated by the issuance of a certificate from an auditor of the company to the effect that it meets the requirements,¹² along with a copy of the approved scheme.
         
   2. Between Holding Company and its Subsidiary:
      The CAA Amendment Rules has introduced Rule 25(1- A)(iv), which now allows mergers and amalgamations under Section 233 of the Companies Act, between a holding company (whether listed or unlisted) and its subsidiary (whether listed or unlisted), provided that the transferor company is not listed.¹³
      This marks a departure from the earlier requirement, which confined the fast-track route under Section 233, only to mergers and amalgamations involving a wholly owned subsidiary
   3. Between Subsidiaries of the Same Holding Company:
      The CAA Amendment Rules has introduced Rule 25(1- A)(v), which now allows mergers and amalgamations under Section 233 of the Companies Act, between one or more subsidiaries of the same holding company, provided that the transferor company or companies are unlisted.¹⁴
      Rule 25(1-A)(v) reads thus:
      "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;
      Illustration:— Company 'D' is the subsidiary of Company 'C' and Company 'C' is the subsidiary of Company 'B' and in turn Company 'B' is the wholly owned subsidiary (WOS) of Company 'A'
      In this case Company 'B' is the WOS of Company 'A'. Company 'C' and Company 'D' are subsidiaries of the same holding company i.e. Company 'A'. Subject to the condition stated in the clause, schemes of merger or amalgamation or transfer or division between Company 'A', Company 'B', Company 'C' and Company 'D' or any combination thereof would be covered under this clause."
      
      It is interesting to note that the CAA Amendment Rules have added an illustration demonstrating the applicability of the enabling provision in Rule 25(1-A)(v) beyond the meaning derived from a plain and literal reading of its provision. The illustration expands the enabling provision of Rule 25(1-A)(v) to include fast-track mergers and/or demergers between two different subsidiaries having a common holding company, when even one subsidiary is a holding company of the other.
      
      
   4. Between a Foreign Holding Company and its Wholly Owned Subsidiary in India:
      The MCA vide its notification dated September 9, 2024, introduced the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2024 and inserted sub-rule 5 under Rule 25A¹⁵ of the CAA Rules, which provides for the procedural steps that are required to be undertaken in the event of fast-track mergers and amalgamations between a foreign company¹⁶ (being the holding company) and its wholly owned subsidiary in India. However, the construct of Rule 25A(5) is such that it is not an enabling provision in accordance with which parties may undertake a fast-track merger or amalgamation between a transferor foreign company and its transferee wholly owned subsidiary in India. To address this gap, the CAA Amendment Rules has introduced Rule 25(1-A)(vi)¹⁷ to explicitly enable the aforementioned mergers and amalgamations, under the ambit of Section 233 of the Companies Act, thereby providing procedural clarity and formally recognizing that such cross-border mergers and amalgamations are eligible for the fast-track approval route.
      
2. . Expanded scope of notice for inviting objections
   Prior to the CAA Amendment Rules, a notice under Section 233(1)(a) of the Companies Act was required to be issued to the Registrar of Companies and the Official Liquidator where the registered office of the respective companies is situated or persons affected by a scheme of merger or amalgamation,¹⁸ for the purpose of inviting their objections or suggestions on a proposed scheme of merger or amalgamation. However, the CAA Amendment Rules has inserted a proviso to Rule 25(1), which states that companies which are regulated by sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority must now issue notices of the scheme to such relevant regulator seeking their objections or suggestions. The proviso also states that in case of listed companies, notices seeking objections or suggestions for a scheme of merger or amalgamation under Section 233(1)(a) of the Companies Act must now also be issued to the concerned stock exchanges. This obligation of issuing notices to the relevant regulators seeking their objections to the proposed scheme will be in addition to the requirement already provided in Section 233(1)(a) of the Companies Act. To that extent, the requirement under Section 230(5) of the Companies Act, with respect to regular merger and amalgamation procedures has been introduced in fast-track merger and amalgamation process to make the oversight obligations thereunder more robust.
3. Revised timeline to file the scheme with the Central Government
   Section 233(2) of the Companies Act provides that a transferee company shall file a copy of the scheme of merger or amalgamation (as approved in meetings by the members and creditors of the company) with the Central Government, Registrar of Companies and the Official Liquidator where the registered office of the transferee company is situated. The CAA Amendment Rules, under Rule 25(4)(a), has extended the period of filing the copy of the scheme to 15 (fifteen) days, from the erstwhile deadline of 7 (seven) days following the meetings of the members or creditors. Such copy must be filed along with a statement detailing how any comments or suggestions from sectoral regulators or the stock exchanges have been addressed within the scheme.¹⁹
4. Application of Fast-Track Provisions to Demergers and Transfers
5. The erstwhile CAA Rules was silent on whether the fast-track mechanism available under Section 233 of the Companies Act, could be applied to demergers, which led to ambiguity and inconsistent positions being taken by different Regional Directors.
6. The CAA Amendment Rules now removes this uncertainty by introducing Rule 25(9) under the CAA Rules, which states that the fast-track provisions under Rule 25 shall mutatis mutandis apply to a scheme of division or transfer of undertakings provided under Section 232(1)(b) of the Companies Act.²⁰

Our Analysis

The CAA Amendment Rules, is one among a series of changes that are likely to be introduced by the MCA to make the fast-track merger framework under section 233 of the Companies Act more robust.

