Mergers and acquisitions in India: the legal process for startups
Authored by - Adv. Pranay Sawant, Senior Executive at Outsource360 The letter of intent ran to four pages, and the founders signed it the same week it arrived. It said the buyer would acquire one hundred per cent of the share capital for a number everyone was happy with, subject to due diligence, definitive documentation and "customary regulatory approvals". Nobody at the company had asked which approvals those were.
Five things surfaced over the next eleven weeks, and four of them moved the price.
The company had Rs 31 crore of carried-forward business losses, and the buyer's tax team had put a value on them in the offer. Then somebody read section 119(3) of the Income-tax Act, 2025. It stops a company in which the public are not substantially interested from carrying forward a loss unless shareholders holding at least 51 per cent of the voting power on the last day of the loss year still hold at least 51 per cent on the last day of the current year.
A sale of the whole company fails that test on the day it closes. There is a relaxation for an eligible start-up in section 119(3)(b), and it requires all the shareholders who held voting shares in the loss year to continue holding them, which a full exit defeats by definition. The losses were worth nothing to the buyer, and the price came down.
Forty-one employees held vested options. The scheme document said nothing about what happened to them on a change of control, because the template it had been copied from assumed an initial public offering. The buyer would not close with an unresolved option pool sitting on the cap table, so the company had to decide, in three weeks, whether to accelerate, cash out or roll over, and then explain to forty-one people why exercising created a tax bill on shares that were being sold the same afternoon.
The buyer, a US corporation, wanted thirty per cent of the consideration held back for three years against indemnity claims. Rule 9(6) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 allows a person resident outside India to defer, hold back or escrow not more than twenty-five per cent of the total consideration, for not more than eighteen months from the execution of the principal transaction documents. The escrow had to be rebuilt.
Nobody had checked the Competition Commission of India. Revenue was Rs 22 crore, so the founders assumed the small-target exemption applied. The deal value was Rs 2,180 crore, and a deal above Rs 2,000 crore for a target with substantial business operations in India has to be notified whatever the target's size.
And the thing the letter of intent described as a merger was not a merger. It was a share purchase. No tribunal, no scheme, no appointed date, and none of the tax neutrality the founders had read about in articles written about a completely different structure.
None of that is exotic. It is the ordinary distance between what a founder thinks an acquisition is and what Indian law treats it as, and almost all of it is cheaper to fix before a term sheet is signed than after.
Mergers and acquisitions in India run on three structures and one approval spine. A share purchase transfers ownership by contract, settles on a stock transfer form, and needs no tribunal. A slump sale transfers a business as a going concern for a lump sum, defined in section 2(103) of the Income-tax Act, 2025. A merger or amalgamation under sections 230 to 232 of the Companies Act, 2013 needs a National Company Law Tribunal order, or a Regional Director order if the deal fits the fast-track route in section 233. Most startup deals are the first. The approvals that actually bite are competition, exchange control and tax.
What follows is the sequence in the order it runs: what each structure is and when to use it, what a term sheet binds you to before a price is agreed, what diligence opens and what usually breaks in it, what happens to the option pool, which approvals apply, the tribunal route step by step, what the September 2025 amendment did to fast-track mergers, the cross-border position in both directions, the tax that moves the price, what transfers with the employees, the stamp duty nobody budgets, and the filings in the ninety days after closing.
On this page
The three structures, and why startups almost never merge
The deal timeline, in the order it actually runs
The term sheet: what binds you before anyone agrees a price
Due diligence: what the buyer opens, and what usually breaks
What happens to the option pool when the company is acquired
The approvals, and which ones actually bite
The tribunal route under sections 230 to 232, step by step
Fast-track mergers: what changed in September 2025
Cross-border deals and the reverse flip
Tax: the part of the deal that moves the price
Employees: what transfers, and what has to be re-papered
Stamp duty, fees and the costs that are not in the term sheet
Closing, and the ninety days after it
Two boundaries. This article is about buying or selling an operating Indian company. If the exit you are contemplating is closure rather than a sale, winding up or closing a company in India covers that route. And if you are raising rather than selling, the startup funding round compliance checklist covers subscription agreements and shareholder rights, several of which decide what you are able to agree to here.
The three structures, and why startups almost never merge
Ask a founder how the company got acquired and the answer is usually "we merged with them". Ask the company secretary and the answer is a share purchase agreement, a set of stock transfer forms and a board resolution. The gap matters, because the three structures have different approval requirements, different tax outcomes and different timelines, and picking the wrong one costs months.
Share purchase: the default, and the reason for it
In a share purchase, the buyer acquires shares from existing shareholders. The company itself does not change. Its contracts, licences, employees, litigation and liabilities all stay exactly where they are, because the legal person holding them has not moved.
There is no tribunal in this route. The mechanics are a share purchase agreement, a duly stamped share transfer form SH-4 for each transfer, board approval of the transfer, entry in the register of members, and issue of the share certificate or a depository instruction. For an unlisted private company the articles almost always carry pre-emption rights and transfer restrictions, so the first document a lawyer reads is not the term sheet but the articles and the existing shareholders agreement.
The reason this is the default for startups is speed and the absence of a public process. A scheme of arrangement is advertised, served on seven regulators and heard in open court. A share purchase is a private contract. For a company that has customers, a hiring pipeline and competitors, that difference is worth a great deal.
The cost of the default is that the buyer inherits everything, known and unknown. That is why the indemnity package in a share purchase agreement is longer than the commercial terms, and why diligence is done properly or not at all.
Asset purchase and slump sale: buying the business without the company
Where a buyer wants the product, the team and the customer contracts but not the corporate history, it buys assets rather than shares. If what is transferred is an entire undertaking, sold as a going concern for a lump sum with no values assigned to individual assets and liabilities, it is a slump sale.
Section 2(103)(a) of the Income-tax Act, 2025 defines a slump sale as the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities. "Undertaking" takes its meaning from section 2(35)(i): any part of an undertaking, a unit or division, or a business activity taken as a whole, but not individual assets or liabilities that do not constitute a business activity. Assigning values solely to compute stamp duty or registration fees does not break the lump-sum character.
That definition does real work. A buyer that wants to cherry-pick three engineers and a codebase is not buying an undertaking, and the transaction is an ordinary asset sale taxed asset by asset. A buyer taking a whole product line with its people, contracts and revenue is buying an undertaking, and section 77 applies.
The practical difficulty with an asset route is consent. Every customer contract with an assignment or change-of-control clause needs a counterparty signature, every licence needs a fresh application in the buyer's name, and every employee needs a new offer that they are free to decline. None of that happens automatically. In a share purchase, none of it is needed at all.
Merger and amalgamation: the tribunal route, and when it is worth it
A merger under sections 230 to 232 of the Companies Act, 2013 is a court-supervised transfer of an entire undertaking by operation of law. The transferor company dissolves without winding up, its property and liabilities vest in the transferee by virtue of the order, and pending legal proceedings continue against the transferee. Contracts move without counterparty consent, which is the single largest advantage of the route.
Startups rarely use it for an ordinary sale, for three reasons. It takes nine to twelve months in practice against two to three for a negotiated share purchase. It requires a valuation report, an auditor's certificate on accounting treatment and a public process. And it pays the seller in shares of the acquirer rather than cash, because a scheme that pays cash to the transferor's shareholders is a different animal and is scrutinised as such.
Where it is worth it is group reorganisation: collapsing subsidiaries, separating a product line into a resulting company, or bringing a foreign holding company back into an Indian subsidiary. Those are the deals that justify a tribunal, and after September 2025 several of them no longer need one.
