MCA Proposes Expansion of Fast-Track Merger Route under the Companies Act, 2013

MCA Proposes Expansion of Fast-Track Merger Route under the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) released a Public Notice on April 4, 2025, calling for feedback on proposed amendments to Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, draft need to expand the list of companies that can use the fast track merger process under Section 233 of the Companies Act, 2013, aligns with the 2025–26 Union Budget’s goal to simplify merger procedures and allow more businesses to restructure efficiently. This Compliance Calendar LLP article presents a detailed explanation of the proposed changes, including the purpose, categories of companies covered, and the implications of these revisions. The fast track merger process saves time and lowers legal MCA and other  administrative expenses for eligible businesses. With the increasing need for structural flexibility, especially for startups and growing private companies, stakeholders have long recommended an expansion of this route.
Section 233 of the companies Act 20-13  provides a simplified procedure for mergers and amalgamations between specific types of companies. Unlike conventional mergers that require approval from the National Company Law Tribunal (NCLT), this section allows certain companies to complete mergers with the approval of the Central Government, through the Regional Directors (RDs). Currently, Section 233 is available only for:

Two or more small companies, or

A holding company and its wholly owned subsidiary

Highlights of Budget 2025–26 broaden the scope of fast track mergers
In the Union Budget 2025–26, paragraph 101 highlighted that the government intends to broaden the scope of fast track mergers. Following this, the MCA organized a post-budget seminar on March 4, 2025, to collect feedback. Input received during these discussions has shaped the draft amendment to Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 [CAA Rules].
Scope of Rule 25 and 2021 Amendment
Previously, Rule 25 ofCompanies (Compromises, Arrangements and Amalgamations) Rules, 2016 covered only small companies and wholly owned subsidiaries. In February 2021, it was extended to include:
(1A) A scheme of merger or amalgamation under Section 233 of the Act may be entered into between:
 (i) Two or more start-up companies; or
  (ii) One or more start-up companies and one or more small companies.
While this marked progress, it left out many practical business combinations, especially those involving unlisted companies and partially owned subsidiaries. The latest draft aims to address this by including additional categories.
Proposed Amendments to Rule 25
The MCA has now proposed to allow the following additional types of companies to use the fast track merger process:
1. Unlisted Companies with Low Borrowings and No Defaults
Eligibility Criteria: One or more unlisted companies (excluding Section 8 companies) may merge with other unlisted companies, provided:

Borrowings from banks, financial institutions, or corporate bodies are below Rs.50 crore.

There is no outstanding default on such borrowings.

An auditor’s certificate confirming the above is submitted with the application under Section 233(2).

Why it Matters: This change aims to facilitate combinations among companies with clean financial records and limited liabilities. It provides a faster route to restructure, especially for companies that do not pose credit risks.
2. Holding Company (Listed or Unlisted) with Its Unlisted Subsidiary (Not Wholly Owned)
Key Change:

The current scope covers only mergers between a holding company and its wholly owned subsidiary.

The proposed amendment allows mergers between a holding company (listed or unlisted) and its unlisted subsidiaries, even if they are not wholly owned.

Exclusion:

Listed subsidiaries are not included.

Impact: This will help larger business groups restructure ownership and operations more effectively by providing flexibility when the holding company does not hold 100% shares in the subsidiary.
Reference: The Company Law Committee (CLC) in its 2022 report recommended this change, acknowledging the demand for broader merger options within group structures.
3. Fellow Subsidiaries of the Same Holding Company (Unlisted Only)
New Addition:

Mergers between subsidiaries of the same holding company (fellow subsidiaries) are now proposed to be covered under the fast track route.

Conditions:

Only applicable if the companies involved are unlisted.

Significance: This will simplify intra-group mergers, helping groups consolidate similar operations or eliminate overlapping functions without unnecessary delays.
4. Foreign Holding Company Merging into Indian Wholly-Owned Subsidiary
Current Rule:

Rule 25A(5) already allows the merger of a foreign holding company with its Indian wholly owned subsidiary.

Proposed Change:

This clause will now be shifted into Rule 25 to provide a consolidated view of all permitted types of fast track mergers.

Why the Change: Incorporating this provision directly into Rule 25 improves clarity and ease of reference for users of the law.
Purpose of the Amendment
The proposed amendment aims to make the fast track merger route available to a wider range of corporate entities while still maintaining checks to avoid abuse of the process and this step aligns with broader objectives such as:

Simplifying reorganizations within corporate groups

Supporting startup company and unlisted entities

Reducing the burden on NCLT

Speeding up restructuring timelines without compromising creditor protection

It also balances operational convenience with oversight by excluding entities like Section 8 companies or listed subsidiaries from the process due to their unique compliance requirements.
Documentation and Procedure 
The procedural steps under Section 233 remain consistent with existing fast track merger processes, which include:

Board Resolutions from all participating companies.

Notices sent to the Registrar of Companies (RoC), Official Liquidator (OL), and other regulatory authorities.

Approval from shareholders and creditors, wherever required.

Non-objection from RoC and OL.

Submission to Regional Director (RD) along with all required documentation.

