Merger, demerger, scheme

Category: Corporate Advisory. From ₹49,999. Typical timeline: 3–6 months.

Overview

Corporate restructuring covers legal reorganisations of a company's structure — mergers, demergers, slump sales and schemes of arrangement — undertaken to separate business lines, consolidate group entities, bring in new investors, or achieve tax and operational efficiency, executed through the National Company Law Tribunal (NCLT) process under the Companies Act, 2013. Kanoons structures the transaction, prepares the scheme of arrangement, and manages the NCLT filing and approval process from petition to final order.

Who needs it

• A group wanting to separate a loss-making or unrelated division from its core business
• Two group companies wanting to merge to simplify structure ahead of a fundraise or listing
• A promoter family wanting to demerge business units among successors
• A company selling a specific business undertaking through a slump sale rather than individual asset transfer

Eligibility

• Companies wanting to merge with or into another group entity
• Businesses wanting to demerge a division into a separate company
• Groups wanting to consolidate multiple entities or hive off a business through slump sale
• Companies undertaking restructuring as part of a larger investment or succession plan

Documents required

• Audited financial statements of all companies involved
• Draft scheme of arrangement/merger with share exchange ratio (if applicable)
• Board and shareholder/creditor resolutions approving the scheme
• Valuation report supporting the share exchange ratio
• Registered office details and list of creditors of each company

Process

1. Structuring & valuation — Transaction structure (merger/demerger/slump sale) is finalised and a valuation report determines the share exchange ratio.
2. Scheme drafting — A scheme of arrangement is drafted covering appointed date, share swap, treatment of employees, and effect on creditors.
3. Board & shareholder approval — Board approves the scheme, followed by shareholder and creditor approval where required, and regulatory NOCs (RD, Income Tax, stock exchange if listed).
4. NCLT filing — The scheme is filed before the jurisdictional NCLT bench along with supporting affidavits and disclosures.
5. Hearing & sanction — NCLT issues directions for meetings (if required), hears objections from Regional Director/Official Liquidator, and passes a final sanction order.
6. Post-sanction filing — Certified copy of the order is filed with the Registrar of Companies to give effect to the scheme.

Government fees

• NCLT filing fees: ₹5,000–₹25,000 per company depending on the specific application/petition filed
• RoC filing fees (INC-28, etc.): Based on authorised capital slab of the companies involved
• Stamp duty on the scheme: Varies significantly by state and can be a material cost, often 5-10% of the value of assets transferred in some states

Professional fee

Starts at ₹49,999 depending on the number of entities involved and complexity of the scheme; covers structuring advice, scheme drafting, and coordination of the NCLT process end to end.

Timeline

A straightforward merger/demerger scheme typically takes 3–6 months from filing to NCLT sanction, though objections from regulators or creditors, or a busy NCLT bench, can extend this to 8-9 months or more.

Deliverables

• Scheme of arrangement document
• NCLT petition and supporting affidavits
• Certified copy of NCLT sanction order
• RoC filing acknowledgment giving effect to the scheme

Frequently asked questions

How long does an NCLT merger process usually take?

It typically takes 3–6 months for a straightforward scheme between group companies, but can extend significantly if the Regional Director, Income Tax authorities or creditors raise objections.

Is a fast-track merger process available?

Yes, Section 233 of the Companies Act provides a fast-track merger route for small companies, wholly-owned subsidiaries and certain other specified companies through the Regional Director instead of NCLT, which is generally quicker.

Are mergers tax-neutral in India?

Amalgamations and demergers meeting the conditions prescribed under Sections 2(1B) and 2(19AA) of the Income-tax Act, 1961 can be structured to be tax-neutral for the companies and shareholders involved.

Common mistakes

• Not obtaining an independent valuation to support the share exchange ratio, inviting shareholder or NCLT objections
• Structuring the scheme without checking whether Income-tax Act conditions for tax-neutral amalgamation/demerger are met
• Overlooking stamp duty implications in the state where the scheme will be given effect, which can be a significant unbudgeted cost
• Underestimating the timeline and starting the process too close to a funding or transaction deadline

Penalties for non-compliance

• A scheme that does not meet the statutory conditions for tax-neutral amalgamation/demerger can trigger capital gains tax on the transaction
• Failure to obtain requisite creditor or regulatory NOCs can delay or derail NCLT sanction entirely
• Post-sanction non-filing with the RoC means the scheme does not take legal effect against third parties

Legal references

• Companies Act, 2013 (Sections 230–232, 233) — governs schemes of arrangement, mergers and fast-track mergers
• Income-tax Act, 1961 (Sections 2(1B), 2(19AA), 47) — governs tax-neutral treatment of amalgamations and demergers
• Indian Stamp Act, 1899 and state stamp acts — govern stamp duty on transfer of assets/undertakings under a scheme
• Competition Act, 2002 — relevant where the combination crosses notified asset/turnover thresholds requiring CCI approval