Structure | What moves | Approval needed | Realistic timeline | Typical use in a startup deal |
Share purchase | Shares only; the company and everything in it stays put | Board and shareholders under the articles; no tribunal | 8 to 14 weeks from term sheet | The large majority of acquisitions, including acqui-hires |
Slump sale of an undertaking | A business as a going concern, for a lump sum | Board, and a special resolution under section 180(1)(a) where the undertaking is substantial; third-party consents | 10 to 20 weeks, driven by consents | Carve-out of one product line; seller keeps the entity |
Merger or amalgamation, sections 230 to 232 | Everything, by operation of law; transferor dissolves | National Company Law Tribunal order, after seven regulator notices | 9 to 12 months | Group consolidation, demerger, share-for-share combination |
Fast-track merger, section 233 | Same as above, without the tribunal | Regional Director confirmation; 90 per cent member and creditor approval | 4 to 7 months | Holding-subsidiary and small unlisted mergers; reverse flips |
The deal timeline, in the order it actually runs
Deals fail on sequence more often than on price. A regulatory clock that starts late becomes a closing condition that nobody can satisfy, and a diligence finding that arrives after exclusivity has expired is a renegotiation rather than a fix.
The spine is the same in almost every transaction. An approach and an outline of terms, then a non-disclosure agreement, then a term sheet or letter of intent with an exclusivity period. Diligence, then definitive documents, then a gap between signing and closing while conditions precedent are satisfied. Closing, and then a post-closing filing period that runs for about ninety days and is where most of the compliance failures actually occur.
The part founders underestimate is the gap between signing and closing. Every approval that is a condition precedent lives in that window, and the two that set its length are the Competition Commission of India, where the review clock is thirty calendar days for a prima facie opinion and up to one hundred and fifty days overall, and any sectoral licence transfer. Everything else can usually be compressed. Those two cannot.
The other thing worth knowing early is that exclusivity periods are almost always too short. A forty-five day exclusivity on a deal that needs a competition filing is a promise the parties cannot keep, and the extension negotiation happens at exactly the moment the seller has lost its leverage.
The term sheet: what binds you before anyone agrees a price
A term sheet is usually described as non-binding, and most of it is. The valuation, the structure, the indemnity caps and the earn-out are statements of intent that the definitive agreement supersedes. Four clauses inside it are not.
Exclusivity binds. A no-shop clause for sixty or ninety days is a real contractual obligation, and breaching it is the one term sheet dispute that reaches court with any regularity. Before signing, a founder should know whether any existing investor has a right of first refusal or a right to be consulted on a sale, because agreeing exclusivity while a shareholder holds a competing right creates a conflict that has to be resolved at the worst possible time.
Confidentiality binds, and it usually survives the term sheet by two or three years. Costs and expenses bind, and a break-fee or expense-reimbursement clause is enforceable whatever the heading above it says. Governing law and dispute resolution bind, and they decide where the exclusivity dispute gets heard.
The confidentiality obligation is also the point at which a separate non-disclosure agreement should already be in place, covering the diligence material rather than the negotiation. A term sheet confidentiality clause protects the fact of the discussion. It is rarely drafted to cover source code, customer lists and salary data. Getting the NDA right before the data room opens is a five-day job that saves an argument later.
One drafting point that is worth more than it looks. Term sheets frequently say the transaction is "subject to customary approvals". Replace that with the actual list, because it forces both sides to work out, at the start, whether a competition filing is needed, whether any shareholder is resident outside India, and whether any licence is non-transferable. Deals have died because that list was assembled in week nine.
Due diligence: what the buyer opens, and what usually breaks
Diligence is not a statutory requirement. It is the mechanism by which a buyer converts an asking price into a supportable one, and in a startup it almost always finds something, because the company has been optimising for shipping rather than for record-keeping.
The corporate file, and the resolutions nobody passed
The first request list is always the same: certificate of incorporation, memorandum and articles, the register of members, every shareholders agreement and its amendments, every share allotment with the corresponding return of allotment, board and general meeting minutes, and the statutory registers.
What breaks here is almost always the paper trail behind the cap table. Shares allotted without a valuation report where one was required. Convertible instruments that converted on a formula nobody has applied. A secondary transfer between two angels that was never entered in the register of members, which means the register does not match the cap table the buyer was shown. Form filings missed, which is recoverable, and shareholder approvals never passed, which is harder.
A buyer will also read the articles closely for transfer restrictions, drag-along and tag-along rights, and any affirmative vote that gives a single investor a veto over a sale. Founders regularly discover during diligence that a Series A investor holding eleven per cent has a contractual right to block the transaction, or that the drag-along threshold they negotiated three years ago is one signature short.
The data room under the DPDP Act
A data room is a transfer of personal data. Employee salary records, customer contact details, user databases and support tickets are personal data, and the company that holds them is a data fiduciary under the Digital Personal Data Protection Act, 2023.
The practical position is that diligence disclosure needs a lawful basis, and the fact that a transaction is confidential is not one. The workable answers are to redact and aggregate wherever the commercial question does not require identified individuals, to run sensitive categories through a clean team rather than the general data room, and to defer the full dataset to closing when the acquirer becomes the fiduciary in fact. A seller that hands over an unredacted user table in week two has created a liability that no indemnity fixes, because the penalty attaches to the fiduciary rather than to the deal.
Buyers have also started running the opposite test: whether the target's own consent architecture supports the acquirer's intended use of the data after closing. A consumer product whose consent notices describe a narrow purpose can be worth materially less to an acquirer that intended to combine the dataset with its own. Founders building on Indian personal data should read the position in the DPDP Act compliance guide for SaaS and fintech founders before a diligence request makes it urgent.
Intellectual property, contracts and the change-of-control clause
For a technology company the intellectual property file is the asset being bought, and the two failures are the same in nearly every deal.
The first is unassigned work. Code written by a founder before incorporation, by a contractor on an invoice with no intellectual property clause, or by an intern with no agreement at all, is not owned by the company. It has to be assigned, and the assignment has to be signed by a person who may no longer be reachable. The second is registration: a brand used for four years and never filed, or filed in the wrong class, or filed in a founder's personal name. Trademark registration in India is a three-week job at the start and an escrow line item at the end.
On the contract side, the item that decides whether a share purchase is genuinely consent-free is the change-of-control clause. A customer agreement that lets the customer terminate on a change of control converts the "shares move, contracts stay" advantage into a consent exercise. Enterprise customers, landlords and lenders are where these clauses cluster. A founder who wants to know how exposed the company is can answer it in an afternoon by searching the contract set for "change of control", "assignment" and "novation", and doing that before a buyer does is worth the afternoon.
What happens to the option pool when the company is acquired
This is the section that founders consistently reach too late, and it is the one that produces the most difficult conversations, because the people affected are employees rather than investors and they have no seat at the table.
An employee stock option in India is a right, not an obligation, to buy shares at a predetermined price, granted under a scheme approved by shareholders under section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. If the mechanics of grant, vesting and exercise are new, the full position is set out in the guide to ESOP structuring for Indian startups. What follows is what an acquisition does to a pool that already exists.
Acceleration, cash-out and rollover
There are three things a deal can do with an option, and the scheme document decides which are available.
Acceleration means unvested options vest early on the change of control, either in full (single trigger) or on a change of control followed by termination (double trigger). Nothing in the Companies Act or Rule 12 requires acceleration, and nothing prohibits it. It is a term of the plan. Rule 12(6)(a) imposes a minimum of one year between grant and vesting and that is the only statutory constraint on the schedule, so a plan can accelerate freely provided the one-year floor has passed.
