Introduction

Corporate restructurings have long been an integral part of the growth journey of business conglomerates. They have served as a catalyst in strengthening the Indian economy by enabling businesses to enhance efficiency and streamline operations as well as adapt to the dynamic market landscape. To ensure that such restructurings serve the interests of all stakeholders and receive proper regulatory scrutiny, the legal framework has steadily evolved. What was once the jurisdiction of the High Courts, transitioned to the National Company Law Tribunal (“NCLT”) and is now further streamlined, in certain specified cases, to the Central Government through the office of the Regional Director (“RD”).

The introduction of fast-track merger & demerger mechanism on 15 December 2016 under section 233 of the Companies Act, 2013 (the “Act”) marked a pivotal reform. This framework permitted specific categories of companies to obtain approval directly from the office of the RD instead of approaching NCLT, offering a faster and more cost-effective alternative.

Recognizing the need for a broader and more efficient pathway for restructuring, the Ministry of Corporate Affairs (“MCA”), through Notification G.S.R. 603(E) dated 4th September 2025, has expanded the ambit of fast-track mergers and demergers. This move has reinforced the MCA’s commitment to create a more responsive and business-friendly regulatory environment, one that balances speed and efficiency along with safeguarding stakeholders’ interests.

Importantly, this measure also aligns with the Government of India’s larger “Ease of Doing Business” initiative, which aims to simplify regulatory processes, reduce compliance burden, and foster a competitive environment for businesses to grow and innovate.


Framework Before Amendment‍

Section 233 read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“CAA Rules”), initially permitted mergers and demergers under fast-track route only between the following classes of companies:

(i) Two or more small companies[1]
(ii) Holding company and its wholly-owned subsidiary
(iii) Two or more start-up companies[2]
(iv) One or more start-up companies with one or more small companies

Unaddressed Issues

(i) Shareholder and Creditor Approval: The fast-track merger and demerger process requires approval from at least 90% in value of both members and creditors, of all the companies involved in the scheme. While this high threshold is intended to safeguard stakeholders’ interests, it often poses practical challenges in achieving consensus. Companies face increased administrative burden and, in many cases, are compelled to resort to the NCLT approval process under Sections 230–232 of the Act. The difficulty in obtaining the requisite consent from shareholders and creditors not only delays the regulatory timelines but also dilutes the very objective of the reform i.e. simplifying and expediting the process. While the amendment simplifies the corporate restructuring process, certain critical gaps remain that must be addressed to achieve its intended objectives:

(ii) Policy gap: A significant policy gap exists between the MCA framework and the Income- tax laws. The Income-tax Act, 1961 refers to demerger schemes under sections 391 to 394of the erstwhile Companies Act, 1956, while the Income-tax Act, 2025 recognises demerger schemes under sections 230 to 232 of the Act. Although demerger schemes can be implemented through the fast-track route under section 233 of the Act, tax neutrality is applicable only to demerger schemes sanctioned under sections 230 to 232 of the Act, excluding section 233 of the Act. The Select Committee[4] noted that the Ministry of Finance viewed the extension of tax neutrality to fast-track demergers as a policy shift, since these schemes are not court or tribunal-monitored and may pose valuation risks. This conflicting stance wherein MCA is promoting fast-track demergers, while Ministry of Finance denies corresponding tax benefits and thus creates uncertainty and weakens the reform’s intended objective.

(iii) Interplay with SEBI Regulations: Regulation 10(1)(d)(ii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) exempts acquisitions arising from schemes sanctioned by a court or tribunal. Since fast-track mergers and demergers under section 233 of the Act are approved by the RD, this exemption does not extend to them. Consequently, transactions involving listed entities may inadvertently trigger open offer obligations, compelling companies to resort to the NCLT route and undermining the utility of the fast-track mechanism. To bridge this gap, anamendment to the Takeover Code is necessary to explicitly extend the exemption to fast- track restructurings.

(iv) Demergers intended to create mirror shareholding: The fast-track route does not cover schemes involving consequential actions such as capital reduction alongside demerger, often required to create mirror shareholding structures. As section 233 of the Act excludes such cases, companies need to resort to the NCLT process under sections 230 to 232 of the Act. Amending section 233 of the Act to permit such schemes where capital reduction is merely consequential to the demerger would enhance the practical utility of the fast-track mechanism.


Conclusion

This amendment is a welcome reform that makes corporate restructuring faster, simpler, and more cost-efficient, while still preserving regulatory safeguards. The compressed timelines, strict eligibility criteria and high thresholds for shareholder and creditor approval necessitate proactive stakeholder engagement and meticulous documentations to meet compliance deadlines.

To unleash the full potential of the fast-track mechanism, it is imperative that the government and regulators address the unresolved gaps thereby, transforming this promising reform into a more practical and effective tool for India’s evolving corporate landscape.