Merger & Amalgamation Structuring: Who Needs It and Who Does Not
Whether Merger & Amalgamation Structuring applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Merger & Amalgamation Structuring page.
Does a merger/amalgamation attract capital gains tax?
If the amalgamation satisfies the statutory conditions carried forward from the former Section 2(1B) of the Income-tax Act 1961 into the Income Tax Act 2025 — all properties and liabilities of the transferor vest in the transferee, and shareholders holding not less than three-fourths in value of shares in the transferor become shareholders of the transferee by virtue of the amalgamation — then it qualifies as a tax-neutral amalgamation. No capital gains tax arises on the transfer of the transferor's capital assets to the transferee under the exemption carried forward from the former Section 47(vi), and shareholders receiving transferee shares in exchange for transferor shares are also exempt from capital gains under the exemption carried forward from the former Section 47(vii), subject to conditions. If these conditions are not satisfied, the transaction can be treated as a taxable transfer, attracting capital gains tax on the deemed consideration.
In practice: We test these tax-neutrality conditions rigorously before any scheme is finalised — this is not a formality. Schemes drafted without CA involvement can inadvertently fail the three-fourths shareholding continuity test because of how minority shareholders or dissenting shareholders are treated in the share-swap mechanism. We also confirm the current provision numbering under the Income Tax Act 2025 as part of this review, rather than citing the legacy 1961-Act section numbers as if they still applied verbatim.
Does the Competition Commission of India (CCI) need to approve our merger?
Only if the transaction meets the asset or turnover thresholds prescribed under the Competition Act 2002 and the Combination Regulations — these thresholds are based on the combined assets or turnover of the parties (and, in some cases, the group), measured in India and worldwide, and are revised periodically. If the thresholds are met, CCI approval (via Form I or the more detailed Form II) is mandatory before the combination takes effect, and failing to notify can attract penalty. Many intra-group amalgamations and small-company mergers fall well below these thresholds and require no CCI filing at all.
In practice: We check CCI applicability as part of pre-scheme structuring — the current thresholds change periodically via government notification, so we verify against the prevailing notified figures for each transaction rather than relying on a remembered number, and coordinate with competition law counsel when a filing is triggered.
Can an Indian company merge with a foreign company?
Yes — cross-border mergers are permitted under Section 234 of the Companies Act 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, and are subject to RBI's cross-border merger regulations under FEMA. Both inbound mergers (a foreign company merging into an Indian company) and outbound mergers (an Indian company merging into a foreign company, subject to RBI's specified conditions and jurisdictional restrictions) are permitted, but outbound mergers require the foreign transferee company to be incorporated in a jurisdiction whose securities market regulator or banking regulator is a signatory to specified international regulatory memoranda, among other conditions.
In practice: Cross-border mergers are among the most complex transactions we handle — they layer FEMA cross-border merger regulations, RBI reporting, transfer pricing, and potentially the foreign jurisdiction's own merger control regime on top of the standard NCLT process. Our Dubai office is directly useful here for India-UAE group restructurings.
Do existing licences and government approvals of the transferor automatically transfer to the transferee?
Generally, yes — the NCLT sanction order vests all assets, rights, and liabilities of the transferor in the transferee 'by operation of law,' which is intended to include licences, permits, and contracts without needing individual transfer instruments. In practice, however, certain sector-specific licences (for example, in banking, insurance, telecom, or specific state-level trade licences) may require the transferee to file an intimation or seek fresh approval from the specific regulator, notwithstanding the scheme's general vesting language — the regulator's own governing statute can impose additional requirements.
In practice: We build a licence-by-licence checklist during pre-scheme structuring rather than assuming blanket automatic transfer. Operating on an assumption that a critical licence transferred automatically when the specific regulator actually required a fresh application is a real and recurring operational risk we work to prevent.
Is a statutory audit still required for the transferor company up to the appointed date?
