Recalibrating Section 233: Fast-Track Restructurings, Demergers, and Minority Protection

[Sarthak is a student at Jindal Global Law School.]

Following the framework proposed by the JJ Irani Committee (2005), Section 233 of the Companies Act 2013 was designed to carve out a streamlined, tribunal-free “fast-track” route for certain mergers/amalgamations, including between small companies and specified holding–subsidiary combinations. The underlying assumption was that certain intra-group mergers, especially those in wholly owned or tightly controlled environments, were not related to any public-interest issues and could proceed without judicial sanction. Nonetheless, the trade-off for bypassing the National Company Law Tribunal (NCLT) was set high: approval from members holding at least 90% of the total number of shares (i.e., total issued shares) and from creditors representing 90% in value.

This capital-based unanimity threshold presupposed that eligible companies would be held closely, unanimous, and valuation-benign. However, the unchanged 90% “total issued shares” denominator makes fast-track either unworkable, through non-participation vetoes, or under-protective for value-sensitive demergers. Section 233 acts as an exception to the Sections 230–232 scheme route, with the process operated by the Central Government through Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 and the relevant Regional Director (RD). The key design choice lies in the denominator. Section 233(1)(b) requires the approval by members holding collectively “not less than ninety per cent of the total number of shares” of each company, connecting to the threshold to total issued shares, not merely to “votes cast” at a meeting. 

What the 2025 Amendment Rules Change

Rule 25(1A) under Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2025 significantly enlarges the fast-track regime. The eligibility is now extended to: (i) mergers between unlisted companies (other than Section 8 companies), where each company has outstanding loans, debentures and deposits below INR 200 crore and no defaults, certified in Form CAA-10A on a date within 30 days before notice and again on the date of filing; (ii) holding–subsidiary mergers (not limited to wholly owned subsidiaries), subject to the proviso excluding listed transferor companies; (iii) mergers among subsidiaries of the same holding company, subject to the proviso excluding listed transferors; and (iv) mergers of a foreign holding company (transferor) into its Indian wholly owned subsidiary (transferee).

Notably, Rule 25(9) applies the Rule 25 fast-track framework to a “scheme of division or transfer of undertaking” under Section 232(1)(b). Also, it allows the Central Government, when confirming such a scheme, to make provisions which correspond to all or any matters specified in Section 232(3)(a)–(j), to the extent applicable. This expansion widens the base, but Section 233’s shareholder-consent denominator remains unchanged: approval by members holding at least 90% of the total issued shares, not 90% of votes cast. The resulting “90% problem” raises two significant issues: it can block restructurings through non-participation where minority blocks are real and can permit tribunal-free implementation where controllers already exceed 90% even in value-sensitive reallocations.

Consequently, Company Law Committee (CLC) Report March 2022 recommended replacing the 90% total-issued-shares gate with a twin test: a special majority based on votes cast, along with a capital floor requiring approving shareholders to represent more than 50% of total share capital. Given the statutory wording, the 90% requirement operates as a hard threshold and is not easily subject to administrative relaxation. Post-2025, fast-track schemes now apply to companies with shareholding structures far from the original assumptions. A typical configuration might involve 80% holding by a parent, 15% by a venture-capital investor, and 5% by ESOP holders.

Even in the cases where parent and employees unanimously vote in favour, the approval will still reach only till 85%. A passive or unreachable 15% block can thus defeat the fast-track route irrespective of merit, not even through substantive opposition but simply by non-engagement. This turns everyday cap-table realities into a legal barrier, rewarding inertia rather than deliberation.

The mirror image is under-protection where controllers already exceed 90%. In such cases, minorities below the 10% line may have limited ex ante leverage to test valuation or structure through an NCLT sanction hearing. This is specifically acute for demergers, where the allocation of assets, liabilities, intellectual property and cash flows can reallocate value across entities in a conflict-prone way within corporate groups. The regime is therefore asymmetric, while fast track mergers can be blocked by minorities above 10% through non-participation, the minorities below 10% may be carried into tribunal-free value reallocations with limited timely leverage.

