The Centre may consider eliminating mandatory approval from the company law court in the merger and demerger of local listed firms, two people aware of the discussions in said, over eight years after it allowed the leeway for certain types of companies. The move could reduce the burden on the National Company Law Tribunal (NCLT) benches and speed up the process, potentially reshaping the country’s mergers and acquisitions (M&A) landscape.
“Multiple ministries are discussing ways to expedite amalgamations, particularly for listed companies. They are also considering whether approval requirements from the NCLT should be included in this process,” one of the two people cited above said on the condition of anonymity.
In her budget speech on Saturday, finance minister Nirmala Sitharaman said the government aims to streamline India’s M&A process, making it faster and more efficient.
An email sent to ministry of corporate affairs remained unanswered.
To be sure, the government in December, 2016 allowed fast-track mergers between a holding company and its wholly owned subsidiaries, two or more small companies, two or more startup companies, or a startup company and a small company. This allowed mergers to proceed with approvals from Centre and the MCA’s regional director unless public interest or interest of creditors is involved. Prior to this, all kinds of mergers required NCLT approval.
Government officials are discussing to allow listed firms to skip the NCLT process if the merger or demerger is cleared by financial sector regulators, shareholders, creditors and CCI, the people cited above said on the condition of anonymity.
NCLT benches examine share swap ratios, valuation methods and the treatment of creditors and shareholders. Since mergers involve assets and liabilities, the tribunal essentially analyses the deal’s fairness in terms of creditors’ dues, payable taxes and the treatment with management. According to Smruti Shah, a partner at Cyril Amarchand Mangaldas, NCLT’s M&A approvals often take as much as 10 months.
Several large listed companies are currently working on demergers. On 22 January, Hindustan Unilever Ltd approved the demerger of its ice cream business into a separate listed entity, Kwality Wall’s (India) Ltd. Tata Motors is working on a proposal to demerge its electric vehicle business, while Adani Group is planning to demerge its airport business.
Currently, every merger involving a public company requires approval by a majority of each class of shareholders and creditors (in terms of number and value) before the proposal is sent for NCLT approval. Additionally, banking and stock market regulators, a well as stock exchanges must approve the merger proposal.
“NCLT approval can be completely done away with,” said Abizer Diwanji, founder, NeoStrat Advisors LLP. “For the tax authority’s approval of fairness, a report on the merger proposal can be sent directly to the income tax department and under the advance ruling mechanism an approval can be sought faster. For dealing with credit related matters, a meeting of both secured and unsecured creditors can happen and a report can be submitted to the regulators or a court. But court approvals are a hindrance. Mere filings should comply. If there are objections, courts can arbitrate,” Diwanji said.
Legal experts and M&A professionals have long advocated for easing the approval process.
The head of M&A at a large foreign investment bank said, “The tribunal delay, either due to complaints or fairness reports, often unfairly stalls mergers. Let regulators and stakeholders decide the fairness, and if there is any legal dispute by unsecured lenders, it can be dealt with separately through the framework meant for credit defaults. Delay at NCLT and CCI often exposes shares of related companies to market manipulation and volatility.”
Santosh Gangavati, leader for corporate and regulatory practice at Nishith Desai Associates, agreed. “If mergers and demergers are not against the public interest, the decision-making process should primarily be left to shareholders and creditors.”
Speedy approvals could also benefit conglomerates looking to restructure operations. “Group restructuring, particularly involving large conglomerates or multinational corporations, will see faster approvals, reducing the complexity of corporate restructuring,” said Tine Abraham, partner for dispute resolution and Arbitration at Trilegal. Anil Agarwal-led Vedanta Ltd is currently awaiting NCLT approval to demerge into five separate listed entities as part of a group restructuring.
Experts said the proposed amendments in the Companies Act may also address growing concerns over the swelling backlog of cases at NCLT. As of August 2024, NCLT had a backlog of 19,969 cases as per the Standing Committee report on Finance of December 2024.
“Schemes of arrangements have traditionally been treated by the NCLTs as being ‘less urgent’ as compared to insolvency proceedings,” Abhishek Sanyal, partner at Economic Laws Practice said.
A simpler, more efficient approval process would allow NCLT to focus on more critical cases, such as insolvency proceedings, lawyers said.
“Often, during the structuring of transactions, the scheme of arrangement—despite being tax-efficient in certain cases—is not selected due to the extended lead times involved,” Sidharrth Shankar, partner at JSA Advocates & Solicitors, said, hoping the proposed amendment would cure this.
“In countries like the US, the approval timelines are much shorter, which encourages faster deal-making and reduces paperwork,” said Kalpesh Maroo, partner and head of M&A and PE tax at KPMG.
