Mergers and Amalgamations Under the Companies Act

In India, a merger or amalgamation of companies is carried out through a scheme of arrangement under sections 230 to 234 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The normal route needs approval of three-fourths in value of the creditors or members who vote, followed by sanction from the National Company Law Tribunal, while small companies, start-ups and certain group companies can use the faster section 233 route before the Regional Director.

This note is written for B.A. LL.B. and LL.B. students preparing for company law papers, and for readers who want to understand what happens when the company they work for, lend to or hold shares in is merged into another. The law changed in September 2025, so older notes may be out of date.

Which law governs mergers today?

The core provisions sit in Chapter XV of the Companies Act, 2013:

• Section 230: the power to make a compromise or arrangement with creditors and members.
• Section 232: the extra requirements when that arrangement is a merger, amalgamation or division.
• Section 233: the simplified (fast track) merger for notified classes of companies.
• Section 234: mergers between Indian companies and foreign companies.

The procedure is in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, often called the CAA Rules, which have been amended several times, most recently by amendment rules dated 4 September 2025. Section 232 came into force on 15 December 2016. If you read an older judgment that mentions sections 391 to 394, that is the Companies Act, 1956, and you should use it only as a pointer to the corresponding 2013 provision.

How does the regular route under sections 230 and 232 work?

Picture two private companies in Tirunelveli, one making cashew products and one packaging them, that want to become a single company. The broad steps are:

1. Board approval and draft scheme. The directors adopt a draft scheme and file it with the Registrar.
2. Application to the Tribunal. An application under section 230(1) is filed with the NCLT. The CAA Rules prescribe a fee of Rs. 5,000 for this application under Rule 3, but confirm the current figure before filing.
3. Meetings ordered. The Tribunal may order meetings of creditors and members. The notice must go out at least one month before the meeting and must carry the documents listed in section 232(2): the draft scheme, the directors' report on its effect on each class of shareholders and on key managerial personnel, the valuation report if any, and a supplementary accounting statement where the last annual accounts are more than six months old.
4. Notice to authorities. Under section 230(5), notice goes to bodies such as the Central Government, income tax authorities, the Registrar and sectoral regulators, who have thirty days to make representations.
5. Voting. The scheme must be agreed by a majority of persons representing three-fourths in value of the creditors or members (or the class) voting, under section 230(6).
6. Sanction. The Tribunal sanctions the scheme only after an auditor's certificate confirms that the accounting treatment follows the accounting standards under section 133.
7. Filing. A certified copy of the order goes to the Registrar within thirty days, and an annual compliance statement in Form CAA.8 is filed until the scheme is fully carried out. Rule 21 gives 210 days from the end of each financial year for this filing.

Two thresholds are popular with examiners. Objections to a scheme can be raised only by persons holding at least 10 per cent of the shareholding or creditors whose debt is at least 5 per cent of the total outstanding debt (proviso to section 230(4)). The Tribunal may also dispense with a creditors' meeting where creditors holding at least 90 per cent in value agree to the scheme by affidavit (section 230(9)).

What does the sanction order actually do?

Section 232(3) lists what the Tribunal's order may provide for. The main effects are that the property and liabilities of the transferor company pass to the transferee, pending legal proceedings continue against the transferee, employees are transferred, and the transferor is dissolved without winding up. Shares the transferee would end up holding in itself are cancelled. Every scheme must state an appointed date, and under section 232(6) it takes effect from that date. The Explanation to section 232 also defines merger by absorption, merger by formation of a new company, and division.

What is a fast track merger under section 233?

Section 233 lets certain companies merge without going to the Tribunal at all. The scheme is sent in Form CAA.9 to the Registrar and the Official Liquidator, who have thirty days to object. Each company files a declaration of solvency, the scheme is approved by members holding at least 90 per cent of the total number of shares and by creditors representing nine-tenths in value, and the transferee then files the scheme with the Regional Director. The Central Government's powers here are delegated to Regional Directors, including one at Chennai. If the Regional Director sees a public interest or creditor concern, the matter can be referred to the Tribunal within sixty days. If no confirmation order is issued in that period, the scheme is treated as approved.

The amendment rules of 4 September 2025 widened the eligible classes under Rule 25(1A). They now include, among others, start-ups merging with each other or with a small company, unlisted companies whose outstanding loans, debentures and deposits do not exceed Rs. 200 crore each with no default, a holding company and its subsidiary (where the transferor is not listed), and unlisted subsidiaries of the same holding company. Because these details change, always read the current Rule 25 before relying on a list from a guide book.

Can an Indian company merge with a foreign company?

Yes. Section 234, in force from 13 April 2017, allows inbound and outbound mergers with the prior approval of the Reserve Bank of India. Shareholders of the merging company can be paid in cash, depository receipts or both. Rule 25A of the CAA Rules limits outbound mergers to jurisdictions that meet the conditions in Annexure B, and since 2022 a company from a country sharing a land border with India must file Form CAA-16.

How should you write about this in an exam?

A student in Nagercoil facing a ten-mark question on amalgamation can score well with a simple structure:

1. Define the terms using the Explanation to section 232.
2. Set out the procedure under sections 230 and 232 step by step, quoting the three-fourths majority, the 10 per cent and 5 per cent objection thresholds and the thirty-day windows.
3. Contrast the fast track route under section 233, mentioning the 2025 expansion of eligible companies.
4. Add a line on section 234 and RBI approval.
5. Explain the limited role of the Tribunal: it checks procedural compliance and fairness, not the commercial wisdom of the decision taken by the required majority. Support this with the leading Supreme Court decision on scheme sanction from your prescribed casebook, citing it exactly as your textbook does.

If you want practical exposure to how companies and small traders deal with these issues, the college legal aid clinic is a good place to start.

Sources

• India Code, Companies Act, 2013: official listing of rules under the Act, including the CAA Rules, 2016 and amendments up to 2023.
• Section 230 with CAA Rules (ca2013.com): annotated text of section 230 with the related rules and fee.
• Section 232 with CAA Rules (ca2013.com): annotated text of the merger and amalgamation provisions.
• Section 233 with Rule 25 (ca2013.com): fast track merger text including the 2025 amendments.
• Section 234 with Rule 25A (ca2013.com): cross-border merger provisions.