Cash-out means the company or the buyer pays the option holder the difference between the deal price per share and the exercise price, and the option is cancelled. It is the cleanest route for the buyer, because no new shareholders appear on the register at closing.
Rollover means the acquirer replaces the target's options with options over its own shares on an exchange ratio. It preserves the retention incentive, which is usually the reason the acquirer bought a team in the first place, and it is common where the buyer is itself a company with a live plan.
Where the scheme is silent, none of these is automatic. A plan drafted for an initial public offering and never revisited leaves the company negotiating the answer in the three weeks before closing, which is how forty-one employees end up being told about their equity outcome by email.
The perquisite lands on the employee at the worst possible moment
Exercise is a taxable event. Under section 17(1)(d) of the Income-tax Act, 2025 the value of a specified security or sweat equity share allotted or transferred free of cost or at a concessional rate by the employer is a perquisite, and section 17(4)(h) fixes the value as the fair market value on the date the option is exercised less the amount actually paid. It is taxed at slab rates as salary, and the employer has to withhold.
In an acquisition that produces a sequence which feels unjust to the employee and is nonetheless correct. The employee exercises at closing, pays the exercise price, is taxed on the spread at slab rates as employment income, and then sells the same shares to the buyer on the same day. The capital gain on that sale is usually nil or close to it, because section 73 of the Income-tax Act, 2025, at serial number 4 of its table, fixes the cost of acquisition at the fair market value already taken into account for the perquisite. There is no double taxation, but the entire gain has been taxed at slab rates rather than the 12.5 per cent long-term capital gains rate in section 197(1)(b), because the shares were held for a single day.
The sixty-month deferral in section 392(3) does not rescue this. It applies only to an eligible start-up referred to in section 140, which requires an Inter-Ministerial Board certificate rather than DPIIT recognition, and section 289(3) makes the tax payable within fourteen days of the earliest of three events, one of which is the sale of the shares. A deal is that sale.
The planning point, such as it is, belongs at the grant stage rather than the deal stage: an employee who exercised early and held the shares for more than twenty-four months before the sale gets long-term treatment on the growth after exercise. That is a decision made years before a term sheet exists, which is the argument for telling employees about it at grant.
Buying options back, and the promoter surcharge nobody expects
Where the deal cashes out options by way of the company buying its own shares, section 69 of the Income-tax Act, 2025 governs, and it has changed twice recently. As substituted by the Finance Act, 2026 with effect from 1 April 2026, it restores capital-gains treatment: the difference between the buy-back consideration and the cost of acquisition is a capital gain in the year of purchase, reversing the deemed-dividend treatment that had applied from 1 October 2024.
Section 69(2) then adds an additional income-tax where the seller is a promoter, at 2 per cent for a domestic-company promoter and 10 per cent for anyone else on short-term gains, and 9.5 and 17.5 per cent respectively on long-term gains. The definition matters more than the rate. Section 69(3)(b)(ii) treats a person holding, directly or indirectly, more than ten per cent of an unlisted company as a promoter. A very early employee with a large grant can cross that line, and a founder always does. Run the numbers on the actual cap table before choosing a buy-back over a direct secondary sale.
The approvals, and which ones actually bite
The full list of Indian regulators with a potential interest in an acquisition is long. The list that actually affects a startup deal is short, and it is worth separating them so that the long tail does not consume the timeline.
The Competition Commission of India, and the threshold that catches small companies
A combination that crosses the thresholds in section 5 of the Competition Act, 2002 must be notified to the Competition Commission of India under section 6(2) and cannot be given effect to before approval. Since the Competition (Amendment) Act, 2023 came into force there is no thirty-day filing deadline; the obligation is simply that the combination is not consummated before approval.
Two features of the current regime matter to a startup.
The first is the deal value threshold. Since 10 September 2024, a transaction valued at more than Rs 2,000 crore, counting direct, indirect, immediate and deferred consideration, requires notification where the target has substantial business operations in India. A target has substantial business operations if, for digital services, its Indian business or end users are ten per cent or more of its global users; or its gross merchandise value in India over the preceding 365 days is ten per cent or more of its global figure and exceeds Rs 500 crore; or its Indian turnover in the preceding financial year is ten per cent or more of global turnover and exceeds Rs 50 crore. A company with modest revenue and a large Indian user base sits squarely inside this.
The second is the small-target exemption, and here the position needs care. Combinations where the target has assets of not more than Rs 450 crore or turnover of not more than Rs 1,250 crore in India were exempted by a Central Government notification of 7 March 2024, expressed to operate for two years from publication, which ran to 7 March 2026. Whether that exemption has been renewed, allowed to lapse or replaced is a question to be answered against the current Ministry of Corporate Affairs notification before any filing decision is taken. Do not assume it. And note in any event that the exemption does not rescue a transaction that crosses the deal value threshold.
Where a filing is needed, the routes are Form I, the short form, at a fee of Rs 30 lakh, and Form II, the long form, at Rs 90 lakh. The Green Channel is a Form I filing with a certification that the parties have no horizontal overlap, no vertical relationship and no complementary activity in India, and it is deemed approved on filing. The Commission must form a prima facie opinion within thirty calendar days, failing which the combination is deemed approved, and the overall assessment period is one hundred and fifty days, with the clock stopping for information requests. Consummating without approval is gun-jumping, and the penalty under section 43A can reach one per cent of total turnover or assets or the value of the transaction, whichever is higher.
Exchange control: pricing, reporting and the earn-out problem
If any party to the share transfer is resident outside India, the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 apply, and three rules decide whether the commercial deal is even permissible.
Pricing is a floor and a ceiling rather than a free negotiation. A transfer from a resident to a non-resident cannot be at less than the fair value of the shares, and a transfer from a non-resident to a resident cannot be at more than fair value. Fair value for an unlisted company is determined by an internationally accepted pricing methodology, certified by a SEBI-registered merchant banker or a practising chartered accountant. Where the consideration is a share swap, the valuation comes from a merchant banker or an investment banker in the relevant foreign jurisdiction.
Deferred consideration is capped in both amount and time. Rule 9(6) permits not more than twenty-five per cent of the total consideration to be deferred, held back or placed in escrow, and for not more than eighteen months from the execution of the principal transaction documents. Buyers used to three-year indemnity escrows and multi-year earn-outs have to restructure, and the usual answer is a shorter escrow combined with an indemnity covenant that survives without being cash-collateralised.
Reporting is Form FC-TRS, filed with an authorised dealer category-I bank within sixty days of the transfer or of the receipt or remittance of consideration, whichever is earlier. Where the transaction involves a fresh issue rather than a transfer, it is Form FC-GPR within thirty days of allotment. These are the filings that get missed, and they are the ones that surface at the next round or the next audit. The guide to FDI rules, routes and compliance sets out the reporting chain in full.
One route check before anything else: an investor that is a citizen of, or an entity incorporated in, a country sharing a land border with India can invest only through the government approval route, and the same applies where the beneficial owner sits in such a country. That is a gating question, not a filing question, and it is answered on day one.
Sectoral, listed-company and other overlays
Where the target holds a regulated licence, the licence conditions rather than company law set the timetable. A non-banking financial company needs Reserve Bank of India prior approval for a change in control, insurance intermediaries need Insurance Regulatory and Development Authority of India approval, and payment aggregators, digital lending platforms and telecom licensees each have their own regime. These are the approvals that turn a ten-week deal into a seven-month one, and they should be identified in the term sheet rather than in diligence.