Minority Protection in a Tribunal-Free Space

Under Sections 230–232, scheme jurisdiction is situated in fairness scrutiny. The cases of Miheer H Mafatlal v Mafatlal Industries Limited (1997) and Hindustan Lever Employees’ Union v. Hindustan Lever Limited (1995) lay down that sanction is not a mechanical recording of majority will and must satisfy fairness to the class concerned. Section 233 removes that ex ante sanction stage. The RD’s role is mainly administrative; verifying formal compliance, processing regulatory objections, and if the Central Government forms the Section 233(5) opinion, public interest/creditors’ interest, it may, within sixty days of receipt of the scheme, file before the NCLT for consideration under Section 232.

In Asset Auto India Private Limited v. Union of India (2024) , the Bombay High Court held that if the Central Government, through the RD, forms the opinion outlined in Section 233(5), it cannot outrightly reject a fast-track scheme. It must proceed by filing an application before the NCLT so the scheme is considered under Section 232. Though Rule 25(1A) excludes listed transferor companies, it does not necessarily exclude a listed transfer, even in scenarios where the transferor is not listed, listed-company/stock-exchange compliance may still be engaged.

In any case, the route remains RD-driven and does not involve an ex ante NCLT sanction hearing as the primary fairness checkpoint. That said, Section 233(6) allows the Central Government or any person to apply to the Tribunal, which may then direct that the scheme be considered under Section 232. Minorities are thus left with post-facto remedies. Oppression and mismanagement petitions are fact-intensive and slow, making them an imperfect tool for time-sensitive valuation disputes. Sections 235–236 operate once a 90% threshold is met and do not provide a standard pre-closing exit right in fast-track restructurings.

In a demerger, the risks further amplify. Allocation of assets, liabilities, intellectual property, and cash flows significantly affects shareholder welfare. Yet under Section 233, these redistributive effects face no ex ante judicial scrutiny. A 7% institutional investor may find itself stranded in a low-growth entity while promoters consolidate control over the high-growth vehicle, without any statutory appraisal right or an ex-ante NCLT sanction hearing under Sections 230–232. The absence of a fairness forum is not merely procedural, it is linked to core principles of corporate governance and minority protection.

A Targeted Reform Package

A reasonable reform strategy should combine targeted amendments to Section 233 and the use of the delegated rule-making power under Section 233(12). The most important change could be to replace the 90% total-issued-shares gate with the CLC’s twin test by adopting votes-cast special majority plus a capital floor. As a result, non-participation vetoes would be neutralized while also preserving a minimum representational stake. 

Procedurally, Rule 25 could permit written shareholder consents and e-voting and empower the RD to dispense with meetings where verified consents meet the threshold. Further, as the Rule 25(4) requires a registered valuer’s report, tribunal-free schemes could be reinforced by including baseline fairness safeguards through clearer valuation scoping, conflict disclosures, and an independent fairness certificate where related-party features are present. 

Also, a limited “appraisal-lite” mechanism can serve as a pressure release valve, permitting the dissenting minorities an option without hindering the transaction. The eligibility could be limited to non-promoter shareholders that hold at least 1% of paid-up capital or shares of a prescribed minimum nominal value, along with a short election window such as 15 days of shareholder approval. Those dissenting could be given an option at a fair value determined by a registered valuer. Alternatively, if the dissenters at least 5% of the share capital so elect, the scheme could be required to shift to the NCLT route. This would initiate a full fairness review under Sections 230–232. Further, a tight eligibility criterion and a short election window would be essential to prevent hold-up in otherwise consensual restructurings. 

Conclusion

The 2025 amendments position Section 233 at the core of India’s intra-group restructuring landscape. However, the unchanged 90% threshold which is anchored in a bygone ownership model, hinders the workability of the fast-track mergers. The rigid unanimity requirement is unfit to venture-capital cap tables, ESOP pools, and dispersed minorities, especially when the regime today extends to value-sensitive reorganizations like demergers. A practical way forward lies in adoption of the CLC’s twin test and formalizing the flexible consent mechanics and fairness safeguards and introduction of a tailored appraisal-lite exit right. These reforms would allow Section 233 to function in a credible and efficient manner, intra-group M&A, while also delivering speed without sacrificing minority protection.