Yesterday, the MCA significantly broadened the scope of fast-track mergers and demergers under section 233 of the Companies Act, 2013, extending it beyond small companies and start-ups to now cover unlisted companies up to prescribed borrowing limits, intra-group mergers (even where not wholly-owned), fellow subsidiaries, foreign parent mergers into Indian subsidiaries, and, importantly, even demergers.
While this is a welcome step to unclog the NCLT and simplify corporate restructuring, the framework throws up some critical issues that remain unanswered:
(a) 90% Approval Requirement: Section 233 requires approval by 90% in number of shareholders and creditors. This threshold, though manageable for closely-held entities, could be a deal-breaker for widely held or listed companies with dispersed ownership or numerous creditors.
(b) Income-tax Act (2025): Section 2(35) defines a demerger but restricts it to those sanctioned under sections 230–232. Schemes confirmed under section 233 are not covered, raising doubts on tax neutrality for fast-track demergers.
(c) SEBI Takeover Code: Regulation 10(1)(d)(ii) exempts acquisitions only where there is a scheme “pursuant to an order of a court or tribunal”. If a holding company or promoter group companies merge with a listed company under section 233, this exemption does not technically apply, potentially triggering open offer obligations, and therefore, requiring NCLT approval.
(d) SEBI LODR – Regulation 37: This regulation requires prior SEBI approval for schemes “proposed to be filed before any Court or Tribunal under sections 230–234”. While section 233 is referenced, the language does not extend to confirmation by “any other competent authority”. For listed entities, this gap could be blunt the efficacy of fast track mergers.
(e) Mirror-Image Demergers: Section 233 covers only mergers of a holding company and its WOS, under which RDs had earlier allowed mirror-image demergers (parent hiving off into WOS). Now, while the Rules extend to demergers, the section itself still says “merger”, and listed companies are barred as transferors. Reading the two together, mirror-image demergers through a WOS may not be possible.
(f) Stamp Duty: Some states (e.g., Gujarat, Maharashtra) extend concessional stamp duty on mergers approved by the Central Government as well as the Tribunal. Others only refer to a “Tribunal order”. Since section 233 leads to a confirmation and not strictly an order, the question is whether lower stamp duty benefits truly.
The expanded fast-track route is a major reform. However, unless aligned with tax, SEBI, and stamp duty frameworks, its real utility for larger or listed companies may remain limited