If the acquirer or the target is listed, the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 apply. Acquiring twenty-five per cent or more of the voting rights, acquiring more than five per cent in a financial year while already holding between twenty-five and seventy-five per cent, or acquiring control, each triggers a mandatory open offer for at least twenty-six per cent of the voting capital. For most startup deals this is relevant only because the buyer is listed, in which case the buyer's disclosure obligations rather than the target's set the announcement timing.
Approval or filing | When it applies | Statutory clock | Consequence of getting it wrong |
CCI combination notice | Section 5 thresholds, or deal value above Rs 2,000 crore with substantial Indian operations | 30 days for prima facie opinion; 150 days overall | Gun-jumping penalty up to 1 per cent of turnover, assets or deal value |
Form FC-TRS | Any share transfer between a resident and a non-resident | 60 days from transfer or consideration, whichever is earlier | Late submission fee; a compliance gap that surfaces at the next round |
NDI pricing certificate | Same transfers; floor for resident sellers, ceiling for resident buyers | Before the transfer is given effect | The transfer is not permissible at the agreed price |
Government approval route | Investor or beneficial owner from a land-border country | No fixed outer limit in practice | The investment cannot proceed at all on the automatic route |
Sectoral regulator change-of-control | NBFC, insurance intermediary, payment aggregator, telecom and similar | Set by the licence conditions | Licence suspension or lapse on an unapproved change of control |
NCLT or Regional Director order | Only where the structure is a scheme under sections 230 to 233 | 9 to 12 months, or 4 to 7 on fast track | No transfer by operation of law; the scheme has no effect |
The tribunal route under sections 230 to 232, step by step
Where the deal is a genuine scheme, the sequence below is what it looks like. It is set out in the order the steps have to run, because several of them are conditions on the next.
Both boards approve the draft scheme, fix the appointed date and adopt the share exchange ratio supported by a registered valuer's report.
The companies file a joint application to the National Company Law Tribunal under section 230(1), disclosing by affidavit all material facts, the latest financial position, the latest auditor's report, the pendency of any investigation or proceedings, and the valuation report.
The Tribunal orders meetings of creditors and members, or dispenses with them. Under section 230(9) it may dispense with a creditors' meeting where creditors holding at least ninety per cent in value agree and confirm the scheme by affidavit.
Notice of the meetings goes to every creditor, member and debenture-holder individually, with a statement disclosing the effect of the scheme on creditors, key managerial personnel, promoters and non-promoter members, and with the valuation report. It also goes on the company's website and into newspapers.
Under section 230(5), the same notice goes to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board of India, the Registrar of Companies, the stock exchanges, the Official Liquidator, the Competition Commission of India where necessary, and any other sectoral regulator likely to be affected. Each has thirty days to make representations, failing which it is presumed to have none.
The companies circulate the material required by section 232(2): the draft scheme, confirmation that it has been filed with the Registrar, a directors' report explaining the effect on each class of shareholder and setting out the share exchange ratio and any special valuation difficulty, the expert's valuation report, and a supplementary accounting statement if the last annual accounts are more than six months old.
The meetings are held. A scheme passes where a majority of the persons voting, representing three-fourths in value of that class, agree. Objections may be made only by members holding not less than ten per cent of the shareholding or creditors holding not less than five per cent of total outstanding debt per the latest audited financial statement.
The company files the results, the regulators' representations are heard, and the petition is listed. The auditor's certificate that the accounting treatment conforms to the standards prescribed under section 133 must be on file, and the Tribunal cannot sanction without it.
The Tribunal sanctions the scheme and makes the orders in section 232(3): transfer of the undertaking, property and liabilities from the appointed date, allotment of shares, cancellation of any cross-holdings so the transferee does not hold shares in itself, continuation of pending proceedings, dissolution of the transferor without winding up, treatment of dissenting shareholders, the manner of allotment to non-resident shareholders under the foreign investment rules, and transfer of the employees.
A certified copy of the order is filed with the Registrar within thirty days under section 232(5), and under section 230(8) for the scheme order itself.
The scheme takes effect from the appointed date. Section 232(6) requires the scheme to state that date clearly, and the scheme cannot be made effective from any later date.
Until the scheme is fully implemented, section 232(7) requires an annual statement to the Registrar, certified by a chartered accountant, cost accountant or company secretary in practice, confirming compliance with the order. Contravention of section 232 carries a fine of not less than Rs 1 lakh and up to Rs 25 lakh on the company.
Two points about the appointed date are worth isolating, because they cause more argument than anything else in a scheme. It can be a specific calendar date or tied to the occurrence of an event, and it is the date from which the transfer takes effect for accounting and tax. And it can be prospective or retrospective relative to the sanction order, but never later than the effective date, which is what section 232(6) forecloses.
Fast-track mergers: what changed in September 2025
Section 233 lets certain mergers bypass the Tribunal entirely and be confirmed by the Central Government acting through the Regional Director. Until last year it was a narrow route: two or more small companies, or a holding company and its wholly-owned subsidiary.
The Ministry of Corporate Affairs widened it substantially by the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, notified as G.S.R. 603(E) on 4 September 2025 and in force from publication. Four new categories now qualify.
Mergers between unlisted companies, none of them a section 8 company, where each company has aggregate outstanding loans, debentures and deposits not exceeding Rs 200 crore and has not defaulted in repayment. The threshold and the no-default position are tested as at a date thirty days before the notice inviting objections, and certified by the auditor in the new Form CAA-10A.
Mergers between a holding company and its subsidiary, no longer restricted to a wholly-owned subsidiary, provided the transferor company is unlisted.
Mergers between two or more subsidiaries of the same holding company, again provided the transferor is unlisted. This is the fellow-subsidiary case, and it is the one that removes the tribunal from most group clean-ups.
And the merger of a foreign holding company into its Indian wholly-owned subsidiary, which moved into Rule 25 from Rule 25A. That is the reverse-flip case, and it is dealt with separately below.
The procedure itself is unchanged and it is genuinely faster. Notice of the proposed scheme invites objections from the Registrar and the Official Liquidator, with thirty days to respond. Members holding at least ninety per cent of the total number of shares must approve it at a general meeting, creditors representing nine-tenths in value must approve at a meeting called on twenty-one days' notice or in writing, and each company files a declaration of solvency with the Registrar.
The scheme then goes to the Central Government, the Registrar and the Official Liquidator. If the Registrar or Official Liquidator has objections they must communicate them within thirty days, and silence is treated as no objection. If the Central Government objects, it has sixty days from receipt of the scheme to apply to the Tribunal; if it does not, it is deemed to have no objection.
The trade-off is the ninety per cent thresholds. A company with a fragmented cap table, dissenting angels or a single hostile creditor cannot use section 233, and finds out only after building the whole file. Check the shareholder and creditor arithmetic before choosing the route, not after.
Cross-border deals and the reverse flip
Cross-border mergers run under section 234 of the Companies Act, 2013 and Rule 25A of the merger rules, in two directions. An inbound merger produces an Indian resultant company. An outbound merger produces a foreign one, and it is permitted only with companies in jurisdictions notified in Annexure B to the rules.
The exchange-control layer is the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. Any transaction undertaken in accordance with those regulations is deemed to have the prior approval of the Reserve Bank of India that Rule 25A requires, so the practical question is compliance with the regulations rather than a separate application. Where a scheme falls outside them, specific approval becomes necessary and the timeline changes completely.
