Budget 2025 had stated that requirements and procedures for speedy approval of company mergers would be rationalised. Scope of fast-track mergers (FTMs) will be widened and the process made simpler. As a follow-up to the announcement, the corporate affairs ministry issued a public notice last month containing a draft notification amending Companies (Compromises, Arrangements & Amalgamations) Rules 2016, proposing inclusion of more classes of companies for FTMs.

This is a welcome step. While the aim is to expand the scope of companies that can avail of FTMs, the fast-track route (FTR) itself can be further simplified. GoI proposes to expand the scope of 3 existing categories of FTMs:

of two or more startups,

of one or more startups with one or more small companies, and

between a holding company and its wholly-owned subsidiary,

by adding 4 other classes of companies that can avail of FTR:

Unlisted company with another unlisted company (where neither is a not- for-profit company), both companies having individual borrowings of less than ₹50 cr and have not defaulted on repayment of such borrowings.

Holding company (listed or unlisted) and one or more unlisted subsidiary company/companies. Coverage is to include 'subsidiary' company, and not just 'wholly-owned subsidiary', which is so far the case. Such a subsidiary, though, has to be an unlisted company.

Merger of fellow subsidiaries of the same holding company where the merging transferor company isn't a listed company. It's proposed to cover only unlisted fellow subsidiaries under this category.

Merger of a foreign company (a company incorporated overseas) with its wholly-owned subsidiary in India, thereby enabling reverse-flipping, or promoting Indian ownership of assets, instead of foreign ownership.

In the case of a subsidiary merging with a parent company, the latter can be listed but the subsidiary cannot. If the restriction on subsidiary being 'wholly-owned' is proposed to be removed, listed subsidiary should be considered for inclusion. Also, in the case of fellow subsidiaries, they need to be unlisted.

While it's good to see that merger between fellow subsidiaries belonging to the same group will get the benefit of FTR, this benefit is restricted if any subsidiary is listed. While listed entities will have greater public interest, as long as they are subsidiaries of a listed entity, such interest will be protected when they merge with a publicly-listed parent being subjected to higher degree of scrutiny.

Presently, FTR entails several steps:

Giving notice of proposed scheme of merger to registrar and official liquidator.

Seeking their comments and objections.

Seeking requisite approval of shareholders and creditors to the scheme where the threshold prescribed is higher than in non-FTMs.

Filing of certificate of solvency with registrar.

Filing approved scheme with GoI, registrar and official liquidator.

If there are no objections by these two authorities, GoI will register the scheme and issue an intimation to the companies. But if there are objections, the scheme is referred to the regional director, who may still confirm the scheme after considering the objections.

If the regional director has objections that the scheme is not in public interest, or in the interest of creditors, it will refer the matter to NCLT. Then the process before NCLT is followed, which means one virtually comes out of FTR.

The current procedure under FTR can take up to 90-120 days. Ideally, once shareholders and creditors have approved of the scheme, it should be registered, with GoI having the power to modify it at a later date.

Second, FTR does not cover all types of demergers. The latter are commonly deployed to restructure, to provide sharper focus to a business line, reduce costs, etc. FTR should be extended to 'mirror demergers' by listed entities where a division of the listed entity is hived off into another listed company with shareholders receiving equal shares in the new listed entity.

For mergers other than FTMs as well, GoI should consider easing the process. Presently, two NCLTs have to approve the scheme if the registered office of the merging company and the resultant company are in two different states. This entails avoidable delays. Only NCLT that has jurisdiction over the company, which is going to merge and lose its legal existence, should sanction the scheme. The resultant company can be investigated later if there is any post-merger concern. This will help hasten the process and unclog NCLTs.

Mergers are an important instrument of economic activity. Growth of industry through inorganic means will play an important role in India's economic growth story. We should take all steps to further simplify the process, and keep reviewing company categories for FTR inclusion.

The writer is adviser, HUL