The changes introduced by the CAA Amendment Rules provides tangible benefits by including a wider spectrum of corporate stakeholders within its fold. By virtue of the changes introduced by the CAA Amendment Rules, the following benefits are envisaged: (i) enabling a quicker and cost-efficient restructuring route for small and mid-sized enterprises that were earlier constrained by the more onerous NCLT process under Section 230 to 232 of the Companies Act; especially when they're unlisted entities; (ii) enabling large corporate groups to promote operational efficiency, by allowing them greater flexibility in reconfiguring their structures by way of fast-track mergers and demergers between various group companies; (iii) increasing oversight in the fast-track merger and demerger process of entities operating in regulated sectors such as those of the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Reserve Bank of India, Pension Fund Regulatory and Development Authority, etc.

The CAA Amendment Rules has enabled the undertaking of fast-track demergers, divisions, compromise and other arrangements envisaged under Section 232(1)(b) of the Companies Act. Further, it prescribes that the Central Government may make provisions of the nature specified in clauses (a) to (j) of Section 232(3) of the Companies Act, to the extent applicable. Therefore, for the purposes of making the process of fast-track demergers, divisions, compromise and other arrangements efficient and effective, it is imperative that these provisions are notified in timely manner without further delay such that the bottleneck of matters before NCLT is cleared and the CAA Amendment Rules is effective in essence.

That being said, in the larger scheme of things, the CAA Amendment Rules is a significant step towards concretising the Government of India's endeavour to simplify corporate reorganisation and enabling ease of business in India.

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Footnotes

1. Section 233 of the Companies Act, 2013 was enforced from December 15, 2016 vide MCA notification No. S.O. 3677(E) dated December 07, 2016. Section 233 of the Companies Act, 2013 provides a simplified 'fast-track' procedure for mergers and amalgamations of certain classes of companies, allowing approval through the Regional Director rather than the NCLT.

2. A "small company" means a company, other than a public company,— (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees. However, this classification does not apply to: (A) holding or subsidiary companies; (B) companies registered under Section 8; or (C) companies or bodies corporate governed by any special Act.

3. A "start-up company" means a private company under the Companies Act, 2013 or Companies Act, 1956: (i) incorporated for a period of 10 years, (ii) whose turnover for any of the financial years since incorporation / registration has not exceeded one hundred crore rupees and (iii) which is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model, with a high potential of employment generation or wealth creation. This definition is in accordance with notification number G.S.R. 127(E), dated February 19, 2019 issued by the Department for Promotion of Industry and Internal Trade.

4. A "wholly owned subsidiary" is a company in which 100% of the share capital is held by another company, either directly or through its nominees, thereby making it a subsidiary entirely owned by the holding company.

5. Regional Directors are appointed by the MCA to oversee the administration and compliance of companies within their respective regions. They supervise the Registrars of Companies within their region and exercise delegated powers under the Companies Act, 2013.

6.Para 101 of the Union Budget speech states: "Requirements and procedures for speedy approval of company mergers will be rationalized. The scope for fast-track mergers will also be widened and the process made simpler."

7. Section 233(1) of the Companies Act, 2013.

8. Id.

9. Rule 25(1-A)(i) of the CAA Rules.

10. Rule 25 (1-A)(ii) of the CAA Rules.

11. Rule 2(b)(ii) of the CAA Amendment Rules.

12. This certificate shall be in the format of Form No. CAA-10A provided in the latest CAA Amendment Rules.

13. Id.

14. Id.

15. Rule 25A of the CAA Rules, prescribes the framework for mergers and amalgamations of Indian companies with foreign companies, including conditions, regulatory approvals, and filings required for cross-border mergers under Section 234 of the Companies Act, 2013

16. A "foreign company" means a company or body corporate incorporated outside India whether having a place of business in India or not, as provided in Explanation 1 of Rule 25A(5) of the CAA Rules.

17.Rule 2(b)(ii) of the CAA Amendment Rules

18.An "Official Liquidator" is a whole-time officer of the Central Government appointed under section 359 of the Companies Act, 2013 to oversee winding-up proceedings and related functions.

19. Rule 2(d) of the CAA Amendment Rules.

20. Rule 2(e) of the CAA Amendment Rules.

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