The reverse flip is the case that has driven most of the recent change. An Indian-founded company that incorporated a holding company in Delaware or Singapore to raise offshore capital, and now wants to list in India, has to bring the holding company home. The traditional route was an inbound merger of the foreign parent into the Indian subsidiary, sanctioned by the Tribunal, taking the better part of a year.
Two changes have compressed it. The September 2024 amendment inserted a sub-rule into Rule 25A permitting an inbound merger of a foreign holding company into its Indian wholly-owned subsidiary through the section 233 fast-track route, and the September 2025 amendment relocated that case into Rule 25 alongside the other fast-track categories. Then, on 29 May 2026, the Reserve Bank notified the Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026, replacing every reference to the National Company Law Tribunal in regulations 4, 5, 7 and 9 with "competent authority", defined as any authority empowered under the Companies Act, 2013 or its subordinate legislation to approve a scheme. Before that amendment the regulations were drafted around a tribunal order, and a Regional Director order sat awkwardly against them.
The remaining friction is tax rather than company law, and it is substantial: the shareholders of the foreign parent receive shares in the Indian company, and whether that exchange is tax-neutral depends on where they are resident and on the terms of the applicable treaty. Founders considering a reverse flip should read it alongside the structural position in company registration in India for foreign founders, because the flip back is easier to plan before the flip out than after.
Tax: the part of the deal that moves the price
Every section number in this part changed on 1 April 2026, when the Income-tax Act, 2025 replaced the Income-tax Act, 1961 and renumbered the entire statute. Most of the M&A commentary available online still quotes the old numbering, and in two cases the same number now means something different, so a citation without the name of the Act attached is not safe to rely on. The guide to the new Income-tax Act, 2025 covers the renumbering generally; what follows is the M&A chain.
A share sale: capital gains, and two traps in the price
A seller of shares is taxed on capital gains. For unlisted shares held for more than twenty-four months the gain is long-term and taxed at 12.5 per cent under section 197(1)(b) of the Income-tax Act, 2025; held for twenty-four months or less it is short-term and taxed at the seller's applicable rate.
The first trap is price. Section 79 of the Income-tax Act, 2025, which carries the substance of the old section 50CA, deems the fair market value to be the full value of consideration where unquoted shares are transferred for less than that value. The mirror provision, section 92(2)(m), taxes the buyer on the difference between fair market value and what it paid. A deal struck below fair value is therefore taxed twice on the same shortfall, once in each direction, which is why a valuation report is a commercial document rather than a compliance formality.
The second is withholding where the seller is not resident in India. Section 393(2) of the Income-tax Act, 2025 carries the obligation that the old section 195 imposed, and the buyer rather than the seller carries the exposure for getting it wrong. In practice this is managed with a certificate for lower or nil deduction obtained before closing, and the timeline for obtaining it belongs in the conditions precedent rather than in the closing mechanics.
A merger: tax neutrality, and the conditions attached to it
The reason a scheme is ever chosen for tax reasons is section 70 of the Income-tax Act, 2025, which carries forward what section 47 of the 1961 Act did. Section 70(1)(e) takes the transfer of a capital asset by the amalgamating company to the amalgamated company outside the charge, provided the amalgamated company is an Indian company. Section 70(1)(f) does the same for the shareholder whose shares in the amalgamating company are exchanged for shares in the amalgamated company, provided the consideration is shares and the amalgamated company is Indian. For a demerger, sections 70(1)(j) and 70(1)(k) do the equivalent.
Both reliefs are conditional on the transaction meeting the statutory definition. Under section 2(6), an amalgamation requires all the property and all the liabilities of the amalgamating company to become those of the amalgamated company, and shareholders holding not less than three-fourths in value of the shares in the amalgamating company to become shareholders of the amalgamated company. A scheme that pays cash to a quarter of the register fails that test, and with it the exemption. Under section 2(35) a demerger additionally requires the property and liabilities to transfer at book values and the resulting company to issue its shares to the demerged company's shareholders proportionately.
The other half of the trade is section 77, which computes capital gains on a slump sale. Gains on a slump sale are long-term, unless the undertaking was owned and held for thirty-six months or less immediately before the transfer, in which case they are short-term. Note the holding period is of the undertaking, not of the company.
The losses the buyer thinks it is buying
This is where startup deals lose money, and it is two separate provisions that a founder needs to hold apart.
In a share purchase, section 119(3) of the Income-tax Act, 2025 applies. For a company in which the public are not substantially interested, a loss from an earlier year cannot be carried forward unless persons beneficially holding shares carrying at least fifty-one per cent of the voting power on the last day of the loss year still hold at least fifty-one per cent on the last day of the current year. An acquisition of a controlling stake usually breaks it.
Section 119(3)(b) provides a relaxation for a company that is an eligible start-up referred to in section 140, but the relaxation is narrower than it first reads. It requires all the shareholders who held voting shares on the last day of the loss year to continue holding those shares on the last day of the current year, and the loss to have been incurred within ten years of incorporation. A partial secondary sale by one angel defeats it. A full exit defeats it comprehensively. There are carve-outs in section 119(4) for death and gifts to relatives, for a change caused by the amalgamation or demerger of a foreign parent where fifty-one per cent of the foreign shareholders carry across, and for a resolution plan approved under the Insolvency and Bankruptcy Code, 2016, but none of them describes an ordinary trade sale.
In a merger, section 116 applies instead, and three features of it decide whether the relief exists at all.
Section 116(1)(a) confines the relief to the amalgamation of a company owning an industrial undertaking, a ship or a hotel. Section 116(13)(b) defines an industrial undertaking as one engaged in the manufacture or processing of goods, the manufacture of computer software, generation or distribution of electricity or power, telecommunication services, mining, or the construction of ships, aircraft or rail systems. A software product company is inside that definition. A marketplace, a services business, a lending platform, an agency and a direct-to-consumer reseller are not, and for them the carry-forward of accumulated loss on amalgamation does not arise. Very few pages on Indian M&A say this, and it is the difference between a deal model that works and one that does not.
Section 116(4) attaches conditions on both sides. The amalgamating company must have been engaged in the loss-making business for three or more years and must have held, as at the date of amalgamation, at least three-fourths of the book value of the fixed assets it held two years earlier. The amalgamated company must hold at least three-fourths of the book value of the acquired fixed assets for five years and continue the business for five years. Section 116(5) claws the relief back as income of the year of non-compliance if any of that fails, which makes it a five-year integration constraint rather than a closing-day condition.
And section 116(12), which applies to any amalgamation effected on or after 1 April 2025, caps the carried-forward loss at eight tax years from the year for which it was first computed for the original predecessor entity. The old practice of refreshing an expiring loss by merging the entity that holds it is over. Where the loss is already six years old, the buyer inherits two years, not eight.
Question | Share purchase | Slump sale of an undertaking | Amalgamation under a scheme |
Who is taxed | The selling shareholders | The selling company | Nobody, if the section 2(6) conditions are met |
Charge | Capital gains; 12.5 per cent long-term on unlisted shares under section 197(1)(b) | Capital gains under section 77; long-term unless the undertaking was held 36 months or less | Exempt under section 70(1)(e) and (f) where the amalgamated company is Indian |
Valuation risk | Sections 79 and 92(2)(m) tax a below-fair-value price in both directions | Net worth computation fixes the cost; no below-value deeming | Share exchange ratio supported by a registered valuer's report |
Carried-forward losses | Usually lost on a change of control under section 119(3) | Stay with the selling company; they do not travel with the business | Available under section 116 only for an industrial undertaking, ship or hotel, subject to section 116(4) and the eight-year cap in section 116(12) |
Withholding | Section 393(2) where the seller is non-resident | Not applicable between residents | Not applicable; no consideration passes to shareholders in cash |
Employees: what transfers, and what has to be re-papered
Employees do not move with a share purchase, because their employer has not changed. The company they work for is the same legal person with different shareholders, so contracts, seniority, gratuity accrual and provident fund membership all continue untouched. That is one of the quiet reasons the share purchase is the default structure.
