Merger through fast-track route: Wider gate, narrow passage

At the current juncture, where India’s growth trajectory and the forecasts in this regard are a subject of global praise and envy at once, the agility and dynamism of the corporate ecosystem are not optional, but an unavoidable necessity. Fuelled by the outlook and comfort generated in the market by India, including most recently as a GCC hub, the Centre has been consistently pushing India as a “corporate haven”. Union finance minister Nirmala Sitharaman alluded to the same in her last budget speech while announcing measures to rationalise and broaden the ambit of fast-track mergers with a view to expediting strategic consolidation efforts. 

The fast-track route to undertake mergers was introduced a few years ago to provide a quicker alternative mechanism for merging entities to escape the time-consuming process driven by the National Company Law Tribunal (NCLT), and instead achieve the same through approvals from the relevant regional director appointed by the ministry of corporate affairs. Until recently, this route was restricted to small companies, start-ups, and wholly owned subsidiaries of Indian companies, as well as inbound mergers involving Indian wholly owned subsidiaries of foreign companies. 

A recent amendment to the rules has widened the scope by providing for new categories of companies eligible to undertake mergers through the fast-track route. Any configuration of group entities can now seek a merger under this expedited route if the transferor entities in such mergers are not listed entities. Not only within a group, but the amendment also extends the option of fast-track merger to unrelated unlisted entities, subject to certain eligibility conditions being met. Additionally, to put an end to certain interpretational issues around inbound mergers, the provision on inbound mergers is now expressly integrated into the primary rule on fast-track mergers, bringing coherence to the statutory scheme by making it comprehensive and self-contained. 

Corporate restructuring, especially within larger groups, is a commonly resorted-to method to realign core competencies, create synergy, and become more adept at changing market needs. Long gestation periods for implementation often reduce the efficacy, or sometimes even defeat the objective of restructuring. Extending the flexibility of opting for a faster route to merge with unlisted entities is intended to provide momentum to dealmaking among private companies and allow entities to achieve business efficiencies by combining market share or expanding operational scale. Thus, eligible entities can realistically consider a merger as a meaningfully viable alternative to the usual methods of deal consummation, hampered as it were otherwise, owing to the significant time constraints at the NCLT. 

Added clarity on inbound mergers is also appreciated, as reverse-flipping continues to gain momentum even while domestic exits remain tepid. Among the various obvious driving factors, which collectively tilt the calculus towards India, such as the conduciveness of the Indian labour markets and continued government thrust on incentives, another increasingly common but valid factor is the renewed inclination of regulators to grant licences/permission to Indian applicants in emerging sectors. 

Yet, while the amendment is welcome, it may still fall short on flexibility, owing to the steep thresholds prescribed for shareholder and creditor approvals. Currently, a company seeking a fast-track merger must secure the consent of members holding 90% of the total shares, and approvals from creditors representing 90% of the total value of its debt. If these thresholds are not met, the merging parties cannot avail the fast-track route, even if the merger is demonstrably not prejudicial to any class of members or creditors. Such rigidity risks undermining the very objective of a streamlined process, particularly in widely held or credit-intensive entities where unanimity is inherently difficult to marshal. 

There is an additional, practical hurdle. Although the framework contemplates deemed approval in certain circumstances, giving effect to a scheme without a formal confirmation order from the regional director remains exceedingly difficult. For fast-track mergers, certain critical steps, such as transfer of assets and liabilities and dissolution of the transferor entity, attain legal effect only upon registration of the confirmation order with the Registrar of Companies. Therefore, while deemed consent may offer a measure of comfort on paper, it may not shrink timelines in practice if a positive confirmation order is not issued by the regional director within the stipulated period, leaving companies in a procedural limbo that the fast-track regime was supposed to eliminate. 

It also bears noting that, even as the pool of eligible entities has been materially extended, the promised simplification of the procedural architecture is yet to be fully realised. Notably, the recommendations of the 2022 report of the company law committee have been substantially adopted in the recent amendments, but lighter-touch provisions on shareholder and creditor consent, aligned with international practice, have been excluded presumably to protect creditors and minority investors in the absence of NCLT’s rigorous oversight. 

Given the constraining effect of the thresholds, the committee’s proposals merit calibrated adoption to ensure that genuine, non-prejudicial transactions are not stranded by disproportionate approval hurdles. Equally important is greater certainty around the registration pathway in cases where consent from the regional director is deemed. More clarity around these aspects would translate stated intent into actionable execution. 

To  sum up, the government has opened the gate wider by expanding eligibility and recognising contemporary corporate realities, including group reorganisation and the consolidation needs of unlisted peers. The next step is to widen the passage itself: recalibrate approval thresholds to a more workable level, operationalise deemed approvals with clear, time-bound registration protocols, and give companies the confidence that an expedited route will, in fact, be expeditious. Only then will the fast-track merger framework deliver on its stated promise, and India will continue its meaningful progress up the charts in “ease of doing business”. 

Views are personal. Thanks is partner, Shardul Amarchand Mangaldas & Co. Shraddha Suryavanshi, principal associate, Shardul Amarchand Mangaldas & Co, and Ananya Saria, associate, Shardul Amarchand Mangaldas & Co, also contributed to this article.