Issuance of confirmation order by RD upon satisfaction.

For the newly included categories, companies must also submit the auditor’s certificate verifying compliance with borrowing and default conditions (where applicable).
Implications for Indian Corporates
The new proposal is likely to benefit companies that meet the qualifying conditions in several ways:

Key points

Benefit

Time

Significantly shorter than NCLT-led mergers

Cost

Lower legal and administrative expenses

Regulatory Risk

Reduced exposure, subject to compliance with eligibility

Strategic Use

Enables rapid consolidation, operational realignment, and exit planning

Such flexibility is particularly important for private equity-backed firms, family-owned enterprises, and startup ecosystems where restructuring may be necessary to realign goals or prepare for investment rounds.
Categories Excluded from Fast Track Mergers
Despite broadening the scope, certain categories remain excluded:

Section 8 Companies: Due to their not-for-profit nature.

Listed Subsidiaries: To safeguard public shareholders’ interests.

Companies in default or with high borrowings: To ensure protection of lenders and financial institutions.

These exclusions preserve the safeguards built into India's company law and protect stakeholders who are not part of the transaction.
MCA Need Public Comments
Stakeholders are encouraged to submit their suggestions and feedback through the e-Consultation Module at www.mca.gov.in. The last date for submission is 05 May 2025.
Submission Requirements:

Comments must be submitted via the online platform only.

A brief justification must accompany each suggestion.

This consultation approach reflects the Ministry’s intention to gather industry perspectives and fine-tune the notification before final implementation.
Proposed Coverage Under Rule 25

Type of Company Combination

Included in Rule 25

Condition

Two small companies

Already included

No change

Holding and WOS

Already included

No change

Two or more startups

Included via 2021 amendment

No change

Startup + Small Company

Included via 2021 amendment

No change

Two or more unlisted cos (

New proposal

Requires auditor certificate

Holding (listed/unlisted) + Unlisted Subsidiary (non-WOS)

New proposal

Subsidiary must be unlisted

Fellow subsidiaries (unlisted)

New proposal

Same parent; all must be unlisted

Foreign Co. into Indian WOS

Being added into Rule 25

Already in Rule 25A(5)

The MCA’s draft amendment to Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 is a progressive step toward simplifying corporate restructuring procedures in India which reflects the government's commitment to improving the regulatory environment for business operations while maintaining financial discipline and transparency.
If adopted, the proposed changes will unlock significant efficiencies for unlisted companies, startups (DPIIT recognition), and corporate groups seeking internal realignments or group-level restructuring. Professionals working in corporate law, finance, and compliance should review the draft carefully and consider offering practical feedback to help shape the final version of the law.
https://www.mca.gov.in/bin/dms/getdocument?mds=Vl7V8BHbA7gmKAjfxzhiTw%253D%253D&type=open

The Ministry of Corporate Affairs (MCA) released a Public Notice on April 4, 2025, calling for feedback on proposed amendments to Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, draft need to expand the list of companies that can use the fast track merger process under Section 233 of the Companies Act, 2013, aligns with the 2025–26 Union Budget’s goal to simplify merger procedures and allow more businesses to restructure efficiently. This Compliance Calendar LLP article presents a detailed explanation of the proposed changes, including the purpose, categories of companies covered, and the implications of these revisions. The fast track merger process saves time and lowers legal MCA and other administrative expenses for eligible businesses. With the increasing need for structural flexibility, especially for startups and growing private companies, stakeholders have long recommended an expansion of this route.

Section 233 of the companies Act 20-13 provides a simplified procedure for mergers and amalgamations between specific types of companies. Unlike conventional mergers that require approval from the National Company Law Tribunal (NCLT), this section allows certain companies to complete mergers with the approval of the Central Government, through the Regional Directors (RDs). Currently, Section 233 is available only for:

Two or more small companies, or

A holding company and its wholly owned subsidiary

Highlights of Budget 2025–26 broaden the scope of fast track mergers

In the Union Budget 2025–26, paragraph 101 highlighted that the government intends to broaden the scope of fast track mergers. Following this, the MCA organized a post-budget seminar on March 4, 2025, to collect feedback. Input received during these discussions has shaped the draft amendment to Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 [CAA Rules].

Scope of Rule 25 and 2021 Amendment

Previously, Rule 25 ofCompanies (Compromises, Arrangements and Amalgamations) Rules, 2016 covered only small companies and wholly owned subsidiaries. In February 2021, it was extended to include:

(1A) A scheme of merger or amalgamation under Section 233 of the Act may be entered into between:

(i) Two or more start-up companies; or

(ii) One or more start-up companies and one or more small companies.

While this marked progress, it left out many practical business combinations, especially those involving unlisted companies and partially owned subsidiaries. The latest draft aims to address this by including additional categories.

Proposed Amendments to Rule 25

The MCA has now proposed to allow the following additional types of companies to use the fast track merger process:

1. Unlisted Companies with Low Borrowings and No Defaults

Eligibility Criteria: One or more unlisted companies (excluding Section 8 companies) may merge with other unlisted companies, provided:

Borrowings from banks, financial institutions, or corporate bodies are below Rs.50 crore.