In a slump sale or an asset purchase, employment does not transfer automatically. Each employee has to be offered employment by the buyer and can decline, and the seller is left with whoever declines.
Section 73 of the Industrial Relations Code, 2020 governs the consequence. Where the ownership or management of an establishment is transferred, a worker in continuous service for not less than one year immediately before the transfer is entitled to notice and compensation as if retrenched. That entitlement falls away where the service has not been interrupted by the transfer, the terms and conditions after the transfer are not less favourable, and the new employer is liable to pay retrenchment compensation on the footing that the service has been continuous. In other words, continuity of terms is what makes the transfer free of a retrenchment bill, and the drafting of the offer letters is what determines whether you have it.
The four labour codes came into force on 21 November 2025, and the four sets of Central Rules were notified on 8 May 2026, which is recent enough that most transaction precedents predate them. One rule matters immediately on an asset deal. Rule 6 of the Occupational Safety, Health and Working Conditions (Central) Rules, 2026 provides that no employee shall be employed unless an appointment letter has been issued in the prescribed format, and the cushion the draft rules had allowed was removed in the final version.
An acquirer taking on a hundred people in a slump sale therefore has to issue a hundred compliant appointment letters as a precondition to employing them, not as an integration task for month two. The labour codes compliance checklist sets out the wider position, and employment contracts and HR compliance for Indian startups covers the drafting.
In a merger under a scheme, the position is different again. Section 232(3)(g) of the Companies Act, 2013 lets the Tribunal provide for the transfer of the employees of the transferor company to the transferee company, so employment moves by operation of law rather than by fresh contract. That does not remove the section 73 analysis, because the test there is continuity of terms rather than the mechanism of transfer.
One last item that is not strictly an employment question but always surfaces in the same conversation. Founder non-compete and retention terms are usually the buyer's principal protection for the goodwill it is paying for, and Indian law treats them differently depending on when they bite. A Delhi High Court judgment of 25 June 2025 in FAO 167/2025 held a three-year post-termination non-compete unenforceable under section 27 of the Indian Contract Act, 1872, while confirming that confidential information remains a protectable interest. A Supreme Court judgment of 14 May 2025 upheld a minimum-service bond with liquidated damages of Rs 2,00,000, because it operated during employment and the sum was an evidenced pre-estimate of recruitment and training cost. The distinction is durable: restraints during employment are enforceable, restraints after it generally are not, and a buyer relying on a long post-closing non-compete in an Indian contract is relying on something that may not hold.
Stamp duty, fees and the costs that are not in the term sheet
Stamp duty is the cost most frequently omitted from a deal model, and on a scheme it can be the largest single transaction expense.
On a share purchase it is small and predictable. A transfer of shares on Form SH-4 attracts duty at 0.015 per cent of the consideration under the Indian Stamp Act, 1899, and the rate is uniform across states following the 2020 amendments, with the duty collected through the depository where the shares are dematerialised. On a Rs 100 crore deal that is Rs 1.5 lakh, which nobody notices.
On a scheme it is an entirely different order of cost. An order sanctioning a scheme of amalgamation is treated as a conveyance chargeable to duty, and the rate is fixed by state law rather than centrally. States differ widely in both the rate and the base, some charging on the market value of the shares issued plus any consideration, others on the value of the property transferred, some applying a monetary cap and some not. Where the transferor and transferee are registered in different states, both states may claim duty on the same order, and the set-off available between them depends on the two state schedules rather than on any national rule. Get a state-specific number before the scheme is filed, because the number can change which entity is the transferor.
The other costs that belong in the model and usually are not: the Competition Commission filing fee of Rs 30 lakh or Rs 90 lakh where a notification is required; registered valuer and merchant banker fees, of which a deal needs at least two and sometimes four; and the cost of remediating what diligence finds, which for a company that has never had a compliance review is routinely larger than the legal fees.
Closing, and the ninety days after it
Closing is a sequence of simultaneous acts rather than a signature. Share transfer forms are exchanged against payment, the board meets to approve the transfers and record them in the register of members, resignations and appointments of directors take effect, the share certificates are endorsed or the depository instruction is executed, and the statutory registers are written up on the day rather than reconstructed later.
The filings that follow are where deals leave a trail of small defaults. Form DIR-12 goes in within thirty days for every change in directors, Form MGT-14 within thirty days where a special resolution was passed, Form FC-TRS within sixty days where a non-resident was on either side, and Form INC-28 within thirty days where a tribunal or Regional Director order has to be filed. Any change of registered office, auditor or charge carries its own form and its own window, and the register of members, register of directors and register of charges all need refreshing.
The annual filing calendar then resumes as normal, and the annual ROC compliance calendar sets out what comes next.
Two integration items are easy to forget and expensive later. Update the beneficial ownership declarations, because a change of control almost always changes the significant beneficial owner. And re-check every licence and registration that names the directors or the shareholding, because several of them, including goods and services tax registration particulars and some sectoral licences, require amendment within their own timelines rather than at the next renewal.
The order to do this in
For a founder on the receiving end of an approach, the sequence below is the one that keeps the most options open and costs the least to run.
Before any conversation, read the articles and every shareholders agreement, and write down who has a right of first refusal, a tag-along, a drag-along, a veto on a sale, or a consent right. This is the constraint set and everything else is negotiated inside it.
Get a mutual non-disclosure agreement signed before anything beyond headline metrics leaves the building.
Clean the corporate file: register of members reconciled to the cap table, allotment returns filed, every past valuation report located, every convertible instrument's conversion worked through.
Resolve the intellectual property assignments, particularly anything written before incorporation or by a contractor, and file any trademark that is in use and unregistered.
Search the contract set for change-of-control, assignment and novation clauses and build the consent list before the buyer builds it for you.
Decide the option pool policy, in writing, and amend the scheme if it is silent on a change of control. Model the employee tax outcome so that the conversation with the team is about numbers rather than reassurance.
Answer the three gating regulatory questions: does the deal value or the section 5 thresholds trigger a competition filing; is any party non-resident, and if so is any land-border ownership involved; does any licence require prior approval for a change of control.
Negotiate the term sheet with the actual approval list written into it, and with an exclusivity period long enough to accommodate the longest of those approvals.
Structure the consideration against the exchange-control limits before agreeing it, not after. Twenty-five per cent and eighteen months is the outer boundary for anything held back where the buyer is non-resident.
Run tax modelling on the structure, not on the headline price: capital gains for the sellers, the fate of carried-forward losses under section 119 or section 116, withholding where a seller is non-resident, and stamp duty where a scheme is involved.
Sign, then work the conditions precedent to a dated checklist with one named owner per item.
Close on a single day with all registers written up, and run the post-closing filings as a thirty and sixty day checklist rather than as they occur to somebody.
If the diligence file, the cap table reconciliation and the post-closing filings are pulling your team away from the business while a deal is live, Outsource360's company registration and compliance service handles the corporate and secretarial workstream, and its virtual CFO team covers valuation support, tax modelling and the closing accounts. You can book a consultation if it would help to talk it through first.
Frequently asked questions
What is the legal process for mergers and acquisitions in India?