Yes. The transferor's financial statements up to the appointed date (or the last financial year-end preceding it) must still be audited in the ordinary course, and this audited balance sheet typically forms the basis referenced in the scheme filing (NCLT Rules generally require financials not older than a specified period, commonly six months, from the date of filing). Post-appointed-date, the transferor's transactions are given effect in the transferee's books per the scheme, but the pre-merger audit trail remains a statutory requirement, not something dispensed with because a merger is pending.
In practice: We continue full statutory audit discipline for the transferor right up to its last independent financial year — a client sometimes assumes that because a merger is 'in progress,' normal compliance can be relaxed. It cannot, and doing so creates gaps that complicate the appointed-date reconciliation.
What is the role of the Registered Valuer in a merger, and is it mandatory?
A Registered Valuer, empanelled under the Companies (Registered Valuers and Valuation) Rules 2017 and regulated by IBBI, is generally required to determine the fair value used for the share exchange ratio in a scheme of amalgamation, particularly for unlisted companies. For listed entities, valuation is typically conducted or reviewed by a SEBI-registered Merchant Banker per SEBI's specific circulars on schemes involving listed companies. An independent, appropriately qualified valuation is a practical necessity for the scheme to be sanctionable — NCLT and objecting parties scrutinise the valuation basis closely.
In practice: We work with a panel of Registered Valuers and Merchant Bankers we have long-standing working relationships with, selected based on the specific sector and transaction type — valuation quality genuinely varies, and a rushed or generic valuation report is a false economy in a scheme that will be examined by the Tribunal.
Does a merger affect existing loan agreements or require lender consent?
Most loan and credit facility agreements contain change-of-control, restructuring, or merger-consent clauses that require lender consent before, or notification upon, a scheme of amalgamation. Even where NCLT can, in principle, dispense with a formal creditors' meeting for secured lenders whose interests are adequately protected, the underlying facility agreement's contractual consent requirement is independent of the NCLT process and must be separately obtained — failing to do so can trigger an event of default under the facility agreement regardless of NCLT sanction.
In practice: We review material facility agreements for change-of-control and merger clauses at the very start of the engagement — this is a step some scheme drafts skip until late in the process, by which point renegotiating lender consent under time pressure weakens the company's negotiating position.
Is a special resolution or ordinary resolution required for shareholders to approve a merger scheme?
The scheme must be approved by shareholders (and creditors, where a meeting is directed) by the statutorily prescribed majority under Section 230(6) — a majority in number representing three-fourths in value of the shareholders (or creditors, as the case may be) present and voting at the meeting, whether in person or by proxy. This is distinct from, and generally a higher bar than, an ordinary board resolution threshold, reflecting the significance of the transaction to shareholders' rights.
In practice: We model the likely voting outcome before the meeting is convened wherever the shareholder base includes minority or potentially dissenting holders — surprises at the meeting stage, after months of drafting and filing work, are avoidable with early shareholder engagement.
Does a merger require approval from SEBI if one of the companies is listed?
Yes. Schemes involving a listed company must comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and SEBI's specific circulars governing schemes of arrangement — this includes obtaining a No-Objection Certificate / Observation Letter from the stock exchanges (who in turn seek SEBI's comments) before the scheme is filed with NCLT, and specific pricing and disclosure norms for share allotments to shareholders as part of the scheme. NCLT will typically not sanction a scheme involving a listed entity without this stock exchange observation letter process having been completed.
In practice: The SEBI/stock exchange observation process for listed-entity schemes has its own distinct timeline and documentation requirements that run before the NCLT filing, not alongside it — we sequence this correctly from the outset for any engagement involving a listed transferor or transferee.
Where this sits in the wider engagement
Merger & Amalgamation Structuring rarely arrives on its own. The statutory basis and the current requirements are set out on the Merger & Amalgamation Structuring service page, and the related services are grouped under Corporate Finance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Merger & Amalgamation Structuring we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.