There is no outstanding default on such borrowings.

An auditor’s certificate confirming the above is submitted with the application under Section 233(2).

Why it Matters: This change aims to facilitate combinations among companies with clean financial records and limited liabilities. It provides a faster route to restructure, especially for companies that do not pose credit risks.

2. Holding Company (Listed or Unlisted) with Its Unlisted Subsidiary (Not Wholly Owned)

Key Change:

The current scope covers only mergers between a holding company and its wholly owned subsidiary.
The proposed amendment allows mergers between a holding company (listed or unlisted) and its unlisted subsidiaries, even if they are not wholly owned.

Exclusion:

Listed subsidiaries are not included.

Impact: This will help larger business groups restructure ownership and operations more effectively by providing flexibility when the holding company does not hold 100% shares in the subsidiary.

Reference: The Company Law Committee (CLC) in its 2022 report recommended this change, acknowledging the demand for broader merger options within group structures.

3. Fellow Subsidiaries of the Same Holding Company (Unlisted Only)

New Addition:

Mergers between subsidiaries of the same holding company (fellow subsidiaries) are now proposed to be covered under the fast track route.

Conditions:

Only applicable if the companies involved are unlisted.

Significance: This will simplify intra-group mergers, helping groups consolidate similar operations or eliminate overlapping functions without unnecessary delays.

4. Foreign Holding Company Merging into Indian Wholly-Owned Subsidiary

Current Rule:

Rule 25A(5) already allows the merger of a foreign holding company with its Indian wholly owned subsidiary.

Proposed Change:

This clause will now be shifted into Rule 25 to provide a consolidated view of all permitted types of fast track mergers.

Why the Change: Incorporating this provision directly into Rule 25 improves clarity and ease of reference for users of the law.

Purpose of the Amendment

The proposed amendment aims to make the fast track merger route available to a wider range of corporate entities while still maintaining checks to avoid abuse of the process and this step aligns with broader objectives such as:

Simplifying reorganizations within corporate groups
Supporting startup company and unlisted entities
Reducing the burden on NCLT
Speeding up restructuring timelines without compromising creditor protection

It also balances operational convenience with oversight by excluding entities like Section 8 companies or listed subsidiaries from the process due to their unique compliance requirements.

Documentation and Procedure

The procedural steps under Section 233 remain consistent with existing fast track merger processes, which include:

Board Resolutions from all participating companies.
Notices sent to the Registrar of Companies (RoC), Official Liquidator (OL), and other regulatory authorities.
Approval from shareholders and creditors, wherever required.
Non-objection from RoC and OL.
Submission to Regional Director (RD) along with all required documentation.
Issuance of confirmation order by RD upon satisfaction.

For the newly included categories, companies must also submit the auditor’s certificate verifying compliance with borrowing and default conditions (where applicable).

Implications for Indian Corporates

The new proposal is likely to benefit companies that meet the qualifying conditions in several ways:

Key points	Benefit
Time	Significantly shorter than NCLT-led mergers
Cost	Lower legal and administrative expenses
Regulatory Risk	Reduced exposure, subject to compliance with eligibility
Strategic Use	Enables rapid consolidation, operational realignment, and exit planning

Categories Excluded from Fast Track Mergers

Despite broadening the scope, certain categories remain excluded:

Section 8 Companies: Due to their not-for-profit nature.
Listed Subsidiaries: To safeguard public shareholders’ interests.
Companies in default or with high borrowings: To ensure protection of lenders and financial institutions.

These exclusions preserve the safeguards built into India's company law and protect stakeholders who are not part of the transaction.

MCA Need Public Comments

Stakeholders are encouraged to submit their suggestions and feedback through the e-Consultation Module at www.mca.gov.in. The last date for submission is 05 May 2025.

Submission Requirements:

Comments must be submitted via the online platform only.
A brief justification must accompany each suggestion.

This consultation approach reflects the Ministry’s intention to gather industry perspectives and fine-tune the notification before final implementation.

Proposed Coverage Under Rule 25

Type of Company Combination	Included in Rule 25	Condition
Two small companies	Already included	No change
Holding and WOS	Already included	No change
Two or more startups	Included via 2021 amendment	No change
Startup + Small Company	Included via 2021 amendment	No change
Two or more unlisted cos (	New proposal	Requires auditor certificate
Holding (listed/unlisted) + Unlisted Subsidiary (non-WOS)	New proposal	Subsidiary must be unlisted
Fellow subsidiaries (unlisted)	New proposal	Same parent; all must be unlisted
Foreign Co. into Indian WOS	Being added into Rule 25	Already in Rule 25A(5)

If adopted, the proposed changes will unlock significant efficiencies for unlisted companies, startups (DPIIT recognition), and corporate groups seeking internal realignments or group-level restructuring. Professionals working in corporate law, finance, and compliance should review the draft carefully and consider offering practical feedback to help shape the final version of the law.

https://www.mca.gov.in/bin/dms/getdocument?mds=Vl7V8BHbA7gmKAjfxzhiTw%253D%253D&type=open