It depends on the structure. A share purchase runs on contract: term sheet, due diligence, share purchase agreement, conditions precedent, then transfer on Form SH-4 with board approval and entry in the register of members, and it needs no tribunal. A merger or amalgamation runs under sections 230 to 232 of the Companies Act, 2013 and requires a National Company Law Tribunal order after notice to seven regulators, meetings of members and creditors, and an auditor's certificate on accounting treatment. A fast-track merger under section 233 replaces the Tribunal with the Regional Director where the companies fall inside the categories in Rule 25.
Do all acquisitions in India need NCLT approval?
No. Only a scheme of compromise, arrangement, merger or demerger needs a tribunal order. The large majority of startup acquisitions are share purchases, which are private contracts completed on a stock transfer form and a board resolution. A slump sale of an undertaking also needs no tribunal, though it may need a special resolution under section 180(1)(a) of the Companies Act, 2013.
How long does an acquisition take in India?
A negotiated share purchase with no regulatory approvals runs eight to fourteen weeks from term sheet to closing. Add a competition filing and the review clock alone is up to one hundred and fifty days. A merger sanctioned by the National Company Law Tribunal takes nine to twelve months in practice; the fast-track route under section 233 takes roughly four to seven.
When does a startup acquisition need Competition Commission of India approval?
When the section 5 thresholds of the Competition Act, 2002 are crossed, or when the transaction value exceeds Rs 2,000 crore and the target has substantial business operations in India. Substantial business operations is defined by reference to the Indian share of users, gross merchandise value or turnover. The small-target exemption notified on 7 March 2024 was expressed to operate for two years to 7 March 2026, so its current status has to be checked before it is relied on, and it never applies where the deal value threshold is crossed.
What is the deal value threshold for CCI approval?
Rs 2,000 crore, counting direct, indirect, immediate and deferred consideration, in force since 10 September 2024. It applies only where the target has substantial business operations in India. It catches high-valuation, low-revenue companies that would otherwise have been exempt on size, which is precisely the profile of a venture-backed startup.
What happens to ESOPs when a startup is acquired in India?
Whatever the scheme document says, and the three options are acceleration, cash-out and rollover into the acquirer's plan. None of them is automatic and none is required by law: Rule 12(6)(a) of the Companies (Share Capital and Debentures) Rules, 2014 imposes only a one-year minimum between grant and vesting. Where the scheme is silent, the terms are negotiated during the deal, which is the worst time to do it.
How are ESOPs taxed when the company is sold?
Twice, in sequence. On exercise, the difference between the fair market value on the exercise date and the amount paid is a perquisite under section 17(1)(d) of the Income-tax Act, 2025, taxed at slab rates with the employer withholding. On sale, the gain over that same fair market value is a capital gain, with the cost of acquisition fixed by section 73. Where exercise and sale happen on the same day, there is effectively no capital gain and the whole spread is taxed as salary.
Can carried-forward losses be used after an acquisition?
Usually not in a share purchase. Section 119(3) of the Income-tax Act, 2025 requires fifty-one per cent continuity of voting power for a closely held company, and a change of control breaks it. The eligible start-up relaxation in section 119(3)(b) requires all the original voting shareholders to continue holding, so it does not survive an exit either. In an amalgamation, section 116 can preserve the loss, but only for a company owning an industrial undertaking, ship or hotel, and only subject to the conditions in section 116(4).
Does a software company count as an industrial undertaking for section 116?
A company engaged in the manufacture of computer software does, because section 116(13)(b) of the Income-tax Act, 2025 lists it expressly alongside the manufacture or processing of goods, power, telecommunication services, mining and the construction of ships, aircraft or rail systems. A marketplace, an agency, a lending platform or a services business generally does not, and for those companies the carry-forward of accumulated loss on amalgamation is not available at all.
What is the difference between an asset purchase and a slump sale?
A slump sale is a particular kind of asset purchase: the transfer of one or more undertaking, for a lump sum, with no values assigned to individual assets and liabilities, as defined in section 2(103) of the Income-tax Act, 2025. It is computed under section 77 and the gain is long-term unless the undertaking was held for thirty-six months or less. An itemised asset sale, where the parties price each asset, is taxed asset by asset and is not a slump sale.
Can a foreign buyer hold back part of the purchase price in India?
Yes, within limits. Rule 9(6) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 allows up to twenty-five per cent of the total consideration to be deferred, held back or placed in escrow, for no more than eighteen months from the execution of the principal transaction documents. Longer earn-outs and larger holdbacks have to be restructured, usually as a contractual indemnity that is not cash-collateralised.
What are the FEMA pricing rules on a share transfer?
A resident cannot sell to a non-resident below fair value, and a non-resident cannot sell to a resident above fair value. Fair value for unlisted shares is determined by an internationally accepted pricing methodology and certified by a SEBI-registered merchant banker or a practising chartered accountant. For a share swap, the valuation comes from a merchant banker or a foreign investment banker.
What is a fast-track merger, and who can use it now?
A merger confirmed by the Regional Director instead of the National Company Law Tribunal, under section 233 of the Companies Act, 2013. Since G.S.R. 603(E) of 4 September 2025 it covers unlisted companies whose aggregate loans, debentures and deposits do not exceed Rs 200 crore with no default, holding-subsidiary mergers where the subsidiary need not be wholly owned, mergers between fellow subsidiaries of the same holding company, and the merger of a foreign holding company into its Indian wholly-owned subsidiary. It needs ninety per cent member approval and nine-tenths creditor approval by value.
What is a reverse flip and how is it done?
Bringing a foreign holding company of an Indian business back into India, usually before an Indian listing, by merging the foreign parent into its Indian wholly-owned subsidiary. It runs under section 234 of the Companies Act, 2013 with Rule 25A, and since the September 2025 amendment the case sits inside the fast-track route in Rule 25. The Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026, notified on 29 May 2026, replaced references to the Tribunal with "competent authority", which aligns the exchange-control framework with a Regional Director order.
What stamp duty applies to an acquisition in India?
On a share transfer, 0.015 per cent of the consideration under the Indian Stamp Act, 1899, uniform across states and collected through the depository for dematerialised shares. On a scheme, the sanction order is treated as a conveyance and the duty is fixed by state law, varying substantially in both rate and base, with a risk of duty being claimed in two states where the companies are registered in different ones. Obtain a state-specific figure before filing the scheme.
Do employees transfer automatically when a company is acquired?
In a share purchase, yes, because the employer has not changed. In a slump sale or asset purchase, no: each employee has to be offered employment and may decline, and section 73 of the Industrial Relations Code, 2020 treats a transfer of establishment as a retrenchment for anyone with a year's continuous service unless service is uninterrupted and terms are no less favourable. In a merger, section 232(3)(g) of the Companies Act, 2013 allows the Tribunal to provide for the transfer of employees by operation of law.
References
Companies Act, 2013, sections 230, 232, 233, 234, 236 and 180(1)(a), mca.gov.in. Section 230(4) on the ten per cent shareholding and five per cent debt objection thresholds; section 230(5) on notice to the Central Government, income-tax authorities, Reserve Bank of India, Securities and Exchange Board of India, Registrar, stock exchanges, Official Liquidator, Competition Commission of India and sectoral regulators, with thirty days to make representations; section 230(6) on the three-fourths in value majority; the proviso to section 230(7) on the auditor's certificate under section 133; section 230(9) on dispensing with a creditors' meeting at ninety per cent in value.
