BACKGROUND
- Section 233 of the Companies Act, 2013 (‘the Act') read with Rules1 provides for fast-track merger or amalgamation of: (a) Two or small companies; (b) A holding company or its wholly owned subsidiary; (c) Two or more start-up companies and (d) one or more start-up company with one or more small company.
- The ‘fast-track route', with a simplified process, allows the above class of companies to get the schemes approved by Regional Directors (RDs) without involvement of National Company Law Tribunals (‘NCLTs'), making it a quicker and cost-efficient alternative. It is also known as ‘RD Route' in general parlance.
- During Union Budget 2025 speech on 01st February 2025, the Hon'ble Finance Minister, Ms. Nirmala Sitharaman, inter alia, announced to widen the scope of fast-track mergers along with simplification of the related process involved.
- Accordingly, it was proposed to amend Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (‘CAA Rules, 2016') to include more classes of companies under the ambit of fast-track merger.
- The Ministry of Corporate Affairs (‘MCA') had, therefore, issued a public notice dated 04th April, 2025 inviting suggestions / comments on the proposed amendments from various stakeholders.
- Now MCA, vide gazette notification dated 04th September, 2025 come with up Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025 to amend Rule 25 of the CAA Rules, 2016.
AMENDMENTS
- Pursuant to the amended rules, following additional classes of
companies are now be covered under the fast-track route:
- a holding company (listed or unlisted) and its one or more subsidiary (listed or unlisted) (and not necessarily wholly owned subsidiary) company(ies) provided that the transferor company/companies shall be unlisted; or
- one or more subsidiary company of a holding company with one or
more other subsidiary of the same holding company where the
transferor company(ies) are not listed i.e., merger or
amalgamation between fellow subsidiaries and transferor shall be an
unlisted company; or
Further, the amendment includes an illustration, a reading of which indicates that merger between an ultimate holding company and a step-down subsidiary is also covered under the fast-track route.
- one or more unlisted company (other than
section 8 company) with one or more unlisted
company (other than section 8 company) provided that
each of these companies shall fulfil the following
criteria2 -
- aggregate borrowings of a company from loans, debentures or deposits shall not exceed INR 200 crores; and
- there has been no default in repayment of such borrowings by the Company.
A certificate, in newly introduced Form No. CAA-10A, from the Company's auditor certifying the fulfilment of conditions in (i) and (ii) is also required to be attached along with copy of approved scheme. - merger of transferor foreign company incorporated outside India, being a holding company with transferee Indian Company being its wholly owned subsidiary company incorporated in India as provided in Rule 25A(5)3 in Rule 25 of CAA Rules, 2016.
- Insertion of new sub-rule (9) in Rule 25 of CAA Rules,
2016-
- A new sub-rule (9) has been inserted in Rule 25 of CAA Rules, 2016 as per which fast-track procedure shall apply mutatis mutandis to a scheme of division or transfer of undertaking (i.e., demergers).
- Section 233(12) of the Act already provides that the provisions of section 233 shall apply mutatis mutandis apply to division or transfer of a company as well i.e., fast-track route was available for demergers even prior to this amendment.
- An express inclusion of ‘demergers' in the corresponding Rule 25 now provides statutory recognition and settles any interpretational ambiguity.
- Notice of proposed scheme-
- Earlier, the notice of proposed scheme was required to be sent only to Registrar of Companies (‘RoC') and Official Liquidator (‘OL') in Form CAA-9, inviting objections and suggestions.
- Now, an express requirement has been included to serve this notice also to relevant sectoral regulators such as Reserve Bank of India (‘RBI'), Securities and Exchange Board of India (‘SEBI'), Insurance Regulatory and Development Authority of India (‘IRDAI') and Pension Fund Regulatory and Development Authority (‘PFRDA') and in case of listed companies, to the concerned stock exchanges.
- Other procedural refinements-
- New Forms CAA-9, CAA-10 and CAA-11, CAA-12 have been substituted with enhanced disclosure requirements, while a new Form CAA-10A has been introduced to mandate an auditor's certificate for unlisted companies involved in a merger.
AURTUS COMMENTS
- The extant amendments by MCA are in line with the government's objective of ‘Ease of Doing Business' in India.
- At NCLT level, the insolvency & bankruptcy matters (which are statutorily time-bound) are dealt on priority – which quite often, results in delayed hearings of the merger/demerger matters. Thus, by introducing minor procedural refinements and, by allowing wider categories of companies to approach the jurisdictional RD (instead of the NCLT), these amendments would serve the dual objective of expediting the merger/demerger process and reducing the burden on the NCLTs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
