As a potential game-changer for mergers and acquisitions (M&A) activity, theBudget has outlined plans to streamline requirements and procedures for faster company merger approvals.

Union Finance and Corporate Affairs Minister Nirmala Sitharaman, in her Budget speech, announced on Saturday that the government will simplify the merger process and expand the scope of fast-track mergers. These measures are part of a broader overhaul of the M&A framework to facilitate seamless corporate restructuring.

The initiative aligns with the government’s vision of fostering a business-friendly regulatory environment, ensuring that mergers and acquisitions happen at “digital speed” to match evolving market dynamics.

According to official sources, foreign investors and companies seeking acquisitions in India have often faced prolonged approval timelines, sometimes stretching over years. Even within India, domestic mergers, demergers, and restructurings have encountered delays, underscoring the need for predictable timelines and a more efficient approval mechanism.

To address these challenges, the government is considering significant amendments to the Companies Act, 2013. These changes aim to:

   •   Simplify and accelerate merger, amalgamation, and demerger procedures.

   •   Reduce procedural bottlenecks for corporate restructuring.

   •   Rationalise the jurisdiction of the National Company Law Tribunal (NCLT) to expedite approvals.

Cabinet Secretary TV Somanathan recently sought input from various ministries on proposed reforms to enhance efficiency, particularly for mergers involving listed and unlisted entities. The proposals, shaped by industry feedback, focus on:

   •  Mergers between two listed entities.

   •  Mergers between a listed entity and an unlisted entity.

   •  Expanding the scope of the Fast-Track Merger (FTR) route.

A key reform under consideration is limiting transactional jurisdiction to a single NCLT, a move aimed at decongesting the tribunal system and ensuring quicker resolution of merger-related approvals.

With these proposed changes, India’s M&A landscape is set for a major transformation, creating a more predictable and investor-friendly regulatory framework.

Expanding the Fast-Track Merger (FTR) Framework

Currently, the Fast-Track Route (FTR) under Section 233 of the Companies Act, 2013, applies only to mergers involving:

   •   Two or more small companies.

   •   Wholly owned subsidiaries and their holding companies.

   •   Two or more start-ups.

   •   One or more start-ups merging with one or more small companies.

The proposed reforms aim to expand FTR coverage to include mergers between any two unlisted entities. Additionally, the scope will be extended to cover ‘mirror demergers’—a widely used restructuring tool in global markets.

While fast execution is critical to unlocking these benefits, the current FTR framework excludes listed entities, limiting their ability to carry out such restructurings efficiently. Expanding FTR to include mirror demergers will provide listed companies with a quicker, more predictable restructuring mechanism.

New Shareholder Approval Mechanism

As recommended by the Company Law Committee Report (2022), the stringent 90 per cent shareholder approval requirement under the current FTR will be replaced by a twin-test mechanism:

1. Approval by a majority of shareholders present and voting, representing at least 75 per cent in value of those present.

2. Approval from shareholders holding more than 50 per cent in value of the total shares of the company.

This revised approval structure will strike a balance between efficiency and minority shareholder protection, making the process more practical and robust.

Jurisdictional Streamlining for Listed Entity Mergers

For mergers involving two listed entities, the government proposes a jurisdictional shift to simplify approvals. Under the proposed framework, once shareholders and creditors approve the merger, the case will be handled only by the NCLT of the Transferor Company.

This eliminates duplicative approvals from multiple tribunals, expediting the process and ensuring faster legal clearances.

Easing Mergers Between Listed and Unlisted Entities

Currently, mergers involving a listed and an unlisted entity require separate approvals from multiple NCLTs based on their respective jurisdictions. The proposal suggests that approval from the NCLT handling the listed company should suffice.

This will reduce procedural delays by minimising tribunal involvement; maintain regulatory oversight while ensuring efficiency.

Addressing India’s Lengthy M&A Approval Process

Mergers and acquisitions (M&As) are a key strategic tool for Indian businesses, yet India’s legal framework remains heavily court-driven, unlike the court-free merger systems in the UK or Singapore.

Currently, companies undergoing mergers must:

   •   Draft a Scheme of Arrangement and secure NCLT approval from their respective jurisdictions.

   •   If a listed entity is involved, obtain a No Objection Certificate (NOC) from the stock exchange.

By reducing procedural bottlenecks and aligning India’s M&A framework with global best practices, these reforms aim to create a faster, more predictable corporate restructuring environment—crucial for attracting investment and sustaining business growth, economy watchers said.

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