Companies Act, 2013, section 232(2) on the circulation of the draft scheme, the directors' report on the share exchange ratio and the expert valuation report; section 232(3)(a) to (h) on the orders the Tribunal may make, including transfer from the appointed date, cancellation of cross-holdings, dissolution without winding up, allotment to non-resident shareholders and transfer of employees; section 232(5) on filing within thirty days; section 232(6) on the appointed date; section 232(7) on the annual compliance statement; section 232(8) on the Rs 1 lakh to Rs 25 lakh penalty.
Companies Act, 2013, section 233(1)(a) to (d) on the thirty-day objection notice, ninety per cent member approval, declaration of solvency and nine-tenths creditor approval on twenty-one days' notice; sections 233(4) to (6) on the thirty-day objection window, the sixty-day period for the Central Government to apply to the Tribunal, and deemed no objection.
Ministry of Corporate Affairs notification G.S.R. 603(E) dated 4 September 2025, the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025, expanding the fast-track merger categories in Rule 25 to unlisted companies with aggregate loans, debentures and deposits not exceeding Rs 200 crore and no default, holding and non-wholly-owned subsidiary mergers, fellow-subsidiary mergers and inbound mergers of a foreign holding company into its Indian wholly-owned subsidiary, and introducing Form CAA-10A.
Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, Rule 25 and Rule 25A, including the September 2024 amendment permitting an inbound merger of a foreign holding company into its Indian wholly-owned subsidiary through the section 233 route.
Income-tax Act, 2025 (Act No. 30 of 2025), in force 1 April 2026, incometaxindia.gov.in. Section 2(6) definition of amalgamation including the three-fourths shareholder continuity test; section 2(35) definition of demerger; section 2(35)(i) definition of undertaking; section 2(103) definition of slump sale.
Income-tax Act, 2025, section 70(1)(d), (e), (f), (j) and (k), transactions not regarded as transfer in a holding-subsidiary transfer, an amalgamation and a demerger, corresponding to section 47 of the Income-tax Act, 1961.
Income-tax Act, 2025, section 77, computation of capital gains on a slump sale, long-term unless the undertaking was owned and held for thirty-six months or less, corresponding to section 50B of the 1961 Act.
Income-tax Act, 2025, section 116, treatment of accumulated losses and unabsorbed depreciation in amalgamation or demerger. Section 116(1)(a) on the industrial undertaking, ship or hotel limitation; section 116(4) on the three-year business, three-fourths book value and five-year continuation conditions; section 116(5) on the clawback; section 116(6) on apportionment in a demerger; section 116(12) on the eight tax year cap for amalgamations effected on or after 1 April 2025; section 116(13)(b) on the definition of industrial undertaking.
Income-tax Act, 2025, section 119, carry forward and set off of losses not permissible in certain cases. Section 119(3)(a) on the fifty-one per cent voting power continuity test; section 119(3)(b) on the eligible start-up relaxation requiring all original shareholders to continue and the loss to fall within ten years of incorporation; section 119(4) on the death, gift, foreign-parent amalgamation and Insolvency and Bankruptcy Code carve-outs.
Income-tax Act, 2025, section 79, deemed full value of consideration on a transfer of unquoted shares below fair market value, corresponding to section 50CA of the 1961 Act; section 92(2)(m), the corresponding charge on the recipient, corresponding to section 56(2)(x); section 197(1)(b), long-term capital gains at 12.5 per cent; section 393(2), withholding on payments to non-residents, corresponding to section 195.
Income-tax Act, 2025, sections 17(1)(d) and 17(4)(h) on the employee stock option perquisite and its valuation at exercise; section 73, table serial number 4, on the cost of acquisition; section 392(3) and section 289(3) on the eligible start-up deferral and the fourteen-day payment window; section 140 on eligible start-up status; section 69 on buy-backs as substituted by Act No. 4 of 2026 with effect from 1 April 2026, including the promoter surcharge in section 69(2) and the ten per cent promoter definition in section 69(3)(b)(ii).
Competition Act, 2002, sections 5, 6(2) and 43A, cci.gov.in; the Competition Commission of India (Combinations) Regulations, 2024, in force 10 September 2024, including the Rs 30 lakh Form I and Rs 90 lakh Form II fees, the Green Channel certification, the thirty-day prima facie opinion and the one hundred and fifty day overall period.
Competition (Criteria for Exemption of Combinations) Rules, 2024 and the Central Government notification of 7 March 2024 on the small-target exemption at Rs 450 crore of assets or Rs 1,250 crore of turnover in India, expressed to operate for two years from publication. The current status of that exemption after 7 March 2026 could not be verified from public sources on the date at the top of this page and must be checked against the Ministry of Corporate Affairs notification in force.
Foreign Exchange Management (Non-debt Instruments) Rules, 2019, including the pricing guidelines and Rule 9(6) on deferred consideration capped at twenty-five per cent for eighteen months; Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 on Form FC-TRS within sixty days and Form FC-GPR within thirty days, rbi.org.in.
Foreign Exchange Management (Cross Border Merger) Regulations, 2018, and the Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026, notified 29 May 2026, replacing references to the National Company Law Tribunal in regulations 4, 5, 7 and 9 with "competent authority".
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, on the twenty-five per cent trigger, the five per cent creeping acquisition limit and the twenty-six per cent minimum open offer size, sebi.gov.in.
Industrial Relations Code, 2020, section 73 on compensation to workers in case of transfer of establishment, and section 70 on retrenchment. The four labour codes were brought into force on 21 November 2025 and the four sets of Central Rules were notified on 8 May 2026, including rule 6 of the Occupational Safety, Health and Working Conditions (Central) Rules, 2026 on appointment letters as a precondition to employment.
Digital Personal Data Protection Act, 2023, on data fiduciary obligations applying to personal data disclosed in a due diligence process.
Indian Stamp Act, 1899, on duty of 0.015 per cent on a transfer of shares and on the treatment of a scheme sanction order as a conveyance chargeable under the applicable state schedule.
High Court of Delhi, judgment of 25 June 2025 in FAO 167/2025, on the unenforceability of a three-year post-termination non-compete under section 27 of the Indian Contract Act, 1872; Supreme Court of India, judgment of 14 May 2025, upholding a minimum-service bond with liquidated damages of Rs 2,00,000 operating during employment.
Deal volume and value figures for the Indian market in 2026 are industry compilations of announced transactions, not official statistics, and are cited only to indicate the scale of activity. Timelines given for the National Company Law Tribunal and Regional Director routes are practitioner observations of typical outcomes, not statutory periods.
Disclaimer
This article is for educational and general business information purposes only and does not constitute professional legal, financial, or tax advice. It states the Indian position on mergers and acquisitions as it stood on the date at the top of this page. Company law, competition law, exchange control regulations and income-tax provisions change by notification, circular and amendment, and several of the instruments described here were notified or substituted during 2025 and 2026. Three points are flagged as unsettled or fast-moving and should be verified in their current form before a transaction is structured or a filing is made: the status of the Competition Commission small-target exemption after 7 March 2026, which could not be confirmed from public sources; the stamp duty payable on a scheme sanction order, which is state-specific in both rate and base and may be claimed in more than one state; and the treatment of a buy-back under section 69 of the Income-tax Act, 2025, which is the third treatment applied to buy-backs in three years. Deal timelines are practitioner observations rather than statutory periods, and market practice on escrows, earn-outs, indemnity caps and option acceleration is described as practice and never as law. Any provision, form, threshold, rate or deadline that decides a filing should be verified against the current text on the Ministry of Corporate Affairs, Central Board of Direct Taxes, Competition Commission of India, Reserve Bank of India and Securities and Exchange Board of India portals. Consult a qualified lawyer, company secretary or chartered accountant before acting on anything set out here.
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