MCA Expands Fast-Track Merger and Demerger Framework for Unlisted Companies

The Ministry of Corporate Affairs has significantly expanded the scope of the fast-track merger and demerger framework under the Companies Act, 2013 by amending the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The amendment, notified on September 4, 2025, widens the categories of companies eligible for fast-track mergers and, for the first time, explicitly extends the fast-track route to demergers. This reform is expected to reduce the burden on the National Company Law Tribunal by channelling a larger volume of corporate restructurings through the faster administrative approval route under Section 233 of the Companies Act.

What Changed Under the Amendment

Before the amendment, the fast-track merger route under Section 233 was available only in limited circumstances: mergers between a holding company and its wholly-owned subsidiary, and mergers between two or more small companies. The September 2025 amendment expands this to include three additional categories. First, two or more unlisted companies (other than Section 8 companies) may now merge through the fast-track route, provided their aggregate outstanding loans, debentures, or deposits do not exceed Rs 200 crore and they have no default in repayment. Second, a holding company and its subsidiary can use the fast-track route even if the subsidiary is not wholly-owned, removing the earlier limitation that restricted this to wholly-owned subsidiaries only. The only restriction is that the transferor company cannot be a listed company. Third, two or more subsidiaries of the same holding company can merge through the fast-track route, again subject to the condition that the transferor is not listed.

Demergers Now Covered Explicitly

A particularly important clarification in the amendment is that the fast-track provisions shall apply to demergers as well. Before this amendment, there was interpretational ambiguity about whether the fast-track route under Section 233 could be used for demergers or only for mergers and amalgamations. The Rules now explicitly state that these provisions apply to demergers, removing any doubt and opening the fast-track route for corporate restructurings that involve splitting a company's business lines rather than combining them. This is particularly useful for group reorganisations where a company wishes to hive off a division or business vertical into a separate entity without going through the full NCLT scheme process.

Financial Thresholds and Compliance Requirements

The amendment introduces a financial threshold for unlisted companies seeking to use the fast-track route. The aggregate outstanding debt of the merging companies, including loans, debentures, and deposits, must not exceed Rs 200 crore, and there must be no default in repayment. To verify compliance with this condition, companies must submit an auditor's certificate in the newly prescribed Form CAA-10A confirming that they meet the financial eligibility criteria. This ensures that only companies with manageable and performing debt levels can avail of the expedited process.

The fast-track process itself remains significantly simpler than the full NCLT scheme. Instead of filing an application before the NCLT and attending multiple hearings, the companies file the scheme with the Central Government (through the Regional Director) and the Registrar of Companies. If no objection is received from any stakeholder or regulatory authority within the prescribed period, the scheme is deemed approved. The entire process can be completed in a matter of weeks compared to the months or even years that an NCLT-approved scheme can take.

Impact on NCLT Workload and Corporate Restructuring

One of the primary motivations behind this amendment is the severe pendency at the NCLT. The tribunals are already overburdened with insolvency matters under the IBC, and merger and demerger applications under Sections 230 to 232 add to the backlog. By expanding the fast-track route, the MCA is channelling a significant category of non-contentious restructurings away from the NCLT and into an administrative approval process that is faster and requires fewer judicial resources. This benefits not only the companies undertaking the restructuring but also other litigants whose NCLT matters are delayed by the overall backlog.

Practical Takeaways

Unlisted companies planning mergers or demergers should first assess whether they qualify for the fast-track route under the amended rules. If the aggregate debt is within Rs 200 crore and there are no defaults, the fast-track process can save significant time and cost. Companies that were previously required to go through the NCLT for subsidiary mergers because the subsidiary was not wholly-owned should reassess their options, as the removal of the wholly-owned requirement opens the fast-track route to a much wider set of holding-subsidiary restructurings. Chartered accountants and company secretaries should familiarise themselves with Form CAA-10A, as the auditor's certificate is now a mandatory filing for fast-track mergers involving unlisted companies. For group restructurings involving demergers, the explicit coverage of demergers under the fast-track route eliminates the need to approach the NCLT, provided all eligibility conditions are met.